Why SROI? Why should I care? What will SROI do for me? Social Purpose Enterprise Managers Forum...

Why SROI? Why should I care?

What will SROI do for me?

Social Purpose Enterprise Managers ForumMarch 27, 2009 at SiG@MaRS, Toronto

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Presentation Agenda:

1.Start with philosophy – what do you believe

2.What do you need to know

3.What do others need to know

4.How can everyone find out

5.2 cases – Renaissance in Montreal; TurnAround Couriers in Toronto

6.SROI in Canada – what’s happening?

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The big questions……SE performance measurement starts with philosophy - the existential questions need

to be asked and answered

Why are we doing this – or for a start up … why do we want to do this?

Who or what does this enterprise benefit?

What do we – as founders, leaders, managers – of this enterprise need to believe to go down this path?

How can we transform these beliefs into goals and action?

How and to whom should the value of this SE be communicated?

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Why Measure3 reasons:

1.Establish a process to compare against set goals and progress towards meeting those goals – how well are we doing?

Take ownership of your value creation Turn the power dynamic btw funders and SE operators on its head

2.Create a framework from which to internally and externally communicate outcomes or results

3.Establish an ongoing mechanism to engage stakeholders in the value of your mission and enterprise activities

The trick with performance measurement is to frame it as a means to an end, not an end in itself. PM is about learning and learning how to get better. It is not about pointing fingers and blaming people when things

don’t go as planned. 4

Process and Methodology

First step is to jointly agree on specific strategic issues – for both social and business missions - to address.

For the social mission we begin by seeking the answers to the following questions:

1) 1) Who are - or will be - the target employees?

2) 2) How is the social mission currently being managed?

3) 3) How should social mission success be defined?

4) 4) What social support infrastructure is or should be in place?

5) 5) How much should be spent on social costs ? 5

Social Enterprise X: Social Mission Overview

SROI Report Card: Year End

Goals Methods Success Metrics

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TurnAround Couriers: Social Mission Overview

SROI Report Card: Year End 2006


• Hire couriers and office administrative staff from disadvantaged youth population

• Provide transitional work experience to enable youth to develop employability skills, a resume and a support network

• Enable youth to access the mainstream job market

• Enable youth to stabilize life situation, begin a career path and leave the shelter system

• Recruit youth from youth shelters and youth serving agencies across Toronto

• Provide a real job, not a job training experience

• Establish a supportive management environment

• Assist youth with planning and making next steps regarding housing and employment

• Youth are able to get out of shelter system and into independent housing

• Youth meet or exceed job expectations

• TurnAround helps youth secure next job and establish a career path

• Youth are able to get off and stay off government financial assistance

COURIERSTURNAROUNDCOURIERSCOURIERSTURNAROUNDTURNAROUND

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Measurement FrameworkNeed a flexible measurement framework that makes sense for the social enterprise

stage of development

SCP is not prescribing predetermined notions of success

SCP does call for clear definitions around who a social enterprise is employing and how this population(s) is being helped

SCP does require that costs associated with the social mission be accounted for separately to better understand the cost structure of the enterprise and plan for future growth

SCP is interested in supporting and working with social enterprise organizations that see the value in setting up a success measurement framework

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Thinking About SuccessThere are two primary areas where SCP evaluates success. These include the setting and reaching of clear goals around:

1.Providing supportive employment and skill development opportunities to disadvantaged populations

2.Social enterprise profitability, ability to scale operations and eventually cover all social and financial costs

A social enterprise is achieving success if both enterprise target employees and the enterprise itself are able to develop paths towards self-sufficiency

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Analyzing Success through Asset Building

Significant departure from traditional welfare economics

Increasingly, lack of access to assets ( financial, social, physical and natural) is a key indicator for why certain groups slip into and/or cannot move out of poverty

SCP is taking an asset-based approach through utilizing the Sustainable Livelihoods framework – a framework that address where people are now, where they want to go and how they want to get there (refer to handout)

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Getting Started Before a measurement framework can be developed the mission objectives of

the enterprise need to be clearly defined and articulated

Questions that need to be asked and answered regarding the social mission include:

1) Who are - or will be - the target employees?

1) 2) How is the social mission currently being managed?

2) 3) How should social mission success be defined?

3) 4) What social support infrastructure needs to be put in place?

4) 5) How much can we spend on social support infrastructure (social costs) ?11

What is SROI?An attempt to quantify the social value being generated by an organization as a result of an investment made in that organization

An evaluation strategy to determine what organizations and programs are delivering the ‘best’ social returns

Defined as a ‘return’ because it is a result of resources (financial and human) invested

Units being measured encompass social, socio economic and/or environmental impact

This approach is gaining popularity as competition for charitable dollars continues to increase and social organizations recognize the need to report on the social value of their work

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SROI in the Context of Social Enterprise

Robert’s Enterprise Development Fund (REDF) – leader in developing and disseminating learnings regarding: social, economic and socio-economic value of social enterprise

SROI evaluation approach lends itself well to social enterprise model in that it encompasses both financial and social outcome areas

A key contribution of this approach is the focus on distinguishing between the different costs in a social enterprise to enable managers to better understand where specific costs are coming from

Need for social cost accounting in order to reasonably project costs of social support infrastructure now and in the future

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Net Benefit to Society After Employment

Total Investment

Long Term Multiplier

x

Net Cost to Society Before Employment + Net Benefit to Society

After Employment

Total Investment


x

Net Cost to Society Before Employment +

SCP SROI Methodology: Summary Calculation

•SROI in SCP’s measurement framework attempts to measure the monetary value associated with providing a job to someone previously unemployed and in receipt of government income assistance and/or services.

•It can be defined by the following equation:

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Where• Net Cost to Society Before Employment = The monetary value of government and social assistance associated

with target employees prior to employment in the social enterprise (net of any taxes being paid)

• Net Benefit to Society After Employment = The monetary value of the taxes paid by the target employee after being employed by the social enterprise (net of any ongoing social assistance)

• Total Investment = The total amount of money invested in the business in order to create the benefits to society. This includes any grants and additional social support infrastructure costs. It also accounts for any operating losses incurred by the business.

• Long Term Multiplier = A multiplying factor that attempts to estimate the value that can be attributed to the social enterprise because its employees are more likely to maintain employment over the long term than would otherwise have been the case. In other words, this annuity rate accounts for the fact that the net benefit to society associated with a particular social enterprise employee will continue to accrue throughout the working life of that employee.

Net Benefit to Society After Employment

Total Investment


x

Net Cost to Society Before Employment + Net Benefit to Society

After Employment

Total Investment


x

Net Cost to Society Before Employment +

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Calculating Cost and Benefit to Society

• Implement surveys at particular points in time with individual target employees

•Social enterprise management/staff and/or SCP will implement surveys (baseline and follow up)

•Situate data in a cost-benefit framework to account for societal “costs” attributed to an employee before hire into a social enterprise versus the societal “benefits” that can be attributed after hire

• Two case examples to follow explain the kind of quantifiable data collected in the baseline and follow up questionnaires/interviews that feed into the SROI calculations

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Case Example

Josh had lived most of his live in the inner city, had a high school education, a criminal record and minimal employment experience. Before he was hired at Inner City Renovation (ICR) he was part of a community-based carpentry skill development program that provided on the job training in housing renovation. While part of this program, he was able to collect government income assistance and family allowance benefits for himself, his wife and six children. Neither Josh nor his wife had any other employment related income. Based on his family make up, Josh and his family received approximately $2100 per month - $25,200 annually - of government income. This income was not taxable. After Josh was hired at ICR his annual employment income replaced the majority of the government income he and his family had been receiving but Josh was still eligible for family allowance of approximately $800 per month based on his family size and through declaring his paychecks. Josh’s gross annual employment income was $20,230 from which he paid income tax and contributions to Employment Insurance and Canada Pension Plan totaling $4,235. Based on the information above, Josh’s individual ‘before and after’ or cost/benefit analysis looks like this: $25,200 (annual government income assistance) – 0 (annual income tax paid before hire) + $4,235 (annual income tax and contributions to CPP and EI paid after hire) – $9,600 (annual government income assistance after hire) = $19,835 $19,835 represents the (monetized) value – or Change in Societal Contribution - created by employing Josh, decreasing his need for government income assistance by $15,600 or 62% and generating new tax revenues of $4,235.

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Case Example

Steven was twenty-one years old, unemployed, hadn’t finished high school and living in a youth shelter in Toronto. Before he was hired at Turn Around Couriers he had worked on and off at odd jobs but had no steady employment record. Steven was surviving on social assistance monthly payments of $520. The youth shelter receives a $53 per diem rate, per youth, from the city for operations. The average stay at a youth shelter over the course of a year is 4.5 months. Steven found out about the employment opportunity at the bike courier company through a youth employment agency and ended up working there for 3 months. An estimated annual average cost per youth who accesses employment and related services is $2,726. While employed at the bike courier company, Steven went back to school and got his GED (General Education Development). Over the course of 3 months Steven made $2,630 of employment income and got off social assistance. He was able to save enough money to get out of the shelter system and move in with some friends. After deciding that bike couriering was not for him, Steven secured a full time retail job paying minimum wage ($7.15 (2004)) per hour to pay his bills while he explored opportunities for a career in the trades. Based on the information above, Steven’s individual ‘before and after’ or cost/benefit analysis looks like this: 7,261 (average annual shelter costs per youth) + $2,726 (average cost per youth for employment and related services) + $6,240 (annual basic income allowance - not including shelter allowance - through Ontario Works program for single male) = $16,227 $16,227 ( annualized total of above societal costs) – 0 (annual income tax paid before hire) + $1,287 (income tax based after hire) – 0 (government income after hire) = $17,514 $17,514 represents the (monetized) value – or Change in Societal Contribution - created by employing Steven, helping him save enough money to leave the youth shelter system eliminating his need for government income assistance by $6,240 or 100%, eliminating his need for and use of youth employment service agencies and generating new tax revenues of $1,287. 18

EmploymentGovernmentTax Contr.Total Tax Social Service Usage GovernmentA 2,808.00$ 2,808.00$ $7,339 $0 -$ $2,808B 2,808.00$ $6,432 9,240.00$ $8,669 $0 $9,240C 2,808.00$ $6,432 9,240.00$ $5,067 $0 2,808.00$ 6,432.00$ $0F 2,808.00$ $12,744 15,552.00$ $11,755 $445 2,808.00$ 12,744.00$ $445G 7,261.00$ 2,726.00$ 9,987.00$ $10,592 $267 $10,254H 7,261.00$ 2,726.00$ $2,412 12,399.00$ $27,160 $3,900 $16,299I 7,261.00$ $2,412 9,673.00$ $17,834 $1,916 $11,589J 2,808.00$ $6,432 9,240.00$ $10,278 $219 $9,459K 7,261.00$ 2,726.00$ $2,412 12,399.00$ $18,432 $2,043 $14,442L 7,261.00$ 2,726.00$ 9,987.00$ $18,653 $2,090 $12,077M 2,808.00$ 9,600.00$ 232.00$ 2,576.00$ $3,195 2,808.00$ 0

Total Net Change for Employee Group 86,613Average change per TE $7,874Sample Size 11

average number of TE = 8 Direct Social Support Infrastructure (SSI) 0Total Investment $0Year Three SROICost Savings to Society $62,992Societal Payback Period

Turn Around Couriers Year 4 October 2005 - September 30 2006Social Service Usage:Shelter Services and Employment

Baseline Income TAC and Next Job Net Change

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SROI Report Card: Year Four October 2005 - September 2006

COURIERSTURNAROUND

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Enterprise: TurnAround Couriers Location: Toronto ON Date of Inception: October 2002

Overview of Target Population (sample group)• Youth recruited from 6 different youth shelters and employment service agencies

across Toronto• 64% recruited directly from shelters• 100% male• Average age: 22• 91% unemployed at time of hire• 64% receiving social assistance at time of hire• 73% had been involved with the justice system prior to hire• 73% did not complete high school

Overview of Business• Did not require additional investment and was cash flow positive• Officially launched on-line courier order service in December 2005• Grew sales 76% from Year 3 • Royal Bank of Canada continues to be TurnAround’s biggest client• 6 of Canada’s top law firms (by size) are TurnAround clients


Financial Performance

Total Sales Revenue: $239,000

Total Grants and Subsidies: $0

Total Sales Revenue and Grants: $239,000

Additional Social Support Infrastructure: $0

Total Operating Profit (Loss): $16,000

Total Investment in Year Three: $0

Social Return On Investment

Average Change in Societal Contribution (Target Employees): $7,874

Average Number of Target Employees: 8

Number of Target Employees in Sample Group:

Current Year Cost Savings to Society:

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$62,992

Cumulative Cost Savings (prior to Y4): $128,178

Total Cost Savings to Date: $191,170

Cumulative Societal Payback Period: 2.08 years

Cumulative SROI: 191%

Employment Outcomes (sample group)• More than doubled average number of target hires from Y3 to Y4

• Increased target/non target staff ratio from 75% to 80%

• Paid out $141,426.00 in target hire wages and courier commissions

• 45% continue to work at TAC

• 27% moved onto mainstream employment in courier industry and office administration

Sustainable Livelihoods Outcomes (sample group)• 100% target population recruited from shelters able to get out of shelter system

and secure independent housing

• 71% who relied on income support through social assistance at time of hire were able to get off and stay off

• Founding Manager encourages target hires interested in TAC operations to get engaged in business strategy and growth to position themselves for operations management roles in the future

• Founding Manager assists target hires to effectively deal with outstanding legal issues they have had in the past


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Definitions and Methodology

Total Investment Required for Year Three

• Represents all cash injections in the business

Average Change in Societal Contribution (Target Employees)

• Difference between the direct societal “cost” or “benefit” contributed by the employee before hire versus after hire

Current Year SROI

• Return on investment generated by the current year change in target employee financial position

Current Year Cost Savings to Society

• Dollars saved that year by employing target group and eliminating or lessening government financial assistance

Societal Payback Period

• The number of years it would take for the social returns to equal the financial investment

Cumulative SROI

• Average social return on investment generated by year 1, 2, 3 and 4 change in target employee financial position

Cumulative Societal Payback Period

• The number of years it would take for the social returns to equal the financial investment made in Y1, Y2, Y3 and Y4 combined

Total operating losses + Grants and Subsidies + Additional Support Infrastructure

= Total Investment Required

Annual Government Financial and/or Social Service Assistance Before Hire - Annual Income Tax Paid Before Hire + Annual Income Tax Paid After Hire

= Average Change in Societal Contribution

Average Change in Societal Contribution / Total Investment Required

=Current Year SROI

Average Change in Societal Contribution x Average Number of Target Employees

The calculation is the inverse of the Current Year SROI or:

Total Investment Required/Total Change in Societal Contribution

Y1 + Y2 + Y3 + Y4 Change in Societal Contribution / Y1+Y2 +Y3 + Y4 Total Investment = Cumulative SROI

Y1+ Y2 + Y3 + Y4 Total Investment / Y1 + Y2 + Y3 +Y4 Total Change in Societal Contribution x 4 years


Data Gathering Process•The sample group was drawn from youth that worked at TurnAround Couriers for two months or more in Year 4 • Target employees complete surveys to obtain socio-economic and sustainable livelihood data•A second survey is undertaken at six months or a year to determine changes for target employees•Only target employees who are employed for two months or more are considered for SROI calculations


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SROI Report Card: Year Ending March 31 2007

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Renaissance: Social Mission Overview

SROI Report Card: Year End March 31 2007


• Provide job skills training and employment placement to people with employment barriers

• Help participants at end of employment placement to access mainstream job market and/or formal education system

• Be a leader in sustainable reusing practices of clothing and other consumer goods

• Deliver six month skills training program (Reintegration Program) accredited by Emploi Québec – to eligible participants

• Provide ‘real world’ employment placements in retail, office administration, maintenance, shipping and handling

• Provide specialized training, personal counseling and post training follow up to assist participants transition into mainstream employment

• Continually improve collection and sorting practices to create access for low income people to modestly priced, reused consumer goods

• Maintain an 80% or better employment placement/return to school rate after program completion

• Continue to generate an operating profit while running a successful employment training program

• Continue to be recognized as a Bruntland enterprise in Québec

• Re-sell 35% or more of reused goods collected in network of stores

• Sell at least 95% of remaining goods to recycling operations

• Ensure that 5% or less of collected goods goes to landfill

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Enterprise: Renaissance Quebec Location: Montreal, Quebec Date of Inception: 1994

Overview of Target Participant Group

• 100% unemployed and meet Emploi Québec’s eligibility requirements• 89% female; more than 80% women recently arrived in Quebec • 66% from Africa or Haiti• 25% are people over 45 years old• 54% are people 35 years and under• 58% with little or no significant work experience in Quebec• 36% under-educated • 22% have difficulty staying employed• 26% have financial difficulties

Overview of Business

• Self financing through in-store sales accounts for 70% of Renaissance’s revenues

• Increased sales from last year by 9%• Opened two new stores/work centres in Montreal • Renovated all stores in network for better look and efficiency• Sourced and implemented new management information system for

collection and production processes

Financial Performance

Total Sales Revenue: $5,435,185

Total Grants, Gifts and Subsidies (GGS): $286,636

Total Emploi Quebec Service Contract $2,735,336/Social Support Infrastructure:

Total Sales,GGS and Government Contracts: $8,457,157

Total Operating Profit (Loss) $324,813

Total Investment: $2,697,159.00

Social Return On InvestmentAverage Change in Societal Contribution (Target Employees): $5201.00

Annual Number of TE Completed 6 Month Reintegration Program: 162

Current Year Cost Savings to Society: 842, 562.00

Current Year SROI 31%

Societal Payback Period: 3.2 years

Cumulative (past 3 years) Cost Savings to Society: $2,858,022.00

Annuity Multiplier: 13.4

Present Value of Total Cost Savings to Society over 30 Years $7,903,232.00

Projected Long Term SROI: 293%

Employment Outcomes• 89% of participant group that completed reintegration program entered mainstream

employment or returned to school after completing employment training program• 90% secured employment

• 65% secured full time employment• 35% secured part time employment

• $8.62 average hourly wage for next job • 10% went back to school• 11% did not secure employment or go back to school

Sustainable Livelihoods Outcomes • Adapt training program and services to address specific employment

barriers of particular groups such as:• Project Integration – customized program for young visible minorities with low French speaking skills

• Holistic training model incorporates life skills training (e.g. budgeting), one-on-one coaching and referral to community resources to help participants effectively deal with personal issues while working

• As an ongoing support Renaissance multi-services office is open to all participants who finish the integration program

SROI Report Card: Year End March 31 2007

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Challenges with SROI Approach

Overarching challenge is to develop a SROI framework and ultimately a system to function as an integral tool for social enterprise strategic development

Want to avoid pitfalls of setting up an evaluation process seen only as an accounting exercise with limited value for decision-making within individual social enterprises

SROI as a concept and evaluation strategy is new and evolving and a lot more testing and refining is needed before touting success of this approach

Deciding on what social outcomes of target employees to track

Creating and establishing an assessment and tracking process that has value for target employees (ie Asset Development Planning) - the nature and needs of different target groups should shape tool development

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Why measure/SROI recap…..

Being truly engaged in and committed to performance measurment/SROI analysis contributes to mission understanding and avoiding mission drift

All SEs need a compelling story and SROI analysis/reporting tells that story

Can provide a useful platform to involve and engage different staff groups and levels, enable them to directly ‘see’ the value of their work and be a mechanism for direct input into SE strategic direction

collecting and USING socio- economic output/outcome data can be a feedback loop into management processes, budgeting and decision making for SE strategic direction

Can glean key metrics/outcomes for use in PR campaigns and funder/investor relationship building 27

If you remember one thing from this presentation…..make it this:

be open to embracing performance measurement as a practice that is an integral and connected – not isolated and external - component to your social enterprise

Why?

It tells your SE story, communicates your value creation and can be used as a platform to engage a variety of stakeholders into your conversation of why your SE needs to exist

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Demonstrating Value Project

• Collaborative research project to develop a framework for assessing the impact and performance of social enterprises in Canada.

• Engages both social enterprise investors and operators in a process to develop and pilot a framework that will assist a social enterprise and their stakeholders to understand, communicate and assess financial performance, organizational sustainability, and mission-related impacts.

http://www.enterprisingnonprofits.ca/projects/demonstrating_value

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Please contact us if you have further inquires at:

416 646 1871 x110 – Joanne NorrisFor more information, please visit our website:

www.socialcapitalpartners.ca

We utilize our website to disseminate our portfolio SROI Reports, learning reports and to keep people updated on what we are up to

Thank you

Why SROI? Why should I care? What will SROI do for me? Social Purpose Enterprise Managers Forum...

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