Article first published on Pro Bono News 22 September 2021.
With the move to reporting on outcomes gaining pace, Dale Renner, director of Latitude Network, shares advice on what social organisations can do to build an outcomes-focused organisation.
Have you noticed that more and more philanthropic and government funders are asking for proposals to have an “outcomes focus”? Impact investors and service commissioners increasingly want evidence that a program makes a difference.
The move to report on “outcomes” is gathering momentum and for good reason. The purpose of social sector funding, whether in homelessness, mental health or child protection, is to improve the lives of people – to make a difference. That’s also the mission of every social sector organisation.
An outcome is a way of defining and measuring this important “difference” made in someone’s life – between dropping out of school and finishing school, between being employed or not employed, between mental distress and a sense of wellbeing. By defining and measuring the right outcomes, organisations and funders can focus efforts on what matters most to the service recipient, and therefore make the most social impact.
Funders have been experimenting with different ways to fund for outcomes, particularly over the last decade. A complex form of outcomes funding is a social impact bond (SIB), where a third-party provides an upfront investment to cover program costs in advance of the outcomes being known and outcome payments being made by the program funder (usually government). In Australia four states have funded more than $100 million across a dozen SIBs so far. We are seeing more government interest at federal and state levels in funding programs on an outcomes basis. Even if your funder is yet to raise this with you, the pressure is on to demonstrate outcomes per dollar spent, and to compare this to other programs or organisations.
Every social organisation we talk to is somewhere on the outcomes and data journey – sometimes one program has lots of good data but isn’t using it for decision making, and another area hasn’t yet decided what data to collect. Many organisations have invested in client databases (CRMs/CMSs) to deliver data that government (or external stakeholders) want, but haven’t thought through what is the right data to collect that will aid continuous improvement and demonstrate impact.
Latitude Network believes that we are on the verge of a data-driven performance jump in the social sector. The manufacturing world went through a data and performance revolution when Toyota adopted the ideas of American Engineer William Deming in the early 20th century. More recently the worlds of marketing and software have used analysis of “big data” to continually improve services and to better tailor services to individual needs. Just as the key to those leaps in quality and effectiveness in the commercial world was access to better and more precise data, we are now seeing tools emerge to enable impact improvements in the social sector.
Journey to ‘outcomes-focus’ Being an “outcomes-focused” organisation goes beyond simply defining some outcomes and commissioning program evaluations. While program evaluations can be important tools to prove point in time impact (especially if you have a counterfactual or control group to test against), other tools are needed for the modern fast-paced challenges of data-driven organisations. One state treasury official we talked to recently stated that they would much prefer to see social organisations investing in their own data capability and generating ongoing insights than in static program evaluations.
Using data and focusing on outcomes are important not only to ensure an organisation is delivering its mission and continually improving its effectiveness, but also to be competitive when it comes to philanthropic and future government funding. The business case is heart and head, mission and financial.
So what can social organisations do to build an outcomes-focused organisation:
Once you’ve got data, the next phase is to use the data well – easier said than done. This means collating data, building dashboards, visualising the right data, and testing and refining it. And if you have great data with good “before” and “after” measures of outcomes, it might be time for some really exciting analysis – using artificial intelligence tools (machine learning) to identify segments and build predictive models that help you improve impact and become more efficient. But perhaps that’s a discussion for another time.
As we approach the next round of outcomes-based funding contracting in Victoria, we asked some of our recent Social Impact Bond* clients from across Australia to share their ‘top three’ reflections on how to approach and navigate an outcomes-based contract. Each of these organisations has been through the PAD/SIB process and so have first-hand knowledge of what you can expect. Our thanks to those who contributed.
* Also known as 'Partnerships Addressing Disadvantage' in Victoria and Social Impact Investments in some states
Innovating your solution
One client reflected on the ‘innovation’ aspect of PADs/SIBs suggesting that learning or borrowing from other models is a good way to augment your proposed solution. While PADs give us a chance to trial new approaches ‘...that doesn't mean reinventing the wheel necessarily - look around for what is being done in another place or with a similar cohort and talk to the organisations delivering the program.’
Perhaps one of the most powerful aspects of an outcomes contract is the need for us to zero-in on lived experience. One client reflected that ‘when including people from the front line, or those with lived experience, prepare and encourage them to bring their experience and knowledge to the table…’
Indeed, the process may be uncomfortable for staff, ‘...they may feel outside their comfort zone [but should be encouraged] to think about how they go about their work in a different way.’
Cohort and outcomes clarity
At the heart of a PAD is ‘being clear on your cohort and outcomes. Make sure you confirm this in the initial part of the project because you don’t want to get 6 months in and find you're not 100% clear on who and what.’
There is a flip-side to this outcome journey in all PADs and that is the service system journey for clients currently - what we can loosely call the ‘counterfactual’. ‘Make sure you understand the extent to which your clients currently use the service system and ideally understand how much this reduces through your program financially - savings are critical to government.’
Flexibility and new learning
One organisation suggested that ‘patience and a flexible approach is probably the most important’ thing in outcomes contracting. ‘Don’t expect it to be quick or straightforward.’ Another said to ‘be prepared for discomfort as you grapple with an intense and unfamiliar process, lots of workshopping, many unknowns and wondering how it will all come together.’
"Own the innovation space"
This excellent phrase was shared by one of our clients and nicely captures the way that PADS are trying to harness the relative strengths of each of the parties involved. ‘Don’t be afraid to tell the Government they are wrong. It's BAU for them to be conservative, NGOs should own the innovation space in front of Governments and be persistent’.
PADs really do alter the dynamics between Government and service provider. One of our clients put it this way: ‘You’ll need a thick skin and a strong commitment to what you know works. The Government’s needs aren’t necessarily your or the program’s needs and so you need to know what is non-negotiable.’
PADs also highlight the value of complementary skillsets. ‘You will be negotiating with numbers people… brilliant numbers people who have a limited understanding about the client group or how to do community development. They are great at what they do but so are you so don’t let them have it all their way!’
One of the benefits of an outcomes focus is that everyone is, effectively, a problem-solver. While Treasury officials are focused on the value-for-money challenges, officials from the line agencies will bring a practice-based focus: ‘Get other departments in the room. The line agencies will better know the sector people and programs - let them fight some of the programmatic battles for you.’
The outcomes contracting process is nothing if not intensive. It needs resourcing internally. One client advised that you will ‘need to have at least one person dedicated to developing this. Most NGOs will fund this internally, however, this should be seen as a valuable investment, even if you don’t get the program up.’
As for the mix of the team engaged in the process, you will need ‘a mixture of ideas people and do-ers who can buckle down and progress the hard yards of research, seeking out answers and project management.’
Good technical advisors
Some of the elements of an outcomes-based contract are highly-technical and specialised. One of our clients suggested that you will need ‘bloody good guides who have been there before and who can tell you when you are focusing on the wrong question’.
Build new data capabilities in the organisation
The process of negotiating a PAD, while intensive, can bring enormous benefits to the organisation itself. Becoming literate with data and how it can be used to check and adjust performance was seen as critical.
“Start with data… get literate about how numbers and data work because, at times, the process will become about the numbers ... Become an expert at it really fast and get your team used to measuring and counting at least something.’
Creating a culture of measurement and the gathering and use of evidence is seen as key to success: ‘Having a culture of using measurement and evaluation to improve the services you provide to clients really helps with structuring and implementing a SIB/PAD/SII’. And even where data might be scarce, start with a hypothesis and ‘...use external sources including public data sets (ABS, AIHW etc), research and evaluations …’ to try to confirm your hypothesis.
The journey of negotiating an outcomes-based contract can be revolutionary for an organisation, giving it the tools, confidence, funding and time to re-imagine the way that services are delivered for a specific cohort of people.
If you are interested in applying for the upcoming Victorian PAD, it's best to start preparing your model now. Get in touch with us if you want to learn more about the process and how to benefit your clients and your organisation.
First published in Pro Bono News
The Living Learning program is important, writes Dale Renner, not just because of its social impact on young people, but also because of the way the impact investment is structured. It provides a new way to partner for the delivery of social outcomes.
The Living Learning program was launched last week at the Hester Hornbrook Academy (HHA) in Sunshine in Melbourne’s west. HHA is an independent school run by Melbourne City Mission for young people disengaged from the traditional school system. The program is funded as an impact investment under the Victorian government’s $30 million Partnerships Addressing Disadvantage (or PAD) program (also known as social impact bonds, or SIBs).
The service innovation which will be tested through the program is a more integrated mental health and flexible secondary school education program for young people whose educational and long-term employment prospects are being affected by ongoing mental health challenges.
The program is important not just because of the social impact on young people, but also because of the way this impact investment is structured. We have worked on a variety of social impact investments in the last few years and have encountered a range of barriers to a wider takeup of social financing mechanisms such as SIBs. They are complex to negotiate given the three parties involved (government, social organisation and investors) and their need to balance a range of risks as well as target measurable financial and social outcomes. SIBs were originally designed to allow socially-minded investors to help fund the upfront costs of social programs where their investment was “at risk”, meaning they would lose some of their investment if the program did not deliver the target outcomes. They were specifically designed with private investors, not philanthropic trusts, in mind.
Philanthropic trusts operate differently to a traditional impact investor.
Philanthropic trusts and foundations usually have a corpus of funds built from an original or historic donation invested in “safe” market investments so that the interest earned on those investments can be given away as grants. For an overly simplified example, if your corpus is $10 million and you earn 5 per cent per annum from your investments, you can give away $500,000 (less expenses) per year and keep the trust going “in perpetuity”’. A more modern way of thinking about the granting side is that, it too is an investment but the return is in social outcomes rather than in financial returns. This means each alternative use of grant money should be compared to the level of outcome it achieves compared with the next best use of that money.
As a result, the amount of money that philanthropic trusts and foundations give away each year is tiny compared with the amount that is locked away in their corpus. People in the social impact space have been thinking for years about how to unlock this corpus for investing in impact directly. The social finance innovation that enables the Living Learning project represents one way we can now unlock that corpus to be used for specific types of social impact investment projects. This is a “philanthropic impact investment” (PII) model, as distinct from the more common impact investing model which tends to focus on investors that may not be philanthropic trusts.
Why is it difficult for some philanthropic trusts to use the corpus for social impact investing?
The problem is that social investments are competing against asset classes that are very well known – whether listed companies, property or, increasingly, renewable energy investments. Social impact investments are newer and far more variable (a SIB service model and program logic is usually an innovation that is unique or new to the sector), so it is harder for an investor to assess the risk of an investment in such a project compared to those in well-known assets. As a result, the understandably conservative investment strategies employed by trusts and foundations mean these newer and more complex social investments are passed over.
The new PII approach developed for the Living Learning program enables a trust or foundation to combine both its corpus and its grant funding in the same investment through a “split tranche” structure. The investment generates a return if the project achieves its social outcome goals while the grant portion is called upon to cover the loss if the program fails to achieve the target social outcomes.
Latitude Network with Social Enterprise Finance Australia (Sefa) and Melbourne City Mission worked together with the Victorian government to ensure this model suited the program and complied with all legal and government requirements. This approach has the potential to make it easier for social service organisations to develop high impact social programs that attract impact investment from their philanthropic partners.
Benefits of the new split tranche structure
One of the benefits of this new structure is that it leverages and deepens the natural relationship between philanthropy and the social sector and allows philanthropists to use part of their large capital base to help unlock funding from the government for worthy programs. Philanthropic trusts can use their dual ability to invest capital, but also to provide grants that enable them to reduce the internal risk of these investments and provide the working capital that outcomes based contracts require.
This is useful because outcomes-based contracts are powerful tools to drive higher accountability for social impact. One of the core public benefits that we at Latitude Network have witnessed in organisations that undertake outcomes contracts (such as SIBs or PII projects) is that the focus on outcomes and the rigour of the contracting and financial structure create strong incentives to achieve social outcomes. This in turn leads to stronger use of data and performance systems that drive continuous improvement in programs. Well-designed outcomes contracts align financial and mission-based incentives to deliver high performing social programs.
While SIBs have been important vehicles for helping the social sector develop new tools and skills for achieving outcomes, they are very complex to develop and negotiate and are not suitable for all forms of social service funding. Government, philanthropy and the social sector need to continue to find new and lower-cost ways of contracting for the delivery of social outcomes. The PII structure developed for Living Learning is an example of a new way to partner for delivery of social outcomes.
Reinventing homelessness prevention
In an effort to deliver better outcomes and prevent homelessness in South Australia, the South Australian government has run a competitive tender of homelessness services in the state under a new structure. It sought responses from alliances of social service organisations to work together to address problems in the homelessness system under a single funding contract for an entire region covering all homeless cohorts. The previous system for the Adelaide City and South region was a series of separate funding agreements across 15 different agencies without a common outcomes framework or formal methods to interconnect between services.
Latitude Network supported the Toward Home Alliance to develop a ground up homelessness strategy and program logic based on prevention. With the team, we identified the wide range of cohorts with differing needs across the homelessness system. We zeroed in on those at risk of entering the homelessness system and identified a way to capture data and shift resources towards preventing entry into the crisis accommodation system.
The alliance partners developed a professional and mature way of collaborating which provided a strong platform for development of a more ambitious program design. This represents one of the most significant changes to the homelessness system in some years, and provides a pathway for better collaboration, use of data, and continuous improvement with transparent sharing of outcomes between the social sector partners and government.
The new outcomes–oriented approach helps to align government and social service organisation interests more directly with client interests. The achievement of client outcomes and prevention of entry into high cost homelessness services provides benefits for all parties.
Congratulations to the alliance partners that will now deliver integrated, outcomes-based homelessness services for the Adelaide City and South region -
Also see -
The Living Learning program was launched on Wednesday, 28 April 2021, at the Hester Hornbrook Academy (HHA) in Sunshine in Melbourne’s west. HHA is an independent school run by Melbourne City Mission for young people disengaged from the traditional school system. The program is funded as an impact investment under the Victorian Government’s $30m ‘Partnerships Addressing Disadvantage’ (or PAD) program (also known as Social Impact Bonds, or SIBs).
The program is important not just because of the social impact on young people, but also because of the way this impact investment is structured. We co-developed a new finance structure that makes it easier for philanthropic trusts to invest in social impact investments. This structure provides opportunities for social service organisations to develop investable projects in collaboration with their philanthropic partners.
The Living Learning social impact investment was fully funded by these five philanthropic Investors:
You can also sign up to attend a Webinar we are running with our capital advisory partners Social Enterprise Finance Australia (SEFA) and Gandel Philanthropy through Pro Bono Education on 27 May 2021. Sign up to our newsletter to receive the registration link for the webinar.
Latitude Network congratulates Melbourne City Mission (MCM) on the announcement of its Partnership Addressing Disadvantage (PAD) contract with the Victorian State Government known as the ‘Living Learning’ program.
Latitude Network supported MCM in its initial PAD application and throughout the negotiation with Government, providing advice and technical assistance across service design, financial model, negotiation and data use. We are now working with MCM to develop a live data and performance system set up to help them achieve their outcomes targets.
‘Living Learning’ is a new, targeted program which addresses barriers for young people who are disengaged from school and living with mental illness. MCM developed the program using its expertise in re-engaging with, and supporting, young people through their independent school, the Hester Hornbrook Academy.
As lead advisors to MCM throughout the journey, we are excited to see the program announced and young people able to start entering the program from today.
Latitude Network was also pleased to work with leading Australian social finance experts, Sefa, who provided advice on blended capital structuring options, targeting foundation investors using their corpus and granting arm.
Innovative financing structure: Watch this space
We can’t yet share the details of the innovative financial structure behind Living Learning. Sign up to our newsletter so we can let you know those details as soon as they are available.
At a future date we will also be running a Webinar with Sefa in collaboration with Pro Bono News to talk through the details of the investment structure. Keep an eye out for the invitation.
Key elements of the program
Key program elements include -
See the Victorian Government's Press Release here.