Thursday, July 22, 2010

is SROI damaging our economy?

Social Return On Investment (SROI) is a tool that's gaining increasing credibility and acceptance through its ability to monetise the benefits that a project or intervention accrues to the wider community and society.

However, I wonder if this hasn't unintentionally led to a damaging of our economies – local and otherwise?

SROI calculates the financial value of benefits that have been created – in other words, how much cash has been saved that would otherwise have had to have been spent – cash that would have supported additional jobs, purchases of equipment and so on (those things that are used to measure the growth of our economy). From this perspective, the SROI figure therefore shows how far that organisation has 'limited' and constrained the economy.

Further, it also shows how concentrated the influence in the economy is within that single venture, highlighting the economy's reliance upon it - if it were to fail, then the 'shock' to the economy would be their turnover multiplied by their SROI figure.

So with the drive to make our local economies more resilient, SROI could then start to show us where the 'weak points' in our economies are...

So – if you use SROI and calculate a high figure – rejoice, but also be aware of the wider implications of what it may mean for your wider impact upon the economy, both local and national... alternatively, it could mean that we just need better tools to consider how we measure and understand the wider economy?


  1. Adrian, I have to admit to thinking that it was a measure of social impact, e.g. quantifying the number of people lifted above $2/day in the developing world.

    In another conversation today someone suggested the term Consequence of Investment (COI) to reflect this and I guess that would distinguish it from SROI.

    From what I've read of the Social Impact Bond, that impact is measured in monetary terms I know. An example given being that reducing the re-offending rate could reduce government costs.

    However the return for any SIB investor can only, I imagine, come from state funds which to me begs the question as to whether it's going to be a way for the wealthy to invest for state handouts?

    Better tools, yes. If social impat is measured in purely monetary terms then it's no better measure than the imagined numbers of wealth which led to the 2008 economic collapse.

    This is how we say it should be measured:

    "Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion. "

  2. Hi Adrian

    When considering SROI for specific programme or intervention I think there is a danger to jump straight from cost up to financial benefit to calculate SROI but missing out all the stpes in between.

    I have spent some time looking at the framework / model that the government are seeking to endorse and i fail to see how social enterprises / charities etc can successfully implement these models to evidence their ROI.

    For me, better tools do exist that build a chain of impact from intervetnion up to ROI taking into account learning, behavioural changes and impact.

    I think the key is to not focus on measuring SROI but to concentrate on measuring and evaluating impact on the steps that build up to ROI - the finacial measure should be seen as incidental to the impact.


  3. I think that the comments on SROI and Social Impact Bonds miss the important power of each of these tools.

    SROI is not just about saving money by not spending it on other things the purchase of which would promote economic growth. SROI allows you to see the true value of a social intervention e.g. preparing a young person for employment. The principle value is what the client gains from the intervention but the SROI analysis allows government and others to see how cost effective this intervention is. The point it to encourage government in particular to invest in that kind of intervention which will undoubtedly reduce spending on the negative effects of, in the example given, unemployment. In the medium term the funds released by good intervention can then be used to invest in society in ways which facilitate the growth which is rightly referred to as important. SROI is a good tool to make the argument for effective intervention which in turn releases funds in the future to promote economic growth.

    On Social Impact Bonds - you are right in that the investor receives their return from government funds but that does not make it a government hand out to the rich who can afford to invest. In reality there are hundreds of thousands of people in the UK who need the help and support which a well structured Social Impact Bond can provide. They will quite simply not receive that help in a consistent, sustainable, quality manner without financial tools like the Social Impact Bond. SINs are primiarily about serving people in need. To do that you hvae to have resources, at present those are in very short supply. The SIB is a mechanism to release resources through an investor. That investor takes a risk because payment is only made on definate results to there is a risk involved. In return for taking that risk the investor receives a return on his or her investment which is not the same thing as a state handout.

    Social Impact Bonds are likely to become a significant funding model going forward so it's important that we understand them appropriately at this point. They offer one of the most innovative and exciting possible ways forward to ensure genuine investment in quality sustainable service provision for some of the most vulnerable members of our communities and need to be understood in that light.

  4. What an interesting discussion!

    I wish to start a social enterprise, but believe that the best way to go about it is to attract stakeholders.

    As our population ages, there is going to be an increased need for care. What is being offered up as "care for the elderly" or disabled is truly indescribable. Moreover, a crazier way of dealing with these problems would take many an hour of serious contemplation......Imagine: take a house of ten rooms, and fill it with ten elderly people. There is no meaningful interaction with the outside world. Nobody goes to visit but very close friends and family.
    Is this seriously the best answer we can manage?
    Let them fund their own care?

    I don't want Government funding - which you must apply for every few years, no matter how good a job you do.
    I want people to vote with their feet. I want to use all of our assets - from older people to older buildings.
    I want to help fix this broken society.

    Everything that we currently look upon with disdain will need to be employed in this economic meltdown.
    The most imaginative will win the day.

    With so many people trying to fix society, society, the following quote came to mind.

    Jimmy Reid voiced his concerns in his rectorial address of 1972, which was printed verbatim in the New York Times, which described it as "the greatest speech since President Lincoln's Gettysburg address":

    "Society and its prevailing sense of values leads to another form of alienation. It alienates some from Society. It partially dehumanizes some people, makes them insensitive,ruthless in their handling of fellow human beings, self-centred and grasping. The irony is that they are often considered normal and well-adjusted. It is my sincere contention that anyone who can be totally adjusted to our society is in greater need of psychiatric analysis and treatment than anyone else."

    Make you smile? Still true today?

    Does it not question the progress made in the intervening years - with all our initiatives, strategies,directives - not to mention abbreviations?

  5. SROI is, as you said, a tool. A tool is neither good nor bad, its simple is. The problem is people’s dependence or interpretation of what that tool is feeding back.

    I personally believe that SROI is a little inconsistent with its results; no two people are going to give the same value when putting a price tag on something that there really is no price tag for, like the impact a cure for HIV would have on an infant’s life if both him and his parents have it. That being said, all SROI is trying to do is convert everything to dollars, that way things can be compared equally, in this aspect I like the nice clean result it gives.

    The problem comes due to the mind set of people when they are making all their decisions based upon what improves the numbers. The need for accounting based management is the problem. This is what got our economy where it is now. We cannot simply take the number at face value; we need to understand what's behind the number. This is more important with SROI.