Social Return on Investment

A framework extending conventional return on investment analysis by monetising broader social, environmental, and health outcomes alongside financial returns.

Source: Nicholls et al. 2009

Stakeholders affected by an activity are identified, the outcomes each experiences are established, and a monetary value is attached to every outcome including those with no market price. Adjustments are then made for what would have happened anyway, for outcomes attributable to other causes, for effects displaced from elsewhere, and for the tendency of outcomes to decline over time. The adjusted value is discounted and divided by the investment, producing a ratio expressed as value created per unit invested. The process is normally documented in a report setting out the stakeholder map and the value attached to each outcome, so the ratio can be traced back to its components.

Source: Nicholls et al. 2009

Four are standard and each reduces the headline figure. Deadweight removes the proportion of the outcome that would have occurred without the activity. Attribution removes the share caused by other organisations or factors. Displacement removes benefit that simply moved from somewhere else rather than being created. Drop-off reduces outcomes persisting into later years. Omitting any of these inflates the ratio substantially, and analyses differ widely in how rigorously they are applied. Reporting the ratio before and after adjustment is therefore more informative than the final figure alone, since it shows how much of the headline claim survived scrutiny.

Source: Nicholls et al. 2009

The underlying arithmetic is much the same, since both monetise outcomes and compare them against cost. The differences are in emphasis and process: social return on investment involves stakeholders directly in identifying and valuing outcomes, gives more weight to effects on individuals and communities that conventional appraisal treats as intangible, and is normally conducted by or for the delivering organisation rather than by an independent appraiser. The reporting standard is also less prescriptive. The two also differ in audience, since one is generally produced to inform an allocation decision and the other to demonstrate value to funders and commissioners.

Source: Boardman et al. 2011

That the monetary values attached to social outcomes are frequently borrowed from unrelated studies with little assessment of whether they transfer. That the adjustments are applied inconsistently, so published ratios are not comparable. That stakeholder involvement in valuation, while democratising, introduces incentives for those benefiting to value outcomes generously. And that the resulting figures circulate as headline claims without the assumptions that produced them, which is the same problem that afflicts return on investment generally. A further difficulty is that the framework does not require a comparator, so a favourable ratio establishes that value exceeded cost without establishing that an alternative use would not have produced more.

Source: Drummond et al. 2015

Where an activity produces effects across several domains that no single outcome measure captures, and where the audience requires a monetary summary. It suits community and voluntary sector programmes, public health interventions with social as well as health effects, and cases where the purpose is to demonstrate value to funders rather than to inform a comparative allocation decision. It is not a substitute for cost-effectiveness analysis where the decision concerns competing uses of a health budget. Where it is used alongside a conventional evaluation rather than in place of one, the wider outcomes it captures can inform a judgement that the narrower analysis leaves out.

Source: Drummond et al. 2015