Social Return on Investment Not Exploited by NFPs

Social Return on Investment (SROI) is a hot topic yet many charities and funders do not fully understand how SROI works or whether it is a tool they should be using it, according to UK Think Tank, New Philanthropy Capital (NPC).

Lucy Heady, Head of Measurement at NPC says SROI can be seen as a type of economic analysis closely related to cost-benefit analysis. 

Heady says it focuses on listening to stakeholders and identifying the outcomes that are important to them, and then putting a financial value on these outcomes.

However she argues, in a new NPC Position Paper, that the full potential of SROI is currently not being exploited by the Not for Profit sector.

Firstly, Heady says 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.  

And secondly, she says low levels of evidence in the charity sector hold SROI back from being adopted more widely. 

New Philanthropy Capital says 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. 

It says 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.

Lucy heady says the most common question she gets asked is ‘should I do an SROI?’. 

She says people are attracted to the sexy number at the end: £2.50 of value created for every £1 put in. But they often don’t realise how big an undertaking an SROI is. 

She says for SROI to work the whole organisation needs to be bought into the process and be prepared to set up robust measurement systems.

The NPC Position Paper can be downloaded (free login required) at  http://www.philanthropycapital.org/publications/improving_the_sector/charity_analysis/SROI_position_paper.aspx