This article was originally published in Pro Bono News.

​Latitude Network recently took some clients with us on an ‘outcomes tour’ of the US to learn from organisations, funders and governments that are shifting to outcomes-based funding. This includes what the US calls “Pay For Success” projects, and we call Social Impact Bonds, as well as newer forms of outcomes contracting where a range of financial and non-financial incentives are provided for performance. Outcomes-based contracting is when a commissioner of services (usually a government but can include large philanthropy) agrees to fund a social service program where at least some of the funding is contingent upon the organisation achieving a target performance on clear, agreed outcomes metrics for service users.
 
Key lessons learned -
 
1)    A shift to outcomes funding, while difficult, is a must
Our observation in Australia and in the US is that most people who work in the social sector (including government) want the work they do to lead to improvements in people’s lives. There is generally a strong desire in organisations - from the frontline to the Board - to work towards outcomes. The difficulty is that merely measuring outcomes or drawing up an outcomes framework, while necessary, is often far from sufficient to change behaviours and performance. Funding on the basis of inputs or outputs is a very blunt instrument with very low levels of data or feedback on what is working for long term, relevant outcomes. 
 
Funding on the basis of outcomes, however, can provide the joint incentive to properly define, measure, track and deliver outcomes that matter to the service user. A range of different outcomes have been contracted, from reduction in recidivism, to early childhood development milestones to family reunification. Despite their challenges, everyone we met - from local and state governments such as Ventura County or LA County Department of Mental Health, to impact funders such as Maycomb Capital and First5 LA and service providers such as the Center for Employment Opportunities and Interface - everyone was focused on making the shift to outcomes-based funding.
 
2)    Social Impact Bonds have been a useful tool to kick start the outcomes revolution, but will be only one of many tools for the next era in outcomes funding.
Our discussions with Emily Gustafsson-Wright and Izzy Bogild-Jones at the Brookings Institution highlighted how Social Impact Bonds have had powerful impacts on social sector performance, innovation and flexibility in service delivery, but there is little evidence that they bring a net additional amount of private sector funding into the social sector. This aligns with Latitude Network’s view that outcomes funding is best used to drive alignment of interests and flexibility for innovation between government, social sector and philanthropy, and should not be seen primarily as a tool for increasing private funding of social services.
 
3)    Organisations that build outcomes-funded projects are transformed for the better - especially in managerial focus and performance capability.
All the organisations we spoke to had used the experience of an outcomes contract to drive important changes in capability and process within their organisations. One organisation, Center for Employment Opportunities (or CEO) in New York City, has built a sophisticated outcomes and performance management system that gives visibility to everyone, from the frontline to the Board, on how the organisation is tracking in delivering its mission. The organisation has a strong, singular focus on a cohort of high risk offenders leaving prison. It’s focus allows for a robust program logic and service methodology and it uses detailed performance reporting to achieve employment goals and reduce recidivism. Their data has helped them identify the most effective early responses (e.g. ensuring a client starts a job on the day they turn up), and helps frontline workers adjust their activities by getting regular, timely feedback and learning from high performers. CEO’s outcomes contracts with governments have helped provide the incentives to focus on outcomes.
 
4)    A new ‘Outcomes Partnership’ approach between Government and providers can lead to better achievement of  outcomes
Forward-thinking governments are entering into what we are calling ‘Outcomes Partnerships’ with social organisations to work together over time on defining and aligning around key outcomes that matter to services users. These partnerships allow for better targeted procurement procedures from government, adding additional incentives into contracts for achieving short and longer term outcomes, and ensuring transparency of data sharing that can shed light on areas of highest and lowest performance. They also provide a much higher degree of flexibility to both Government and service providers through ‘active contract management’ methods that allow for adjustment of performance goals as theory hits reality.
 
These partnerships are a part of the journey of various governments in the US to shift large parts of their funding base to be procured on the basis of outcomes rather than inputs or outputs.
 
Our visit to the Massachusetts Department of Transitional Assistance in Boston revealed a forward-thinking government department that is leading the internal systems and behaviour change required  to procure on the basis of outcomes, increase quality and sharing of data and establish trust between government employees and leaders and the social organisations they fund.
 
Latitude Network and our clients see Outcomes Partnerships as the next important step for the social sector in Australia.

The South Australian Government opened its second round of Social Impact Investments, with a focus on better outcomes for children and young people in out-of-home care, and after leaving guardianship. This follows South Australia's first social impact investment in the Aspire homelessness program delivered by The Hutt St Centre.
Interestingly, the Commonwealth Government is providing $5m as partner with the South Australian Treasury Department, as an early foray into learning and engaging in the social impact investment space.
Latitude Network is assisting with the preparation and development of an application focusing on improved outcomes from the residential care context.

The NSW Office of Social Impact Investment (OSII) is reviewing proposals from three organisations focusing on Indigenous employment and empowerment. Latitude Network was been supporting one Indigenous organisation through the 'co-development phase' where OSII collaborated with the social organisation to advise and develop a proposal together. The intent is to support organisations to prepare robust proposals that are more likely to meet Treasury's requirements and be successful through what can sometimes be an arduous 'Joint Development Phase' of financial and contract negotiations to conclude a social benefit (impact) bond legal agreement.

The Victorian Treasury is a long way through negotiations with two organisations in the 'Joint Development Phase' for its next round of social impact bond investments. This round focuses on primary and secondary school aged children who have become disengaged from school and have a variety of other complexities in their lives. Latitude Network is supporting Melbourne City Mission and the Hester Hornbrook Academy in the negotiations.

As governments and service providers around the world learn from the early years of Social Impact Bonds, a wider outcomes-based contracting landscape is emerging. Originally published in Pro Bono News.

​If there’s one thing most people in the social sector agree on, it’s that they want to “make a difference”. This underpins the desire to move from a focus on outputs (where we may not have evidence about whether we are making a difference), to a focus on outcomes that matter to the social service user.

Not-for-profit boards are starting to drive an outcomes focus because part of good governance is to know whether the organisation is doing something that works. An ideal social service system ensures all participants are aligned around improving outcomes for those who need it.

Yet, the social service system is still a long way from that goal.

There are plenty of pitfalls in this transition to outcomes: debates about what and how to measure; costs of data collection; worries about unintended consequences and cherry picking; and the political hurdles in shifting resources to prevention. Yet while difficult, these are technical problems that can be solved with good outcomes-based contract design and a collaborative, co-design approach with government.

We recently attended the ICS (Institute for Child Success) Pay for Success Conference in North Carolina – a conference to support outcomes-based learning with a focus on early childhood disadvantage. We heard from an early intervention project successfully preventing at-risk kids from requiring costly special education services at school. We heard of the shift of $100 million of social service spending to an outcomes basis in the state of Rhode Island. We learned about a project that prevents hospitalisations of high risk asthma patients through allergen removal in the home – saving lives and money. These are some of the dozens of projects in operation now that are based around outcomes.

The ‘artist formerly known as a Social Impact Bond’ is back. And with a new name.
The Victorian State Government has just announced its second formal round of outcomes-based funding opportunities. And, regardless of name – these are serious opportunities to co-design fully-funded investments into service interventions that really work to close gaps for cohorts of disadvantaged Victorians.
 
The Government’s Statement of Intent, issued Friday 29 June 2018, is critical reading. It indicates that the Department of Treasury & Finance wants proposals from those who work in the following policy areas:

• Vulnerable children aged 5–14 (or school years 1–10); or
• Disengaged youth aged 15–25 (youth who have left school early and are not engaged in training or in the labour force located within a geographic area associated with social and economic disadvantage).

 
Just as with the first round of opportunities that delivered two contracts – one through Sacred Heart Mission and the other through Anglicare/VincentCare, to be considered for this round you’ll need to be well prepared.
 
First Principles.
The key things you’ll need to cover in your application are listed here: 

The challenge 
How does a social or health service provider demonstrate to their funders that they can, with early intervention, achieve not only measurable improvements for the people they work with, but also long-term cost savings? And how does that organisation navigate the political and policy environment - convincing key parties, like Government, to contract to co-design and deliver a long-term, sustainable program focused on delivering real outcomes? Complex issues often fail to respond to traditional social service approaches, so many funders are looking for a new approach that incentivises outcomes. 

This is the question that Sacred Heart Mission set out to answer recently as a way of scaling-up their successful ‘Journey to Social Inclusion’ program which supports people experiencing homelessness.

What does one of these ‘outcomes-focused’ agreements look like? What is the right approach to take - what are the key considerations? Who are the key parties? What are the pieces of the outcomes puzzle and how do we get them to fit?

​The approach 
Social impact bonds, as one method for governments to commission for outcomes, hold the promise of a new way of doing things that is more focused and uses financially accountability to drive improvements. Latitude’s approach is based on understanding the full ‘value’ of solutions. Outcomes-based commissioning is a team sport and so it is necessary to understand what each prospective party wants to achieve (what they value), what they can contribute and, therefore, how much risk (and return) should be ascribed to each party. 

Once determining the most fundamental point - understanding the value you are bringing to your clients - our approach is to support your organisation to build a convincing case about the service and financial benefits of your services and solutions, and pitch that solution to key funders (governments, in particular).

The outcome With our support as key strategic and project manager, the Mission was successful in its application to join with the Victorian Government (Depts of Treasury & Finance and Health & Human Services) to negotiate one of Victoria’s first Social Impact Bonds in late 2017. These negotiations began in May 2017 and are ongoing. Sign up to our newsletter to stay in touch with the project as it progresses.

Russ Wood of Latitude Network has worked with the Mission throughout this process.