Identifying your financial proxies
Your stakeholders will be a good starting point for finding your proxies because
only they know what it is they value and so know best how this might be captured.
While they may not be able to identify a tangible value, they can guide you as to
what the change is worth to them.
As you check the proxy with stakeholders and see increasing agreement, the
proxy may gain credibility. Where there is disagreement on values it is possible
that the outcomes need to be expressed differently, otherwise it may be
necessary to use average values. Often you can find academic articles or other
research that has already assigned a monetary value to the outcome you are
interested in. You’ll still need to check that it is appropriate to your case.
Information on unit costs may be available from:
• websites maintained by the stakeholder who might gain from the cost saving (eg
government departments like the Department for Work and Pensions);
Stag
• research into costs by government or independent bodies. The Personal Social
Stag
Services Research Unit (www.pssru.ac.uk), for example, publishes comprehensive
e unit cost data for health and social care on an annual basis; e
• your own estimates or research with the stakeholder on how much the saving
would be.
Information on changes in income can be obtained from a range of places, including:
• data from stakeholders;
• reference to the average increase in a sample of your stakeholders;
• reference to other research of average increases that occur as a result of similar
activities relating to the same outcomes.
Be careful with unit costs when calculating actual financial savings
Information on cost savings is often available in the form of unit costs. Unit costs
are sometimes calculated as the total cost of an activity divided by the number
of people benefiting from the activity. This includes both fixed costs, like the cost
of a building, as well as variable costs, eg day-to-day running. The fixed costs
may remain the same regardless of the number of participants in an activity.
For example, the unit cost of housing a prisoner is in the region of £40,000 per
annum when the total cost of the prison estate is divided by the number of
prisoners. But if 100 people are prevented from going to prison that does not
affect the fixed costs and is unlikely to achieve the full unit cost reduction
per prisoner.
When you use unit costs be careful not to overstate the savings. The cost savings
that you use should be the change in costs arising from your activity, called the
marginal costs. Marginal costs will vary depending on the scale of the activity.
0 A guide to Social Return on Investment
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