Social Impact Assessment and Building Your SROI

Rick LarsonAdjunct Associate Professor

Columbia Business SchoolDirector, Sustainable Ventures

The Conservation Fundrlarson@conservationfund.org

Grateful acknowledgement: Cathy Clark

GSVC Prep Day

Columbia Business School

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“Metrics must be understandable, inexpensive, and most importantly, useful.”

– Acumen Fund

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Every Social Entrepreneur Faces Impact Questions:

• What social impacts is your venture aiming to achieve? • What is the relationship between these impacts and the

activities of your venture?• How well is your venture achieving them? What are you learning

about how to improve this?• Can you afford to regularly produce these impacts?• How much value is being created for society as a result?

• How do you communicate all this in compelling, cost-effective ways to the right people at the right time?

• How can the venture’s social impact improve its financial performance and sustainability?

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for-profit

ProcessMethods

Impact Methods

nonprofitEarly stage Mature

Benefit-Cost analysis

REDFSROI

GSVC SROI

AtKisson Model

AA 1000 GRI

World BankPSIA

Mature

ISO 14001

New Profit Balanced Scorecard

REDFOASIS

Balanced Scorecard

Acumen Scorecard/ BACO

Theory of

Change

SVN best practices

SocialResponsibility

UN Global Compact

CERES Principles

© Copyright 2003, Double Bottom Line Project: Clark, Rosenzweig, Long and Olsen

Taken from: Double Bottom Line Methods Catalog, available at: www.riseproject.org

B Corporations

What Methods Do People Use for Social Impact Assessment?

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GSVC Defines 3 Steps

1. DEFINE social value proposition: Theory of Change

2. QUANTIFY how you’ll track social value: Impact Value Chain: top three social output indicators

3. MONETIZE intended social value: Social Return on Investment (SROI)

Define Quantify Monetize

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Examples: Focused Theory of Change

• Tarsian and Blinkley: If Afghani refugee women are sewing clothing for the high margin fashion markets in the US, their quality of life and that of their families will improve.

• Developing Power: If power is provided at low costs to rural areas in developing countries, both family income and community quality of life will improve.

• Bronx Charter School: If a charter school integrates arts education into the curriculum for lower income Bronx children, educational achievement in arts and other areas will improve.

Define Quantify MonetizeIF…THEN…

2003 GSVC winners:

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Step 2:Quantify top 3 social indicators

Identify your top indicators of social value• These are outputs you can measure directly as

part of your business operations.• They should relate in a compelling way to the

ultimate desired social outcomes of the venture. • We call them “indicators” or “social outputs.”• GSVC requires that you specify the 3 most

important.

Define Quantify Monetize

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Impact Value Chain

Inputs Activities Outputs Outcomes

What is put into the venture

Venture’s primary activities to produce financial and social value

Results that can be measured by the venture = “social indicators”

Changes (increases or decreases) to social systems

Goal Alignment

How well outcomes align with intended goals; activity and goal adjustment

Based on Clark, Rosenzweig, Long and Olsen, 2003.

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Impact = differential change

Inputs Activities Outputs Outcomes

What is put into the venture

Venture’s primary activities

Results that can be measured

Changes to social systems

Goal Alignment

Activity and goal adjustment

What would have

happened anywayEssential!!!

= IMPACT

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Based on Clark, Rosenzweig, Long and Olsen, 2003.

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Stonyfield Farm Example

Economic Development

Environment

Health

• Amount paid to small dairy farmers per gallon of milk

•Savings in environmental emissions from manufacturing

•Ratio of organic, pesticide-free yogurt produced to non-organic

• Increasing or stabilizing small dairy farm industry in Northeast US

•Decreasing CO2 emissions in Vermont

•Increasing percentage of total yogurt sold in US that is organic.•Lower pesticide traces in childrens’ bodies.

Outputs Outcomes

Define Quantify Monetize

Benefits

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Pacific Community Ventures Example

Economic Development:

Job Creation

Job Quality

Job Transferability

•Number of jobs created in low-income zip-codes

•Numbers of living wage level salaries and benefits for those jobs

•Turnover stats and surveys of why employees leave the business

•Increased employment of people previously unemployed or underemployed

•Increasing employee asset accumulation and economic stability

•Increasing number of employees who get better jobs after this one

Outputs Outcomes

Define Quantify Monetize

Benefits

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Steps in calculation of SROI

1. Quantify outputs/outcomes where possible2. Translate into economic equivalent where

possible using proxies 3. Develop social cash flow projection 4. Subtract outputs/outcomes that would have

happened anyway (refer to proxy data)5. Where outcome is qualitative, discuss what it is

and how you will know it’s happening6. Cite your sources and assumptions clearly

Define Quantify Monetize

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Example: Developing Power

Define

Theory of Change (focused): • Developing Power’s value proposition is to break the

cycles of poverty in Brazil through electricity and capacity building. The primary benefits from access to electricity include improved education, human health, communication and entertainment, comfort, protection, convenience, and productivity.

Social Outcome: improved productivity

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Social outcome: improved productivity• If no proven results from venture’s operations exist, research outside

“proxy data” • Ex. source of proxy data for Developing Power: “Rural Electrification

and Development in the Phillippines: Measuring the Social and Economic Benefits,” The World Bank, 2002.

• The World Bank study indicates that with electricity, small businesses in the Phillippines typically operate two more hours per day compared to businesses without electricity.

Output unit for productivity : 2 increased hours of operation per day

Quantify

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Monetize – value per unit of social value

• Developing Power took the information from the study, adjusted it for average income its region (Bahia, Brazil), and estimated a business could potentially increase its income by $34 per month per household by gaining access to electricity.

Economic value per output unit of productivity: $34 per month

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Completing an SROI calculation

• Armed with the valuation per unit of social value, develop social cash flow projection. – Use a 10-year time horizon for your projections (recommended

this year for the sake of consistency).

• Subtract outcomes that would have happened anyway (refer again to proxy data).

• Discount to social NPV using the appropriate discount rate. (Suggestion: 10%)

• Subtract cost of providing service• Calculate return ratio: SROI or SIRR

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Example: Developing Power’s SROI

Developing Power expects to electrify 91,000 households over 15 years, resulting in an SNPV of $93 million and an SROI of $3.20.

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Estimate risk and a discount rate

• Social value creation has a measure of risk with a corresponding cost of capital.

• Depending on the social focus of your plan, the cost of public or charitable funds that would otherwise have been used to achieve the same impact may be a useful reference

• Use your own judgment! State assumptions and rationale.

• 10 year time horizon recommended

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SROI tips

• When an outcome does not show up in the social cash flow projection, discuss what it is and how you will know it’s happening.

• Do not measure benefits based solely on the market valuation of the perceived benefit.

– Ex.: A manufacturer counted revenue generated from the recovery of waste gas as the social value. Instead, it should try to quantify the environmental value gained from reduced emissions.

– Ex.: A coffee producer counted the value of their sustainable farming practices to be the extra $.50 per bag of coffee that consumers were willing to pay. They should have monetized the drivers of social outcomes such as reduced hunger, illness, and increased wages to farmers.

• Include both positive and negative impacts.

• In any quantification, include only impacts that are clearly and directly attributable to the venture and easily quantifiable.

Based on Lingane and Olsen, “Social Return on Investment: Standard Guidelines,” September, 2003.

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Putting it All Together:Social Impact Assessment tips

The goal is to make a compelling case about actual value creation, NOT to achieve the largest number.

• Show how you will track performance and calculate impact over time.

• Where are your risks and biggest challenges, are they reflected in your social impact figures?

• What are your biggest causal assumptions? How will you test them?

• How does your growth plan impact your SROI?

• Who is your competition (the industry standard) and how do you compare?

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Case study: Windows of Opportunity

Windows of Opportunity (WoO) • A lead-safe window replacement business that protects

children from lead poisoning while providing an employment training program to youth ages 17 to 24 who are at risk of chronic unemployment.

• For-profit subsidiary of Baltimore nonprofit, CLEARCorps

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Windows of Opportunity

• What is Windows of Opportunity’s Theory of Change?

• What could key outcomes be?

• What key outputs, social indicators, could WoO measure?

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WoO Outputs and Outcomes

OutcomesBenefits Outputs

Windows of Opportunity

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WoO

Theory of Change:

If lead windows in inner cities are replaced by well-trained high risk youth, communities will be healthier and employed youth will have greater educational and vocational opportunity.

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WoO Outputs and Outcomes

Health

Education

Jobs

Wealth

•Less lead in blood of resident children

•Higher test scores for childen in WoO client housing

•More hiring and higher income for workforce in next positions

•Increased monthly savings due to lower energy costs

Outcomes

Define Quantify Monetize

Benefits Outputs

Windows of Opportunity

Number of windows replaced

Number of children in client homes

Jobs and salaries attained by workforce after WoO

Amount saved per household

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NPV1 year 1 year 2 year 3 year 4 year 5

Number of new crews 2 2 1 1 1

Number of seasoned crews 0 2 4 6 7Total number of children protected 2 73 316 377 535 705Increase in future earnings per child $8,151 $8,151 $8,151 $8,151 $8,151Decrease in special education cost per child $4,000 $4,000 $4,000 $4,000 $4,000Decrease in medical cost per child $1,800 $1,800 $1,800 $1,800 $1,800Total social benefit per child $13,951 $13,951 $13,951 $13,951 $13,951Social value of lead hazard reduction efforts $22,938,685 $1,018,423 $4,408,516 $5,252,552 $7,456,810 $9,828,480

Number of homes with windows replaced 73 316 377 535 705Average annual energy cost savings $188 $188 $188 $188 $188Accrued social value of energy savings3

$686,895 $13,724 $73,132 $143,914 $244,400 $376,846

Number of crewmembers (CM) 12 12 6 6 6Increased future earnings per CM $7,390 $7,390 $7,390 $7,390 $7,390Total social benefit per crewmember $7,390 $7,390 $7,390 $7,390 $7,390Social value of crewmember benefits $118,669 $88,680 $88,680 $44,340 $44,340 $44,340

Social Costs4 -$195,000 -$87,000Total Cash Flows -$195,000 $1,033,827 $4,570,328 $5,440,806 $7,745,550 $10,249,666

PV of Social Benefits $23,814,326PV of Social Costs -$262,999

Social Return on Investment $91NPV of Social Return $22,387,987

1 Net present value calculated using a discount rate of 5.5% (municipal bond rate)2 Conservative projection based on CLEARCorps experience of 1.5 children per home3 Accounts for new homes completed and additional benefits from homes completed in previous years4 Social cost is equal to total grants required for WoO to begin and sustain operations.

Which are inputs, outputs, outcomes?

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NPV1 year 1 year 2 year 3 year 4 year 5

Number of new crews 2 2 1 1 1

Number of seasoned crews 0 2 4 6 7Total number of children protected 2 73 316 377 535 705Increase in future earnings per child $8,151 $8,151 $8,151 $8,151 $8,151Decrease in special education cost per child $4,000 $4,000 $4,000 $4,000 $4,000Decrease in medical cost per child $1,800 $1,800 $1,800 $1,800 $1,800Total social benefit per child $13,951 $13,951 $13,951 $13,951 $13,951Social value of lead hazard reduction efforts $22,938,685 $1,018,423 $4,408,516 $5,252,552 $7,456,810 $9,828,480

Number of homes with windows replaced 73 316 377 535 705Average annual energy cost savings $188 $188 $188 $188 $188Accrued social value of energy savings3

$686,895 $13,724 $73,132 $143,914 $244,400 $376,846

Number of crewmembers (CM) 12 12 6 6 6Increased future earnings per CM $7,390 $7,390 $7,390 $7,390 $7,390Total social benefit per crewmember $7,390 $7,390 $7,390 $7,390 $7,390Social value of crewmember benefits $118,669 $88,680 $88,680 $44,340 $44,340 $44,340

Social Costs4 -$195,000 -$87,000Total Cash Flows -$195,000 $1,033,827 $4,570,328 $5,440,806 $7,745,550 $10,249,666

PV of Social Benefits $23,814,326PV of Social Costs -$262,999

Social Return on Investment $91NPV of Social Return $22,387,987

1 Net present value calculated using a discount rate of 5.5% (municipal bond rate)2 Conservative projection based on CLEARCorps experience of 1.5 children per home3 Accounts for new homes completed and additional benefits from homes completed in previous years4 Social cost is equal to total grants required for WoO to begin and sustain operations.

Outputs

Desired Outcomes

Inputs

Note: technically

“impact” was not shown!!

Value from Proxy Data

Outputs

WoO inputs, outputs, outcomes

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GSVC SIA judging guidelines

1. Compelling theory of change and strong relationship between it and the top three indicators you choose that will drive to ultimate outcomes

2. Monetization of social return on investment using consistent and appropriate logic, clearly identified sources of value and assumptions, and thoughtful approach.

3. A clear and compelling assessment that can be easily absorbed by judges

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Other advice we give toGSVC entrants

• Make sure Theory of Change is consistent with the social impact you predict through the SROI

• Support your assumptions with actual data and/or outside sources whenever possible

• Include both positive and negative outcomes

• State how venture will monitor return over time

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Read the winning SROIs from 2009!

• On www.gsvc.org under Resource Library SIA examples.

• Everyone should read Human Service Fellowship. It’s one of the best GSVC SIA I’ve ever seen.

• http://www.gsvc.org/docs/HumanServiceFellowshipSROIv2.pdf