Step by step guide toSROI analysisA set up guide on how to measure impact

In our Beginners Guide to SROI you have learned what Social Return on Investment (SROI) is, how it can help you and who can use it. Before you can start measuring your impact however, there are still a few things you need to consider.

Marlon van Dijk - Managing Director

Although a lot of organizations are trying to capture value behind their desk, we often say ”Value is in the eye of the stakeholder, like beauty is in the eye of the beholder”.This statement implies that it is of crucial importance to involve your stakeholders before and during your impact analysis. Understanding what changes for them (positivelyor negatively) and to know how important these changes are for them, is key when measuring impact. You can understand that this bears a much broader concept of value, than talking about financial capital alone. Social Return on Investment is a framework for measuring and accounting for this broad concept of value and helps to generate a shared language. In this step-by-step handbook we will guide you through the various steps of the SROI analysis and offer advice on every aspect you need to take into account. In order to give you a better idea of how you can apply SROI to your project, we illustrate the steps with a case study, titled “The Balanced Family”.

We are confident this guide will provide you with the tools and knowledge to start analysing your own projects and grow your created value!

Table of contents

A Balanced Family - Intro to the case study

Setting up a project to measure SROI

Stakeholders

Input

A Balanced Family - Stakeholders & Input

Output

Outcomes

Real impact

A Balanced Family - Outcomes, Indicators

and Valuation

Indicators

Valuation

Financial proxies

Duration

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For this step by step guide to SROI analysis A Guide to Social Return on Investment was used as a reference, first published in 2009 and updated in 2012 by one of our partners, The SROI Network.

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A Balanced Family - Intro to the case studyBefore we continue to further explain how to carry out an SROI analysis, we would like to introduce the national programme A Balanced Family. The example, in combination with explaining the steps necessary for carrying out an SROI analysis, will provide you with a good understanding of the SROI process and is used to explore the principles and processes of SROI. It also supports learning and provides an appropriate example. You can recognize the example throughout this guide by the orange sections and the little purple owl.

A Balanced Family is a national programme that runs various courses that are available to ex-convict mums during or after their imprisonment in order to improve the relationship with their children and function independently in society once again. In 1 year, A Balanced Family has supported 128 mothers and their 246 children via the programme. During the programme ex-convict mums can expect help with, among others, their children, work and income, preparation of difficult conversations with authorities, emotional problems and dealing with finances/ financial problems.

Volunteers visit the ex-convict mums at home during a 1 year period, on average 4 hours a week. They support them in restoring the relationship between mother and child, in increasing their self-confidence, increasing parenting skills, and in the strengthening of the social network around the family. These were also topics included in the analysis and, therefore, also included in the net present value.

The total present value of the A Balanced Family programme is € 2.780.489,- and the total investment is € 887.127,-. This comes down to a net present value of € 1.893.362,-. Based on the current validations the SROI ratio is 3,13. This means that every euro invested in the programme produces € 3,13 for society.

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Setting up a project to measure SROIBefore you start, there are a few things you need to consider. We will guide you through these steps and will give you tips and advise for every aspect of the analysis. First of all, you need to understand the “why” of your SROI analysis. In other words, what is the purpose of your Social Return on Investment analysis? Do you want to use it as a tool for strategic planning, for communicating impact and attracting investment, or for making investment decisions? These are all important questions before starting.

Moreover, you need to define the scope of your analysis. By scope we mean the extent of what you are going to measure: the whole organization or just a part of it (e.g. a business unit, project or program)? Furthermore, is your analysis set up as a forecast, which will provide you the basis for a framework to measure? Or are you initiating an evaluation to measure your Social Return after completing a project?

And, related to the ‘why’ question, for who are you carrying out an SROI analysis. Who will be the audience of your analysis? Maybe you want to know what your stakeholders value most and want to report this back to them to be accountable to your stakeholders. Perhaps the reader is a commission or impact investor? These choices will affect the scope of your SROI analysis.

Last but not least you need to choose a start and end date of your SROI analysis and decide on a measurement frequency if you want to monitor your SROI analysis; how many times per year do you want to collect data to measure the actual impact of your project?

Stakeholders In an SROI analysis, your stakeholders are of paramount importance. To identify the stakeholders, list all those who might affect or be affected by the activities within your scope. When deciding whether a stakeholder should be included or excluded, you need to consider which stakeholders have experienced material change as a result of your activities (e.g. asking stakeholders about this from their perspective).

Input The input of stakeholders gives you an overview of the total investment in your intervention. The investment, in SROI, refers to the financial value of the inputs. Inputs are the contributions of the stakeholders in order to make the intervention possible. These can be financial and non financial. It is important to identify the full cost of your intervention, to get an accurate ratio.

To come to an identification of the full costs, you can follow the next steps:

1. Decide if the stakeholder group has an input or not.

2. For the stakeholders who do have an input, you need to identify the input (name it) and decide whether it is a financial or non-financial input. Financial input can be a contribution, grant, etc. Non-financial input can be an investment in time (hours), knowledge, materials, etc. One stakeholder can have different types of input.

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3. The last step is to value the input:

3a. The value of the financial inputs, especially for a single grant or a contract, is usually easy to establish, although it is important that you include the full costs of delivering the services.

3b. Decide if you want to value non-financial inputs, e.g. time, bases on professional judgements (look for an example in the case study)

If you are forecasting your Social Return, the quantity of inputs that will be required will be an estimate based on a mix of experience, data from previous years’ activity and research based on other people’s experience. If you are evaluating your Social Return, you will want to obtain the information from your organisation’s management systems.

If the measurement comprises several periods, you can include the inputs per period (e.g. months, quarter, yearly). It is possible to include inputs per stakeholder group or per individual.

Important notes:

- Be careful that all the inputs you record are used in the intervention. Was the input necessary for the intervention to happen?

- Be careful that the intervention does not depend on other contributions from elsewhere in the organisation that are not being taken into account.

- Be aware of the risk of double counting during this step! For example, executing activities cost money, which is sometimes financed by someone else (e.g. local council, government or foundation). The value of this investment belongs to the investor.

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A Balanced Family - Stakeholders & InputsIdentifying and involving your stakeholders is one of the most important steps in your analysis. Stakeholders are defined as people or organisations that effect or are affected by the programme, whether this is positive or negative. When working on your SROI analysis you may have identified non-financial inputs. These are inputs other than the financial investment, like volunteer time. Including these inputs ensures that you are transparent about the full cost of delivering your service.

A Balanced Family is a national programme to support ex-convict mums and their children from the start of imprisonment until the aftercare phase. For the additional electives after imprisonment the local councils are being called upon within the scope of their responsibilities in the areas of aftercare to convicts, preventive youth care policy and the Dutch Law on Social Support.

STAKEHOLDERSIn consultation with A Balanced Family a longlist of all the stakeholders withinthe scope of the programme of A Balanced Family were listed. When deciding whether a stakeholder is to be included or excluded, you need to think about which stakeholders have experienced material change as a result of your activities (e.g. asking stakeholders about this from their perspective). The stakeholders for whom you are creating material changes are your key stakeholders.

Based on interviews and a survey, the following stakeholders were included in the analysis: ex-convict mums, their children, volunteers, local councils, Department for Youth Care, and the Ministry of Justice. Because it was not possible to involve the children (being minors), other stakeholders have been questioned about the changes for the children (their mums, volunteers and family guardians). INPUTS To show how the input of stakeholders is calculated in your analysis, this example will focus on the volunteers only. The material inputs for the stakeholders are primarily time and money. In this analysis we decided to value the time of these volunteers the same as qualified counsellors in order to take a real representation of their input into account. There are 128 volunteers in this programme spending an average time of 160 hours when visiting the ex-convict mums. This comes down to a total of 20.480 hours. 20.480 hours: 1.872 hours per volunteer (1 fte) means that in total 11 fte is used. 11 x € 28.740 (these are the actual costs per year of a qualified counsellor when they would do the same amount of work) = € 316,140,- in total. This means that the total amount of time spent, the input delivered by volunteers in the programme, is valued at € 316,140 per year.

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OutputOutputs are a quantitative summary of an activity. Sometimes the same output is repeated for several stakeholders, which are included in the SROI. They will not be counted in the calculation, to prevent the risk of double counting. In situations where stakeholders are contributing their time, the output may be described in the same way as the inputs: a number of hours.

In order to identify the outputs, you can follow these steps:

1. Select a stakeholder and decide whether they have an output.

2. For the stakeholders who do have an output: It is important to identify the output and describe how the output will be measured.

3. If the measurement comprises several periods, you can include outputs per period. It is possible to include outputs per stakeholder group or per individual.

OutcomesOutcomes are the (long term) changes created for the stakeholders related to the activities in the scope. In order to identify the outcomes, you can follow these steps:

1. You can add new outcomes by selecting a stakeholder

2. For every outcome you can select a type (economic, social, environmental) and include a reference to the source of the outcome (evidencing outcomes)

3. If the measurement comprises several periods, you can include the outcomes per period. It is possible to include outcomes per stakeholder group or per individual

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Be careful not to confuse outputs with outcomes and make sure to spend sufficient time getting to grips with the theory of change to ensure that you are measuring the right things. In deciding on outcomes, you should consider other factors, such as the organisation’s objectives, as well as the views of your stakeholders. Stakeholders’ views are critical but they are not the only factors in deciding which outcomes are significant.

Sometimes it takes years for outcomes to take place – for example, slowing the rate of climate change – but there may be observable changes along the way (intermediate outcomes or chain of events). When a new outcome is identified by stakeholders or by your assessment of other factors, you will need to decide whether it is an entirely new outcome, or in fact part of an existing chain of events.

Important notes:

- Relate outcomes to the right stakeholder

- Do not double count outcomes (when you are dealing with a chain of events)

- Make sure you have only included material outcomes and made appropriate revisions

- Check that you aren’t missing anything significant or including something that is not relevant

In the Sinzer software tool it’s also possible to select outcomes from the Global Value Exchange. There are currently more than 1.300 outcomes available, including linking indicators and proxies to value them!

Real impactIdentifying your impact is important as it reduces the risk of over claiming and means that your story will be more sincere and credible. There are several components you should consider when identifying your impact:

- Deadweight is the amount of outcome that would have happened even if the activity had not taken place. As deadweight increases, your contribution to the outcome declines.

- Displacement is an assessment of how much of the outcome displaced other outcomes.

- Attribution is an assessment of how much of the outcome was caused by the contribution of other organisations or people. This stage is about being aware that your activity may not be the only one contributing to the change observed and checking that you have included all the relevant stakeholders.

- Drop-off is the amount of outcome that will be influenced by other factors in future years, so attribution to your organisation is lower.

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A Balanced Family - outcomesSROI is an outcomes-based measurement tool, as measuring outcomes is the only way you can be sure that changes for stakeholders are taking place. Identifying outcomes is not always immediately intuitive. Be sure to spend sufficient time to set out your view of the intended or unintended outcomes that you expect and check with your stakeholders to ensure that you are measuring the right things.

The next example focuses on the ‘chain of events’ for one particular stakeholder: the ex-convict mums. A chain of events helps to understand change and to decide on which outcome you want to value to avoid double counting.

All mums experience problems in multiple areas of life, of which they often cannot keep track themselves. Based on the interviews with mums, the following chain of events have been analysed: The financial support (organizing the admin and creating insight into debt) made the mums able to get control over their financial situation and find the right help, which led to reduced debts.

Organized admin/insight into debt

Getting control over financial situation

Reduced debts

Please remember that there are more outcomes identified for this stakeholders. To read the complete and externally assured SROI report go to our website: www.sinzer.org

One of the other outcomes for the local councils was that the emotional support, which the ex-convict mums received, led to a decrease of mental problems and/or stress. As a result mums made less use of primary care (especially mental care). We use this example to demonstrate how we measured this change (indicators) and how we valued this outcome.

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Indicators Indicators are used in order to measure whether change has happened. In SROI they are related to outcomes, as these are the identifiers of change. You will need indicators for each of the outcomes. Indicators tell you both whether the outcome has occurred, and by how much. Indicators are often expressed using terms like ‘more’, ‘fewer’, ‘less’ or ‘increased’.

In case of the local councils “a decrease of visits to primary healthcare services (mental care)” was used as one of the indicators. In the example of the local councils this indicator shows that the outcome “less use of primary care (especially mental care)” occurred, as concluded via interviews with six councils and a survey that the coordinators answered.

In order to know whether the number of the indicators has changed, you will need to know the actual number of the indicators before and after the activity. When you have set a combination of subjective and objective indicators that are relevant to the stakeholder and scope, you need to check that they are not only measurable but that you wil be able to measure them within the scope and the resources you have set. If you are completing a forecast SROI report you need to check that you could reasonably measure your indicators in the future. The data collection on your indicators may be available from existing sources (internal or external) or you may need to collect new data. Finding relevant data can be difficult, so use the best available information or make assumptions or estimates. You can also make use of (online) tools and/ or software that are using built in survey features and can help you follow all the necessary steps to carry out an SROI analysis.

ValuationThe purpose of valuation is to reveal the value of outcomes and show how important they are relative to the value of other outcomes. As well as revealing missing value it will help determine how significant an outcome is. To identify appropriate financial values are a way of presenting the relative importance to a stakeholder of the changes they experience.

Let’s stick to the example of the local councils and the outcome “less use of primary care (especially mental care)”. This outcome has been measured by a decrease of visits to primary healthcare services (mental care). Based on the survey, in 80% of the families of which 102 families received mental care, the physical and/or mental health of the mother has improved during the programme. Alongside the programme, other care organisations have had an impact on the health of the mother. During the programme 30% of the mothers were in contact with a Dutch mental health care organisation, 44% saw a social worker and 3% was in contact with an addiction treatment organisation.

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42% of the 102 families where the physical and/or mental health of the mother improved (43 mothers), make on average 70 hours less use of professional care (especially mental health care). The going hour rate for a psychologist is € 80,-. The average value per person is € 5.600,-.

As this shows the average value per person (per mother), you also need to know what the total amount of value of the outcome “less use of primary care (especially mental care)” is. For this outcome it means that 43 (mothers) x € 5.600,- (costs of professional mental care) minus 33% deadweight minus 37% attribution = total amount of value of € 101.641,68.

The process of valuation is referred to as monetisation because in this process a monetary value is assigned to things that do not have a market price. All the prices that we use in our day-to-day lives are approximations – ‘proxies’ – for the value that the buyer and the seller gain and lose in the transaction. The value will be different for different people in different situations. All value is, in the end, subjective.

Impact map parameter

Quantity

Proxy

Duration

Deadweight

Attribution

Displacement

Drop off

43

€ 5.600,-

1 year

33%

37%

N/A

0%

Number of moms that experienced a better health and made less use of primary care (especialy mental care).

Cost of professional mental care (average 70 hours x € 80).

This was a one-off event.

Based on the survey and interviews with mums, a third of the mums would hae experienced a better health on the longterm (by the regular health services).

Based on the survey and interviews with mums, also other care organizations atributed to a better health of the mums, like mental health organisations social workers and addiction treatment organisations.

Since the outcome is a one-off event drop off is irrelevant.

Quantity Notes

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- Stated preference and contingent valuation: willingness to pay or accept compensation for a hypothetical thing

- Revealed preference: valuations from the prices of related market-traded goods

- Hedonic pricing: builds up a value from the market values of constituent parts of the service or good being considered

- Travel cost/ time value method: willingness to travel some distance or give up some time to access goods and services

Your stakeholders will be a good starting point for finding your proxies because only they know what it is they value and can therefore offer relevant advise on how this might be captured. With Sinzer’s software tool you can create online surveys to collect data from stakeholders, automatically insert the result in the analysis and involve others to help you with your analysis.

DurationThe effect of some outcomes will last longer than others. Some outcomes depend on the activity continuing and some not. When you believe that the outcome will last after the activity has stopped, then it will also continue to generate value. The timescale used is generally the numberof years you expect the benefit to endure after your intervention. This is referred to as the duration of the outcome or the benefit period. You will need an estimate of the duration of each of your outcomes. It is important to use data that is as close as possible to the intervention in question so as not to inappropriately generalise. Important notes:

- Make sure that you are identifying a value for the outcome and not the indicator

- Remember that it is does not matter whether the money actually changes hands

- It also does not matter whether or not the stakeholders in question could afford to buy something

Financial proxiesIn SROI we use financial proxies to estimate the social value of non-traded goods to different stakeholders. Different stakeholders will have different perceptions of value. By estimating value through the use of financial proxies, and combining these valuations, we arrive at an estimate of the total social value created by an intervention.

Sometimes monetisation is a fairly straightforward process, for example where it relates to a cost saving. Sometimes this will not result in an actual cost saving because the scale of the intervention is

too small to affect the cost in a significant way, but it still has a value. The flipside to cost savings is an increase of income. Next to cost savings and increased income, SROI also gives values to things that are harder to value. There are several techniques available:

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After reading this guide and once you have considered the given tips, you are ready to start your own SROI analysis. Although you can carry out an SROI analysis by yourself, you may prefer to enlist others from within or outside your organization to help you.

We can support you in every step of your SROI analysis. Using the Sinzer tool will furthermore grant you access to your own dynamic management dashboard, where you can see your SROI ratio and other dynamic graphs on input, indicators and valuation.

Need advise or help with your SROI analysis and impact measurement? Curious about the Sinzer platform and all of its functionalities? Contact us via http://www.sinzer.org or info@sinzer.org

Our mission is to make impact measurement better accessible and cost-efficient through our software and services, thereby enabling our customers to manage and report about their impact consistently, be accountable to stakeholders and maximize their value. Value what matters!

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