Transcript Effective outcomes-based commissioning Social Impact Investment Task-force established by G8 Stephen Brien, 19th February 2014

Effective outcomes-based commissioning
Social Impact Investment Task-force established by G8
Stephen Brien, 19th February 2014
Commissioning for Social Impact Investment starts with a value equation
Pay for
Outcomes Contract
Outcome funders
Government
Commissioning Body
•Sources of Funding
•Commissioning Body
•Policy Alignment
•Stakeholder
Engagement
-
Motivation
-
Interest in target pop
-
Target Outcomes
-
Financial vs. social
return
-
Aligning Funders
-
Commissioning
Strategy
-
Delivery Models
-
Attribution of
outcomes
•Financial Alignment
-
Approval
-
Savings Realisation
•Value-Creation
-
Innovation
•Risk Management
Impact
Value
Equation
•Cost per successful intervention
•Net cash impact / social value
•Returns to each party
•Value of innovation
Contract Design
•Contracting
•Raising capital
•Resource Allocation
•Investor’s motivation
-
Social vs finance first
-
Interest in social issue
•Adding value
•Confidence in mechanism
•Performance mgmt
•Risk profile and target
financial return
•Information Quality
•Referral of target population
•Intervention Flexibility
•Contract Structure
•Managing timeline and
commitment
Delivery Bodies
Outcome Measurement
•Outcome Payment metrics
•Performance Benchmark
•Measuring body
•Performance Data Gathering
•Evaluation
Sources of
Finance
Impact venture intermediary
-
Pre-committed vs best
efforts
•Intervention model
•Cost per intervention
•Innovation
•Delivery Success
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Challenge varies depending on the nature of the Social Impact Investment
Case Studies – UK Social Impact Bonds
Peterborough Rehabilitation
Essex Children on the Edge of Care
• Weak evidence on potential for performance improvement
– Overall data void
• Commissioner learning curve – and time
• Pricing – Triangulation of Value vs. Cost + Return to investors
• Accounting for full value of outcomes (across departments)
• Required external outcome funder (BLF)
• Well evidenced intervention model with historic success rate
– VfM case needed to focus on management effectiveness
• Re-engineering of commissioner processes
– To allow data sharing
• (Policy instability)
• Social Impact Funds shielded foundations from some investment
complexities
– Although range of investor expectations
DWP Youth Unemployment (PEF / Tomorrow’s People)
IAAM – Adoption
• Commissioner Initiated
• Venture intermediary – initiated
• Pricing – Tariff from commissioner
– Long-term intangible benefits needed to be quantified
• Pricing – tariff from providers
• Long payment delays due to scale of cohorts
• Outcome measurements not extant
• Scale play - Providing a nationwide solution
• Value equation not favourable to delivery body without subsidy
• Spot purchase – not cohort
– Returns dependent on take-up
• Prescription / Constraints on Delivery body
• Delivery Providers taking some of the risk - communally
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Impact Value Equation must work for both parties
For the Commissioner
For the Venture Intermediary
• Expected level of outcome is better than today
• Expected level of outcomes is achievable
• Price / successful outcome < Value of outcome
• Price / successful outcome > Cost of successful
outcome
• Downside risk is manageable
– Reputation
– Additional cost of handling delivery failure
• Upside risk is manageable
– Cash cost of success is available
– Cost of capital acceptable
– Share of upside equitable
• Surplus is enough to cover costs (including set-up
and measurement) and deliver return to investors
• Downside risk is manageable
– Investors are comfortable with downside
• Upside opportunity is sufficient
– Investors have enough potential upside to
warrant the risk
• Political / commissioning uncertainty is
manageable
•
Requires an unambiguously positive outcome (sufficient to be documented) that
matters to both commissioners and investors,
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How the Impact Value Equation works
Expected Outcome
Payment for successful
Outcome
Value of outcomes
Cost of interventions
Return to investors
Essex Children on Edge Of Care
IAAM - Adoption
• ~30% of at-risk cases diverted from
going into care
– From a cohort of 380
• 90%+ of cases resulting in successful
adoptions
• ~£7m total
• £54k per outcome
• ~£17m total
– Net savings = £10m
• ~£150k per outcome
– Net savings ~£100k per unit
• ~£5.5m
– £3.1m (Capital) + recycled
outcome payments
• £46k per intervention
• Target return 8%-12%pa
• Fixed yield of 4%
– With expected outcome payments,
target 8%-12% pa
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Commissioners have to break the mould of procurement
Commissioning Body
Engaging Stakeholders
Value Creation
Risk Management
• Government Departments
• Openness to ideas from the
outside
• Identifying how value is
being created
– Risk transfer,
– Innovation in service
delivery
– Systematic best practice
– Performance
management
• Ensuring the risk of failure is
understood
– Addressing internal
concerns
– Willingness to allow for
some failure
• Establishing value-formoney case
• Managing reputational risk
– Corporate and personal
• Ensuring required internal
transformation also takes
place to support delivery
• Ensuring financial risk is
transferred appropriately
• Local Government
• International Aid Agencies
• (Health) Insurance Fund
• Others
• Securing and aligning
sources of outcome funding
• Securing resources to
support the contracting
process
– Especially Legal fees
• Securing political support to
cut through complexities
• Nurturing the provider /
intermediary market
– Is there a market to
commission from?
• Addressing procurement
constraints
– Competitive tender?
– Innovation exemption?
•
•
• Plan for using the savings
– Recycled into related
preventative measures
– Returned to departmental
central funds?
• Trading off innovation vs.
track-record
• Establishing a mechanism
to protect against delivery
failure – where necessary
• Managing the sign-off
process
Commissioners need to adopt more of an innovation/problem-solving mindset
Simplification and standardisation key to cutting the required development time
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Outcome funding requires policy and financial alignment
Sources of Funding
Policy Alignment
Financial Alignment
• Departmental Budgets
• Ensuring Political Priority for the
social impact
– Shift to paying for an outcome,
rather than funding an activity
• Securing enough outcome funders
to cover the range of social value
• Local Government Budgets
• Recognition of under-investment
vs. social optimum
• Securing spending approvals
• Foundations
– E.g. BLF
• Value of outcomes understood
– and evidenced where possible
• Corporate Sponsors
• Clearly defined target population
• Govt Corporate Centre
– Treasury
– Cabinet Office
• Aligning the objectives of outcome
funders
• Outcome payments budgeted for
• Savings/Value-realisation plan in
place
– Avoiding back-filling
• Outcome simple enough to be
contractible
– And target the desired behaviour
•
Could departmental innovation funds help unblock resources now?
•
Are impact accounting standards needed to measure value?
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Process of designing the contract requires an ‘agile’ iterative approach
Evidence Base
Impact Definition
Contract Structure
• Sourcing the data required to
establish the contract
– Referral rates
– Outcomes
– Costs
• Creating a clear definition of target
population
– Robust process for service
provider to access them
• Agreeing the timing and scale of
the contract
– Ensuring is it long enough to
deliver on investment, staff
training and innovation
– Large enough to deliver scale
benefits
• Consequential costs on rest of
system
– Secondary impacts
• Agreeing an objective and
transparent outcome definition
– Binary vs. proportional metric
– Avoid undesired gaming
• Agreeing the baseline for impact –
and the required data to support it.
• Agreeing the concept and definition
of additionality
• Isolating impact of external factors
– Size of target population
– Likelihood of outcome
• Agreeing payment timing and
contingency
– Intermediate payments
– Impact on commissioner balance
sheet
• Agreeing the level of
prescription/constraints around
delivery
– Accounting for regulatory
regimes, etc
• Agreeing the level of reporting to
commissioners
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Outcome Measurement is a technical challenge, driven by policy objectives
• Outcome Payment metrics
– Ensuring metrics are measurable and transparent
• Performance Data Gathering
– Ensuring there is a suitable data-feed for the outcome metric already exist
– Determining the appropriate lag between intervention and outcome measurement
• Performance Benchmark
– Ensure attribution considered and managed
– Counterfactual (Historic performance, Propensity Score Modeling, RCTs)
• Measuring body
– Determining who assesses the outcomes and additionality
- One party, collective endeavour or third parties
– Ensuring the measurement cost is embedded in the management costs
• Evaluation
– Agreeing the required level
– Providing investors with broader outcome perspective
– Fostering innovation
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Venture Intermediaries are useful to catalyse the process . . .
• Contracting
– Contracting with commissioners
– Negotiating impact value-equation
– Interfacing between commissioners and investors
- Managing different perceptions of risk/reward trade-off
• Raising capital
– Securing sources of finance
– Managing different concerns of stakeholders
– Creating a simple enough financial proposition
• Resource Allocation
– Identifying right portfolio of delivery capacity – with renewal / share shift components
– Contracting with delivery partners – to provide up-front capital and appropriate rewards for successful performance
– Integrating service providers, where necessary
• Adding value / performance management
– Adding value through performance management and support to the delivery partners
– Establishing the appropriate vehicle for managing the relationship between commissioner, investors and delivery partners
– Integrating Management Information
– Agreeing governance between parties through the contract period
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. . . They identify progressive investors . . .
• Investors motivation
– Interest in social issue
– Fit with investor’s purpose – innovation vs. growth etc – is it transformative enough
– Reluctance to be financing government
• Confidence in mechanism
– Lack of dedicated social fund managers to give comfort on investment
– Complexity of details
– Need for an intermediary
• Risk profile and target financial return
– Social first vs. finance first
– Comparison with stable investment for foundations
– Required return, given risk, for other investors
– Role of a capital stack
• Managing timeline and commitment
– Willingness to pre-commit
– Being patient with the set-up timeline
– Balancing objectives with those of other investors
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. . . And delivery bodies whose management supports innovation and scale
• Intervention model
– Developing suitable interventions and how to tailor it
– Innovating for outcomes
– Developing culture of continuous improvement
• Cost per intervention
– Deepening deeper understanding of cost base, and its drivers
– Demonstrating control over cost base
• Flexibility to innovate
– Avoiding staff transfer from existing service provision
– Minimising commissioner prescription
• Delivery Success
– Analysing success rates – and risk profiles
– Working to a more rigorous tempo – re cohort referrals
– Developing more resilient business models – managing volatility of flow
– Being comfortable with more performance management
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Summary
• Commissioning for Social Impact Investment starts with a value equation
• Challenge varies depending on the nature of the Social Impact Investment
• Impact Value Equation must work for both parties
• Commissioners have to break the mould of procurement
• Outcome funding requires policy and financial alignment
• Process of designing the contract requires an ‘agile’ iterative approach
• Outcome Measurement is a technical challenge, driven by policy objectives
• Venture Intermediaries are useful to catalyse the process . .
• . . . They identify progressive investors . . .
• . . . and delivery bodies whose management supports innovation and scale
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