The definition of Social Value
Social value refers to all of the impacts that an intervention, policy or project has on society and the value that these impacts have, both positive and negative. The social value of a project is the net value generated to society (net of negative impacts). This includes impacts on the infrastructure industry itself, such as benefits to businesses and employees, as well as benefits to wider society.
Social value measurement (SVM) in its simplest and most basic form is the practice of assessing the extent to which an intervention or project generates value for society and hence is/was in society’s best interests. Social value and SVM are inherently ethical issues because to go beyond these definitions to develop a framework that can be applied to real-world projects, what ‘value’ is and what is in society’s ‘best interests’ need to be defined. These are ethical or moral/normative questions.
Key approaches to measure Social Value
Cost benefit analysis
Cost-benefit analysis (CBA) is currently the preferred best practice method for SVM in the public sector. CBA assesses all of the positive and negative outcomes (benefits and costs) of a project and their impacts on people’s quality of life. CBA tells us whether a project will lead/has led to an improvement in social welfare (quality of life). CBA measures benefits and costs in monetary terms such that social value is estimated as a quantitative monetary amount. In CBA, quality of life is measured in terms of people’s preferences – how much people are willing to pay for a good/service (what people want) and their experiences.
Effectiveness of projects estimated in terms of costs of delivering a single outcome, e.g., £ per unit of delivery. Options ranked on this basis.
Endorsed as second-best option by various bodies where CBA is not available. However, only evaluates on one success measure, and this is not valued in monetary terms.
Benefits of projects estimated in terms of health impacts. Uses quality adjusted life years (QALY) to measure health impacts, and ranks projects based on QALYs delivered.
Similar approach to CEA, but success measure is more encompassing because it includes all aspects of health. Policies can be monetised based on defined value of a QALY.
Refers to a set of techniques that enables policies to be compared against a set of defined criteria in order to make decisions between them.
Not explicitly designed to measure social value and not a replacement for CBA but may be appropriate for decision-making at early stages in projects.
Social return on investment
A broad framework for measuring social value, enabling monetisation of benefits and costs for comparison across projects.
A relatively new approach that still suffers from key methodological problems. These can be addressed by applying methods such as CBA within it, but care must be taken to ensure social value is defined and measured consistently.
Valuing non-financial impacts
The three key methods for understanding the social value of non-financial impacts are revealed preference, stated preference, and subjective wellbeing valuation methods. Other terminology that is often used to refer to non-financial impacts is non-market goods. Market goods and services are traded in markets and so already have a market price. Non-market goods and services are goods that are not traded in markets and so there is no price associated with them. Analysts use valuation techniques to estimate the social value of these types of goods and services.
The total value of a good or service is made up of its use and non-use value. Use value is the value an individual gets from using a good either directly or indirectly. It also includes the value individuals get from having the option to use a good.
Non-use value is a key issue in the appraisal of infrastructure projects that impact on the environment or on heritage assets.
Best practice methods for estimating the value of non-market goods
Travel cost method (revealed preference)
Estimates use value for recreational sites using travel cost data for visitors to the site and its alternatives.
It is considered the most robust valuation method, along with the hedonic pricing method. However, it does not capture non-use value and is very data intensive.
Hedonic pricing method (revealed preference)
Estimates use value for non-market goods that contribute to the local environment and working conditions using housing and labour force data.
It is considered the most robust valuation method, along with the travel cost method. However, it does not capture non-use value and relies on a number of market assumptions.
Contingent valuation (stated preference)
Estimates total value (use and non-use) using bespoke surveys and is often used to value intangible goods.
A flexible method that captures both use and non-use value. However, due to potential survey biasing, it is considered less robust than revealed preference methods.
Discrete choice experiment (stated preference)
Estimates total value (use and non-use) for the individual attributes of multi-attribute goods using bespoke surveys.
A flexible method that captures both use and non-use value. However, due to potential survey biasing, less robust than revealed preference methods.
Subjective wellbeing valuation
Estimates use value for a wide variety of societal and environmental goods using national wellbeing datasets.
A flexible approach that does not suffer from survey biases and is cheaper than stated preference techniques. However, it is less well established as it is relatively new.
Adjusts previous results from studies using the methods above and applies them to a new context. The data and type of value will depend on the original study/studies.
The easiest and most cost-effective valuation technique. However, it is the least robust and relies on there being appropriate values already estimated in previous studies.
The role of chartered surveyors and the profession
The infrastructure sector employs chartered surveyors from various specialisms including land, valuation, construction and quantity surveying, project management and infrastructure pathways. As the demand for measuring and assessing social value on the sector increases, these professionals will be required to develop relevant skills and competencies. However, until an established robust best practice emerges, social value assessments will continue to be inconsistent.
The currently used international valuation standards contains best practice guidance for those undertaking asset valuations. The valuation measures set out in this guidance, namely the market approach, income approach and cost approach, all measure economic value. In order to capture total social value, similar guidelines could be produced for wider societal and environmental benefit. The valuation techniques developed in the public sector can inform this, and given appropriate training, professionals should be able to conduct social value evaluations alongside standard asset valuations.
As the infrastructure sector continues to shift its focus from economic value to more holistic social value, projects are being designed, built and assessed in a new way. As investors start considering environmental, social and governance (ESG) factors the conversation in the infrastructure sector is also moving in this direction. Government regulation and consumer demands mean that the industry is being required to deliver and demonstrate social impact in order to win work, to inform resource allocation and for marketing purposes.
Currently, the infrastructure sector does not consistently define or measure social value. The industry lacks a robust set of standards and objectives to guide the delivery and assessment of social value and there is little capacity for social value measurement. This potentially limits the social value that could be created and demonstrated by the industry.
The infrastructure sector can develop its approach to social value. It may benefit from:
Defining specifically what social value means for the infrastructure sector and how it links with government programmes.
Developing outcomes and measures that are relevant and capture key impacts on the quality of life of society.
Formally embedding social value in all major projects. Major public projects should be required to publish a social value plan that aligns outcome measures against social value and the Industrial Strategy that are specific to the community in which the project sits.
Developing an industry-wide collaborative initiative for incorporating social value into all aspects of the infrastructure sector. An industry leadership initiative should be created to unify, encourage and promote a positive vision for social value and provide practical guidance. This could include items such as guidance on metrics and a social value awards system linked to clear outcomes and leveraging social value to improve economically weaker communities’ quality of life through new skills development and improved productivity. Adopting a proactive approach to inclusion in the construction sector by linking outcomes of the Industrial Strategy to how benefits are distributed.
Social value represents an opportunity for the infrastructure industry to adjust its way of doing business in order to improve its impact on people’s quality of life.