The Social Contribution Index (SCITM): A New Alternative for Evaluating Charities’ Impact on Society

How can we evaluate the overall contribution of charities to the society? With more than 45,000 registered entities served by more than 3.6 million volunteers to raise $160 billion gross revenues, the Australian charity sector is one of the significant contributors to improving its citizens’ welfare.

However, since the term ‘welfare’ includes non-financial benefits such as positivity and emotional well-being, the charity sector has struggled for years to identify credible methods of valuing welfare-based social benefits provided to various stakeholders including customers, volunteers, employees, investors, landlords, suppliers, students and the public.  Though some methods (see Zappalà and Lyons 2009 for an analysis of social audit network) advise separate reporting of financial and non-financial benefits separately, such methods have not been widely adopted by the charity sector.

Currently, the only method that has gained increasing attention among both donors and charities is the ‘social return on investment’ (SROI) method, which monetises all social impacts using financial proxies. This method proposes that a charity organisation determines the discounted value of social benefits provided to all stakeholders over the life of the project and divides the same by the present value of all investments made in order to identify an SROI index measured over the lifecycle of a specific project.  (see Flockhart 2005 for a description of SROI).

However, several practical criticisms have been levelled against this methodology.  First, the SROI index is customised to a particular project and hence the index does not facilitate benchmarking or comparisons across different charity segments.  Second, the index captures the whole lifecycle investment performance, which is not suitable for evaluating routine operational performance of the charities. Finally, the investment value (i.e. the denominator figure of the SROI index) does not consider the cost of notional resources such as volunteer efforts because these are not ‘actual’ outlays. However, we all know that notional resources are so central to the functioning of charities, and it is hard imagining an accounting system not capturing the value of such resources (see Faivel et al. 2012; Jones et al. 2020; Maier et al. 2015 for a description of these criticisms).

Therefore, performance measurement continues to be a problem for charities. Is it possible to develop a new accounting model that helps overcome the criticisms of the SROI methodology?

In addressing the constraints, an Adelaide Business School team led by Associate Professor VG Sridharan at the University of Adelaide has developed a new accounting model titled Benefits Received and Provided’ (BRPTM).  This model considers a multiple stakeholder group perspective to understand the value of all the benefits that a charity firm receives from the diverse groups, and in return what benefits the organization provides to such groups.  The model is developed within a positivistic paradigm as compared to the SROI frameworks that are driven by interpretivist-oriented financial proxies (see Klemelä 2016). As such, this BRPTM model considers the economic and social valuation of both actual and notional costs.

Three points are noteworthy in this BRPTM model: First, some transactions such as the economic value of volunteer efforts can appear on both sides of the statement with different values since both parties benefit to different degrees from the bilateral cooperation. Second, in this model, theory-led concepts such as ‘market differential’ and ‘opportunity gain’ are developed to value primary and secondary benefits provided.  Finally, the outcome, Social Contribution Index (SCITM) is obtained by dividing benefits provided by benefits received. While some charity firms may find this index valuable in their negotiations for additional federal funding, other charity organizations may adopt it for evaluating its ESG policy and developing new strategies for social impact.  The preliminary template of the model (as shown in Appendix 1) is based on VG’s work on computing the social contribution index for Vinnies’ charity opportunity shop segment.  The model is planned to be tested in several diverse charity organisations and then refined before it can be generalised as the complementary system that can address the limitations of the extant SROI model.

Currently, the research team is working with a large Australian charity organisation to test the model for their Lifeline Project, which offers emergency help to people undergoing addiction, violence, health, relationship, seclusion and suicidal-inclination problems.  The team believes that the Lifeline case study will enable the identification of new conceptual bases for capturing the indirect tertiary benefits provided by a charity organization.  In this regard, the team welcomes the first professional recognition support partnership from the leading ANZ professional management accounting body, The Institute of Certified Management Accountants of Australia & New Zealand.

 

References.

Faivel, S., Ghosh, S., Hilton, O., James, D. and Peppercorn, D., 2012. Social Return on Investment: Lessons Learned in Australia. Available at: http://socialventures.com.au/assets/SROI-Lessons-learned-in-Australia.pdf. Social Ventures Australia Consulting, Australia.

Flockhart, A., 2005. Raising the profile of social enterprises: the use of social return on investment (SROI) and investment ready tools (IRT) to bridge the financial credibility gap. Social Enterprise Journal.

Jones, C., Hartfiel, N., Brocklehurst, P., Lynch, M. and Edwards, R.T., 2020. Social Return on Investment analysis of Health Precinct community hub for chronic conditions. International Journal of Environmental Research and Public Health17(14), p.5249.

Klemelä, J. 2016. Licence to operate: Social Return on Investment as a multidimensional discursive means of legitimating organisational action. Social Enterprise Journal. 12(1), pp. 387–408.

Maier, F., Schober, C., Simsa, R. and Millner, R., 2015. SROI as a method for evaluation research: Understanding merits and limitations. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations26(5), pp.1805-1830.

Zappalà, G. and Lyons, M., 2009. Recent approaches to measuring social impact on the third sector: An overview, Background Paper no 5, Sydney: Centre for Social Impact, University of New South Wales. See www.csi.edu.au

 

Appendix 1

An Example of the Application of the Model to a Charity Selling Association.

Benefits Received and Provided (BRP) Statement for a Charity Selling Association for the year 20XX

Benefits Received by XX Charity (A)   Benefits Provided by XX Charity (B)
Offering Stakeholders $ Note Receiving Stakeholders $ Note
1.    Goods Donors     1.     Customers    
      Sale of donated goods and purchased goods           Any savings to customers on goods sold (by low-pricing)    
2.    Volunteers*     2.  Volunteers*    
      Notional economic value of volunteer efforts   [1]   Social benefits offered in excess of the notional economic value   [2]
3.    Employees   [3] 3.     Employees   [3]
       Economic value of employee efforts provided            Economic value of employee efforts as compensated by the firm    
4.    Goods suppliers   [4] 4.       Goods suppliers   [4]
Market value of all goods (purchased and donated to the firm)     Market value of goods as paid by the firm to the suppliers    
5.    Landlords   [5] 5.       Landlords   [5]
      Contracted lease value of all space (leased and donated to the firm)           Contracted value of leased space as paid to the landlords    
Total Benefits Received (A) XXX   Total Benefits Provided (B) XXX  
      Social Contribution Index (B)/(A)   [6]

 

Notes:

[1]: This value calculates the opportunity costs of employing the volunteers (i.e., multiplying the total volunteer hours by the general retail industry award or any other appropriate rate).  It then subtracts the economic value of the deadweight factor (which is the notional value of all the additional volunteers that the firm may not be utilizing, if these volunteers were to be replaced by paid workers).  Note that this term ‘deadweight’ is an accepted term in the economics literature but the team believes that it must be rephrased to respect the sentiments of charitable organizations.

[2]:  This is the economic value of the deadweight factor in addition to any other benefit that the firm provides to the volunteers indirectly (such as saving their work-test hours or providing a source for gaining experience).

[3] to [5]: These stakeholders appear under both columns at the same value because their contributions are received and compensated at the same time.  At times, these values are likely to differ between the two columns (if for example, the goods suppliers offer goods to charity firms at a significant reduction from its current market price)

[6]: The social contribution index is the resultant value of benefits provided upon benefits received.