Social Enterprise: Case Studies in Social Accounting

Case 12.1 – Using SROI to Support Tendering and Bidding

In this case, we explore the experience of a charity CEO (Charlotte Williams) who considered using
a social return on investment (SROI) analysis to assist in bidding for contracts. This case illustrates
that there are various issues that need addressing when commissioning / learning about new
accounting techniques, and that consultants are not always familiar with them.

Introduction
In late 2009, Charlotte Williams, the CEO of Station House Community Association near Rotherham
in South Yorkshire, started to learn about social return on investment (SROI). This accounting
technique claims to identify the value added by social enterprises by allowing beneficiaries to
identify the monetary value of „social goods‟ they have received. Often, social goods do not have an
identifiable market value and remain unrecognised and unreported. By asking recipients how their
lives have changed, and how this affects their financial well-being, not only are the non-market
values created by social enterprises identified, the people who receive them determine their value
and thereby influence the allocation of economic resources.

SROI was developed with the support of the Roberts Enterprise Development Fund in the US, and
was adapted by the New Economics Foundation (nef) for use in the UK. In the last five years,
interest amongst ethical investors and public sector commissioners has increased because SROI
offers a way for them to establish the social value (public savings) triggered by their investments.

Charlotte became interested in SROI for two reasons. Firstly, she wanted to pioneer new ways to
convince people of the value of work undertaken by Station House (and other members of the social
enterprise network that she helped to organise). Secondly, she wanted to bid to the Reaching
Communities fund of the Big Lottery (a UK lottery that channels money to „good causes‟). SROI,
on paper, offers organisations a new way to understand how they create value, and report this in the
form of a ratio (e.g. £2 value created for each £1 of investment, or 2:1). As a registered charity, this
would help the Big Lottery bid and also assist with Charity Law (SORP) reporting.

Finding a Consultant
Charlotte knew that she did not have the necessary skills to do an SROI analysis so she agreed with
her trustees that Station House should commission a consultant. At this time, Charlotte did not fully
understand the work involved in undertaking an SROI analysis but she did understand tendering
processes. She obtained the names of six organisations that specialised in evaluation studies from
the website of the National Association of Community and Voluntary Action (NACVA) and invited
them to tender for the work. Charlotte received two offers: one came in a „shiny‟ pack and the other
was in the form of a hand written letter. She went for the „shiny‟ offer.

Charlotte was quoted £4,000 for a project that would last 10-12 weeks and paid half of this in
advance. Initially, things started well with a flurry of e-mails on scoping the project. Then Charlotte
was perplexed when the consultant did not seem to understand the basics of SROI. So, she directed
them to an appropriate website. By week 22, Charlotte was in receipt of a „first draft‟ report, which
contained lots of spelling mistakes. It provided some insights, but the bases of the calculations were
questionable.

The initial report was of „some value‟ as it strongly suggested that Station House was providing good
value for money. Fortunately, Charlotte had an opportunity to „work shadow‟ a Senior Project
Officer at the Department for Communities and Local Government. Upon discussing the SROI
report, the senior project officer indicated that it did not match the expectations of her department

Rory Ridley-Duff and Charlotte Williams, 2010 Creative Commons 3.0, Attribution No Derivatives
 Social Enterprise: Case Studies in Social Accounting

and was about „as much use as toilet paper‟. A dramatic improvement was needed if the information
was to help in bids to authorities that understood SROI. On receiving this information, Charlotte
called an emergency meeting of her board of trustees and secured agreement to cancel the
consultant‟s contract (saving £2,000).

Turning a Bad Project into a Good Outcome

With the contract cancelled, Charlotte set about finding ways to complete the project. She visited a
social enterprise adviser at a local development agency and this helped her to identify a Cabinet
Office guide written by the UK‟s leading SROI practitioners. This had been published by the Office
of the Third Sector (part of government that works directly for the Prime Minister), and was freely
downloadable. She also found that the senior project officer from the Department for Communities
and Local Government was interested in becoming a trustee of Station House. This provided the
expertise needed to finalise the SROI analysis.

While increasing the investment of time, securing these resources reduced direct costs. Charlotte
recognised that she was pioneering something of value to her sub-regional social enterprise network
so the investment was useful on another level, and might provide an income option in the future. Her
experience would help in guiding members of her social enterprise network on the pitfalls of SROI.
As Charlotte was hoping to learn through „risk taking‟, she did not see her attempt at SROI as a
failure. She gained far more knowledge as a result of the „problems‟ encountered than would have
been the case if it had gone smoothly. Although it took almost a year to complete, the upside was a
more robust body of knowledge to guide future action.

Critical Analysis
The experience of Charlotte illustrates a point made by Gordon (2009) about the differences between
Social Accounting and Audit (SAA) and Social Return on Investment (SROI) as accounting
frameworks. Social Accounting and Audit (SAA) typically involves direct costs of £2-3k for an
external panel to critically review a social accounting document prepared by staff. It places a greater
focus on identifying, agreeing and updating the values that underpin the organisation‟s system of
governance through dialogue with stakeholders. SROI, on the other hand, uses the qualitative data
collected by this process as the starting point for an econometric analysis. This is likely to require
the skills of a qualified accountant or experienced business manager. The monetization of outcomes
and impacts requires the transformation of data in a way that is not required for SAA so a full SROI
calculation typically costs a great deal more. It also requires both internal data and external
benchmark information. Without benchmark data, the SROI calculation will not be reliable so its
existence needs to be checked beforehand, or its creation included in project costs.

Gordon (2009) estimates that the typical direct cost of SROI is between £19-25k, beyond the
resources of many (charitable) social enterprises. Improved knowledge about the SROI approach,
and knowledge of the direct costs likely to be incurred, means that Station House can now make an
informed judgement on whether SROI should be included to help future bids. Armed with their own
SROI analysis (albeit much later than anticipated), the credibility and improved quality of
subsequent bids offers a „return on investment‟ that may take years to fully understand.

References
Cabinet Office (2009) A Guide to Social Return on Investment, London: Office of the Third Sector,
http://content.yudu.com/A17snh/SROI1/resources/index.htm?referrerUrl=http://www.thesroi
network.org/component/option,com_docman/Itemid,38/, accessed 2nd December 2010.
Gordon, M. (2009) “Accounting for Making a Difference”, Social Enterprise Magazine, 25th November,
http://www.senscot.net/print_art.php?viewid=8932, accessed 20th May 2010.

Rory Ridley-Duff and Charlotte Williams, 2010 Creative Commons 3.0, Attribution No Derivatives