News

SROI Exchange 30 May

Perth YMCA SROI Report and The Wise Group (Cadder Environmental Improvement Project) Now Available in Scotland SROI Country Pages

New Reports from Northern Ireland posted in Case Studies

The Monetisation Principle

For some the principle of monetisation is accepted but the decision as to what value to place on an impact is difficult. For others, the principle is rejected. Some think that you just can't capture in monetary terms the values for some impacts on people and the environment, others that regardless of whether you can or not, there is no point in the exercise, and yet others that it would be unfair since some organisations or types of activity would benefit more than others. These are valid concerns and they are addressed in this book. From our perspective, answering the concern about whether monetisation is valid is in many ways the easiest part of SROI analysis. The question of how individuals and societies value one thing compared with another continues to absorb philosophers, psychologists, social scientists and economists. But all of us live in the real world and, having to get on with life, we make do. We make do by using prices and we accept that the price of things reveals peoples' preferences for one thing over another. Price is a proxy for value. Firstly while price may represent the exchange value - its market price - it doesn't completely represent all the value to either the seller or the consumer or to others who may be affected. Secondly prices will depend in part on the distribution of income and wealth: different distributions result in different prices which result in different proxies for value. Arguing that prices are poor proxies for value may seem a strange way to support an approach that puts monetary values on impacts. However SROI recognises that decisions will be made using market prices and aims to improve these by providing information on other impacts using the same basis. Organisations make expenditure decisions all the time, spending money to achieve objectives and implicitly stating that the value from achieving the objectives is worth more than the cost. Even though we argue that externalities are a major problem for market economies and their importance in creating value is understated, we are still in favour of markets. SROI analysis puts stakeholders at the heart of the analysis and attempts to take account of equity and externalities in resource decisions at a local level. In addition to this overarching rationale, the use of monetary proxies for social, economic and environmental value offers several practical benefits:

• makes it easier to align and integrate performance management systems with financial management systems
• aids communication with internal stakeholders, especially those responsible for finances and resource allocation, and with those who are prefer quantitative to qualitative ways of learning
• induces transparency since it precipitates the clarification of which values have been included and which have not been included o permits sensitivity analysis to show which assumptions are more important in that the result is more affected by changes in some assumptions than others
• helps identify the critical sources of value and so streamlines performance management.

As such the test of an SROI analysis is that monetisation should be attempted. An analysis in which none of the indicators have been monetised is not an SROI. However, a methodological approach for incorporating quantitative (but non-monetizable), qualitative and narrative information also exists within the SROI framework. A complete SROI analysis, therefore, is not a single number or ratio, but rather a summary of the subject's social and environmental value, in context, and described in monetary, quantitative, qualitative and narrative terms, relative to the financial investment required.