The flipside to cost savings is an increase in income. Rises in income for people
through salary or for the state through tax increases are obvious examples. However,
be careful of double counting here. For example, if an individual gets a job, they
increase their income and the state receives increased taxes. In this case the increase
in income should be recorded after deducting taxes.
The increase in income may also not be additional to either the person or the state.
For the person the increased income may be offset by an increase in taxes or loss
of benefits. For the state the increase in taxes will only result in an increase in
government income if no one else loses work and the total level of employment
increases. However, there may still be a value to the state of that person getting a job
that should be included – perhaps because inequality has been reduced.
Remember we are talking about proxies here, as some of these outcomes will not
result in actual financial savings. However, for some stakeholders, such as the funders,
you may want to demonstrate cash savings. If you want to do this credibly you will
need to approach it rigorously and should consult the guidance on marginal costs and
displacement. The information you collect on costs will help you with this but it may
Stag
require a separate calculation.
Stag
e Proxies that are more challenging e
SROI also gives values to things that are harder to value so are routinely left out of
traditional economic appraisal. There are several techniques available.
In Contingent valuation we ask people directly how they value things. This approach
assesses people’s willingness to pay, or accept compensation, for a hypothetical thing.
For example, you may ask people to value a decrease in aircraft noise in their town –
their willingness to pay for it. Conversely, you may ask them how much compensation
they would require to accept an increase in crime.
Revealed preference techniques infer valuations from the prices of related market-
traded goods. One form of revealed preference builds up a value from the market
values of constituent parts of the service or good being considered. This method could
be used to value environmental amenities that affect the price of residential properties.
For example, it can help us value clean air (and the cost of pollution) by estimating the
premium placed on house prices in areas with clean air (or the discount on otherwise
identical houses in polluted areas). Another example might be to look at wage
differentials that people require to take on certain risks, to calculate how they value
different aspects of their lives. This is called hedonic pricing.
Another approach recognises that people are generally willing to travel some distance
to access goods and services on which they place a value. This inconvenience can
be translated into money to derive the estimate of the benefits of those goods and
services. This is called the travel cost method.
A guide to Social Return on Investment
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