Are you in Dharavi helping out the poor or in downtown LA feeding the homeless?
If your NGO wants to last long, understand your social return. Philanthropists and grantmakers worldwide are focusing more on getting a clear social return on their investment.
According to Heather Stombaugh, a US-based expert in Social Return on Investment (SROI), investors want to know how every dollar you spend is being used in the community.
What are the benefits that your NGO is bringing to the table and what are the social costs that it is helping to avoid? SROI calculates costs avoided and benefits gained by translating the outcomes of nonprofits into social values.
For example, what is the impact that an NGO like Habitat for Humanity can have in your community? From civic engagement to neighborhood stabilization, we can calculate the social returns in dollar terms that each Habitat brings to communities worldwide.
SROI is revolutionizing the way donors give as it will help them find out exactly how much a dollar can bring in terms of impact to the local community.
“I think SROI has exceptional utility for large and small nonprofits anywhere in the world. It’s a unique perspective and process that bridges traditional investment language to social outcomes. That concept speaks to multiple types of audiences (some driven by metrics, other driven by emotional appeals.). I think it is only a matter of time before there are SROI organizations beyond Europe, with the US, India, and China top of the list,” she said.
As private charitable foundations get more selective in giving, SROI will become a benchmark to calculate the value of doing good. And, government funding, especially for grants will follow this path. The US Federal grants system has already revamped its way of thinking and the focus is not on the outcomes of your project but on performance based results.
According to Stombaugh, SROI grew out of a response from grant makers, donors and nonprofits who were “wanting more than outputs and one-year outcomes.”
Stombaugh adds that grant makers started acknowledging that their grant reporting methods namely grant reports and measurement systems were looking only at one year’s worth of results and were hamstringing nonprofits.
“SROI is one way organizations can take a longitudinal look at the results of their efforts. Some states in the U.S. are now funding social impact projects statewide and citywide in Illinois, for example), and private funders, especially corporations, speak in investment language. SROI is a fit for all these issues,” she added.
Nobody sums this concept better than Dr. Bjorn Lomborg, a visiting professor at the Copenhagen Business School, in a recent article in the Wall Street Journal highlighting global development priorities and how funding should be spend in doing good around the world, especially in developing countries like India.
"One of the best places to start is to establish where you could do the most good with every dollar you spend. That way, your money goes a lot further."
For instance, Dr. Lomborg says that freer trade from completing the World Trade Organization's Doha agreement would give over $2,000 in extra value for each dollar invested in retraining and compensating displaced workers worldwide. "It would lift 160 million people out of extreme poverty, giving every person in the developing world an extra $1,000 in income every year by 2030."
SROI creates compelling cases of why people should invest in your NGO. The conversation is more about people and communities, how philanthropists can maximize your investments and it is laser focused on preventing social ills.
At the end of the day, it will make you ask the big question: What will happen if my NGO didn't exist?
Additional resources - Calculating SROI: http://nonprofit.about.com/od/foundationfundinggrants/ss/Using-Sroi-To-Show-Your-Nonprofits-Impact.htm