CAN WE MEASURE THE VALUE OF SOCIAL PROGRAMMES?

  • by Jeremy Nicholls, Chief Executive of The Social Return on Investment (SROI) Network
  • Jul 04, 2013
  • 0 comments

Yes we can. And we already do.

What we might forget is that the financial value we report as organisations is a type of social value, the social value that arises from trading activities.

Businesses financial accounts tell us about some of the value created for employees, suppliers, customers and owners. Its just that we increasingly recognise these measurements alone are not always a full enough account of value needed in order to make good decisions. This non-financial value can be measured and valued by simply extending the boundaries we use for reporting financial value.

Yes there are some differences, but the principles are the same. And most importantly we recognise that financial accounting is not seeking to be objective fact but to present a true and fair view. And most of us know, especially the accountants, that our balance sheets include values which require significant judgements. These items may be small proportion of overall balance sheet value but the acceptable range within which they can be reported could be a high proportion of reported profit.

By the value of social programmes we are generally talking about non financial value or, put another way, value that is not the price of buying and selling goods and services. This value is not just important in social programmes however, more businesses are recognising that understanding and accounting for it is part of general business operations as well, a point made well by Michael Porter in Creating Shared Value.

If we take a similar approach to financial accounting based on principles, judgements and assurance, we can identify and value this type of social value. The challenges are to decide what should be included and how it should be valued. There are many things that contribute to social value which may require individual measurement techniques but there is increasing convergence on how an organisation decides what should be included, GRI reporting standards, Accountability’s work on materiality and the IIRC show that stakeholder engagement, materiality and assurance are central to credible decisions. The Social Impact Analysts Association has recently produced an analysis of approaches which shows the high level of convergence and consistency in the underlying principles being used.

On the face of it valuation may seem harder, after all the values, by definition, cannot be based on exchange values. Nonetheless anyone involved in valuing long term contracts, contingent liabilities, or, as a specific example, the closure cost of mining operations recognises that it is possible to value these more difficult things. Organisations like ours, the SROI Network, have been valuing social outcomes for a while now using different techniques for different audiences and more recently working alongside econometric approaches to value well-being. So long as we don’t fall into the trap of thinking that value is objective this is getting easier.

Not sure? Well it may not be social value but Puma’s environmental profit and loss account costs the environmental impact of the business at $145 million. This is useful information because it is a summary of other information. You can go behind the figures to get at the details. But it helps us focus on the material issues and to direct resources. In the end whatever is reported has to be useful, used to inform decisions to allocate resources.

Yes we can. And we already do.

What we might forget is that the financial value we report as organisations is a type of social value, the social value that arises from trading activities.

Businesses financial accounts tell us about some of the value created for employees, suppliers, customers and owners. Its just that we increasingly recognise these measurements alone are not always a full enough account of value needed in order to make good decisions. This non-financial value can be measured and valued by simply extending the boundaries we use for reporting financial value.

Yes there are some differences, but the principles are the same. And most importantly we recognise that financial accounting is not seeking to be objective fact but to present a true and fair view. And most of us know, especially the accountants, that our balance sheets include values which require significant judgements. These items may be small proportion of overall balance sheet value but the acceptable range within which they can be reported could be a high proportion of reported profit.

By the value of social programmes we are generally talking about non financial value or, put another way, value that is not the price of buying and selling goods and services. This value is not just important in social programmes however, more businesses are recognising that understanding and accounting for it is part of general business operations as well, a point made well by Michael Porter in Creating Shared Value.

If we take a similar approach to financial accounting based on principles, judgements and assurance, we can identify and value this type of social value. The challenges are to decide what should be included and how it should be valued. There are many things that contribute to social value which may require individual measurement techniques but there is increasing convergence on how an organisation decides what should be included, GRI reporting standards, Accountability’s work on materiality and the IIRC show that stakeholder engagement, materiality and assurance are central to credible decisions. The Social Impact Analysts Association has recently produced an analysis of approaches which shows the high level of convergence and consistency in the underlying principles being used.

On the face of it valuation may seem harder, after all the values, by definition, cannot be based on exchange values. Nonetheless anyone involved in valuing long term contracts, contingent liabilities, or, as a specific example, the closure cost of mining operations recognises that it is possible to value these more difficult things. Organisations like ours, the SROI Network, have been valuing social outcomes for a while now using different techniques for different audiences and more recently working alongside econometric approaches to value well-being. So long as we don’t fall into the trap of thinking that value is objective this is getting easier.

Not sure? Well it may not be social value but Puma’s environmental profit and loss account costs the environmental impact of the business at $145 million. This is useful information because it is a summary of other information. You can go behind the figures to get at the details. But it helps us focus on the material issues and to direct resources. In the end whatever is reported has to be useful, used to inform decisions to allocate resources.
 

  • twitter
  • fb
  • stumble
  • linkedin
  • reddit
  • email

More Like This