A:

Social return on investment (SROI) is a method for measuring values that are not traditionally reflected in financial statements, including social, economic and environmental factors, which can identify how effectively an organization uses its capital and other resources to create value for the community. While a traditional cost-benefit analysis is used to compare different investments or projects, SROI is used more to evaluate the general progress of certain developments, showing both the financial and social impact of the corporation.

SROI is useful to corporations because it can improve program management through better planning and evaluation; increase the corporation’s understanding of their impacts; and allow better communication regarding the value of the corporation’s work (both internally and to external stakeholders). Philanthropists, venture capitalists, foundations and other non-profits may use SROI to monetize the social impact, in financial terms.

A general formula used to calculate SROI is as follows:

SROI = (social impact value – initial investment amount) / initial investment amount *100%

Assigning a dollar value to the social impact can present problems, and various methodologies have been developed to help quantify impact. The Analytical Hierarchy Process (AHP), for example, is one method that converts and organizes qualitative information into quantitative values.

While the approach varies depending on the program that is being evaluated, there are four main elements that are needed to measure SROI:

  • Inputs – resources investment in your activity (such as the costs of running a job readiness program)
  • Outputs – the direct and tangible products from the activity (for example, the number of people trained)
  • Outcomes – the changes to people resulting from the activity (i.e., new jobs, better income, improved quality of life for the individuals; increased taxes and reduced support for the government)
  • Impact – the outcome less an estimate of what would have happened anyways (for example, if 20 people got new jobs but 5 of them would have anyways, the impact is based on the 15 people who got jobs as a result of the job readiness program)
RELATED FAQS
  1. What are key points to a good corporate social responsibility policy?

    Learn the main components of a good corporate social responsibility policy, including communication with stakeholders, partnerships ... Read Answer >>
Related Articles
  1. Managing Wealth

    How Social Impact Bonds Work

    Social impact bonds are one way to funnel money to projects that will impact society.
  2. Financial Advisor

    Impact Investing: Making A Difference And A Profit

    Most investors spend their time chasing returns. But what if there was a way to do good while also turning a profit?
  3. Investing

    3 Places You Can Buy Social Impact Bonds

    Social impact bonds are an innovative security that provides investors with returns and also channels funds to socially beneficial programs.
  4. Investing

    Understanding Social Impact Bonds

    Social impact bonds are powerful investment vehicles for the solving of social issues in a sustainable fashion.
  5. Financial Advisor

    Impact Investing: How it Works and How to Invest

    Impact investing makes a positive impact, socially and/or environmentally, while also aiming to produce positive returns, and it's a growing trend.
  6. Financial Advisor

    Investing in More Than Money: A SRI How-to Guide

    Here's how socially responsible investing stacks up against green and impact investing. Which category is right for you? Read on.
  7. Investing

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  8. Investing

    When Socially Responsible Investing Hurts

    Socially responsible investing can make you feel good but it may not boost your returns.
  9. Retirement

    Are Social Security Benefits a Form of Socialism?

    Socialism is a loaded word in the U.S., but Social Security, one of the nation's most popular benefit programs, is wholly government-run.
  10. Retirement

    Will the Social Security Cap Increase Help It Last Longer?

    The Social Security cap increase will be 7% in 2017, but even that may not be enough to keep Social Security from running out of funds.
RELATED TERMS
  1. Impact Investing

    Investing that aims to generate specific beneficial social or ...
  2. Social Impact Bond - SIB

    A contract with the public sector or governing authority, whereby ...
  3. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are ...
  4. Social Responsibility

    The idea that a company should embrace its social responsibilities ...
  5. Social Sentiment Indicator

    A measurement based on aggregated social media data that helps ...
  6. Social Capital

    An economic idea that refers to the connections between individuals ...
Hot Definitions
  1. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  2. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  3. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  4. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  5. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  6. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
Trading Center