by Dr Pål Vik, University of Salford, UK
It is hard to compete with the allure of precision and quantitative measures to guide investment and management efforts. On the face of it, quantitative metrics offer a comparable, intuitive, and seemingly robust and objective measure of how well an organisation or company is performing.
The not-for-profit and social enterprise sector has not been immune to this allure. In fact, there has been a distinct shift towards quantitative approaches in proving their social value added in the last few years. Social Return on Investment, or SROI for short, has been among one of the more popular quantitative approaches used by the sector. SROI generates a monetary value of social impact for each pound or dollar invested net of costs. Its' appeal is reinforced by the similarity to conventional cost benefit analysis, making it easily understandable. An important aspect of SROI is that it links the services and products of an organisation with the social outcomes for individuals and groups external to that organisation, generally by comparing the users of a service with a benchmark or control group.
In my recent paper (Vik 2017) I critically assess the viability of calculating a monetary return for social outcomes drawing on over 20 large-scale microfinance impact studies spanning over two decades. There are important lessons from microfinance as the sector has used increasingly sophisticated quantitative approaches to prove social impacts to investors and funders. The chief difficulty has been to link client outcomes to the services provided by microfinance organisations (implicit in the SROI methodology).
It all boils down to one question: How can you find a control group or benchmark that is similar in all aspects save the intervention? Turns out, this is much more difficult than one might think because of two biases. Firstly, those that decide to take out a loan with a microfinance provider are inherently different from non-clients, including in ways that are not easily observable (such as risk aversion and entrepreneurial acumen). Secondly, the clients that these organisations serve have been selected through a careful screening process. In a sense, the likelihood of success may be a precondition to rather than an outcome of the access to microfinance services. These biases are likely to lead to overestimates of social return on investment especially where interventions require a high level of initiative on behalf of the beneficiary and access is subject to a careful screening or selection process.
In my paper, I conclude that rather than striving to apply increasingly sophisticated quantitative methods to quantifying and attributing social outcomes, there should be greater recognition of the limitations of SROI and similar methods. The value of these tools lies in highlighting the value of activities with no obvious monetary value rather than calculating an accurate social return on investment. To paraphrase the British philosopher Carveth Read, it is better to be roughly right than exactly wrong.
Editor's note: This blog post is based on Pål Vik's article "What's so Social about Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance", for which he was awarded the Reg Mathews Memorial Prize in 2017. The Reg Mathews Memorial Prize is an annual award for the paper considered to have made the most significant contribution towards the social and environmental accounting literature published in Social and Environmental Accountability Journal (SEAJ). The paper is selected by the editorial board of SEAJ and is named in memory of Professor Reg Mathews, a leading figure in the development of social and environmental accounting.
As part of the award, Pål Vik's original paper published in Social and Environmental Accountability Journal will be available with free access until February 2019.
References:
Vik, Pål (2017). What's so Social about Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance. Social and Environmental Accountability Journal, 37(1), 6-17.
It is hard to compete with the allure of precision and quantitative measures to guide investment and management efforts. On the face of it, quantitative metrics offer a comparable, intuitive, and seemingly robust and objective measure of how well an organisation or company is performing.
The not-for-profit and social enterprise sector has not been immune to this allure. In fact, there has been a distinct shift towards quantitative approaches in proving their social value added in the last few years. Social Return on Investment, or SROI for short, has been among one of the more popular quantitative approaches used by the sector. SROI generates a monetary value of social impact for each pound or dollar invested net of costs. Its' appeal is reinforced by the similarity to conventional cost benefit analysis, making it easily understandable. An important aspect of SROI is that it links the services and products of an organisation with the social outcomes for individuals and groups external to that organisation, generally by comparing the users of a service with a benchmark or control group.
In my recent paper (Vik 2017) I critically assess the viability of calculating a monetary return for social outcomes drawing on over 20 large-scale microfinance impact studies spanning over two decades. There are important lessons from microfinance as the sector has used increasingly sophisticated quantitative approaches to prove social impacts to investors and funders. The chief difficulty has been to link client outcomes to the services provided by microfinance organisations (implicit in the SROI methodology).
It all boils down to one question: How can you find a control group or benchmark that is similar in all aspects save the intervention? Turns out, this is much more difficult than one might think because of two biases. Firstly, those that decide to take out a loan with a microfinance provider are inherently different from non-clients, including in ways that are not easily observable (such as risk aversion and entrepreneurial acumen). Secondly, the clients that these organisations serve have been selected through a careful screening process. In a sense, the likelihood of success may be a precondition to rather than an outcome of the access to microfinance services. These biases are likely to lead to overestimates of social return on investment especially where interventions require a high level of initiative on behalf of the beneficiary and access is subject to a careful screening or selection process.
In my paper, I conclude that rather than striving to apply increasingly sophisticated quantitative methods to quantifying and attributing social outcomes, there should be greater recognition of the limitations of SROI and similar methods. The value of these tools lies in highlighting the value of activities with no obvious monetary value rather than calculating an accurate social return on investment. To paraphrase the British philosopher Carveth Read, it is better to be roughly right than exactly wrong.
Editor's note: This blog post is based on Pål Vik's article "What's so Social about Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance", for which he was awarded the Reg Mathews Memorial Prize in 2017. The Reg Mathews Memorial Prize is an annual award for the paper considered to have made the most significant contribution towards the social and environmental accounting literature published in Social and Environmental Accountability Journal (SEAJ). The paper is selected by the editorial board of SEAJ and is named in memory of Professor Reg Mathews, a leading figure in the development of social and environmental accounting.
As part of the award, Pål Vik's original paper published in Social and Environmental Accountability Journal will be available with free access until February 2019.
References:
Vik, Pål (2017). What's so Social about Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance. Social and Environmental Accountability Journal, 37(1), 6-17.
