Working with an NGO to develop an SROI framework presents opportunities for for-profit organisations to develop a shared vision and understanding with the NGO.


In a previous article, we wrote about the growing imperative for not-for-profit organisations to develop a Social Return on Investment (SROI) framework to ensure they survive and thrive in a changing funding environment.

In that article, we stated that SROI, at its core, measures whether the social value created by a program or service run by an NGO outweighs its cost. Calculating the effectiveness of the social program allows the organisation to identify areas where they can improve their impact and attract alternative funding sources. 

Many NGOs struggle to measure the impact of their services and the social value they provide.  This difficulty arises from several factors, two of which are;

1. There is an ongoing and often overwhelming need to keep up with the demand for service delivery. When organisations struggle to meet the constant pressure for services and staff feel engulfed by the needs within a community, it is challenging to think critically about the outcomes and impact of the services. Within an SROI framework, the terms outcomes and impact have a particular meaning, which is explained below.

2. The problem of language. The language used when developing a methodology around SROI is often confusing. For example, what is the difference between an output and an outcome? What is the difference between an impact and an outcome? When staff are unfamiliar with the terminology used by SROI and faced with community needs, it is easy to fall into the trap of viewing SROI as theoretical mumbo-jumbo best left to academics while the “real needs of people” are dealt with. The problem of language presents an opportunity for for-profit organisations looking to engage in social impact investing (SII) to work with NGOs to understand the terminology and embed this understanding in service delivery practices.

An opportunity for for-profit organisations

We have written previously about the importance and benefits of collaboration between for-profit and not-for-profit organisations. 

Companies and brands are more aware of contributing to the greater social good. One way of contributing is through social impact investing (SII). Companies and brands work with NGOs by investing in them and working with them to address complex social needs. The NGO benefits from the investment provided by the company, and ultimately, the business has a return on its investment.

Many for-profit organisations look for NGOs that already have and are operating under an SROI framework. However, working with an NGO to develop an SROI framework presents opportunities for for-profit organisations to develop a shared vision and understanding with the NGO. This allows the for-profit organisation to be involved at the beginning of the NGO's journey in developing an SROI framework and can lead to constructive relationships and positive outcomes in addressing community needs.

While there are opportunities for for-profit organisations to work with not-for-profits to develop their SROI strategies, equally, there are steps NGOs can take to establish an SROI framework that will put them in a better position to work with for-profit organisations who are looking to invest in addressing social and community needs.


Steps in developing an SROI framework for not-for-profit organisations

There are steps not-for-profit organisations can take to develop an SROI framework.

1.  Understanding the importance of an SROI framework for the organisation's future

Developing an SROI framework is essential for organisations. It will be the difference between the NGOs that survive and those that either are forced to close or are taken over by larger not-for-profit organisations. The need to demonstrate the impact of the services provided by an NGO is being driven by two factors.

a)     The model of funding from governments has changed, and there is now greater demand to demonstrate that services are providing value for the funding they receive. Funding bodies often opt to go to open tender to ensure they achieve value for money. This means funding can no longer be relied on. Organisations that have provided services to the community for years are often defunded as new service providers win the contract.

b)     The demand to demonstrate value for money also impacts philanthropic funding and how donors gift their money. Donors no longer donate simply to good causes. They also want to see the value their donations provide.

Smaller to medium-sized NGOs are vulnerable to the changing funding landscape. This vulnerability is increased if they cannot clearly articulate the benefit and impact they provide.

Developing an SROI framework must be driven by the Board. Too many Board’s have a myopic understanding of the organisation's impact and view it as a ‘feel good’ factor. In other words, the organisation has an impact because “we do good work”. There is no understanding of the broad, long-term effects created by the services provided by the organisation within a community. This is the true meaning of impact, and most Boards cannot clearly articulate these long-term benefits within the community the organisation serves.


2. Begin to understand the language of SROI

Not-for-profit organisations must begin to understand the language of SROI and start using it in their service delivery.

As mentioned, some terms that cause the most confusion initially are outputs, outcomes, and impact.

a)  Outputs

The outputs of an organisation are the activities required to support what they are trying to achieve. For example, if an organisation is providing a counselling service, the outputs are the number of staff who are counselling and the number of hours of counselling provided over a week or a month.

Outputs are usually quantitative and easy to measure whether they have been provided.

b)   Outcomes

Outcomes are what the organisation is trying to achieve. For example, in the case of the counselling service, the organisation may be trying to ensure clients are more empowered in their daily lives and feel a greater sense of resilience in managing their circumstances.

Measuring feelings of empowerment and resilience is challenging because they are based on the client's perception and, therefore, more difficult to measure. Because of the challenge of measuring outcomes, many not-for-profit organisations are content to continue measuring outputs. Annual Reports will be filled with the number of clients assisted and the number of hours of service delivery, and these numbers will contribute to the Board's belief that the organisation is making an impact.

However, in the example of counselling services, if 80% of clients are dissatisfied with the counselling they have received and feel they are not empowered, the organisation is not meeting its intended outcome. This is where it is essential to understand clients' needs, the challenges they are facing and the issues, constraints and priorities that are important to them so a way can be found to measure clients' perceptions and feelings of empowerment.

One of the other traps many not-for-profit organisations fall into around outcomes is providing a case study. A case study is used as an example of the outcomes the organisation is achieving. The problem with case studies is their individual nature. It shows the outcome of the service provided by the organisation to one person but does not accurately measure the outcome to the client cohort. Failing to measure outcomes can lead to false reporting of the organisation's success.

c)   Impact

Outcomes are the short-term effects achieved from the outputs, whereas the impact is the broader, longer-term effect of the service provided. Using the example of the counselling service, the outcome is the ability of the client to manage their current situation that is causing distress. The impact is the ability of the client to apply the skills they have learned to other areas of their life. In other words, the client doesn’t need to keep coming back for counselling because they have learned skills they can apply to other areas of their life, resulting in greater life satisfaction.

Not everything can be measured in an SROI framework. However, it is essential to understand the terminology and consider how to apply it to the organisation's current service delivery model. Understanding and thinking about applying the basic concepts and terms of an SROI framework is a start on the SROI journey. It also means when approached by a company or brand, the organisation can demonstrate its initiative and commitment to developing an SROI framework.

3. Developing an SROI framework is a journey

Developing an SROI framework takes time and commitment, particularly in the early stages. Becoming clear about outcomes, the impact of the service, and how to measure them takes thought and often revising what is being measured.

As the organisation becomes more confident with the SROI framework, what is measured for outcomes and impact will often be changed and refined.

It is essential to understand that developing an SROI framework is a journey so that when things get difficult and frustrating, it is not seen as failure but just another part of the journey.

The benefits of persevering are the sense of confidence and assurance that an SROI framework can provide when the organisation can clearly articulate its impact and benefit and how these benefits are cost-effective.