Creating more value with what we have

Posted 25th November 2011

Creating more value with what we have

There are so many different approaches and opinions around ‘accounting for value’ that it’s difficult to see the wood for the trees. In Making it Count, a new publication launched yesterday at the Good Deals conference, Jeremy Nicholls introduces some of the key players and principles in this hugely important area – and suggests how to find a clearer route through the forest.

The last couple of years have seen a rapid increase in interest in social and environmental accounting. Questions of how we know we are making a difference and what sort of difference was it anyway are recognised as fundamental.

This is all to the good. Not so good is that, while organisations and their investors are recognising they probably should be doing something more, they are not sure what. There seems to be a profusion of approaches and arguments over which approach is best.

A UK-based think-tank, the New Economics Foundation, has published a guide listing 20 different quality and social impact frameworks for civil society organisations. Meanwhile, a database called TRASI (Tools and Resources for Assessing Social Impact), developed by the US’ Foundation Center with Mckinsey&Co, lists more than 150 tools and approaches.

Of course, not all these approaches try to do the same thing. It’s also clear that some sort of classification scheme – what academics call a ‘taxonomy’ – is needed. Yet the idea of a taxonomy is perhaps even less engaging to most of us than the idea of measuring impact. So we must be careful that any work in this area does not become a dry academic exercise but is related to a mission and to a story of positive change.

Just look at financial accounting. We all know we have to have financial accounts.

Some of us can read them but most of us are relieved we aren’t tasked with preparing them. And they become more relevant to us when we understand them as a management tool for building better business.

In the civil society sector in the UK, social accounting and accountability have had a long history and, more recently, social return on investment (SROI) has gained support. In the ‘for profit’ arena, organisations such as the International Integrated Reporting Committee (IIRC) and Global Reporting Initiative (GRI) have been centre stage both in the UK and around the globe. More recently GIIRS (Global Impact Investing Rating System) and IRIS (Impact Reporting and Investment Standards) have generated interest amongst ‘impact investors’ – itself a relatively new term.

The challenge must be to arrive at a more standardised approach, one which allows us to communicate the value we create in a reasonable way.

In an attempt to work through this challenge, the SROI Network has argued for an approach to what we call ‘accounting for value’, which answers a series of questions within a framework. The questions become principles and the advantage should be that the debate could move to what is the minimum set of questions that should be answered and then on to how those principles should be applied. This approach remains flexible and recognises that value will be different for different people in different circumstances – so there is no absolute list of indicators – and can be used for different purposes and different audiences by organisations of different sizes.

To some extent this approach has been lost in preconceptions of SROI. So far the brand name and its history have been stronger than the message. And various myths abound (which we address in the ‘myth busting’ section later in this document). Another challenge is that it still seems that we are waiting for a way to know objective answers. SROI argues that applying these principles will require judgements, subjective inevitably, where what are accepted as good judgements will develop over time from the bottom up. No different to financial accounting.

The good news is that over the last couple of years more organisations and their investors have moved from a focus on outputs to outcomes, and are recognising the importance of involving stakeholders in determining outcomes. They also understand better the need to know how valuable these outcomes are, and to consider what might have happened anyway (in other words, how much people’s lives or a particular service might have improved naturally, without a particular intervention taking place).

These questions are surely fundamental to all our endeavours, and we hope that leaders in the social business arena – such as the social investment wholesaler Big Society Capital in particular – will find ways to ensure that those organisations receiving investment can answer these questions.

And the principles can also help us to develop a more dynamic, practical taxonomy. For example, the tool LM3 (Local Multiplier 3, which allows you to calculate the economic contribution your organisation makes to a local area, can be seen as a way of measuring a specific outcome. IRIS and SROI Network have recently documented the relationship between their two approaches. SAN (the Social Audit Network) and the SROI Network have done the same. The principles of including what is important has drawn on work by AccountAbility.

In drawing up the current Guide to SROI, staff from the Green Book team in the UK Treasury, who set out the framework for evaluating all government policies, were involved, and guidance on using SROI in commissioning was also shown to the Treasury’s Office.

All these interrelations are challenging but below the surface there is more and more convergence. It is becoming possible to differentiate, for example, between approaches that focus on accounting for value, approaches that seek to understand the relationship between inputs, activities and outputs, and approaches to develop indicators and tools to measure specific outcomes.

The Making it Count publication – produced in partnership with Buzzacott accountants and – draws together some of the current thinking and practice around accounting for value. It explores some of the challenges and myths, and provides insight into why and how investors, commissioners and intermediary organisations are assessing the value created by the organisations they fund and support.

Importantly, it also spotlights some examples of accounting for value in action – based on a range of case studies written up for the SROI Network.