Social Return on investment (SROI) is a hot topic at the minute. Yet many charities and funders do not fully understand how SROI works or whether it is a tool they should be using. This paper explains what SROI is, explores some common misconceptions, and helps organisations to think about whether it is a technique they should pursue.
Social return on investment for funders
SROI can be seen as a type of economic analysis closely related to cost-benefit analysis. It focuses on listening to stakeholders and identifying the outcomes that are important to them, and then putting a financial value on these outcomes.
As a leading voice in the field of charity effectiveness, NPC has been asked several times for our perspective on SROI , which is why we have written this position paper. The paper sets out our position on how and when SROI is most useful, based on our experience of working with charities and on our understanding of SROI in principle and practice. It discusses what NPC sees as the defining characteristics of SROI and seeks to clarify and set straight some common misunderstandings. The paper covers:
- What is SROI?
- Common misconceptions about SROI
- Should I do an SROI?
- Using elements of the SROI framework
- Areas for development
We argue that the full potential of SROI is currently not being exploited. Many charities that calculate their SROI see it only as a fundraising tool, rather than a management tool that could help them learn where their impact is greatest and how they could improve their activities. Low levels of evidence in the charity sector hold SROI back from being adopted more widely. SROI is an approach that demands evidence and helps charities think through where more evidence is needed, but it does not tell charities how to collect this evidence. SROI will not be an option open to more charities and funders until there is more investment in improving the evidence base of the sector.
For SROI to work the whole organisation needs to be bought into the process and be prepared to set up robust measurement systems.