In Brazil the growth of nonprofit organizations dates back to the crisis established in the State in the 80's. According to Bresser (1998), the State held to be a prop of the development model runs up against a crisis defined in three dimensions: the fiscal crisis arising from the loss of credit and from negative public savings given the levels of inflation; the crisis of the State's mode of intervention that consists of the depletion of the processing model based on the substitution of imports; and the crisis of the bureaucratic model of public management associated with the high costs and the low quality of services rendered.
The objective of this paper is to highlight, in specialized literature, some methods aimed to evaluate the return on investments and its capacity to add value at Third Sector entities, enlarged by the inclusion of social aspects.
The greatest problem established by the authors that study the subject is associated with the measuring of the social phenomenon, since its benefits are hard to assess.
Accounting does not target the most all-encompassing effects but its limited to the market transactions of the company and to the expenses related to it. However, analyses of social effects should also be included in an annual or in supplementary reports. In this sense, Gray, Owen and Maunders (1987) present the following reflection: "organizations have a responsibility that reaches beyond the generation of profits; their social responsibility should be observed and measured". According to Traidcraft (2000), in an extended form, social accounting should capture its impact on the community.
Moreover, in view of their peculiarities, social organizations, in developing their mission and pursuing their objectives, present themselves as unique organizational arrangements. Hence to make their services available, many social organizations rely on volunteers or unpaid workers. In this manner, if no market transaction is involved, this component of the workforce of organizations does not appear in accounting reports, which is a major oversight, as we will see further on. Without its involvement the level of services can be drastically reduced and, in some cases, the organization might not even function.
A critical issue lies in accessing the value of services without a direct market value (without monetary value). Estes (1976) emphasizes: "The greatest objection to social accounting is its apparent lack of valid and reliable measurement techniques. Accountants and businessman can express an acceptance of the general concept of corporate social accounting, but they have no faith in their skills to indicate satisfactory numbers for the social effects".
In spite of the difficulties, in view of the need to estimate a market value for volunteer services, two lines ("schools") of thought are developed. According to Alves, Souza and Slomski (2005), the opportunity cost, that is, the lowest price of the services equivalent to those rendered by nonprofit organizations practiced by the market, i.e., the price is defined by for-profit entities and used in the first. It derives from the assumption that the cost of volunteer work is the time that could have been spent otherwise, including being remunerated in other similar activities, rather than just the one in which the volunteer is allocated (Brown 1999). Hence if this time can be spent generating income, the opportunity cost will be linked to the compensation by hour that volunteers generally receive for paid work that they perform. Yet this procedure can be problematic, as the skills expected in the practice of volunteer service can differ substantially from those for which a salary will be received.
Variations on the above procedure, aiming to estimate the opportunity cost of volunteers are undertaken by Wolfe, Weisbrod and Bird (1993) and Handy and Srinivasan (2002). Wolfe et alii.(1955) estimate the marginal opportunity cost in questioning volunteers about what they would have received if they had worked remunerated overtime. If they are not in the job market (pensioners, students, jobless individuals) "they are questioned about what they believe they could earn if they decided to look for paid employment". Handy and Srinivasan (2002), also request the following: that these individuals assign how much their tasks are worth. The second school uses "replacement" (or substitution) costs and thus evaluates the cost of volunteers from the perspective of the organization, as having to pay the market rate for the specific service, which does not include similar activities. According to Brudney (1990) and Ferris (1984), the replacement cost structure assumes that volunteer positions should be calculated in accordance with the value of the services rendered in the job market.
In Brazil, Alves, Souza and Slomski (2005), use as a proxy to establish the value of volunteer service the salaries and charges paid to remunerated employees, which occupy posts similar to those developed by the volunteers in December 2003. Criticism of the use of replacement costs suggests that volunteers are less productive than paid workers, and therefore their replacement cost can overestimate their values (Brown 1999). Another critique is that organizations using volunteers usually have financial limitations and if volunteers are unavailable, they simply reduce the level of service. Furthermore, although organizations that use volunteers obtain services capable of adding value, they also absorb training and supervision costs.
MODELS OF PERFORMANCE APPRAISAL BASED ON THE SOCIAL RETURN ON INVESTMENT (SROI)
The Social Return on Investment (SROI) is a form of social balance sheet for nonprofit organizations developed in the 90's and that according to Quarter et al. (2003), could be the best model developed and idealized by the American foundation: Roberts Enterprise Development Fund (REDF).
The SROI does not attempt to capture and quantify all the value creation aspects of a nonprofit program, but REDF believes that the model can be applied to other philanthropic areas, attempting to increase the coverage of the aspects analyzed.
REDF defends the existence of a value creation continuum for nonprofit organizations, that is, the value is created simultaneously in three spheres: pure economic value, socioeconomic value and pure social value. Economic value is created when there is financial return on an investment, and is very common at profitable companies. Now socioeconomic value is between economic value and pure social value. Actually this occurs through the "quantification" in monetary units of social value. It cannot be forgotten that nonprofit organizations create said value from the transformation of resources, inputs and/or processes into products/services intended for sale (economic activity) and by the generation of revenues or reduction of costs for the public sector (social activity). Exemplifying, an entity offers a professionalization course to underprivileged people (social activity) and also sells the goods produced in the course (economic activity) to generate income for the organization's maintenance. Pure social value is created when resources, inputs and action programs are combined to bring improvements in the lives of individuals or to society. For this reason it is hard to measure, as there are factors that cannot be translated into monetary values, such as the optimization of skills and competencies, as well as the experience acquired by the execution of volunteer work.
This model generates three measures of values and three measures of return. The measures of value are (Quarter et al., 2003):
a) Entrepreneurial Value or Economic Business Value: means the economic value of the organization, i.e., present value of the cash surpluses generated by the business activity (excludes the costs of the social cause, the subsidies and donations). The business value can be reduced to the formula below: Business Value (Market Value Added--MVA or the EVA discounted by the weighted average cost of capital--WACC) = Operating Income (LOP adjusted base EVA) / WACC, which represents the sum of the cost of own capital with the cost of third party capital weighted by the costs of capital. The LOP is easily identified in the Deficit or Surplus of the Accounting Result of the Year. However, there are obstacles to the calculation of the cost of capital, as the following facts should be known: the company's capital structure, the cost of third party capital and the opportunity cost of own capital. Own capital originates from donations or result of the actual operation, although there is no distribution of results and the opportunity cost of own capital exists from the cost of obtaining donation resources. Hence three alternatives are suggested on a basis of the opportunity cost concept: use the cost of third party capital; the second use the highest return on investment (ROI) of companies "competing" for this type of resource, i.e., use the best profitability of third sector organizations that compete for donations. In this case we should also consider the benefits offered to the donator of funds, such as the fiscal benefit, since income tax permits the deduction of the expenditure in specific cases. And the third alternative is to calculate the cost of own capital by CAPM (Capital Asset Pricing Model).
b) Value of Social Proposal or Economic Value of the Social Cause: refers to the social value created by the organization, whereas the present value of the additional revenue and of the reduction of costs for the government generated by the social activity, are reduced from the costs of this activity. The effort to calculate the value of the social cause is associated with the attempt to capture the impact of said cause on the lives of individuals and on their community. The cash flow is calculated with a basis on four elements: the projected number of people...