This is a guest post by Oleksandr Topachevskyi at Digital Health Outcomes. Oleksandr may be contacted at sales@digitalho.com
Commercial, nonprofit, and government companies are quite good at calculating the costs and
profits of their operations. This is because they have a number of standard documentation and a
team of specialists, from accountants to economists to analysts. They can also calculate and
demonstrate how the investment in the business has affected the number of their customers or
contacts. But not everyone knows how to explain why their activities are important to society and
the value of their company’s investments. The concept of social return on investment (SROI) can
help address these questions.
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SROI and economic value
This concept is closely related to but much broader than, the economic value of a company. It is a
tool that measures the social, environmental and economic value a company brings to society,
whether it is engaged in social programs, politics or production. The SROI model is also a valuable
tool for market access.
The calculations for determining the social return on investment are based on the traditional cost-
benefit analysis used in social statistics. This makes it possible to estimate different kinds of
activities in monetary terms. In doing so, it does not matter what financial value they already have
or if they have any.
The main tasks of such an analysis are:
- to show how a company makes a difference in the world in the course of its activities;
- to see how well capital and other resources of the company are being used to create
products of value to society.
The SROI assessment will give you the benefit-cost ratio, that is, how much social value in
monetary terms, such as dollars, is created for every dollar invested.
SROI and Health Economics
Unlike traditional cost-benefit analysis, social return on investment is not reflected in a company's
statements, nor is it used to demonstrate its financial success. Nonprofit organizations originally
used SROI to measure the overall progress of certain projects, and the social impact of a company.
SROI calculation also allows:
- improve the planning and evaluation of a company's activities;
- improve a corporation's understanding of its impact on the community;
- have evidence of the value of its activities, which can be used both within the company and
to demonstrate to external stakeholders.
Today such analysis is requested by public and financial companies, including investment funds, in
the process of making decisions about funding, charitable donations and social investments.
SROI is particularly common in the healthcare economy. This is primarily due to the rise in health
care costs over the past few years. The economic evaluation of the social effectiveness of several
treatment options allows us to determine how to maximize the benefit to the individual and society
as a whole with limited resources. It also provides reliable information about the social benefits of
investing in developing new drugs and medical devices.
Types of SROI
There are two types of SROI analysis:
- Evaluative. These reports are based on the actual results of the company's activities that it
achieved in a certain period and are conducted retrospectively. - Predictive. Such a report is carried out at the planning stage of a project. Its purpose is to
predict the future social value of the project if its activities correspond to the planned
objectives.
The forecast report can also be carried out for already launched projects which require additional
investment. An estimated SROI can confirm the data provided in such a report.
How to calculate SROI
The approach to calculating social return will vary depending on which program is being evaluated
and what type of analysis is being done. But any calculation of this metric will require data such as:
- the amount of the company’s expenditures and investment funds to launch and prepare the
program or production organization; - the results of the work performed or the tangible products produced (as an example, how
many people were in the training group in the retraining program); - the results achieved after the project (e.g., how many people got a job after the training
course, an increase in their income and tax revenues, a reduction in social payments from
the government to the poor, etc.); - to make the calculations more objective, from the results achieved should be deducted
those that would have been achieved without the program under study (for example, if on
average 5 people get a job during the period under study, and 20 people were employed
after the program, the effectiveness of the training program should be calculated for 15
people).
The greatest problems in calculations arise when assigning a monetary value to the social impact.
To simplify this process, various methodologies have been developed to quantify outcomes. One of
them is the Analytic Hierarchical Process (AHP). This methodology allows you to convert qualitative
information into quantitative values. You can also use the services of a consulting company that
specializes in analytics and economic modelling.
