What factors go into calculating social return on investment (SROI)?

By Jean Folger AAA
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 is the formula for calculating the current ratio?

    Find out how to calculate the current ratio and what that result can tell you about a potential investment.
  2. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ...
  3. How do I take qualitative factors into consideration when using fundamental analysis?

    Fundamental analysis is the method of analyzing companies based on factors that affect their intrinsic value. There are two ...
  4. Why is the compound annual growth rate (CAGR) misleading when assessing long-term ...

    The compound annual growth rate (CAGR) measures the return on an investment over a certain period of time. Below is an overview ...
RELATED TERMS
  1. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  2. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  3. Working Capital

    This ratio indicates whether a company has enough short term ...
  4. Amortization

    1. The paying off of debt in regular installments over a period ...
  5. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  6. Total Debt-to-Capitalization Ratio

    An indicator that measures the total amount of debt in a company’s ...
comments powered by Disqus
Related Articles
  1. Playing Penny Stock-Like ETFs
    Stock Analysis

    Playing Penny Stock-Like ETFs

  2. Can Good News Be A Signal To Sell?
    Fundamental Analysis

    Can Good News Be A Signal To Sell?

  3. Material Adverse Effect A Warning Sign ...
    Markets

    Material Adverse Effect A Warning Sign ...

  4. How To Pick Winning Penny Stocks
    Fundamental Analysis

    How To Pick Winning Penny Stocks

  5. How To Decode A Company's Earnings Reports
    Fundamental Analysis

    How To Decode A Company's Earnings Reports

Trading Center