Social impact analysis - SUM: Sustainability Management Wiki

Authors: Svenja Köhler, Lucille Liberra, Van Loc Nguyen, Pauline Charlotte Schütze
Last updated: December 21, 2022

1 Introduction

Social Impact Analysis (SIA) is a method that enables companies and organizations to make their social dimension tangible. ¹ A company or organization which aims to meet the demands of the public needs a strategy that can carry out and prove that they have a positive social impact internally and externally. When conducting an SIA, a combination of quantitative and qualitative data as well as existing evidence is collected and evaluated in a report. ¹ Thereby the focus is set on qualitative data. Despite its origin in Environmental Impact Assessment (EIA) in the United States of America (U.S.) during the 1970s, no universal structure has evolved, and various concepts have been introduced. However, there are several approaches and tools to successfully make the analysis measurable and quantifiable, which include the Social Return on Investment (SROI). ¹, ² The success of these approaches highly depend on the firm’s environment and internal structures. Overall, the method is still at the beginning of its development but is being taken up by numerous companies aiming to gain a long-term competitive advantage. ¹

2 Definition and relevance

SIA is used to assess the social impacts of products or projects through systematic analysis of impact chains. ¹ SIA can be utilized on various levels and in various settings. It can analyze both the social value created by a company or organization and the social impact generated by an institution’s project, program, or intervention. ³ It is a process in which the social impacts, which signifies positive, negative, planned, and unplanned outcomes of social transformation, are elaborated, planned, and managed. ⁴ Social impacts may include the sense of community, work culture, as well as the well-being and health of stakeholders. Thus, SIA attempts to make the social dimension of a company tangible. ¹ Here, not only the social impacts and issues within the company are considered, but also external factors and potential interactions with them must be taken into account.

No general and common standards on how to conduct an effective SIA exist yet. ⁵ One approach, developed by Then et al. (2017) states that during the analytical process, the SIA goes through seven steps (see Figure 2) which will be explained and discussed in detail in section 2.2. ¹

There is a wide range of reasons why an SIA is carried out by companies. ⁶ Then et al. (2017) differentiate between three main reasons for using SIA in a company or organization. Improving external communication is mentioned as the most frequent reason, the second mentioned cause is jumping on the trend towards SIA, and as the last reason, strategic interest is mentioned. ¹ Other scientists state, that among the many different reasons for carrying out an SIA, two most commonly used approaches seem to have emerged. ⁶ One is the Social Outcome Approach. It does not focus on financial output through social impact, but explicitly on positive and social outcomes. It views social impact as extra-financial outcome. ⁵ The Business Value Approach, on the other hand, looks at how social impact affects the financial targets of the activity. ⁶ In this type of SIA, social impact is another tool to strengthen the company or project financially.

SIA is intended to legitimize the company, organization, or project in the eyes of the public and private sectors, as well as society at large. ¹ Nowadays, the public is not satisfied with a company claiming to do good, it must have a strategy and evidence to prove it. ⁶ This seems to be a side effect of today’s society being used to receiving information and data transparently and in abundance. ¹

Since SIA is still at the initial stage of its development, many companies attempt to jump on the trend and gain a competitive advantage by applying the concept. ¹ This is especially of strategic interest, as they set themselves apart from the competition. Yet because SIA is still in its infancy, this analysis is rarely carried out from within the companies. External providers are in demand, even though finding them is complicated. Furthermore, the concept still has flaws. ⁶ SIA has a risk of being carried out subjectively, as well as some assumptions and findings may lack comparability. This may lead analysts to favor projects or companies with easily analyzable impact. All in all, there is a lack of know-how and personnel, and the implementation of SIA is therefore still difficult. ⁶

2.1 The Impact Model

Despite the missing consensus about the definition of social impact, this section uses Rosenzweig and Clark’s (2004) description as “the portion of the total outcome that happened as a result of the activity of the venture, above and beyond what would have happened anyway”. ⁷^{, p. 7}

To show and measure social impact, the Impact Model is often used in SIA as it organizes information about elements of a project or program and shows their relationships in form of an effect chain. ⁸ Doing this for each stakeholder group can provide direction and clarity and can predict when to expect certain changes. ⁹

The concept of the Impact Model is an extension of the Logic Model introduced by Joseph S. Wholey in 1979 which is based on the Theory of Change. ⁸^,⁹ This theory covers the question of what difference a project intends to make and what kind of impact it is meant to have – in other words why someone should believe in a certain project. ⁸

Figure 1 shows the first three steps of the effect chain originating from the traditional performance measurement that considers input, activities, and outputs. Input deals with the use and number of resources available. Activities are processes or strategies performed by the organization or company to achieve goals and therefore must be related to outputs that cover short-term results and successes. ⁸

*Figure 1: Impact Value Chain, own representation based on Rosenzweig and Clark (2004) ⁷*

The impact measurement goes a step further and includes outputs, deadweights, and impacts as part of the model and hence, extends the Logit Model which does not include deadweights nor the calculation of impact. The outcome summarizes the negative or positive effect on people as a result of the project. Usually, this part is an indicator of success at an individual level. By subtracting the deadweight, which are the inherent effects that occur even without the project, one receives the impact. This part shows the impact of the project on the community/organizational/system level and is therefore a large-scale indicator. ⁸

2.2 Steps of an Effective Social Impact Analysis (SIA)

The analytical process of an SIA usually goes through seven steps (see Figure 2). The first step of a successful SIA is to define the objectives and scope of the analysis. During this process, both scenarios and possible measures are examined in more detail regarding their economic and social relevance. ¹ Furthermore, the potential feasibility of measures, mitigation, and enhancement measures are identified. The geographical and temporal scope of the analysis, the assessment criteria in the ex-post evaluation, and the extent of desired social impacts are also determined. It is important to agree on the data sources that will be utilized during the analysis. The outcome of this first step will form the basis for management strategies to respond to both negative and positive social impacts of the project. ¹⁰

*Figure 2: Steps of an SIA, own representation based on Then et al. (2017) ¹*

The second step is the identification of the relevant stakeholder groups. ¹ The identification and subsequent stakeholder analysis clarify which stakeholders should be included and considered in the SIA process. ¹¹ It is advisable to display the stakeholder analysis in a matrix. All further steps of the SIA analysis will refer to the stakeholder groups determined in this step. ¹¹ The effect chain, for example, will be adapted to the stakeholder groups, which are under consideration. ¹² The stakeholder groups should be analyzed and selected based on:

their interests in the activity
their positive or negative impact on the activity
possible dependencies
whether they can be integrated into the SIA ¹¹

In the third step of the SIA, the revenue and spending of the project or company are analyzed. ¹ The analysis of income and expenditure is mainly about finding out how much financial and human resources can and should be invested while carrying out the SIA. At the same time, an idea can be gained of how strong the effects will be. The aim is to generate a high output with a relatively low input of resources.

The aforenamed impact chains are the best way to illustrate the social impact and form the fourth step of an effective SIA. ¹² These are explained in detail in chapter 2.1. In short, they are created for each stakeholder group and invariably follow the same scheme. First, the input is measured. How many resources from the company or project go into a certain stakeholder group? Resources can be for example time, personnel, or financial means. The input is followed by the performance-oriented measurement of success. This is focused on activity and output. Activity means examining the company’s actions. The output is the measurable short-term success. Performance-oriented measurement of success is followed by impact-oriented measurement of success. This deals with the direct effects. It answers the question of whether input, activity, and output promote positive or negative changes in society, specific groups of people, or the company. Intended and unintended gross and net effects are recorded and subsequently analyzed.

The fifth step of the SIA consists of the definition of the measurement parameters and the collection of the data. ¹ The initial question of step five is to determine the parameters or indicators on which the focus of the analysis lies. For the subsequent data collection different data-gathering methods and tools of analysis are available. For example, one can decide between qualitative and quantitative data collection or a mixture of the two. When planning the indicators and the research methodology, it is important that in the first steps of the analysis, the timeframe the resources for the analysis process, and the relevant stakeholder groups have been determined. These defined components of analysis simplify answering the question of which indicators and data collection methods should be adopted. ¹¹

The sixth step of the SIA involves calculating the SROI. ¹ This tool is explained in detail in chapter 4.2. The analysis instrument does not have to be an integral part of an SIA, but the SROI is the most prominent tool used. Since, as mentioned above, there is no universal SIA process, it is up to the analyst to decide on a measurement tool with which the results of the SIA can be measured and visualized. ¹³ In short, SROI is a principle-based method for measuring the extra-financial value of a project or company. ² In this case, it refers to the social value that would not be considered in conventional accounting. It is used for identifying opportunities to improve performance, assess impacts on affected stakeholders, and improve the performance of investments. ¹³

The seventh and final step of the SIA is to evaluate and report on the SIA process in the form of an SIA report. ¹ The evaluation is used to see how well the analysis has been carried out, which parts of the analysis need to be improved or adapted and to adjust and align future analyses. The reporting is based on the assessment results and can also serve as a communication tool between the project promoters or companies and society. Sharing these results can build trust and sympathy. This last step of the SIA, therefore, provides a basis for ongoing feedback on the SIA process on the one hand, and empirical data for future analyses on the other. ¹⁰

3 Background

The concept of SIA, also referred to as social impact assessment, has its origin in the U.S. and has been adapting throughout the past decades since the 1970s. Before that only little research had been published on estimating future impact not to mention social impact. However, the general idea of social impact in the context of company actions had been brought up in a seminar at Yale University in 1969 with a focus on the ethical responsibilities of institutional investors. ¹⁴ This initiated further research on the connection of companies and the impact of their actions. In 1970, the U.S. government introduced the National Environment Policy Act (NEPA) that formalized a set of practices and procedures to predict environmental impacts from large-scale projects and therefore mandated EIA. ¹⁴ Even though SIA had not been stated as an independent assessment, it was assumed that projects could have a negative social impact, e.g., environmental degradation in real estate development could lead to socio-economic costs from displacing and other revolving activities. ¹⁴

Taking a closer look at the connection between NEPA and social impact, sections 101 and 102 suggest that considering social impacts should be included in general while section 1508 calls for a study of direct and indirect social and cultural impacts. Though there are no clear definitions or procedures for direct and indirect social and cultural impacts, it was made clear that the source comes from changes in the physical environment through human-made projects. During the 1970s a surge of EIAs could be observed and therewith SIAs as construction of highways, dam projects, and energy development in rural areas increased and required assessments due to the large size of the projects. Therefore, the Federal Highway Administration and Corps of Engineers, responsible for most of the large-scale projects in the U.S., were highly involved in developing and shaping SIAs. Eventually, at the end of the 1970s, SIA became the cottage industry in the U.S. and the number of professional social scientists increased to about 1,000. ¹⁵

Next to the NEPA-related SIAs, SIA was also used for analyzing Third World development projects. However, the focus was not on identifying potential social impacts but on whether cultural or institutional factors would hinder the success or feasibility of projects in these countries. This practice was also referred to as Social Soundness Analysis and had a vaguer approach than SIA during the 1980s and 1990s. ¹⁵

Nonetheless, as popular SIAs became in the U.S. during the 1970s as massive was the reduction in the 1980s due to the declining number of large building projects and the diminishing number of available scientists to perform SIAs due to the lack of funding. ¹⁴

On the upside, the number of SIAs in other countries like Canada or Western Europe increased from the 1980s on and additionally some international organizations began to implement strict socioeconomic impact assessment. ¹⁴, ¹⁵ For example, World Bank had been criticized heavily for the negative environmental and social impact of some of its projects. As a result, impact assessment reporting on development projects was introduced voluntarily from 1999 onwards to demonstrate the effect of investments on local communities. In addition, the number of staff was increased to work on these reports and World Bank tried to sensitize themselves with respect to impact assessment. ¹⁵ Interestingly, a study in 1985 by Kottak stated that the average economic rates of return that were socio-culturally compatible and were based on an adequate understanding and analysis of social conditions were more than twice as high as those for socially incompatible and poorly analyzed projects. ¹⁶

A pivotal point for SIAs was in 1994 when the U.S. Interorganizational Committee on Principles and Guidelines presented a framework and guidelines on how to implement SIA for new projects. This was seen as a milestone as it was the first of its kind that stated core procedures, gave guidance in any jurisdiction, and highlighted the importance of considering the social consequences of new projects. ¹⁴^,¹⁷

Beyond the U.S. border, SIA has adapted to become a more mapped impact assessment beyond the NEPA requirements and has been used increasingly more as a predictive study. Drivers and focus have shifted, and companies try to integrate SIA in the ongoing management process to be able to mitigate the impact as social issues are seen as drivers of business risks. Hence, management standards like the International Finance Corporation’s Environmental and Social Performance Standards have been introduced to highlight companies’ responsibilities for managing environmental and social risks. ¹⁷

Reflecting on the development of SIA, the course of interest can be also observed in the academic world. Starting from 1973, the number of field-related citations has been steadily increasing and has quadrupled from 120 in 1993 to 624 in 2010. ¹⁷ In addition, Google also stated that annual interest in SIA has risen since 2008 namely because of the expanding interest of companies to be more socially and environmentally impactful to e.g., increase shareholder returns. ¹⁴ As best practices have been changing over the past decades with different scopes and types, by 2019 there were more than 150 different methodologies for measuring and analyzing social impact while neglecting companies’ individual concepts. ¹⁴ Also, SIA has become more prominent for social enterprises and is increasingly used as a decision-making tool for investments. This is due to the rising awareness of social impact but also to have evidence of their positive impact on funding in a field that is growing in competition. ¹⁸

4 Practical implementation

To put the concept of SIA into practice, there is a need for impact measurement that quantifies and, in some cases, monetizes the identified impacts with a view to their causal relationships. As mentioned earlier, impact measurement can be seen simultaneously as a step toward effective SIA and as a means of implementing the concept.

Measuring impacts not only supports the expression of effects in monetary units but makes interrelationships and allocable results visible. A long-term objective should be to establish a common measurement approach between organizations to create comparability between interventions. ¹, ¹⁹ However, SIA is conducted for a lot of different social issues and the resulting impacts are often equivocal. Thus, different measurement approaches are applied for different types of impacts. ¹⁹ What is more, measurement results depend not only on a common approach but also on the assumptions of the impact model and the social conditions. ¹

4.1 Characteristics of Social Impact Measurement Methods

Social impact measurement methods differ in several characteristics. The purpose of a tool can be to screen, monitor, report, or evaluate the social impact of an intervention. Furthermore, tools can measure social impact ex-ante, ex-post, or during the implementation of the intervention (time frame). A further distinction can be made with regard to the perspective of the method. The instrument measures social impact either at a micro (individual), meso (company), or macro (society) level. Finally, the approach of the measure is essential. ²⁰ A widespread category for quantifying impacts is money. Three impact dimensions can be monetized: 1) the economic impact dimension, which is not immediately obvious, 2) economic impacts, which are already measured in monetary units, and 3) impact dimensions, which can be translated into money. The most prominent example of an indicator that monetizes social impacts is the SROI (see section 4.2). Yet, there are some concerns regarding monetizing social impacts (see section 4.3). Thus, there are alternatives – however, not as widespread – categories and approaches for measuring impacts, such as the well-being or “happiness” of stakeholders. ¹ Besides monetarization, process methods, and impact methods are two broad types of approaches for measuring social impact. Thereby the categories support each other and are interrelated. ⁷

4.2 Social Return on Investment (SROI)

The SROI is a framework for social impacts, based on the Return on Investment (ROI), a common profitability metric for evaluating the performance of an investment by dividing the net profit by its initial costs. It was influenced by social accounting and cost-benefit analysis and can be defined as “[a] process of understanding, measuring, and reporting on the social, environmental, and economic value created by an organization.” ²¹, p.12 There are various levels of application to the SROI framework, from covering the social value created by an entire organization to evaluating a single project, program, or intervention of an institution. SROI analysis is a relatively young framework, as it was first developed in the late 1990s by the Roberts Enterprise Development Fund to assess and monetize the extra-financial value of an employment plan by using a ten-steps methodology. ³, ²² The original SROI method was adapted to a six-step methodology by the Cabinet Office and The SROI Network who describe it as a framework that includes a broader understanding of the value that “[…] seeks to reduce inequality and environmental degradation and improve wellbeing by incorporating social, environmental, and economic costs and benefits.” ²³^{, p.8}

Although, the SROI was originally created as an analysis- and measurement tool for Non-Profit Organizations (NPOs) it has become well-known in the private and public sectors and is widely used by profit-oriented organizations as well. Its main objective is to assess the effects and added value for society that emerge from specific projects, interventions, and programs. ²³ Thus, it can tell if a project is worth the investment by measuring social, economic, and environmental outcomes and expressing them in monetary units. The monetary result that is to be interpreted is called the SROI value. This single key figure is a numeric ratio, which compares the aggregated monetized impacts of stakeholders, derived from an Impact Model, to the sum of investment costs or inputs. In this manner, the SROI value depicts the social return to society on the money invested in the activity. A ratio of 1:3 thus indicates that for an investment of one Euro, or any other currency, a social return of three Euros is generated. Hence, an investment is considered worthy if the social return is greater than one. ²⁴

As an economic evaluation method, SROI provides a numeric key feature, the SROI value, and shares similarities with traditional economic evaluation instruments, for instance, the cost-benefit analysis. However, the SROI methodology has an extensive stakeholder approach and emphasizes measurement, analysis, and presentment of diverse impacts rather than on financial performance and efficiency. The knowledge of how stakeholders are affected by a particular activity should be included when making resource allocation decisions. Therefore, analytical analysis of the respective Impact Model, as explained in chapter 2.1, is indispensable for a successful application of the SROI as a social impact measurement instrument. ¹^,²⁴

One of the key characteristics of the SROI framework is its comprehensiveness because both, quantitative and qualitative data are considered and far-reaching impacts on different stakeholders are taken into account. ¹ This strong stakeholder orientation is essential for determining, quantifying, and monetizing relevant outcomes, as stakeholders are the ones facing, whether directly or indirectly, the positive or negative change, resulting from an organization’s actions. Investors are one of the stakeholder groups nonetheless, the SROI method does not focus on returns for them, but instead emphasizes the social value created for other stakeholders and society altogether. A valuable aspect of SROI measurement is the consideration of deadweight, so only impacts that actually result from an organization’s activity are factored in. ¹^,²²

Monetizing impacts can be a challenge, depending on the specific programs and affected stakeholders. To illustrate this obstacle, Then et al. (2017) give the example of the social value creation of a non-profit care facility. In this case, one of the considered stakeholder groups is the family that would have to take care of their elder family members, if the non-profit care facility would not take the responsibility to nurse them. The impact of potential working hours lost due to the time needed for taking care of the elderly can be easily monetized, yet the alleviation and stress abatement attained by the care facility’s action of taking responsibility for the elderly are more difficult to transform into monetary values. ¹

The SROI calculation can be broken down into three steps. Firstly, the value of all given outcomes must be predicted into the future while considering deadweight. An important part here is to include a drop-off percentage for outcomes with long-term impacts, as these impacts usually decrease over time. The second step is to calculate the Net Present Value (NPV) of impacts or benefits and the NPV of investment costs by using the discounting method. The respective discounting rate differs and can be complicated to choose depending on the impact e.g., the value of environmental outcomes may rise in the future. For the public sector, the suggested discount rate lies between 3 % and 3,5 %. Lastly, the SROI ratio or net SROI ratio can be calculated. The formula is the sum of the present value of inputs divided by the sum of inputs. Either the NPV or simply the present value of the impacts and investment costs can be used in the ratio, the latter foregoes the discounting process. An optional step is to analyze the sensitivity of a project to assess the significance of different determinants for the overall SROI value. Information about sensitivity can be used to estimate the amount of change needed to transform the SROI ratio from negative to positive or vice versa. By changing different determinants e.g., valuation of deadweight, financial proxies, and quantity of outcome, one can identify determinants that trigger significant change and can deduct how to prioritize them when making resource and investment decisions. ²³

The calculation of the SROI value, the ratio which compares the monetized impacts to the value of the investment, only makes up for the penultimate step as part of an SROI analysis. Then et al. (2017) developed an SROI analysis model which is highly based on the social impact model (see chapter 2.3). By adding further stages of monetizing the impacts and estimating the SROI ratio a model (see figure 3) with the following steps emerged from it: (1) Investing in a particular project, program, organization, or company, (2) Identifying stakeholders and recognizing the output for individual stakeholders, (3) Quantifying outputs (=outcomes) for individual stakeholders, (4) Measuring impacts while considering deadweight, (5) Monetizing impacts, (6) Calculating SROI value by dividing the sum of impacts by the investment. ¹ It must be stated that there is not one true SROI analysis framework, but there are different types, depending on the available time, financial resources, and intended purpose. Then et al. (2017) differentiate four types, namely light, medium, advanced, and integrate SROI analysis. These increase gradually from light to integrated in their ramification considering scientific rigidity, breadth of stakeholders, breadth of qualitative impacts, scope and quality of monetization, breadth of alternatives, costs, time, and complexity of purpose taken into account. Along these lines, the aforementioned aspects should be scrutinized before choosing a study design. ¹

*Figure 3: SROI analysis, own representation based on Then et al. (2017) ¹*

Regarding the timeframe, SROI can be implemented in two ways, predictive and evaluative. The predictive SROI is a forecast, which anticipates the amount of social value created when the activities match the outcomes. A forecast is particularly useful for the planning stage as it helps to identify relevant indicators to measure and exhibits how outcomes can be captured once the project is carried out. In this manner, an SROI forecast addresses the question of how investment can maximize impact. It is suggested to conduct a forecast beforehand to assure the completeness and validity of a model for future evaluative analysis. The evaluation type SROI is realized in retrospect and calculates the SROI value based on the real outcomes resulting from an activity. It is often used as a management tool for monitoring and measuring the performance of an investment over time and provides assistance in decision-making processes e.g., for developing a public policy, that depends on social value assessment of different options. ²³

Although SROI analysis is probably the most widely used methodology of SIA, some critical voices question the usefulness and purpose of this analysis. A frequently criticized aspect is that the monetarization of impacts neglects other impacts that cannot be monetarized, thus allowing economic reasoning to enter the social sphere. ¹ What is more, implementing comprehensive SROI analysis is costly regarding the required resources for training and labor. For larger companies, this should not be an obstacle, but in smaller companies, implementation may not be possible without external financial support. ²⁵^,²⁶

4.3 Alternative measurement methods

Besides SROI, there are numerous tools and methods for measuring the social impact of a company or organization, e.g., Cost Benefit Analysis (CBA), Social IMPact Measurement for Local Economies (SIMPLE), Best Available Charitable Option (BACO) or Robin Hood Foundation Benefit-Cost Ratio (BCR). CBA is a method based on welfare economics for systematically comparing costs and benefits to decide whether a project or program is a desirable alternative and is mainly used in decision-making for political projects/actions. ²⁷^,¹⁹^,²⁴

	SROI	CBA	SIMPLE	BACO	BCR
Focus	Measurement and analysis	Measurement and analysis	Measurement and analysis	Analysis	Measurement
Monetization	Yes	Yes	No	No	Yes
Deadweight	Yes	partially	To be decided individually	No	No
Impact chain behind it?	Yes	Yes (implicit)	Yes (implicit)	No	No

Table 1: Situating the SROI analysis compared to other impact analysis approaches, own representation based on Then et al. (2017) ¹

4.3.1 Social IMPact Measurement for Local Economies (SIMPLE)

As a result of a project funded by the South East England Development Agency (SEEDA) and the European Social Fund (ESF), a comprehensive impact measurement methodology called Social IMPact Measurement for Local Economies (SIMPLE) was developed by McLoughlin et al. (2009). The methodology was specifically established to help social enterprises (SEs) measure their impact and serve as a strategic decision-making tool. ²⁸ It is frequently mentioned as an alternative to SROI analysis. ¹^,¹⁹

The SIMPLE model consists of five stages: conceptualizing impact and understanding the drivers (SCOPE IT), identifying impacts for measurement (MAP IT), developing measures and systems (TRACK IT), reporting on impact (TELL IT) and integrating the results (EMBED IT). In the first stage (SCOPE IT), four key influencing factors are identified to obtain an understanding of the impact environment in the SE, namely: mission, external, internal, and stakeholder drivers. The MAP IT and TRACK IT stages identify impacts according to the Impact Model (see section 2.1), allocate them to impact categories (financial, economic, social, and environmental), and derive appropriate key impact indicators for prioritized impacts (such as a perceived change in the quality of life as a result of employment). ²⁸, ²⁹ Subsequently, the collected information on impacts must be reported (TRACK IT) and the impact measurement processes implemented and results integrated into management decision-making processes (EMBED IT). ²⁸ The SIMPLE methodology is characterized by the fact that it complements impact measurement with a strategic aspect. That is, the findings can be directly incorporated into strategic processes. In contrast to SROI analysis, the result of an impact measurement according to SIMPLE is not a single monetary indicator, but a sum of different quantitative metrics (see table 1). ¹, ²⁸ Considering impacts that cannot be easily represented in monetary units and giving them equal weight is an advantage of the approach. However, comparing impacts between projects or activities is hampered.

4.3.2 Best Available Charitable Option (BACO)

The main objective of the Best Available Charitable Option (BACO) is to achieve comparability between different social impact investments for a specific issue. The approach was developed by the global NPO Acumen (formerly known as Acumen Fund) in 2007 and designed specifically for investors as a tool to aid in deciding which investment will have the greatest social impact. ¹⁹^,³⁰ For this purpose the BACO Ratio tries to answer the question “For each dollar invested, how much social output will this generate over the life of the investment relative to the best available charitable option?” ³⁰^{, p.2} Or conversely, how much money needs to be invested, to achieve a specific social output compared to other investment options. The key figure consists of the calculation of a basic input-output ratio: net cost per unit of social impact divided by the same ratio of the BACO. Thus, the BACO Ratio gives the cost-effectiveness ratio for an investment compared to the BACO. While this indicator compares similar investments well and can be useful in quantifying social impact, the methodology is subject to a major weakness: to apply the BACO ratio appropriately, the impact categories should be identical. Therefore, the comparison between heterogeneous investments is not possible. ¹^,³⁰

4.3.3 Robin Hood Foundation Benefit-Cost Ratio (BCR)

The Robin Hood Foundation, an NPO fighting poverty in New York City, developed a benefit-cost ratio that measures the outcome of numerous programs and captures it in a single monetary value that indicates the extent to which progress has been made in combating poverty (see table 1). ¹⁹^,³¹ The calculation is as follows: the total benefit of a program in monetary units is divided by the total amount of funding (cost) in monetary units. Thus, the expected return is composed of the expected benefit per dollar invested. ³² The monetization of benefits is mainly done through income, as helping people to become financially independent is a goal of poverty reduction. However, appropriate measures for benefits need to be identified for each program. A fundamental goal of this ratio is to identify the long-term outcomes for individuals. ³³ In contrast to the BACO Ratio, the BCR established by the Robin Hood Foundation has the advantage to be able to compare various programs or interventions with different inputs. But the same criticism applies to all metrics that exclusively measure impacts that can be represented in monetary terms – other goals and impacts are rarely taken into account. ¹⁹

4.4 Best-practice example

Impact measurement methodologies, like the SROI, are considered one of the best formats to assess the value created by social entities. The case study dealing with the SROI methodology for public administration decisions about financing with social criteria by Ruiz-Lozano et al. (2020) demonstrates a complete SROI analysis of the CEE-SA, a special education center for disabled youth in Spain, to depict the utility of social impact measurement for public funding and management strategies of public social entities. ³⁴ CEE-SA is a special education college for disabled youth with intellectual, physical, or sensory impairments at the age of 3 to 21 years. The institution gets its funding from public resources, the Spanish education Department, as well as private foundations. It offers two teaching formats with autistic, psychiatric, multipurpose, hearing, and language units. The first format is the FBO – Basic Compulsory Training, which aims at boys and girls from 3 to 18, and the second one is the PTVAL – Program for the Transition to Adult and Working Life, which is for young individuals at the age of 18 to 21 years. CEE-SA has programs in speech therapy, counseling, medical and rehabilitation services, and programs for developing personal autonomy, swimming, and school transportation, among others. The timeframe of the study was the academic course 2016-2017, thus a one-year period. It dealt with the identification of priority stakeholders, occurred changes, the definition of a set of indicators, quantification, and monetarization of impacts as well as calculation of the SROI rate. The study used quantitative and qualitative methods in the form of interviews and questionnaires. ³⁴ The first step of the analysis was the identification of stakeholders, these were direct and indirect beneficiaries of the service. Seven priority groups were elaborated: FBO students (30 students), PTVAL students (12 students), families (42 families), center staff (25 employees), volunteers (11 people), the Education Department administration, public administrations, and other institutions. The second stage was the identification of outcomes by stakeholders. In this case, economic, social, and socioeconomic impacts were considered which accounted for 31 outcomes overall. Thirdly, the outcomes were quantified by identifying indicators and weighting the results by the number of people affected by the change. After that, the outcomes are monetarized by establishing choice proxies for the monetary value estimation. An example of a change is the acquisition of an autonomy habit and the matched proxy is the hourly cost of a special education technical assistant. ³⁴

The results show that the changes for the FBO students had the greatest impact, as it generated an impact amounting to 1,842.16€ for each student. The results for the PTVAL students had similar results, with a received impact valued at 1,423.35€ per student. The students’ families had an impact of 1613.65€, although they did not take full advantage of the services provided. The impact of the staff and public administration was mainly measured in economic terms by the contribution to job creation. Together with the change for the Department of education, they added up to 180,300€. The fifth step of the analysis was the SROI rate calculation. There were two types of numerators estimated, one which acknowledged only the social impact and another one that also considered economic impacts. The SROI ratio of the social and economic changes was 3.01€, which means that the interest groups’ returns for each euro invested were 3.01€. The SROI value considering only social impacts was 1.68€. ³⁴

The case study concluded that the monetarization of impacts enables CEE-SA to prioritize funding decisions that have a greater impact. It also improves the understanding of impacts and visualizes the significance of social entities to stakeholders and the whole of society. One of the key takeaways for internal management of CEE-SA was the need to strengthen their relationship with the families and other stakeholders to increase communication and transparency. It was proven, that the SROI methodology is a management tool that functions as a driver for further improvement of NPOs as it provides evaluation, transparency, trust, and legitimacy. ³⁴

5 Drivers and barriers

To expand the operation of a company or organization in a sustainable way it is important to be able to measure, present, and compare performances to attract financial and human resources to fulfill their mission. ³⁵ Especially measuring and analyzing social impact can play a key role in organizational development and learning, adding to the success of sustainability in a company or organization. ³⁵ In addition, throughout the past years there has been an increase in social awareness and needs that also influence companies’ way of working which is why it is important to determine factors that drive and/or hinder sustainability in form of SIA. One approach is to look at the firms’ environment and internal structure, identify drivers and barriers, and either strengthen or mitigate them.

5.1 Drivers in the firm environment

As mentioned afore, society’s interest in the social and ecological engagement of companies and organizations is increasing. ³⁶ By communicating the positive outcomes of SIA in a way that is tailored to the relevant stakeholder group, such as potential customers or employees, companies can make their social impact more visible. This improves the company’s reputation. Additionally, the ability to gain a competitive advantage is a driver for well-conducted SIA as well. ¹³ Moreover, SIA can open up new financing opportunities for the company in the long term. An Environmental, Social, and Governance (ESG) rating or a social bond rating might become feasible and thus have a long-term impact on the financial success of the firm. ⁵

It should be noted, that there is a fine line between over-claiming and making social impact visible. ¹³ Stakeholders are to be made aware of the positive social impacts of initiatives and activities without over-communication. However, good communication multiplies the impact and the business benefits of SIA. ⁶ Cooperation with other companies or projects that are similarly socially committed could be made possible. ¹³ This increases the reach and more people get to know about the social impact of the company or project. In addition, the SIA, if carried out accurately, can anticipate changes in customer demand and sustainability concerns. Companies could therefore act with more foresight and adjust certain measures if necessary. ⁶

When it comes to positive and social impact, silence towards the firm’s environment is often costly and the biggest barrier. ³⁷ The environment and stakeholders can subsequently assume that there is no good news or that the company or project does not implement an SIA. Research shows that therefore many organizations fail to harness the potential financial and societal benefits for their business from creating social value through SIA. ⁵^,³⁷

Another barrier is that, as with many other sustainability topics, there is not yet a universal definition of SIA. ⁵ Companies and projects may therefore only be able to communicate SIA to the outside world to a limited extent. However, a justification of SIA is very important, because community participation and evaluation are essential for a good implementation of the analysis. ³⁶ It is consequently very important that SIA comes out of its infancy in the next few years and that dimensions, measures, and indicators are agreed upon. ³⁸ After all, a poorly conducted SIA can be nothing further than a PR exercise. Ideally, an effectively conducted SIA should be for the community to minimize the social impact on the community and maximize the benefits for the latter. ³⁶

5.2 Firm-internal drivers and barriers

For SEs whose business model is to address social issues, the benefits of an SIA are evident. The latter makes it possible to systematically review and measure the extent to which goals (generating added value for society) have been achieved. ³⁹ However, the application of an SIA also brings some advantages for private sector companies. The results of an SIA or an impact measurement can constitute a significant input for the strategic development of the corporation. It reveals which investments in social programs generate the highest return or create the greatest impact. This can be used to systematically decide which programs to invest in and which processes and competencies are needed within the company. ¹

Conducting SIAs has become increasingly facilitated in recent years, as supporting software is now available and statistical databases can be used in some cases to quantify impacts. ¹ Nevertheless, depending on the method chosen, an SIA can turn out to be very complex. As previously noted in the critical review of SROI analysis, the necessary scope and expertise for such an analysis can be a major hurdle for smaller firms. ²⁶ This is because they tend to have limited resources and less time to implement a systematic analysis. For a comprehensive SIA, such as an SROI analysis or an analysis using the SIMPLE methodology, usually, external consultants are hired to guide the process in a series of workshops. ¹, ⁴⁰ Although this helps businesses deal with the complexity of the analysis, it entails a high cost factor as well. ¹ As a result, an SIA is not implemented if its requirements are too complex and the costs are too high. ¹⁹^,²⁶

A cultural barrier to implementing an SIA may be that employees are not open to change. In most cases, the analysis requires a comprehensive examination of activities, effects, and impacts (see chapter 2.3). This demands evaluating internal processes and the results of such an analysis can consequently lead to organizational changes. A concern of employees who are not familiar with the concept of SIA may be that their performance will be evaluated. Hence, it is crucial to educate in advance about the purpose of such an analysis. This barrier could thus become a driver: Employees could be additionally motivated to perform their work if they know what social added value they generate with what they do. ¹

A key objective of an SIA is to make impacts visible and quantifiable. However, some companies may be concerned that the results do not match the desired outcome, i.e., that they are not perfect, and consequently do not carry out the analysis at all. ¹³

5.3 Best-practice example

As explained in sections 5.1 and 5.2, it is particularly challenging for small organizations, NPOs, and SEs to overcome the barriers of performing an SIA. In light of the above, in 2015 the technology-based SE “SoPact” was founded to support other organizations to tackle SIA and make social impact measurement easier and more transparent. The SE’s mission is “[…] to realize the demonstrable impact, that can be tracked until the last beneficiary of the system.” This will make it easier to manage the risk of negative or unintended consequences as well as give power to influence changes in behavior, organizations and systems, policies, capacities, social norms, and awareness. ⁴¹

One of the organizations that successfully cooperates with SoPact is the international NPO “Food For The Poor”. ⁴² It is a relief and development organization that supports poor children, families, and communities in need with food, housing, and emergency relief in 18 countries in Latin America and the Caribbean. ⁴² Before working with SoPact the NPO had a deficiency in time and resources to undertake an effective SIA. They faced several challenges regarding their data management: inefficient data collection by hand, intense data cleaning and scoring processes, lacking translation of data collected in different languages, long learning cycles, global discrepancy, and long reporting cycles. ⁴²

These obstacles were resolved by SoPact mainly by establishing an efficient and automated data collection, – cleaning, – scoring, and – aggregation system. The organization created its own platform, namely the Impact Cloud®, which is a cloud-based database to collect and connect in order to visualize and share insights. ⁴³ As a result, “Food For The Poor” benefits from operational efficiency, additional savings of time and money due to efficient data management tools, in-depth stakeholder insight, as well as verifiability and comparability of impacts. Together with SoPact the NPO was able to maximize its impact to help more people in need. Furthermore, they managed to align their scorecard targets to the UN Sustainability Development Goals (SDGs). ⁴²

This is one example of how SoPact helps to overcome the challenges imposed by SIA with the integration of innovative software. The organization also supports other NPOs, SEs, corporations, and foundations. ⁴⁴

References

1
Then, V., Schober, C., Rauscher, O. & Kehl, K. Social Return on Investment Analysis. (Springer International Publishing, 2017). doi:10.1007/978-3-319-71401-1.
2
Millar, R. & Hall, K. Social Return on Investment (SROI) and Performance Measurement: The opportunities and barriers for social enterprises in health and social care. Public Manag. Rev. 15, 923–941 (2013).
3
Gibbon, J. & Dey, C. Developments in Social Impact Measurement in the Third Sector: Scaling Up or Dumbing Down? Soc. Environ. Account. J. 31, 63–72 (2011).
4
International Institute for Sustainable Development. Social Impact Assessment (SIA). (2016).
5
Management Solutions. Challenges and opportunities in social impact measurement. (2022).
6
HEC Paris. How to assess social impact? HEC Paris https://www.hec.edu/en/faculty-research/centers/society-organizations-institute/think/so-institute-executive-factsheets/how-assess-social-impact (n.d.).
7
Rosenzweig, W. & Clark, C. Double Bottom Line Project Report: Assessing Social Impact In Double Bottom Line Ventures. (2004).
8
Eaton, S. E. Logic Models: What they are and how to use them. (Onate Press, 2010).
9
Henert, E. & Taylor-Power, E. Developing a Logic Model: Teaching and Training Guide. (2008).
10
Gomez, A. A., Donovan, J. D. & Bedggood, R. E. Developing a ‘best practice’ SIA process: Exploring the integration of technical and participatory approaches. (2013).
11
International Union for Conservation of Nature. Social Impact Assessment (SIA). (2017).
12
Schober, C. & Rauscher, O. Alle Macht der Wirkungsmessung? in Forschung zu Zivilgesellschaft, NPOs und Engagement: Quo vadis? (eds. Zimmer, A. E. & Simsa, R.) 261–281 (Springer Fachmedien, 2014).
13
Durand, R., Rodgers, Z. & Lee, S. Social Impact Assessment Strategy Report. (2019).
14
Klingler-Vidra, R. Social Impact: Origins and Evolution of the Term. (2019).
15
Finsterbusch, K. In praise of SIA—a personal review of the field of social impact assessment: feasibility, justification, history, methods, issues. Impact Assess. 13, 229–252 (1995).
16
Kottak, C. P. When people don’t come first: some sociological lessons from completed projects. (1985).
17
Esteves, A. M., Franks, D. & Vanclay, F. Social impact assessment: the state of the art. Impact Assess. Proj. Apprais. 30, 34–42 (2012).
18
Clifford, J., Markey, K. & Malpani, N. Measuring social impact in social enterprise: The state of thought and practice in the UK. Lond. E3M 1–10 (2013).
19
Öncer, A. Z. Performance Measurement in Social Enterprises: Social Impact Analysis. in Creating Business Value and Competitive Advantage With Social Entrepreneurship 205–231 (IGI Global, 2019).
20
Maas, K. & Liket, K. Social impact measurement: Classification of methods. in Environmental management accounting and supply chain management 171–202 (Springer, 2011).
21
Scholten, P. Social return on investment: a guide to SROI analysis. (Lenthe Publ, 2006).
22
Hamelmann, C., Turatto, F., Then, V. & Dyakova, M. Social return on investment: accounting for value in the context of implementing Health 2020 and the 2030 Agenda for Sustainable Development (Investment for Health and Development Discussion Paper). https://apps.who.int/iris/handle/10665/340348 (2017).
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Nicholls, J. & Cupitt, S. A guide to social return on investment. (Society Media, 2009).
24
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25
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26
Arvidson, M., Lyon, F., McKay, S. & Moro, D. Valuing the social? The nature and controversies of measuring social return on investment (SROI). Volunt. Sect. Rev. 4, 3–18 (2013).
27
Mishan, E. J. & Quah, E. Cost-benefit analysis. (Routledge, 2020).
28
McLoughlin, J. et al. A strategic approach to social impact measurement of social enterprises: The SIMPLE methodology. Soc. Enterp. J. (2009).
29
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30
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31
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34
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36
Burdge, R. J. & Vanclay, F. Social impact assessment: a contribution to the state of the art series. Impact Assess. 14, 59–86 (1996).
37
Vergne, J.-P., Wernicke, G. & Brenner, S. Signal Incongruence and Its Consequences: A Study of Media Disapproval and CEO Overcompensation. Organ. Sci. 29, (2018).
38
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39
Repp, L. Soziale Wirkungsmessung im Social Entrepreneurship: Herausforderungen und Probleme. (Springer VS, 2013).
40
McLoughlin, J. Measuring the Social Value Added by Social Enterprises – A Case Study applying the SIMPLE Methodology. in Proceedings of International Symposium on Social Entrepreneurship 2017 (2017).
41
SoPact. About Us. https://www.sopact.com/company/about-us (2022).
42
SoPact. Case Studies. Monitoring and Evaluating Framework. Fighting to End Poverty. https://www.sopact.com/monitoring-and-evaluation-framework (2022).
43
SoPact. Impact Cloud. https://www.sopact.com/impactcloud#Insights (2022).
44
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1
Then, V., Schober, C., Rauscher, O. & Kehl, K. Social Return on Investment Analysis. (Springer International Publishing, 2017). doi:10.1007/978-3-319-71401-1.
2
Millar, R. & Hall, K. Social Return on Investment (SROI) and Performance Measurement: The opportunities and barriers for social enterprises in health and social care. Public Manag. Rev. 15, 923–941 (2013).
3
Gibbon, J. & Dey, C. Developments in Social Impact Measurement in the Third Sector: Scaling Up or Dumbing Down? Soc. Environ. Account. J. 31, 63–72 (2011).
4
International Institute for Sustainable Development. Social Impact Assessment (SIA). (2016).
5
Management Solutions. Challenges and opportunities in social impact measurement. (2022).
6
HEC Paris. How to assess social impact? HEC Paris https://www.hec.edu/en/faculty-research/centers/society-organizations-institute/think/so-institute-executive-factsheets/how-assess-social-impact (n.d.).
7
Rosenzweig, W. & Clark, C. Double Bottom Line Project Report: Assessing Social Impact In Double Bottom Line Ventures. (2004).
8
Eaton, S. E. Logic Models: What they are and how to use them. (Onate Press, 2010).
9
Henert, E. & Taylor-Power, E. Developing a Logic Model: Teaching and Training Guide. (2008).
10
Gomez, A. A., Donovan, J. D. & Bedggood, R. E. Developing a ‘best practice’ SIA process: Exploring the integration of technical and participatory approaches. (2013).
11
International Union for Conservation of Nature. Social Impact Assessment (SIA). (2017).
12
Schober, C. & Rauscher, O. Alle Macht der Wirkungsmessung? in Forschung zu Zivilgesellschaft, NPOs und Engagement: Quo vadis? (eds. Zimmer, A. E. & Simsa, R.) 261–281 (Springer Fachmedien, 2014).
13
Durand, R., Rodgers, Z. & Lee, S. Social Impact Assessment Strategy Report. (2019).
14
Klingler-Vidra, R. Social Impact: Origins and Evolution of the Term. (2019).
15
Finsterbusch, K. In praise of SIA—a personal review of the field of social impact assessment: feasibility, justification, history, methods, issues. Impact Assess. 13, 229–252 (1995).
16
Kottak, C. P. When people don’t come first: some sociological lessons from completed projects. (1985).
17
Esteves, A. M., Franks, D. & Vanclay, F. Social impact assessment: the state of the art. Impact Assess. Proj. Apprais. 30, 34–42 (2012).
18
Clifford, J., Markey, K. & Malpani, N. Measuring social impact in social enterprise: The state of thought and practice in the UK. Lond. E3M 1–10 (2013).
19
Öncer, A. Z. Performance Measurement in Social Enterprises: Social Impact Analysis. in Creating Business Value and Competitive Advantage With Social Entrepreneurship 205–231 (IGI Global, 2019).
20
Maas, K. & Liket, K. Social impact measurement: Classification of methods. in Environmental management accounting and supply chain management 171–202 (Springer, 2011).
21
Scholten, P. Social return on investment: a guide to SROI analysis. (Lenthe Publ, 2006).
22
Hamelmann, C., Turatto, F., Then, V. & Dyakova, M. Social return on investment: accounting for value in the context of implementing Health 2020 and the 2030 Agenda for Sustainable Development (Investment for Health and Development Discussion Paper). https://apps.who.int/iris/handle/10665/340348 (2017).
23
Nicholls, J. & Cupitt, S. A guide to social return on investment. (Society Media, 2009).
24
Nicholls, J. Social return on investment—Development and convergence. Eval. Program Plann. 64, 127–135 (2016).
25
Wood, C. & Leighton, D. Measuring social value: the gap between policy and practice. Undercurrent 7–9 (2010).
26
Arvidson, M., Lyon, F., McKay, S. & Moro, D. Valuing the social? The nature and controversies of measuring social return on investment (SROI). Volunt. Sect. Rev. 4, 3–18 (2013).
27
Mishan, E. J. & Quah, E. Cost-benefit analysis. (Routledge, 2020).
28
McLoughlin, J. et al. A strategic approach to social impact measurement of social enterprises: The SIMPLE methodology. Soc. Enterp. J. (2009).
29
Wholey, J. S. Evaluation–Promise and performance. (Urban Institute Washington, DC, 1979).
30
Acumen Fund. The Best Available Charitable Option. (2007).
31
Weinstein, M. M. & Bradburd, R. The Robin Hood rules for smart giving. (Columbia Business School Publishing, 2013).
32
Brest, P., Harvey, H. & Low, K. Calculated impact. Stanf. Soc. Innov. Rev. 7, 50–56 (2009).
33
Ebrahim, A. & Rangan, V. K. What impact? A framework for measuring the scale and scope of social performance. Calif. Manage. Rev. 56, 118–141 (2014).
34
Ruiz-Lozano, M. et al. SROI Methodology for Public Administration Decisions about Financing with Social Criteria. A Case Study. Sustainability 12, 1070 (2020).
35
Flam, T. Social Impact Measurement. An evaluation and synthesis of existing tools and frameworks. (GRIN Verlag, 2018).
36
Burdge, R. J. & Vanclay, F. Social impact assessment: a contribution to the state of the art series. Impact Assess. 14, 59–86 (1996).
37
Vergne, J.-P., Wernicke, G. & Brenner, S. Signal Incongruence and Its Consequences: A Study of Media Disapproval and CEO Overcompensation. Organ. Sci. 29, (2018).
38
Reuters. ‘There are seven problems with measuring social impact. Here’s how to solve them’. https://www.reutersevents.com/sustainability/there-are-seven-problems-measuring-social-impact-heres-how-solve-them (2019).
39
Repp, L. Soziale Wirkungsmessung im Social Entrepreneurship: Herausforderungen und Probleme. (Springer VS, 2013).
40
McLoughlin, J. Measuring the Social Value Added by Social Enterprises – A Case Study applying the SIMPLE Methodology. in Proceedings of International Symposium on Social Entrepreneurship 2017 (2017).
41
SoPact. About Us. https://www.sopact.com/company/about-us (2022).
42
SoPact. Case Studies. Monitoring and Evaluating Framework. Fighting to End Poverty. https://www.sopact.com/monitoring-and-evaluation-framework (2022).
43
SoPact. Impact Cloud. https://www.sopact.com/impactcloud#Insights (2022).
44
SoPact. Impact Management Case Studies. https://www.sopact.com/case-studies (2022).