Social ROI (SROI): How to Measure Social Impact Initiatives
In previous blogs, we’ve talked about how financial profit is no longer the only way to measure business success, but it’s often difficult to numerically calculate the success of a social impact initiative. While social impact is defined by providing real, human value that can’t be neatly measured, your company will still want a process to determine the actual impact of your social initiatives.
To calculate impact, let’s first consider the notion of investing into your social impact program. Social impact(s) are the societal and environmental changes that are fueled by activities and investments. An investment can be a commitment of time, expertise, material assets, network connections, reputation and/or other valuable resources, with the hope a future “return” on that commitment. To calculate the return on that commitment, we look for a Social ROI (SROI).
A critical framework question for SROI is: What problem are you trying to solve?
An organization needs to very clearly articulate what specific outcomes are desired and how you plan to produce them. The return you want to achieve could be in the form of reputation, branding, knowledge, experience, a specific social/environmental issue, and, if done right, financial profit for your company. Second, creating a list of specific objectives, such as the number of stakeholders you hope to impact, will help you better select filters and directions for your impact projects.
Another guiding question for your project is: What does success mean to you?
After identifying the problem your organization wishes to address, you need to consider the various approaches for solving it. These approaches can come in the form of innovation, service delivery, capacity building, research, advocacy, or infrastructure. You can ask some other significant questions to further hone in on your potential solutions:
- What is your target audience for the impact?
- Where is this audience in the lifecycle of the impact issue?
- How specific you want to get in solving the problem?
- Do you want to take on a particular cause, a selection of causes, or just aid in one solution to a cause?
Since social impact investments are so diverse and often have divergent goals, there is no single metric to measure Social ROI, but if you follow these steps and are fanatical with your measurements and definitions of success, you’ll bring more clarity to your impact investments and increase your chances of success. If you need help in brainstorming metrics for your social impact investment, The Global Impact Investing Network (GIIN), a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, offers IRIS, a catalog of performance metrics to help organizations track SROI.
Finally, there are many discussions about the financial ROI of social impact initiatives. Again, as diverse as social impact initiatives are, it’s difficult to present a clear answer to this conversation. However, GIIN has published a study that compares the financial performances of social impact investment funds with traditional ones. The ROIs between the two types of funds are quite comparable (and for sub $100 million funds, social impact funds outperform traditional ones).
Your financial returns are critically important, yet so are your social impact returns. A company’s long-term performance often depends on many intangibles beyond the financial bottom-line. i\If you explore novel ways to measure value creation, you’ll be better prepared for the changes coming in the new economy.
Maggie & Hector