SROI

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SROI

• The Social Return on Investment
• By
• Nick Wiseman
• SWLLN

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SROI in the case of a HEFCE-funded LLN project

• Hefce has funded the SWLLN to the tune of 3.4m
  over 3 years
• The object is to ease the entry into HE of
  vocational, largely p-t, learners in 3 discipline
  areas Public Services Heritage and
  Tourism..... And
• To enhance their Progression opportunities once
  within the HE system

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SWLLN Strands

• The SWLLN is facilitating this additional
  opportunity and enhanced progression rights via
• Curriculum development (and p-t, WBL delivery
  initiatives)
• Progression Agreements between the many FECs and
  HEIs in the SWLLN sub-region (and admission
  agreements for vocational learners)
• IAGLS activities that support the development of
  extant IAGLS centres thus providing better
  information on HE opportunities and how to
  exploit them, and better learning support

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SROI - the basics

• In essence the SWLLN strands of activity aim, in
  concert, to meet the prime directive of
  facilitating enhanced HE opportunities for
  vocational learners
• The HEFCE funds provide a multi-faceted and
  integrated set of actions
• The cost to society is the LLN funding (that
  could have been allocated elsewhere)
• The benefits that accrue are complex and affect,
  inter alia individual learners, educational
  institutions, the UK Governments Treasury, and
  society at large
• Prime benefit is the extra productivity enabled
  via Higher Level skills development (and the
  associated rewards to stakeholders)

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Cost-Benefit Analysis with a social twist

• The investment (cost) is the SWLLN core funding
  3.4m, plus the funding to HEIs in the form of
  Additional Student Numbers (ASNs)
• The benefits include enhanced qualifications and
  better career prospects for vocational learners
  more funding for HEIs/FECs more tax revenues to
  HMTreasury an improved workforce whose skills
  add to the profits of businesses and the
  wellbeing of communities

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The Benefit/Cost Ratio

• SROI is usually measured by the ratio of measured
  benefits to costs
• The measure of the costs is fairly
  straightforward
• Measuring the benefits is more of a challenge
• There are agreed values to the individual of
  enhanced qualifications we can see the upfront
  benefits to HEIs/FECs tax revenues out of
  enhanced earnings can be established employer
  gains and (particularly) social improvements are
  trickier!
• And outcomes are probabilistic.......more anon

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Possible Benefits 1

• The learner expected additional lifetime
  earnings (in Present Value terms) say 100k for
  someone moving from FE level 3 to Hons Degree
  status (level 6) evidence for this comes from
  official DIUS figures though the practical impact
  will vary depending on sector and area of the
  country where the probability distributions of
  lifetime earning enhancement will differ
• The HEI gaining an ASN (ie 1fte) gains HEFCE
  funding plus fee income approx 6k or 7k per
  annum for 2 or more years say 12k to be
  cautious
• ASNs have been allocated so the only
  probabilistic aspect revolves around whether they
  get used

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Possible Benefits 2

• The HEIs employees (by and large) gain from the
  extra revenue and their possible additional
  spending power causes a multiplier effect in the
  economy (similarly, that share going to new
  capital, and maintenance, eventually ends in
  someones hands as new spending power)
• HMTreasury gains clawback through income taxes,
  corporation tax and VAT say 50 of the initial
  outlay by HEFCE
• These benefits are reasonably certain

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Possible Benefits 3

• Whilst new learners are in education, even p-t,
  they too make additional expenditures, as do
  their families and partners/friends owing to
  their new status these also have multiplier
  effects through the extra income to shops etc
  (and their owners/shareholders in turn) on the
  other hand, the time in work learners have
  foregone will reduce their short term income and
  potential spending the net effect is likely to
  be small, zero, or a negative!
• Once in fresh, enhanced employment their
  employers also benefit from the new skills (and
  profit opportunities) the freshly qualified
  worker brings these skills are a prime private
  benefit from an upskilled workforce
• This last benefit is not certain and an expected
  value might be calculated as a certainty
  equivalent

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Potential Benefits 4

• In addition to their greater productivity, the
  newly skilled members of society bring benefits
  to their wider community this is the social
  inclusion effect of education difficult to
  measure objectively and definitely uncertain
• So we have the individual education
  institutions employers HMT shops and other
  spending recipients and the community at large
  ALL benefitting from 1 new graduate
• Expected values of benefits apply in some cases

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A word or two of caution

• Costs and benefits have to be assessed, not at
  their headline level but against the opportunity
  foregone in their creation
• For example, the HEFCE monies additional benefit
  needs to be net of the potential next best use eg
  the benefit of spending on SWLLN is the extra
  benefit that comes from our efforts as against
  (say) WVLLNs
• Indeed we could look at the benefits of
  equivalent spending on another, non-educational,
  social project, or an equivalent tax cut which
  would entail benefits to a wider social group

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And some more caveats

• The example coming up is crude in the extreme
• It assumes the ONLY benefits of the spending on
  SWLLN comes through the use of the ASNs allocated
• It assumes that the prime beneficiaries are the
  new learners, their HEIs/FECs, their employers,
  and HMT it also uses a crude multiplier value
  of 1.25 ie 25 additional spending and income is
  generated by the secondary spending of shop
  owners et al note that the multiplier theory is
  based on a perpetual extra spend.....caveat
  emptor!

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A Model of Costs

• Costs of SWLLN approx 3.4m in PV terms
• 217 ASNs have been allocated at a cost to HEFCE
  of approx 6.6m in PV terms
• NB IF the ASNs are permanent, the costs, and the
  benefits, are in perpetuity ie more like 66m in
  PV terms (using an arbitrary 10 discount rate)
• Total outlay (costs) approx 10m or 69.4m

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A Model of Benefits

• Learners enhanced lifetime earning 21,700,000
  or 217m if in perpetuity and certain
• HEIs/FECs additional income 217 times 12k
  260,400 or 2.604m if in perpetuity
• Additional profits to employers approx 25 of
  salaries 25k per newly qualified person 217
  times 25k 5,425,000 evidence reqd as to the
  25 figure - or 54.25m of in perpetuity
• Total 27,385,400 or 273.854m
• Now add multiplier effect 1.25 times this
  figure 34.23m or 342.3m in the perpetuity case

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The SROI

• Thus ignoring HMTs take at say 50 of the gross
  extra earnings (approx 17m or 170m) the ratio
  is
• 34.23m/10m 3.423 or 340m/69.4m approx 5
• NB NO other benefits assumed to be added are
  the IAG and PF benefits I see these as
  increasing the probability of a learner
  progressing to gain the lifetime enhancement in
  salary we need an idea on this perhaps from the
  take up of HE from the HUB activities?? Or the
  effect from the PAs??
• These effects would shift the relevant prob dists
  where uncertain outcomes prevail
• So if the 100k lifetime earnings enhancement is
  actually the expected value or mean of the real
  distribution, then IAG and PAs would raise the
  certainty equivalent mean value
• BUT NO opportunity cost used either
• Including HMT clawback adds 17m to the numerator
  approx 51m, thus SROI 5.1 or 510m/69.4m
  approx 7

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SROI take 2

• To make the analysis more realistic we need to
  add in other benefits emerging from the same
  3.4m spend
• Better IAG ie enhanced probability of HE being
  taken up shifting the lifetime mean salary
  benefit by raising the probability of access to
  HE and hence career success
• Better chances to progress to higher quals via
  PAs again shifting the prob dist in the favour
  of the learner
• Better coordination and collaboration between
  HEIs and FECs ditto effects on the potential
  learner
• These would simply increase the numerator and
  thus SROI

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What if NO ASNs?

• In this case the benefits are shorn of the 6.6m
  or 66m (and so are the costs)
• So the SWLLN adds IAG, PAs and some new
  curriculum to further meet employers/learners
  needs but NO net extra learners
• There may remain net benefits if WP learners are
  substituted for traditional students ( they may
  have a higher propensity to spend leading to a
  bigger multiplier and there might be positive
  social re-distribution effects and there may be
  net positive effects on productivity given the
  likelihood of greater life chances enhancement)

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SROI without ASNs

• Benefits are now merely the additional multiplier
  effects of having recruited 217 non-traditional
  students plus the net productivity benefits of
  the re-distribution of learning opportunities and
  better social cohesion (say) 21.7m (ALL spent)
  versus 21.7m with 0.9 spent) net benefit of
  2.17m (or more once we include the greater
  lifetime income gain and the additional HMT take
  via income tax)
• If non-traditional learners gain relatively more
  from their HE experience (as assumed above) then
  greater employers productivity gains are an
  additional benefit
• Applying the 1.25 multiplier to this approx 4m
• In perpetuity this is likely to be much more
  since the benefits of LLNs, once embedded, are
  likely to continue
• Costs are now 3.4m but in perpetuity benefits
  might reach 40m
• SROI is approx 12 IF sustainable benefits accrue

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References that might add to the discussion

• New Economics Foundation (NEF) (2008), Measuring
  Value a guide to the Social Return on Investment
  (SROI), second edition
• NEF (2004), Measuring Social Value the
  foundations of SROI
• www.neweconomic.org