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SelasTürkiye Social ROI by Jed Emerson

SelasTürkiye Social ROI by Jed Emerson

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Published by Ziya Nisanoglu
SelasTürkiye Social ROI by Jed Emerson
SelasTürkiye Social ROI by Jed Emerson

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Published by: Ziya Nisanoglu on Sep 30, 2010
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10/02/2010

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Social Returnon Investment:Exploring Aspects of Value Creationin the NonprofitSector
 Social Return on Investment: Exploring Aspects of  Value Creation in the Nonprofit  Sector 
Jed Emerson
Executive Director The Roberts Enterprise Development Fundand
Jay WachowiczSuzi Chun
1998 Farber InternSROI AnalystFarber Fellow, 1999-2000
Chapter 8
 
Investor Perspectives132
s discussed in the chapter onNon profit Capital Ma rket s ,there are increasing nu m bers of n ew players en tering the field of ph i la n t h ropy.These new play-ers are joining many previous don ors indemanding not simply greater opera ti on a laccou n t a bi l i ty from those or ga n i z a ti ons towh i ch they provi de con tri buti on s ,but agre ater capac i ty to doc um ent the social ando t h er impacts oft h eir ch a ri t a ble givi n g.These new don ors speak not on ly of“me a-su rem en t”and o utcome funding,butra t h er of“s ocial retu rnand the abil i ty todoc u m ent the “ad ded- value”oft h eir ph il an- t h ropic inve s tm en t s .Perhaps more importantly,it is our con-tention that the true impact ofthe collectivework taking place in the nonprofit sector isgrossly 
under-valued 
by those both within andoutside ofthe sector due to an absence of appropriate metrics by which value creationmay be tracked,calculated and attributed tothe philanthropic and public “investments”financing those impacts.In the for-profit sec-tor,one speaks ofPrice/Earnings Ratios andPortfolio Fund Performance.Indeed,at theclose ofevery day one knows exactly whatfinancial returns have been generated by“themarket.By contrast,nonprofit organizationshave no equivalent metrics by which to lay claim to the value created through their labor.This lack oftransferable metrics underlies anarray ofissues confronting the sector,rangingfrom difficulties in fund-raising to an inabili-ty to provide personnel with adequate com-pensation.As the nonprofit sector continuesto compete for limited charitable dollars itbecomes increasingly important that we beable to understand not simply that a programis a “good cause,but rather that its socialreturns argue for increasing our investmentsin their work.To date,the knowledge base driving anSROI analysis is still evolving.While DennisBenson has done some ground-breaking workin advancing an understanding ofreturn oninvestment frameworks applicable to the pub-lic sector and there have been several efforts topresent a “snap-shotanalysis ofhow onemight calculate a social return on investmentfor individual nonprofit organizations,theseefforts have been isolated.An overall concep-tual and practice framework for using suchmetrics on an ongoing basis within a portfo-lio ofphilanthropic investments has yet to beadvanced.Therefore,this chapter addressesissues related to the understanding and mea-surement ofSocial Return on Inves tmen t (SROI).The aut h ors begin by introducing thech a ll en ge ofc a l c u l a ting SROI and iden ti f t h ree types ofva lue cre a ti on gen era ted by s ocial purpose en terpri s e s ;these inclu de :E con om i c ,Soc i o - E con omic and Soc i a l .The focus ofthe balance ofthe ch a pter is onva lue cre a ti on taking place at the Soc i o -E con omic level and the doc u m en t a ti on of that va lue cre a ti on thro u gh the app l i c a ti onofan SROI fra m ework .The Roberts Econ omic Devel opm en tFund (REDF) makes use ofprojected SROI toevaluate capital grant requests made by orga-nizations in the REDF Portfolio.A samplecapital grant request analysis is presented todemonstrate the concept in practice.Beginning in the summer of1999,SROI templates will be used by REDF to begin the establishment ofan ongoing measurement of  SROI within its portfolio.With such a frame- work in place,the argument is advanced,the “returnon philanthropic “investments”may  then be calculated on an ongoing basis for this philanthropic portfolio ofthe Roberts Foundation. The chapter concludes with a discussionofthe theoretical and strategic limitations andchallenges ofapplying an SROI analysis tophilanthropic investments.In approaching this discussion ,it isimportant for the reader to understand that the proposed metrics and framework ofanalysis are changing and becoming more ref ined by  the day.Indeed,by the time this paper isreleased,the REDF SROI Analyst will have inalized yet one more iteration ofour financial templates by which we will quantify SROI. This paper and our own work are not present- ed to our colleagues and critics as a fait accom-pli,but rather a true work ofaction research.A second,follow-up paper will be published in the fall of2000 that will present not only our irst Portfolio Report,but a discussion ofthe problems en co u n tered in app lying ourmethodology.REDF has consistently present- ed its work with candor and honesty concern-
A
Executive Overview
 
T
he challenge oftracking social impacts and calculating a fo u n d a ti on’s “s oc i a lreturn on investment”(SROI) are both issues which have been ofincreasing concern to many in the philanthropic and nonprofit com- munities.In 1996,The Roberts Foundation presented its initial framework for calculating a Social Return on Investment in our report entitled,
New Social Entrepreneurs: The Succe , hll enge and Le sons ofNon profit Enterpri se  Cre ti on.
That framework used a modiied discounted cash flow analysis in an ef fort to calculate the impact achieved through a foun- dation grant and document the economic value ofthe social purpose enterprises thefoundation had supported. While this effort was a meaningful,well-received,first step,we have come to view thatinitial framework as needing improvement inthe following areas:The framework presented was useful inc a l c u l a ting the retu rn on inve s tm en tachieved by an individual foundation’s grant,but did not allow for considerationofall investments (e.g.,subsidies) under-writing an enterprise activity and was therefore felt to be lacking as a measure of total social return on investment for anonprofit organization;The framework made use ofthree dis-count rates (0% to represent the cost of capital for grant funds,3% for a Program-Related Investment and 9% for the stan-dard market cost ofcapital),but did notaddress the challenge ofusing traditionalmeans ofcalculating an appropriate dis-count rate,for example through use oftheCapital As s et Pricing Model / Wei gh tedAverage Cost ofCapital (CAPM/WACC)formulas;In its 1996 report ,the fra m ework wasu s ed by the Fo u n d a ti on to analy ze a sin-gle inve s tm en t ,but was not ti ed to oper-a ting financial tem p l a tes that could beu p d a ted on a regular basis.Thu s ,c a l c u-l a ti on ofra tes ofretu rn could not becon ti nu a lly ad ju s ted based upon theactual perform a n ce ofan inve s tee or ga-n i z a ti on—a key aspect for assessment of on going va lue cre a ti on in the non prof i ts ector.With these and other considerations inmind,over the course of1997 the RobertsFo u n d a ti on (under its new initia tive,t h eRoberts Enterprise Devel opm ent Fund or“REDF”),spent significant staff,investee andoutside consultant time discussing how bestto approach the overall issue of“evaluationand the calculation ofa social return oninvestment.It was concluded that:Evaluation,as generally practiced in thenonprofit sector,tended to be retrospec-tive;did not inform practice by tying per-formance directly to making changes inpracti ce ;and is pri m a ri ly ex tern a llfocused (e.g.,what did we say we weregoing to do in our proposal and did we,infact,do it?);Evaluation as a concept,therefore,was lesshelpful than information management insupport ofpractitioners’efforts to servepopulations with complex needs;With an effective information manage-ment system in place both investees andREDF could assess the business and socialactivities ofREDF-funded organizationsmore effectively;and
Social Return on Investment133
Introduction
ing its challenges and limitations.We look for- ward to continuing to do so and of fer the follow- ing two chapters as additional contributions to the ongoing work ofnot only those engaged in Social Entrepreneurship and Venture Ph i la n t h ropy,but to the Non profit Sector asa who le .F in a lly,we wel come the re ader ’s com ments and observa ti ons for how this a pproach may be improved and wh ere itsweaknesses are fo und .This fra mework is not the answer,but is of fered as one mores tep along the way.We look forw a rd to hear-ing your com m ents rega rding how it may bei m proved and to learning how you are mov-ing to doc um ent the social impact ofyo urown work .

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