Although all functioning business machines are (and very well should be) concerned about Returns on Investment (ROI), nonprofit organizations in particular are slightly more concerned with SROI, or Social Returns on Investment.
A Social Return on Investment (SROI) is anything of value outside of the financials that is reflected in the actions, attitudes, and atmosphere of the various stakeholders- publics, donors, shareholders, etc.- and social environments of an organization. Widespread publicity, a positive shift in the perceptions of the publics, and increased pledged support from donors due to rejuvenated confidence in the organization are all examples of SROI.
According to a free report from Redbird Communications, titled, “10 Powerful Strategies to Help Non-Profits Demonstrate the ROI of Their Programs,” NPOs are being increasingly pressured by corporate donors “to act and report like businesses… corporate donors want to know the value of their support and the hard facts about what their sponsorship has ‘purchased’ in terms of social or public health improvement.” Some surmise this is because of the aura of uncertainty surrounding the current economic landscape (“Demonstrating the ROI”).
Concerning strictly financial ROI, a 2011 article by Shawn Kendrick on VolunteerHub recommends that NPOs should cut costs whenever possible, because more savings equal a better ROI, which in turn equals a better bottom line. According to Kendrick, “cutting costs” can be any tactic that reduces the waste of time, money, and resources. He also recommends that opportunity costs should be considered; for example, Kendrick warns that downsizing to cut costs may lead to staff members becoming a sort of “Jack of All Trades, Master of None,” and having each of their specialty roles wasted when spread too thin (Kendrick, 2011).
But how does this affect the SROI? And how can we measure it?
Typical ROIs can usually be accounted for: numbers and dollar amounts and other numerical statistics can be collected relatively easily. So how does a NPO “collect” attitudes and perceptions?
By measuring the ROI, and finding a correlation.
Economists Garth Heutel and Richard Zeckhauser suggest in their paper, “The Invest Returns of Nonprofit Organizations: Part I, Tales from 990 Forms,” that SROI may be determined by data retrieved from IRS forms filed by NPOs.
Jed Emerson, Executive Director of the Roberts Enterprise Development Fund (REDF), published a comprehensive study on SROI measurement through the investment firm with Suzi Chun, a SROI Analyst, and Jay Wachowicz, a REDF Farber intern. The study provides not only a guide to drawing conclusions from ROI, but also processes to properly collect, measure, and analyze SROI, along with concepts for a database system for aggregating ROI and SROI data to find trends (Emerson, 2000).
Following the initiation or execution of a program, a NPO needs to “take the pulse;” that is, the organization should follow up on the attitudes of stakeholders both pre- and post-execution. This can be done through measuring the differences in donations both before and after the program (did monetary support increase or decrease? Why?), measuring the perceptions of stakeholders through primary research (focus groups, questionnaires, etc.), and finally measuring whether or not the perceived benefits of the program outweighed the costs (or vice versa). It’s all very mathematical, and quite frankly, it makes my brain hurt.
The most prominent piece of advice the REDF report offers is that every non-profit organization should invest in an information system “sophisticated enough to engage in the type of analysis presented in [the] paper.” It insists that, to properly track the long-term effects of a program, a complex data system must be established to continuously “feed” information to program managers, developers, and executives. This type of feedback-peddling system would help program managers more readily “quantify the economic value of nonprofit activities,” which can then be presented to satiate the thirst of corporate donors when they come a-knockin’, looking for facts (Emerson, 2000).
“Demonstrating the ROI of your non-profit program to donors.” (2014). Redbird Communications. Retrieved from http://www.redbirdonline.com/blog/demonstrating-roi-your-non-profit-program-donors
Emerson, J., Chun, S., and Wachowicz, J. (2000). The Roberts Foundation. Retrieved from http://www.redf.org/wordpress/wp-content/uploads/2013/10/REDF-Box-Set-Vol.-2-SROI-Paper-2000.pdf
Heutel, G., Zeckhauser, R. (February 21, 2013). Nonprofit Management and Leadership. Retrieved from http://www.hks.harvard.edu/fs/rzeckhau/EndowmentsPaperPartI.pdf
Kendrick, S. (September 2, 2011). Volunteer Hub. Retrieved from http://www.volunteerhub.com/blog/return-on-investment-for-nonprofits/