While business outcomes are easily measurable through the calculation of numbers such as sales and profit, return on investment and annual growth, quantifying the actual impact of Corporate Social Responsibility (CSR) programmes is not as straightforward.
For one, business outcomes are objective in nature and relate to the linear measure of how much financial value a business generates for every rupee or dollar invested. Social programmes that are aimed at improving the lives of the community are often dependent on a number of subjective factors, that are difficult or in some cases impossible to quantify. Hence, calculating the outcome of a CSR programme objectively continues to be a challenge for corporates.
One way organizations have responded to the challenge of measuring outcomes is by developing quantifiable indicators to represent them. The United Nations, for instance, measures and ranks a country’s happiness level by calculating its GDP per capita and life expectancy, amongst other indicators. The underlying assumption behind such a calculation is that countries with a lower GDP and life expectancy would be less happy than countries performing better on these indicators
While this may be an indirect method of measuring a subjective feeling such as “happiness”, it does offer one technique of assigning a close-to-real value for an otherwise unquantifiable and subjective outcome.
Taking a leaf out of this book, companies can develop their own methods of impact assessment by identifying relevant objective indicators and quantify the outcomes of their social programmes. An organization implementing a CSR programme aimed at improving the lives of a community by providing them access to safe and clean drinking water, for instance, could calculate its impact by measuring indicators such as reduction in waterborne diseases, and decrease in school absenteeism, amongst others.
Taking a step further, organizations can ascertain the exact social value generated by their community interventions, in rupee or dollar terms, by assigning a financial value to the measured indicators. One way to do this is a method called Social Return on Investment (SROI), a principle-based method to calculate the extra-financial value of outcomes relative to the inputs invested. The calculation of SROI presents a fair idea of the impact generated by the investment, in financial terms. A CSR programme with an SROI of 7 means that for every INR 1 invested, the programme generates a social value equivalent to INR 7.
Computing the SROI of a CSR programme is a programmatic process. Key stakeholders for the programme are first identified, and their inputs are assigned values. In the second stage, outputs and outcomes of the programme are identified. Indicators of the identified outcomes are then assigned a financial value through primary data sources or proxies. In the final step, the total financial value of all indicators is compared against the value of the investment made.
While SROI is a good method to capture the financial value of social interventions, it does not fully escape the challenges of accurately measuring information that may be subjective in nature. For instance, the SROI process is critically sensitive to the survey methodology used in collecting responses from stakeholders. The design of questionnaires and method of administering them to respondents could have a disproportionate effect on the final calculation.
Determining the right impact indicators for a given programme is also largely a subjective decision that affects the SROI calculation. These challenges could be addressed with an increased focus on transparency.
Organizations using the SROI methodology can publish a report which captures the final ratio, the methodology adopted, assumptions made, and any other disclosures that may help stakeholders get the full picture. SROI and methods like it provide companies an opportunity to accurately calculate the actual value of corporate social responsibility interventions.
As CSR increasingly becomes a strategic tool for companies to drive societal change, newer more incisive techniques of assessing and measuring this change will not only help companies do a better job, but also provide communities, governments and other stakeholders a quantifiable insight into their non-financial performance.
Article Credit: CSRJournal