Social Enterprise Guide: Measuring SROI

Paul McArdle, biking advocate, pictured cycling near Havelock North. Photo / Paul Taylor

Here's part six of a ten-step guide to starting a social enterprise or a conscious business, or turning your company into one. Tips or experiences to share? Let us know in the comments.

Your year-end financials show just one thing; whether or not your business is operating profitably. If it isn't, changes need to be made. If it is - job done - right?

More and more businesses have come to the realisation that the bottom line tells only part of the story. What if your clothing business is making good profits, but you have high staff turnover - they're leaving in droves because they don't agree with the way your garments are produced in a sweatshop with toxic dye leaking into the nearby river?

Is your business a success? Consumers' buying power, or even the threat of consumer backlash, is showing the importance of transparent and responsible reporting practices.

For example, last year Oxfam published a report exposing behaviour from large sugar companies who were forcing small subsistence farmers from their land.

This prompted a speedy response from Coca Cola, promising an overhaul of its supply chain, and a transparent reporting process.

"The Coca-Cola Company will conduct third-party social, environmental and human rights assessments beginning in Brazil, Colombia, Guatemala, India, Philippines, Thailand and South Africa," responded the drinks giant.

Closer to home, Cadburys furiously backpedalled on its decision to include palm oil in its chocolate as a result of the public reaction to the effect palm oil plantations were having on the habitats of endangered animals such as the orang-utan.

New Zealand incubator Akina defines SROI thus:

"SROI analysis enables organisations to evaluate their impact on stakeholders; put a price on the social and environmental value they create, and identify ways to improve performance relative to investments.

"In practice, this internationally recognised methodology tells the story of how change is being created, places a value on that change and compares it with the cost of inputs required to achieve it in order to determine an investment ratio."

It can also help you manage risks and identify opportunities and raise finance, and may highlight potential improvements to services, information systems and the way you govern your businesses.

Akina (formerly the Hikurangi Foundation) contracted Dawn Baggaley from The Nature of Business and Social Ventures Australia to produce a SROI study for the Bikes in Schools initiative.

Bikes in Schools has provided a complete cycling package in more than 25 schools across New Zealand so far, and is now part of Akina's incubation programme to promote rapid scalability.

The package includes a fleet of new bikes, helmets, bike tracks, bike storage and bike training within the school grounds. The aim is to encourage children to become more active and healthy, help them develop various bike skills, build their self esteem and confidence, all while in a safe and familiar environment.

Approximately 3500 pupils participated in the Bikes in Schools programme over the three years measured, biking at least once a week, and 46% of pupils cycled three times or more each week.

"We see this high participation as a reflection of how much kids simply enjoy cycling. Over 80% of pupils said they had fun and felt happier as a result of biking within school, and we see this as a key factor for the success of the overall programme," says Paul McArdle, founder of Bikes in Schools.

More specifically, the study found that Bikes in Schools delivers a long list of interrelated outcomes, which included increased fitness levels, confidence and stamina; better concentration in the classroom; and changing long-term transport behaviours, among many others.

On the cost side of the equation, the study found that a total of $610,000 was invested over the first three years of Bikes in Schools, delivering projects for 12 schools.

The analysis concluded that this investment created a Present Value of $2.38m in the three-year period from 2010 to 2012, resulting in an SROI ratio of 4:1.

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