Find out how NTT can help with Social Return on Investment and implement it into your smart projects.
Private and public organizations around the world are becoming increasingly accountable for the social, economic, and environmental impacts of their activities. However, appraisal techniques remain focused on finances (e.g., minimum ROI, cash flows) or driven by strategic objectives (e.g., creating stable jobs) with socio-economic and environmental effects not adequately included in business cases.
So how can a project that has a positive financial value but damaging environmental effects be assessed? The concept of Social Return on Investment (SROI) is helpful to incorporate the hard-to-quantify benefits into a project’s financial assessment. SROI is defined as “a framework for measuring and accounting for a much broader concept of value; it seeks to reduce inequality and environmental degradation and improve wellbeing by incorporating social, environmental and economic costs and benefits.”
How to implement SROI?
SROI consists of principles designed to ensure that the evaluation or implementation process is robust, transparent, and engages stakeholders.
These principles are the basis of a step-by-step approach:
Step 1: Define the scope of the project and the stakeholders involved.
Step 2: Create a mapping of the impacts affecting the project, drawing a causality relationship between the inputs, outputs, and the identified impacts.
Step 3: Value the outcomes via indicators. And when results have no direct financial value, use financial proxies, i.e., value estimations from available market sources.
Step 4: Build different scenarios into the impact assessment and valuation i.e. (a) deadweight: outcome that would have happened even if the project had not taken place (b) displacement: possible unintentional outcomes (c) attribution: an assessment of how much the outcome is caused by other projects (d) a fourth scenario is calculated as well, i.e., the drop-off and the outcome’s deterioration over time.
Step 5: Calculate the SROI Ratio. By adding all the benefits and subtracting all adverse outcomes or scenarios in Step 4 (deadweight, displacement, and attribution), the impact per year can be computed and Net Present Value (NPV) is calculated.
SROI = (Net Present Value of Impact) / (Net Present Value of Investment)
Step 6: Communicate the results to stakeholders.
The signification of the SROI ratio can be expressed as follows: an SROI ratio of 3:1 means that for one dollar invested, the project will generate a social benefit of three dollars.
SROI for smart projects
How can SROI be applied to smart projects? Imagine, for instance, occupancy solutions in the context of an office workplace or public spaces with people counting and crowd density monitoring functionalities for safe distancing, public safety, and incident prevention.
Organizations are accountable for a safe environment for their citizens and employees. While improving their experience is critical, better data is needed to plan operational resources and reduce costs. If we leverage the SROI framework, these are some of the key outcomes these solutions can generate:
- Creating a safer environment through increased safe distancing from real-time knowledge of facility occupancy and possible violations. The solution detects anomalous patterns and immediately sends alerts, so it represents a cost-effective alternative to keeping a manually operated video monitoring scheme.
- Enhancing situational awareness through a live “look in” capability, offering an ability to improve user experience by, for instance, adjusting their schedules, e.g., to avoid busy times in public transit or improve meeting room bookings in the workplace. Overall satisfaction is measured via KPIs and is estimated to contribute to individual productivity and wellbeing.
- Improving facility resource planning and operations through data-driven decisions. For example, a decision to sanitize a particular building area can be driven by knowing when more than 50 people have come through that space rather than once every two hours. Decreased energy usage is another potential benefit, as the occupancy solution allows optimization of heating, ventilation, and air conditioning systems and lighting, reducing downtime or excessive usage.
Based on these benefits’ values and using an appropriate discount rate, the Net Present Value of the investments and the operational costs of the solution can lead to the computation of the SROI.
SROI is a clear “sustainability enabler” as it helps to direct resources to projects and solutions with the greatest impact because it provides a measure to substantiate a sustainability ambition. It guides the organization to identify indicators to track progress, clarify aims and objectives.
Discover how NTT helps organizations identify the financial and societal impact of smart projects throughout the four phases of value-based selling.