Measuring Social Return on Investment

• Author: Michael Moody,Laura Littlepage,Naveed Paydar
• Date: 01 September 2015
• Published date: 01 September 2015
• DOI: http://doi.org/10.1002/nml.21145

19

N M  L, vol. 26, no. 1, Fall 2015 © 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21145

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Correspondence to: Laura Littlepage, IUPUI—SPEA, 334 North Senate, Indianapolis, IN 46204.

E-mail: llittlep@iupui.edu.

Measuring Social Return on Investment

LESSONS FROM ORGANIZATIONAL IMPLEMENTATION OF SROI

IN THE NETHERLANDS AND THE UNITED STATES

Michael Moody,1 Laura Littlepage,2 Naveed Paydar2

1Grand Valley State University, 2Indiana University

Strategic decision making and evaluation in philanthropic giving and social investment

requires good-quality information about the social impacts of that investment. One way to

meet this need is by calculating a social return on investment (SROI) measure, akin to the

return on investment (ROI) approach used in business analysis. Despite much buzz in the

field, SROI measurements are rarely used, in part because of the complexity of the calcula-

tions but also because of a number of thorny and often expensive organizational challenges

associated with implementing an SROI process. This article explores these implementation

challenges by comparing four social venture organizations in the health care field—two

in the Netherlands and two in the United States—that have utilized some sort of SROI

measurement. We summarize the SROI process and identify the specific organizational

challenges in each case. Lessons learned from this analysis include the value of process versus

product and the importance of fitting the type of measurement to the organizational con-

text. We conclude with a summary of best practices for organizations and social investors

who might try to make effective use of SROI measures.

Keywords: social entrepreneurship, case study, research, evaluation

The Search for Social Impact Measures

An increasing number of grant makers, social investors, and other donors are seeking to be

strategic about their philanthropic activities and social investments. Doing so requires that

they gather good-quality information about the actual or potential social impacts of their

investments (Bugg-Levine and Emerson 2011). However, this information is often diffi cult

to collect and create (McDougle and Handy 2014), leaving investors unable to track and

express the value of their grants and unaware of emerging models that exist to help meas-

ure this impact. Funded organizations are also frequently left feeling that the full value of

We thank the Stichting Noaber Foundation for funding this research, and Wim Post for his thoughtful assistance

throughout the project.  anks also to John Marron, Pattijean McCahill, and Heidi McPheeters for their contribu-

tions to the research, and to the anonymous reviewers for helpful suggestions.

Nonprofi t Management & Leadership DOI: 10.1002/nml

20 MOODY, LITTLEPAGE, PAYDAR

their work is not documented because they lack important tools to communicate social

impact. More broadly, the lack of standardized methods of measuring social impact means

that the complexities of the full value of philanthropic impact are underrepresented and

underappreciated.

Recognizing that traditional accounting methods do not accurately capture the impact of

activities that lack established monetary value, social accounting has been developed to help

value social impacts (Richmond, Mook, and Quarter 2003). Still, measuring social returns in

eff ective, valid, and reliable ways that can provide a common language and metric for com-

paring various potential social impact ventures remains an elusive goal for most who want

these sorts of measures (Mook 2013). A growing number of people working to create social

impacts want good ways to measure—even to monetize—those impacts, yet few have found

feasible methods for doing so (Mulgan 2010).

One approach to social impact measurement is social return on investment (SROI), akin to the

return on investment (ROI) approach used in business analysis. In recent years, a number of

academic studies, and some additional practitioner analyses, have tried to come up with ever-

more-sophisticated techniques for calculating SROI (Adler 2006; Hammitt and Haninger

2011), although these complex techniques and careful measures are still rarely used routinely

in organizational practice.

A number of SROI proponents—like the New Economics Foundation (NEF) and the mem-

bers of the SROI Network International—and some who have reservations (Cliff ord, List,

and  eobald 2010), have fed considerable buzz about SROI as a metric to capture social

impact.  e more positive assessments of the uses of such SROI frameworks have concluded

that they can help social investors evaluate and compare impact investment options, help

organizational leaders assess and maximize social benefi ts, and be an eff ective tool to equip

managers with information to make more thoroughly informed decisions (Olsen and Lin-

gane 2003). But even its proponents consider measuring SROI diffi cult.

Despite this interest in SROI, and its possible benefi ts, use of SROI is still rare, and there

is little scholarly analysis to help assess its potential benefi ts and costs. SROI measurement

is more common and the calculation process is more fully developed in Europe than in the

United States, though it is not by any means widespread in either location (Mulgan 2010;

Nicholls et al. 2012).  e European Union’s Equal Progamme has advocated the use of SROI

and encouraged countries to develop their own versions, such as Finland’s methods for social

enterprises (European Union 2012). While there is not defi nitive data on the use in either

Europe or the United States, Sheridan (2011) analyzed data from the State of Social Enter-

prise Survey 2009 and found a limited use of impact measurement tools in the social enter-

prise sector in Great Britain, with SROI the lowest, used by only 1 percent of health and

social care organizations.  is is in a country where the government has strongly promoted

SROI as a way to enable the social enterprise sector to better understand the wider impacts

of service delivery and quantify that value in monetary terms (Arvidson et al. 2013). In the

United States, Barman and MacIndoe (2012) found that of the nonprofi ts they surveyed,

only 45 percent utilized outcomes measures, a precursor to impact measurement.

 is lack of use seems due, in large part, to the number of thorny and often expensive chal-

lenges associated with implementing an SROI measurement process. Barman and MacIndoe

(2012) show how organizational capacity is a major barrier to implementation of outcome

measurements, despite the field-wide pressure to do so. And Cooney and Lynch-Cerullo