A position paper published this week by the U.K. think tank New Philanthropy Capital examines how charities apply social return on investment, which measures an organization’s impact in financial terms.
“SROI can be seen as a type of economic analysis closely related to cost-benefit analysis. It focuses on listening to stakeholders and identifying the outcomes that are important to them, and then putting a financial value on these outcomes.
… In the paper we argue that the full potential of SROI is currently not being exploited. Firstly, many charities that calculate their SROI see it only as a fundraising tool, rather than a management tool that could help them learn where their impact is greatest and how they could improve their activities. And secondly low levels of evidence in the charity sector hold SROI back from being adopted more widely. SROI is an approach that demands evidence and helps charities think through where more evidence is needed, but it does not tell charities how to collect this evidence. SROI will not be an option open to more charities and funders until there is more investment in improving the evidence base of the sector.”