Social Return On Investment (SROI), the previous government’s preferred method of measuring social impact, is still beyond the reach of most charities, a new report from independent think tank Demos has found.

The report, Measuring Social Value, the gap between policy and social value concludes “Organisations have to have mastered sound outcomes evaluation before they can consider SROI, and the ambitious SROI agenda risks organisations attempting to run before they can walk.”

The report highlights the difficult issues that surround SROI measurement, based on findings from 30 organisations that are implementing the system, and concludes that while the principles of SROI are sound, making outcome measurement a standard should be the first step in the long road towards its universal implemention.

The report says funders and commissioners have a vital role to play in incentivising good outcomes measurement. “Funders need to incorporate evaluation data into subsequent rounds of grant giving in order for organisations to see a return for their efforts, and commissioners need to put money aside in contracts specifically for the evaluation of projects.”

Lucy Heady, head of measurement at charity think tank and consultancy New Philanthropy Capital (NPC)  agrees the onus on making outcome measurement a gold standard lies with donors as well as policy makers and charities themselves. “The incentives have to come from donors who must make outcome measurement a funding principle.”

The report acknowledges evaluation is expensive and difficult to do, and that it puts smaller charities and certain delivery areas at a disadvantage. Therefore ‘proportionality’ that allows ‘lighter touch’ and less burdensome measurement for smaller organisations remains an important principle, along with ‘standardisation’ and ‘comparablity’, it says.

“SROI is a step too far and often too costly for many organisations, and does not work consistently across different service delivery areas. Expertise is patchy and some areas, such as education, are further ahead than others,” say Heady.

She says sectors need better guidance and concrete examples on how to apply SROI to their organisations and suggests they might achieve more useful and less expensive evaluations if they collaborated on a system based on common indicators, “It would provide better context for donors and a comparative and meaningful measurement for donors and charities.”

The report says automated tools like those used by Defra and accessible evidence bases, which help link outputs to outcomes and outcomes to cost-savings in different sectors, would spare organisations from evaluating their impact from scratch “but instead build on existing materials relevant to their remits and activities”. The Scottish government’s SROI project is currently developing an indicator bank, which may well meet some of these needs.

Heady says the demand for impact evaluation is being driven largely by statutory funders but adds the financial burden SROI presents to small grant-giving charities could make it difficult for them to keep their administration costs to below 5% of the budgets they distribute, a figure argued by the secretary of state for Culture, Olympics, Media and Sport, Jeremy Hunt, as an indicator of efficiency.  

“It highlights a gap in government thinking. In any case, NPC absolutely rejects the principle that administration costs are a meaningful measure of efficiency. It is not an intelligent way to think about overheads costs. For example a voluntary organisation that spends money co-ordinating its volunteers is likely to be more efficient than one that does not,” says Heady. 

The Demos report acknowledges that not everyone agrees the adoption of SROI as standard is a good idea. But the think tank maintains the principles behind SROI are sound.

“Many of the experts we spoke to felt that the real value of SROI was not in the generation of a ‘SROI ratio’, but in the process of identifying and measuring outcomes that supported the organisation’s mission. Many organisations seeking to carry out an SROI analysis have yet to gather the correct outcomes or benchmark data to enable additionality.

“Therefore, it is a good discipline for all organisations to embed the principles of SROI in the way they set their goals and review their activities, within the context of outcomes.”

Jeremy Nicholls, who as the chief executive of the SROI Network has been instrumental in devising and helping organisations implement the SROI measurement system says, “I was very encouraged to see that the Demos report supported the principles of SROI. Of course there is a complexity to understanding social value – if it were simple we would have cracked it some time ago and be living in a more equitable society today, but this is not a reason not to start and implementing any measurement system will need time and resources.”

As an interim step the report suggests that helping all charities to identify, measure and evaluate their organisational outcomes would be hugely valuable for the sector as a whole. “We propose that a benchmark of sound outcomes evaluation should be developed, as an interim step on the road towards SROI, and that stakeholders on all sides should direct their efforts and resources to help the entire third sector meet this target.”

Nicholls says involving stakeholders in this process is key, “One of the challenges, as highlighted in the report, is in defining outcomes as opposed to outputs, and it is one of the principles that stakeholders should be involved in determining the outcomes they experience if we are to understand and manage the difference that we make. It is equally important that the value of these outcomes is recognised."

But he said he was “increasingly optimistic” about the future use of the principles of SROI underpinning the accounting of social value. “There are of course other approaches but we are seeing a convergence of principles and methodologies across approaches and sectors and this, over time, will make it easer to understand, manage and communicate the social value that organisations create.”

Philanthropy UK’s A Guide to Giving offers a detailed exploration of SROI, featuring case studies.