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FINANCE AND SUSTAINABILITY
Thomas Lagoarde-Segot, PhD, HDR
The Social Return on Investment (SROI) methodology
Measuring impact
The objective of the SROI analysis is to measure the global performance of a business or an investment project. It can be evaluative (ex-post) or predictive (ex ante).
The process consists in the following steps:
Establishing the scope of the analysis
Identifying all stakeholders
Developing an impact map
Putting a value on the nonfinancial outcomes
Measuring the impact
Calculating the SROI
The social return on investment (SROI) methodology
Establishing the scope of the analysis
1. Purpose
What is the purpose of this SROI analysis? Why do you want to begin this process now? What are the specific motivations for the analysis: strategic planning, access to funding…?
2. Audience
Who is this analysis for? What is the best way to communicate with the audience? 
3. Background
What are the aims and objectives of your organization? How it is trying to make a difference? It is important to be explicit about what your organisation does and what it hopes to achieve through its activities. 
4. Resources
What resources, such as staff time or money, will be required for the analysis? Are these available?
5. Who will carry out the work?
Can you undertake the SROI analysis internally, or will you need to bring in external resourves? Make sure you have the right mix of skills and support from the start. Generally, you will need skills or experience in finance, accounting, evaluation, and in reaching out to /involving stakeholders.
Establishing scope
6 The range of activities on which you will focus
Will you be analysing all the activities of your organisation, or just specific ones? You might want to separate the activities related to a particular source of funding, or those that are a priority for you. Keep your scope small if it is the first time you are doing an SROI analysis. 
7 The period of time over which the intervention will be considered
SROI analysis is often annual, corresponding with annual financial accounting timescales. This can vary. For instance, a commissioner may want an evaluation of a specified timescale.
8 Whether the analysis is a forecast or an evaluation
If this is your first SROI report it will be much less time-consuming to prepare a forecast than to conduct an evaluative SROI analysis, unless you have the right outcomes data available. Otherwise, a forecast SROI analysis will help you to put in place a measurement framework so that you can come back to do evaluative SROI in the future.
2. Identify stakeholders
Stakeholders are defined as people or organisations that experience change, whether positive or negative, as a result of the activity being analysed. Example of stakeholders include:
Employees
Individual customers
Other organisations (B2B)
Members of the local community
Project participants
The family members of project participants
Government bodies
Taxpayers
Etc..
SROI analysis seeks to identify how much value has been destroyed or created and for whom.
2. Identify stakeholders
8
3. Mapping outcomes
This step documents how the activities under scrutiny use resources (inputs) to deliver activities (measured as outputs) that result in outcomes for all stakeholders:
Identifying input (i.e. financial resources needed to start the project)
Identifying output (quantitative summary of the activity)
Collecting outcome data
4. Describing outcome (results)
SROI is an outcomes-based measurement tool: measuring outcomes is the
only way you can be sure that changes for stakeholders are taking place. Be careful not to confuse outputs with outcomes.
Identifying output and outcome
Establishing how long outcome lasts
Collecting outcome data
4. Putting a financial value on outcomes
This process of valuation is often referred to as monetization because it consists in assigning monetary value to things that do not have a market price. There are several methods available for this:
Impact on costs and income: (medical expenses avoided, income gain of an individual getting a job...)
Continent valuation method (assessing people’s willingness to pay for a hypothetical thing)
Ex: ask interviewees to value a decrease in aircraft noise in their town (i.e. the amount they would be willing to pay for this to happen). Conversely, you may ask them what financial compensation they would require to accept to live in a neighborhood with an increased crime rate.
Revealed preferences method (infer valuations from the prices of related market traded goods)
For example, it can help us value clean air (and the cost of pollution) by estimating the difference in the price of house prices located in areas with clean air compared to the price of otherwise identical houses in polluted areas.
 
4. Putting a value on the outcome
This process of valuation is often referred to as monetisation because we assign a
monetary value to things that do not have a market price. There are several methods available:
4. Travel costs method
People are generally willing to travel some distance to access goods and services on which they place a value. This inconvenience can be translated into money to derive an estimate of the benefits of those goods and services. 
This step seeks to measure whether observed outcome result from the project. How much of the outcome would have happened anyway?
Deadweight: a measure of the outcome that would have been observed even if the activity did not take place.
For instance a regeneration program found that there has been a 7% increase in economic activity since the program began. However the national GDP growth is 5%. Therefore some the observed increase in economic activity is due to macroeconomic trends rather than the programme.
Attribution: a measure of how much of the outcome is due to the actions taken by other institutions. It corresponds to the part of deadweight for which you have better information and where you can attribute outcome to people or organizations
Calculating the impact
 1. Multiply the financial proxy by the value of the outcome indicator
 2. Substract deadweight and attribution
 3. Add up individual impacts to yield the total impact
 
5. Establishing impact
5. Calculation of the SROI
Discount rate: 3% (inflation rate)
Deadweight: 10%
Attribution: 35%
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
a. Inputs
-1000
b. Financial proxy
50
50
50
50
50
c.Outcomeindicator
10
9
8,1
7,29
6,56
d. Gross social value (bxc)
500
450
405
364,5
328
e. Deadweight (10% x d)
50
45
40,5
36,45
32,8
f. Net social value (d - e)
450
405
364,5
328,05
295,2
g. Attribution (35% x f)
157,5
141,75
127,575
114,8175
103,32
h. Total impact (f-g)
292,5
263,25
236,925
213,2325
191,88
NPV@3%
103,91
SROI (i/a)
10,39%