Outcome Based Government

By Toby Eccles and Sarah Doyle

A few weeks back we were at a retreat for Social Impact Bond Developers on an Island on the Muskoka Lakes in Canada. It was a sensational venue (thank you to the Breuninger and BMW Foundations, and the MaRS Centre for Impact Investing) and a really interesting few days. One of the topics that a small group of us spent some time thinking about was: What does Outcome Based Government look like? Social Impact Bonds are a really interesting model for a range of opportunities, but they are still a specialist subject that will only ever affect a modest amount of overall funding. There is however a need for a much greater proportion of government spending to use some of the elements that SIBs encourage. In particular:

  • Deciding what you are trying to achieve and how you are going to measure it before you start;
  • Benefiting from the combination of outcomes data and flexible contracting to use rapid iteration and adaptation models to test, learn and improve services on a continual basis;
  • Transparency on what has been achieved;
  • Explicitly analysing interactions between the outcomes you are trying to achieve and other parts of government expenditure, and measuring their impact on each other.

These would have some fairly profound implications. Examples might be:

  • The expectation that, wherever feasible, any policy idea would be treated as a hypothesis or series of hypotheses to be tested in an experimental way, informing future decisions on the potential to expand funding or commit to a wider roll out. This would potentially allow more policy ideas to be tested, with only a selection implemented on a wider scale;
  • Government would over time learn the actual cost of its services and external service providers at producing certain outcomes, making it easier to compare;
  • There would be a much clearer understanding of what works and whether a given initiative had been successful;
  • Budgets being set including both funds and measurable outcomes (tied to specific funding streams), at a sufficient level of granularity to demonstrate success or failure. This could happen at multiple levels of government, both for departments and within departments.
  • Service providers would benefit from longer-term contracts, increased flexibility to adapt over the course of the contract with a view to delivering on outcomes, and a reduced reporting burden regarding day-to-day operations and interim outputs.
  • New partnerships would be incentivized within government, cutting across traditional silos, and outside of government, where a consortium of service providers (generally coordinated by a prime contractor) may have a better chance of delivering on target outcomes.
  • For it to work there would need to be at the least an independent entity defining, or assessing or auditing the outcomes that government is using, to ensure rigour and accountability, and avoid politicization.

This is in part about better measurement, but it is also understanding that we live in a complex world, that we can’t produce predictable outcomes simply by better planning, that instead we need to create feedback loops, gather information, and adapt accordingly. In short we need social services to have a rigorous model of learning that generates knowledge that can be built upon and improved. The path to getting there is not straightforward. It strikes me that there are at least four products that alongside the SIB can help move government along this path:

  • Support bringing outcomes into the budgeting and financial planning and management processes;
  • Help bringing outcome elements to contract renewals in such a way as to drive improved services;
  • Procurement and contracting models that build in feedback loops and an expectation that the contract will adapt over time, rather than stay the same;
  • A better model for outcome work at scale than the present large scale national or state-wide procurement process that we are seeing with the likes of the work programme or transforming justice. This would involve developing a model that allowed feedback and learning, starting experimentally in two or three areas. For example one could create a framework of sought after outcomes and maximum values that can be paid for them, a referral methodology, and an initial community of providers. Thereafter the providers can be added to, say annually, and the outcome values can also be changed according to what outcomes are generated for what value. There would be transparency in terms of what providers are doing and the outcomes they are achieving. Toby will be writing more on this soon.

Would this work? What else is needed? All thoughts welcome!

PS This is intended as a starter for discussion. There are plenty of areas of government where an outcomes approach may be inappropriate. There are also plenty of poor ways of introducing outcomes that simply become target cultures with strange perverse incentives, or the creation of meaningless numbers outside of government control. Previous attempts have tended to create top down targets as a way of managing from the centre, rather than as a way of creating feedback loops from the outside. We hope to explore some of these challenges and issues in future blogs.

Thanks to Peter Barth @ Third Sector Capital, and Caitlin Reimers @ Social Finance US for a great conversation…



Politicos vs bean counters – differing perspectives to cutting costs

A twitter response from Tom Gash (@TGCrime) at the Institute for Government to my last missive got me thinking further about how government allocates resources and perhaps more importantly how government reallocates resources when it is trying to reduce costs and cut back services.

Tom is a thoughtful man, particularly interesting on Criminal Justice. His response to my last blog on using PbR to assess the appropriate allocation of resources between probation/rehabilitation, and prison was “Thanks for this – agree migration strategy essential. You’d forgive HMT for not wanting to gamble on this right now…”.

My first reaction of course was actually no I wouldn’t forgive HMT for not wanting to gamble on this right now. If we are to reduce the costs of government we need to reshape it, and using outcome approaches can give you a low risk way of testing the reshaping of services and changing your resource allocation, without having to dual run prevention and acute services and run the risk of over spend.

I realised on reflection that this misses the point. From HMT’s perspective the normal solution to cutting costs is simply to stop doing stuff. Remove it from the budget and it ceases to be. While there are arguments that such reductions build up cost pressures for the future, they may be un-evidenced and the impact not easily forecast, so may come across as special pleading. This is obviously rather more politically troubling than reshaping services, but it is lower risk from a simple management of inputs perspective. It appears reasonably reliable and you don’t have to spend time doing due diligence on a reshaped model that someone is convincing you will save you lots of money if you only invest now (in fact the old “invest to save” argument has been so often used, so often not saving at all, that one would forgive Treasury for a degree of cynicism).

For politicos the situation is reversed. Simply cutting services is uncomfortable and unpopular. It is therefore a time for buck passing (for example giving local authorities more freedom, aka responsibility, at the same time as cutting their budgets), disparaging the receivers of the service or benefit to be cut, or trying to do it as quietly as possible. Reshaping services behind some grand vision on the other hand is much more interesting.

What are the implications of all this?

–       The first and most obvious is that large scale reshaping is therefore extremely difficult and requires huge political capital. So those areas that don’t get that political investment may end up with standard cost cutting as a default.

–       Second, where wider service reform is brought forward, the bean counters may seek cost cutting at the same time, as part of the deal. For example, the drugs PbR pilots or the present probation work. My suspicion is that this will lead to risk averse behaviour and may not lead to the level of innovation that we’d hoped for.

–       Third, supporting service areas in building their financial arguments around reshaping services would appear to be a useful contribution, as are outcomes based contracts, but as we’ve already seen, these may not be enough.