Essay Example on Social Return on Investment

Published: 2021-01-25
Essay Example on Social Return on Investment
Categories:  Finance Society
Pages: 4
Wordcount: 956 words
8 min read

The analysis tool Social Return on Investment (SROI) has gained usage in recent times. The term has found revolutionary importance to the foundations, private investors, philanthropists, government agencies, academics, private social services, and other nonprofits working to help communities (Scholten, 2006). SROI is an innovative approach to measuring the value of social outcomes in human services initiatives.

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The SROI concept was derived from business and economics as it builds on cost-benefit analysis, social accounting, and social auditing to measure and communicate the value of both monetary and nonmonetary program outcomes. Robert Enterprise Development Fund (REFD) first developed SROI. In 1997, REFD was undertaking research to track and analyze the impact of San Francisco Bay Area, a non-profitable organization, and their twenty-three social purpose enterprise began (Oster, Massarsky & Beinhacker, 2004). Employing individual with the range of disadvantages the enterprise serves a dual purpose: to provide market driven goods and services to the customers, and to provide supportive training and work environment for individuals who wish to improve their lives. The SROI developed by the REFD was an approach to assess the impact versus the cost of these social purpose enterprises. The SROI concept brought to an end the confusion by the organizations on how they could measure the social impact of its activities. SROI replaced the old method of considering simple costs and prices and cost incurred by the organization with a much broader concept of value analyzer.

SROI has become an important tool for the organization in measuring their full impact on the communities surrounding it. As a result, several organizations have committed themselves to develop the key guideline on how the SROI should be done by the companies and other stakeholders. The organization spearheading efforts in improving and formulating SROI are the REDF, Social Enterprise Strategies (SES), Community Economic Development (CED) and the New Economic Foundation (NEF). These four organizations have played a major role in the formulation and supporting of the SROI initiatives.

CED is a community-led action that creates economic opportunity while enhancing social; and environmental conditions. CED is driven by the acknowledgment that complex community challenges require comprehensive and integrated responses (Greiling, Eichhorn & Macdonald, 2013). CED initiatives strengthen individual resilience and self-reliance while providing a cost effective alternative that reduces medium and longer-term pressure on public expenditure. Therefore, CED efforts result in stronger local economies, reduced poverty, healthier people, and more sustainable communities with greater control over their future.

CED has over time attracted success in its initiatives through the following projects. Firstly, CED provides microloan program to immigrants in Canada. The loan helps the immigrant in acquiring the Canadian accreditation and training needed to work in their field of expertise (Greiling, Eichhorn & Macdonald, 2013). Therefore, they can move to higher paying jobs and improve their lives. Secondly, CED fights the levels of illiteracy in the community through the learning enrichment foundations. The program also provides employment skills to youths in their field of construction and computer technology. Lastly, CED has a program that is specifical, made for women. The women get access to low-interest loans and other development support to help in improving their lives.

REDF is a private charitable foundation whose mission is to help people move out of poverty. REDF was the first organization to formulate SROI guidelines. DEDF measure SROI through analysis of several concepts. The value concept comprises of the economic, social, and socio-economic value (Oster, Massarsky & Beinhacker, 2004). The DEDFs SROI approach focuses on the measurement of economic and socio=economic value. Economic value is monetized via the Enterprise value while the socio-economic value is monetized via the social purpose value. The two are blended to get the enterprises blended value.

NEF has previously explored the use of SROI with seven Adventure Capital Fund investments, to understand better their outcomes and impacts (Diochon, 2003). Since 2003, NEF has made some modifications to the SROI methodology to achieve better results. The outcomes of the modifications have been simplified to four components. Firstly, emphasis on stakeholder engagement is crucial in determining the SROI according to NEF. The identification of the positive or negative outcomes helps the organization to understand the social value they are creating (Diochon, 2003). Secondly, NEF has made a more wholesome analysis of the impact on an organization in relation to the material allocation. Thirdly, impact map is useful in the SROI measurement. The construction of the impact map is a crucial step in moving towards outcome based rather than output based measurement. Lastly, in the calculation of the impact, an organization must recognize the contribution made by others to the outcome (Diochon, 2003).

SES has been supporting the start-up and growth of small business and social enterprise for more than two decades (Etchart & Comolli, 2013). SES for the last one decade has been implementing the SROI methodologies, which has provided it with robust and independent verification of its achievements. SES successful model of enterprise development targets captures the imaginations of, and meets the need of the disadvantaged. The organization has been keen on helping those that are missed by mainstream agencies (Ridley-Duff & Bull, 2011). SES works with the believe that cooperation, self-help and entrepreneurialism are creative forces for change. Moreover, SES believes in being honest, accessible, approachable, and accountable. These features have helped the organization to influence fully the community (Etchart & Comolli, 2013).


Diochon, M. (2003). Entrepreneurship and community economic development. Montreal: McGill-Queen's University Press.

Etchart, N., & Comolli, L. (2013). Social enterprise in emerging market countries. Basingstoke: Palgrave Macmillan.

Greiling, D., Eichhorn, P., & Macdonald, H. (2013). Entrepreneurship in the public sector. Baden-Baden: Nomos Verlagsgesellschaft.

Oster, S., Massarsky, C., & Beinhacker, S. (2004). Generating and sustaining nonprofit earned income. San Francisco, CA: Jossey-Bass.

Ridley-Duff, R., & Bull, M. (2011). Understanding social enterprise. London: Sage.

Scholten, P. (2006). Social return on investment. [Amsterdam]: Lenthe.

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