Ask a firm of accountants how they measure the success or otherwise of a business and they will talk about profitability, margins and balance-sheet strength etc.
But, how exactly, do accountants measure how well or badly a not-for-profit organisation like a charity or public sector body is doing ?
This is normally done by what is called a Social Impact Assessment ( SIA) which examines the Social Return on Investment ( SROI ). This measures the effect of the work of the body in question on its intended beneficiary group and to what extent the latter’s needs are met.
Social Impact Assessment can help a not-for-profit organisation to:
· Demonstrate the value that it adds to funders in order to defend against cuts or argue for increased funding
· Forecast expected outcomes from both existing and new activities and develop measures to assess its performance
· Show that it has considered and can meet the Public Benefit test, which is now mandatory for all charities.
In order to place a value on the social impact that an organisation has, the professionals conducting the SIA use reasonable measures of the values of outcomes and then convert them into an economic value for the effect.
A competent firm will most likely endeavour to calculate:
Economic benefit created: where, either at a micro or macro level, there is an impact on earning capacity, consumption of benefits, reliance on welfare systems, on productivity, on tax revenues, or on trade or indeed wider social or environmental benefits (e.g. an intervention to assist a homeless person in training and finding employment creates additional tax revenues).
Costs saved or not wasted: where the intervention results in a saving in the cost of other interventions, consequential costs, or increases the effectiveness of another intervention (e.g. an intervention to rehabilitate a drug user is likely to reduce the need for interventions by the health service and police allowing these resources to be redirected).
Alternative or cheaper sourcing: the saving achieved where the intervention directly replaces another more expensive one (e.g. a charity provides information and research to government at a lower cost than a commercial research agency would charge, thus achieving a saving).
At a time of financial austerity, many bodies are having to fight to maintain their current level of funding or even to justify their continued existence. A clearly presented Social Impact Assessment can work wonders in defining the usefulness of an individual not-for-profit organisation.
Baker Tilly is an independent firm of chartered accountants and business advisers, positioned as one of the leading mid-tier accountancy firms. Baker Tilly specialises in Social Impact Assessment services to SME’s.
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