Building better budgets by focusing on outcomes

Outcomes based management, budgeting and funding aim to focus our attention, efforts and decisions on the things that matter — outcomes. We spend more time than many reading about, talking about, and sometimes dreaming about outcomes, particularly how they can be measured and paid for. In a world where what we do has stolen the lime-light, it can be difficult to shift or reorient ourselves to what results from what we do — the effects, benefits or outcomes of our work.

Yet today, outcomes-based approaches are becoming increasingly sought after, by governments, NGOs, businesses, international organizations and multi-stakeholder partnerships and platforms. Efforts in New Zealand and Malaysia, are often cited as examples of countries that have made significant investments in outcomes-based approaches. This is in part due to popular demands for greater clarity around outcomes, and a desire to shift from incremental budgeting that allows for year-on-year budget increases with little focus on results. Focusing on outcomes, and using those outcomes to prioritise what we do, intuitively makes sense, and few would suggest is not a worthy ambition. For organizations or agencies that are accustomed to working with activity based planning, budgets and processes, there are some important considerations when shifting to an outcomes approach.

Deciding on Outcomes

An early step is determining what outcomes an organization is seeking to achieve. It sounds straightforward, however it’s a stumbling block that challenges many. This is particularly so for those in the business of social change, whereby desired outcomes for people, communities, or environments can be dispersed, delayed and shaped by many. For entities that provide services to consumers (e.g. a health or education service), outcomes are challenging enough; but for those that occupy non-service delivery roles, defining outcomes can be even more challenging. Peak bodies, professional associations, multi-stakeholder partnerships or platforms may find the articulation of outcomes a difficult one. In our work, time is well spent with individuals and teams examining, challenging and refining the desired outcomes that result from a lot of hard work. And often, there are different ideas and perspectives on this, which means arriving at a place where outcomes are understood, agreed, and shared is worth the effort.

Measuring and reporting on Outcomes

“Improved health and wellbeing for… (complete the sentence)” is something that we often hear from our clients as a desired outcome. And few would argue against it as being a worthy and important one. It is also an outcome that can be a bit nebulous, ill-defined, long-term and shaped by many factors and actors.

Indicators provide useful tools or probes for measuring progress against outcomes — and in the case of improved health and wellbeing, there are many to choose from. Developing and/or selecting indicators for measuring an outcome can be a long and involved process, with a number of important criteria or considerations to be examined, including the indicator’s validity, reliability, meaningfulness and feasibility.

In the context of outcomes-based management, budgeting and funding, indicators are critical tools for assessing and reporting progress, and therefore, for learning, accountability and improvement purposes. Recent work in NSW provides an example of how indicators can be used to measure progress against shared and ambitious outcomes, and their linkages to targets, reporting and outcomes-focused discussions. These diverse uses require the selection of indicators to which an entity is willing to be held to account; that provide insights which help build an understanding about what’s working and why; and, that point to ways for changing, pivoting and refining how an organization works.

For outcomes-based approaches to result in genuine change, reporting of those outcomes becomes essential. This is often a significant departure point for many who may be used to reporting inputs or outputs — particularly those that can be counted or monetized. Moving to outcomes-based reports requires a shift in thinking, and a reprioritisation of resources.

Assigning Outcome-Champions

The fundamental shift to outcomes-based funding is a focus on results rather than what has been done. When embedded successfully, the reallocation of funding in this way has helped organisations to have meaningful conversations about how they are progressing towards achieving outcomes, and importantly, how to allocate resources appropriately.

In our experience, when outcomes are shared by multiple actors they are more likely to have attention given to them. Likewise, when the reporting of outcomes becomes someone (or multiple people’s) responsibility, then it is more likely that learning about what works (or doesn’t work) and cycles of continuous improvement can take place.

A simple, and practical process for embedding outcomes-based funding into an organisation is to assign ownership for outcomes, and their reporting in the form of sponsorship. In some organisations outcomes-based sponsorship aligns with existing departmental structures, and in others, co-sponsorship and matrix working is better suited.

Regardless of the model that is chosen, the most important feature is that someone with authority for making decisions, can drive action, spend money, and advocate for results in an outcome area.

Investing in long term planning cycles and processes based on outcomes

Outcomes take time to achieve. The ways and means to achieve them are dependent on multiple factors, including generating insights about what works, under what conditions. Outcomes-based funding and budgeting processes are an important feature in achieving outcomes, as they allow flexibility for planning some of the long range activities that might be necessary to achieve stated outcomes. It is typical, within an outcomes-based budget to allocate resources to a particular outcome and monitor progress using outcome indicators, including spend. The City of Baltimore provides a useful example of how (at a municipal level) outcomes have been used to drive decisions and shape choices, which are linked to a long-term budget planning process.

The markers that are used as part of outcomes-based budgeting approaches (in Baltimore and elsewhere) are instructive for monitoring and tracking progress, understanding what works and what doesn’t, and course correcting as contexts change. Practically, this requires transparent internal decision making processes that are based on data and insights, and that maintain momentum and energy towards shared and common goals.

Outcomes-based management, budgeting and funding is still new to many. Determining what counts as an outcome; finding ways to measure and report those outcomes; championing those outcomes internally and externally; and, refocusing on a long-term vision for change, are useful places to invest energy, particularly in the early stages. At the same time, it is important to regularly review and revisit how an outcomes-based approach is helping to achieve desired results — and ideally, share those insights with others who may be on a similar journey.