How to Measure Social Return on Investment
In an increasingly competitive funding environment, the importantance of measuring social impact for chairities and non profit organisations alike cannot be understated.
So how do you measure social return on investment?
The key here is to first quantify the impact of your work, and then assign a monetary value to this. This is then compared with the cost of your activities, to determine the return on your initial investment.
Of course, this is easier for some organisations than others. This all depends on the kind of work you do. For example, it is much easier to quantify jobs creation in your local community than it is to do the same for local wellbeing goals.
Let’s start with the basics.
What is Social Return on Investment?
Social return on investment is the ratio of the change that you achieve to what this costs. This might be in terms of social, economic, environmental or any other goals. In other words, social return on investment is a comparison of your inputs and outputs.
Of course, the first step to this is being able to accurately quantify your outcomes and your costs, before assigning a monetary value to them.
There are two key goals here:
To demonstrate the value your work provides, in order to obtain support,
To find opportunities to improve your work, and ultimately maximise your social return on investment.
As such, this is crucial for the ongoing success of all third sector organisations.
Forecasting and Evaluating Social Return on Investment
It’s also important to understand when you need to measure social return on investment. Essentially, there are two situations where this comes into play:
While planning a project,
After the completion of a project.
These two applications of social return measurement are known as forecasting and evaluation.
Let’s take a look at each in turn.
Forecasting Social Return on Investment
Forecasting social return on investment is all about predicting the outcomes of your project. This is often conducted as part of the project planning process, as well as when bidding for funding.
In essence, forecasting social returns means three things:
Deciding on the factors you’ll measure your success against,
Operationalising these factors in terms of measurable data, against which you can place a monetary value,
Deciding how best to leverage your resources to achieve the maximum return on investment.
Evaluating Social Return on Investment
By contrast, evaluation is conducted after the completion of a project. Here, the metrics for success should have been defined at the beginning of the project. The goal of evaluation is simply to compare your expected outcomes, with the actual impact you’ve achieved.
Ideally, you would have forecasted your expected returns at the outset of the project.
Even if you haven't, it's crucial to set objectives and key performance indicators at the outset of all projects, in order to properly evaluate your performance. This allows you to assess the success of your project in comparison to your initial expectations.
How to Calculate Social Return on Investment
So far, we’ve covered the theory behind social return on investment, why it matters, and when it should be calculated. Next, let’s take a look at the concrete steps you need to take to measure social returns in the third sector.
There are five steps to this process. These are:
1. Determining Your Scope and Stakeholders
In all third sector projects, identifying your stakeholders is crucial. These can be:
The people for whom you want to affect social change,
Any stakeholders with overlapping aims,
Bodies and organisations which you will need to buy into your project.
Beyond this, determining the scope of your project means:
Deciding the exact level at which you’d like to make an impact,
Defining the extent and type of impact you would like to have.
Let’s take an example.
Say you run an educational charity. If you want to improve educational attainment in your local area, the different stakeholders you’ll need to engage include teachers, pupils, parents, civic society, local government and other community leaders.
There are also a number of different levels to approach educational attainment from. For example, you might choose to focus on literacy and numeracy in younger pupils, engagement in post-primary education, or funding for extracurricular activities.
You're unlikely to be able to tackle all elements of educational attainment, so it’s important to have a tighter focus.
2. Defining Your Outcomes
Next, it’s time to define your outcomes. The better you define your scope, the easier this will be. Really, defining your outcomes is all about deciding which variables you’re going to measure to your success.
Let’s keep going with our education example.
Our ultimate goal is to improve educational attainment, but what specific variables are we going to look at? Deciding this is a process known as conceptualisation.
In our example, you could approach educational attainment in terms of grades, attendance, future prospects, pastoral care, inclusivity, funding, and countless other variables. Again, the more tightly you’ve defined your scope, the easier it will be to select appropriate variables.
3. Operationalising Your Outcomes
The next stage of measuring social return on investment is operationalising your outcomes. That is, deciding how you’re going to measure the variables you’ve selected. This can comprise:
Qualitative methods - Such as surveys, interviews, focus groups etc.
Quantitative methods - Such as numerical data gathering and monitoring.
For either of these, you’ll then need a framework for mapping this on to a monetary value. The key here is establishing a clear causal link between the variables you’re measuring, and monetary impact.
This can be done using either original or existing research.
For example, if you were measuring the social return on investment of an educational project, and you chose to focus on attendance, then you could map this to the future earnings potential of young people, based on their school attendance.
4. Calculating Your ROI
Once you have operationalised and measured your key variables in monetary terms, you can then use these figures to calculate your return on investment. Luckily, this is a fairly simple process.
All you need to do is divide the value of the outcomes of your project by the total costs.
This will provide you with your social return on investment ratio.
That way, you’ll know exactly how much return you can expect from any given investment, with a simple and repeatable formula.
5. Analysing, Reporting and Using Social ROI Data
The final stage to measuring social return on investment is actually using the data you’ve created. There are three components to this:
Performance improvement and optimisation.
Essentially, all of these relate to maintaining credibility for your stakeholders, funders and supporters. You can also compare social return on investment across different projects, to identify optimisation opportunities and best practices.
S3 Solutions are experts at planning and implementing projects which deliver strong social return on investment. Speak to our team today to find out more about how we can help you make an impact in your community.