Approaches for Measuring Social Performance

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Approaches for Measuring Social Performance

Approaches for Measuring Social PerformanceImage result for Approaches for Measuring Social Performance in Strategic Management Diagram

Measuring Social Performance is quite fluid because of its qualitative nature. In order to overcome the problem of fluidity, a separate branch of accounting, known as social accounting, has been developed. Robert Elliot has defined social accounting as “systematic assessment and reporting on those parts of a company’s activities that have a social impact the impact of corporate decisions on environmental pollution, consumption of non-renewable resources, and ecological factors; the rights of individuals and groups; maintenance of public services; health, safety, education and many other social concerns.”In social accounting, three approaches are used for measuring social performance:
1. Social cost-benefit analysis,
2. Social indicators, and
3. Social goal setting.

Social Cost-Benefit Analysis

The social cost-benefit analysis is based on evaluating benefits that accrue to the society and the costs through which these benefits accrue. While costs can be measured in terms of money, same is not the case with benefits. Since social benefits cannot be defined in monetary term, the concept of consumer surplus is applied to measure these. Consumer surplus is the difference between what a consumer would be willing to pay for a given product or service and the actual price charged. Thus, this willing price may be used for measuring social benefits.
However, the willing price to be paid by a consumer is subjective and varies from situation to situation for the same consumer or may be interpreted differently by various persons.
For example, what is the willing price to be paid by a consumer for a packet of food who has been rooted from his home due to natural calamity such as flood, earthquake, etc?
Cost-benefit analysis may be undertaken either on the existing price system or discounted rate of costs and benefits. In the latter case, social costs and benefits are discounted at a social discount rate to determine the present value of net social benefits. Social-cost-benefit analysis, though suffers from the limitation of precise measurement, is useful in evaluating the alternative social programmes that an organisation can undertake.

Social Indicators

Social indicators approach of social performance measurement consists of developing social indicators and measuring an organisation’s performance on these indicators. Brumet has prescribed five broad indicators in which the contribution of an organisation should be measured.These are as follows:
1. Net income contribution-earning enough to provide for the present and future costs of the organisation’s continued existence but limited to legitimate socially desirable profit;
2. Human resource contribution-development of the system of human resource accounting to measure the impact of the organisational decisions on human asset value.
3. Creation of jobs and providing employment opportunities to backwards and socially handicapped population, contributing towards educational development, relief of people in distress caused by natural calamities, rural upliftment, etc.
4. Environmental contribution-environmental improvement through pollution abatement, conservation of scarce natural resources, maintenance of ecological balance, and so on.
5. Product or service contribution-ensuring quality, durability, safety and serviceability of products; customer satisfaction, truthfulness in advertising, etc.
Social indicators approach measures the social performance of an organisation in the context of various factors. Many organisations follow this approach because it indicates the areas in which they have to work. However, one basic problem with this approach is the determination of expectations of various indicators and the way it can be fulfilled.

Social Goal Setting

Social goal setting approach emphasises on incorporating social concern in the objectives of an organisation which may be on a perpetual basis or on a periodic basis. A combination of both can also be followed in which some social concerns can be undertaken on perpetual basis while others can be taken on a project basis for a specific period. For example, consumer satisfaction, environmental protection, etc. can be taken on perpetual basis while special projects for certain specific social cause like eliminating the impact of destruction caused by certain natural calamities can be taken on ad hoc basis. In the social goal setting approach, an organisation can identify the social concerns to be served on the basis of its own environmental analysis and choose those areas in which it believes it can contribute effectively to reducing the social costs or enhancing social benefits.
This approach is better in terms of providing areas of social concerns on which the organisation can focus in terms of the needs of the areas and its own capability to satisfy those needs,
Thus, this approach can be well integrated with strategic management process.