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Short on Taxpayer Dollars? Create Shared Outcomes, Not To-Do Lists

Michael Chodos

Posted January 21, 2015 on Funding for Results

From healthcare to education, from economic opportunity to infrastructure, communities across America face tough challenges and tougher choices. Government budgets at every level are under intense pressure, and no one expects extra resources to be the solution. Now more than ever, if the government is to play a meaningful role in solving our greatest challenges, it’s going to have to focus on effectiveness as the foundation for any expenditure.

But that’s not how many government dollars are spent today. Especially in the social services sector, contracts and grants often pay for a slate of activities, or outputs. In spite of increasingly scarce taxpayer dollars – and sometimes out of a good faith effort to respond to that scarcity – funds are often deployed through the “to-do list” method: specifying and micro-managing the quantity, attributes, and frequency of service delivery in the well-intentioned hope that those activities will achieve the goal of the program.

But the “to-do list” approach can lead to disappointment: Service providers – who usually are key experts in identifying outcomes – often feel left out of a “top down” process in which agency officials identify service approaches without adequate consultation. Contracts and grants can become laden with metrics and reporting requirements designed to guarantee compliance alone, rather than success at solving the underlying social issue. And the underlying issue itself is often not solved, leaving a legacy of blame and finger-pointing.

Given that policymakers, officials, service providers, and funding sources share vast experience and a common goal to address social innovation issues effectively, it doesn’t have to be this way. It’s time to turn the process around and drive a fundamental shift in effectiveness by first clearly articulating – the ultimate social benefit and outcome to be achieved and how best to measure when it has been achieved.

It seems like common sense and sounds simple, but it represents a big change.

A focus on “outcomes” also comes with a learning curve. Over a decade ago, the federal government made significant strides in promoting “performance-based contracting,” defined as focusing on “results required rather than methods of performance.” While there was much progress, some agencies still struggled with micro-management. One early “performance-based” federal catering contract did not, for example, measure overall nutritional value and customer satisfaction. Instead, the contract provided 33 pages of specifications with daily sandwich lists, “technical library” requirements, and even required lengths for corn-on-the-cob.

Since then, experience has shown that paying for outcomes is most effective when the goals are near-term, specific, measurable, and meaningful. Put another way, setting an outcome answers the “so what” question of any project. Unless the parties can articulate how beneficiaries’ lives will be improved and effectiveness measurably increased, no meaningful “outcome” is yet in place.

What does it take to frame a successful outcomes-based agreement and not get lost in micro-management?  Through our case studies, we learned that successful outcomes-based social innovation services programs can balance compliance and effectiveness when built on three pillars: (1) proactive stakeholder outreach and transparent negotiation and engagement, (2) shared input in setting outcomes and incentives, and (3) clear and simple measurement of progress.  What else did we learn? That these three pillars represent a cycle of constant feedback, re-negotiation, and improvement through iteration.

How does this work in practice?  In Tennessee, for example, an outcomes-based approach turned around a child-welfare system in crisis.  After years of operating a system in which children in state custody languished for months in “emergency housing,” or were shuffled among temporary care providers, Tennessee decided to change its focus from paying for daily child welfare services to paying for outcomes.  It consulted with the entire state ecosystem for child welfare: service providers, policymakers, and experts.  Agreement was reached that the single most important outcome for at-risk children was placement in permanent homes.

Based on that shared agreement on the ultimate outcome, Tennessee implemented a system of paying for success. After initial challenges, and through ongoing consultation with service providers and stakeholders, the state was able to implement effective incentive and measurement systems. In just a few years, average time in state custody was cut almost in half, and Tennessee’s rate for placing children in group care was the lowest in the nation.

Across the country, pay-for-outcomes projects are underway using the collaborative, stakeholder-focused approach described above. A project in Michigan is working to reduce infant mortality and emergency department admissions among high-risk infants.  Utah has a program that pays for improved early childhood literacy rates. And in Cuyahoga County, Ohio, a project is underway (similar to Tennessee’s) to reduce the number of days children spend in state care.

Meanwhile, federal efforts, such as the P3 pilots, are expected to significantly expand the foundation of learning and knowledge-sharing as outcomes-based approaches develop nationally and globally.

At the Beeck Center, we focus on “crossing the gap” between idea and practice in social innovation.  Through practitioner-focused articles and blogs, convenings and training programs, we’re here to help spread best practices in outcomes-based government contracting and grant-making.  We welcome your comments and partnership along the way, as each one of us in a permanent stakeholder in driving effective policy.

Interested in getting involved or learning more about our work? Contact us!

Michael Chodos is a Senior Fellow at the Beeck Center for Social Impact & Innovation at Georgetown University, and leads the Center’s impact investing work. He is also the Senior Advisor to the US National Advisory Board on Impact Investing, the US’s arm of the Global Task Force on Impact Investing. Follow him on Twitter @mchodos.

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