Social Value in Financial Decision Making

This paper discusses the use of social value in the financial decision making of a church and other nonprofit organizations. It explores how social value can be used to make financial decisions that enhance the desirability need of the NFP organizations. The metrics used in financial decision making in a non-profit organization include the value created to the society, efficiency of the organizations, leverage level, and the return to shareholders value.

Running head: FINANCIAL DECISION MAKING 1
Financial Decision Making
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Social Value in Financial Decision Making
Social value refers to the quantification of the financial and non-financial importance of
programs and interventions experienced by people in an organization or community (Platteau,
2015). Economically, social value is achieved by combining resources, processes, and policies in
order to improve the lives of individuals in the organization. Therefore, it from this perspective
that most nonprofit organizations exist with justification to improve the livelihood of
communities. Subsequently, social value intents to attain an inclusion and access of people to the
resources created within the organization. Significantly, elements of social value can be
incorporated into nonprofit organizations to quantify the economic value in a society.
Accordingly, quantification of the intrinsic value of nonprofit organizations can be considerably
difficult. However, measurement of the value creation can be accomplished by using social
return on investment metrics (SROI) and the social earnings calculations (Kennedy & Phillips,
2015). This paper discusses the use of social value in the financial decision making of a church
and other nonprofit organizations.
The major social values that contribute to the success of not-for-profit organizations are
honesty and loyalty. These virtues among others ensure high levels of integrity in ensuring
proper funds management. Unlike the profit-oriented commercial organizations, the social value
of the not-for-profit organizations is increasing the value of stakeholders. Stakeholders vary
depending on the organizations, for instance, stakeholders in a church are the Christians while
stakeholders in charity organizations may be donors. Therefore, the social value can be used to
make financial decisions that enhance the desirability need of the NFP organizations.
Accordingly, most non-profit organizations programs struggle with financial performance
measurements. As a result, these organizations need to establish a link between the performance

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aspect and the strategies used in financial management in order to maximize their operations.
Substantially, financial tools such as budgets can be relied on when making financial decisions in
the organizations. In making the cash budgets, the organizations need to establish if they have
sufficient cash reserves to achieve the social value in a community. Cash budgets are vital
because they enable the organizations to make financial decisions regarding allocation of
resources to particular programs throughout the fiscal year (Titman, Martin, Keown & Martin,
2016). Therefore, the cash budgets are used by financial managers as decision tools to gauge the
operational performance of the organizations.
Stakeholders of not-for-profit organizations such as churches primarily based on the
financial data in evaluating the financial performance of the organizations (Titman, Martin,
Keown & Martin, 2016). Although the financial indicators are essential, they cannot be only
relied on to comprehensively make decisions on the financial performance of the churches or
non-profit organizations. Basing on the social value of the organizations, financial managers play
a key role in managing the resources provided by stakeholders such as Christians and donors of
the nonprofit organizations. Therefore, the financial managers have a responsibility of acting as
stewards for the resources within the church or non-profit organizations. Accordingly, the
financial managers are responsible for making financial decisions that determine the overall
performance of the church or not-for-profit programs. As a result, the managers evaluate whether
the financial resources are used to achieve the mission of the church and the NFP programs.
Several factors influence the financial decision making proves a church or not-for-profit
organization. Financial managers need to evaluate the performance of the organizations to
determine their contribution to attaining the social value goals of the organizations. The metrics
used in financial decision making in a non-profit organization include the value created to the

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society, efficiency of the organizations, leverage level, and the return to shareholders value
(Gitman, Juchau & Flanagan, 2015). Categorically, these metrics are used in evaluating the
efficiency of the administration, the programs, and fundraising strategies. Thus, by evaluating the
efficiency of the organizations’ performance, financial decisions can be made basing on the cash
budget prepared. Apart from the organization performance, the financial manager s and
stakeholders can use the organization’s capacity to make decisions on financial matters.
Financial decisions can be made based on the administration performance. In this arena,
the administrative expenses are calculated basing on the cash budget of the non-profit programs
and organizations. Financial calculations are performed on the revenues spend in running the
administrative functions in comparison to the total expenses of the organization (Gitman, Juchau
& Flanagan, 2015). Thus, administrative efficiency can be used in evaluating how the
administrative expenses are used to add value to the social lives of the organization’s members.
In addition, the social value will be used to make decisions on controlling the expenses in order
to enhance the livelihood of the community.
Organization/ Program Efficiency. Basing on the efficiency of the organization, the
financial managers can use the social value to evaluate the public value of the organizations. In
this aspect, social value is used to make financial decisions on the total expenses spend in
supporting the programs in the organizations (Gitman, Juchau & Flanagan, 2015). Since the
mission of non-profit organizations is to create value in the community, the growth of program’s
productivity can be used to make decisions on the expenditures involved. Thus financial
managers evaluate the total expenses divided by the total revenues, basing on the assets in the
cash budget.

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Fundraising efficiency is an important factor that managers have to consider in making
financial decisions. This involves analyzing the financial donations which determine the
financial position of the organizations. Accordingly, fundraising efficiency enables the
organizations to leverage the debt and external resources in order to amplify the social value.
Significantly, the social value can be applied to stabilize the fundraising methods, thus
preventing chances of making losses. Accordingly, financial leveraging is an important factor in
making monetary decisions because it influences decisions on the contribution margin (Gitman,
Juchau & Flanagan, 2015).
In conclusion, application of social return on investment (SROI) metrics enables financial
managers to make decisions that influence the social impacts of the organizations (Kennedy &
Phillips, 2015). Analysis of the SROI metrics by the financial managers focuses on the benefits
raised by all stakeholders. These benefits are denoted in monetary units so that the economic
impacts can be based on the cash budgets. In addition, decisions made by financial managers in
the non-profit organizations rely on the analysis of inputs and outputs in order to determine the
social impact of the organizations. Thus, the social value plays a crucial role in determining the
financial decisions made to improve the livelihood of the society.

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References
Titman, S., Martin, T., Keown, A.J. & Martin, J.D. (2016). Financial Management: Principles
and Applications (7th ed.). Frenchs Forest, N.S.W: Pearson Australia.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
Kennedy, R., & Phillips, J. (2015). Social Return on Investment (SROI): A Case Study With An
Expert Patient Programme-Selfcare Journal. SelfCare Journal.
Platteau, J. P. (2015). Institutions, social norms and economic development. Routledge.