Budgeting for Results Outcomes Based Budgeting Timothy Murphy, Facilitator Q2 Nonprofit Roundtable

Budgeting for Results - Outcomes Based Budgeting AGENDA Learning objectives Outcomes Based Budgeting - Introduction Principles of Outcomes Based Budgeting Case Study Conclusion 1 2 3 4 Introduction – 5 minutes Learning objectives – 5 minutes Outcomes based budgeting – Introduction – 30 to 35 minutes Principles of Outcomes Based Budgeting – 60 minutes Case Study – 60 to 75 minutes 5 Q2 Nonprofit Roundtable

LEARNING OBJECTIVES

Budgeting for Results - Outcomes Based Budgeting Learning Objectives Understand the key differences between traditional budgeting approaches and outcomes based budgeting Know whether or not outcomes based budgeting makes sense for your organization Leave the session ready to begin a conversation with your board and/or senior leadership about outcomes based budgeting Q2 Nonprofit Roundtable

OUTCOMES BASED BUDGETING - INTRODUCTION

Budgeting for Results - Outcomes Based Budgeting Discussion 1 What types of budget processes does your organization use? Is the process effective? If yes, why? How could this process be improved? Discussion 1 – 10 to 15 minutes Other questions to consider: How many are familiar with outcomes based budgeting? Is OBB being talked about in your marketplace? If yes, is it a nonprofit setting or state and local government setting? Q2 Nonprofit Roundtable

Common Types of Budgeting Budgeting for Results - Outcomes Based Budgeting Common Types of Budgeting Zero based budgets Program budgets Line item budgets Outcomes (performance) based budgets Group questions to considerations: What type of accounting software are you using? Are you budgeting within your software or using excel or another tool? Who is involved in the budgeting process currently? Q2 Nonprofit Roundtable

Outcomes Based Budgeting Definition Outcomes Based Budgeting Practice of developing budgets based on relationships between program funding levels and expected results Generally starts with strategic goals Driving from an organizations revenues as opposed to expenditures Alignment with performance measures

Benefits of Outcomes Based Budgeting Identify high & poor performing programs Compare budget options Provide enhanced accountability High degree of public transparency Create economies of scale for like programs

Budgeting for Results - Outcomes Based Budgeting Key Definitions Inputs Represents resources allocated to and expended by a program Outputs Relates to goods or services produced by a program How many clients served? How many units were produced? Example inputs: FTE’s, labor hours, supplies, facilities, marketing, etc…… Q2 Nonprofit Roundtable

Budgeting for Results - Outcomes Based Budgeting Key Definitions Efficiency Indicators Measures ratio of inputs used per unit of output and or outcomes Cost per client served Cost per client served that achieved outcome Cost per unit produced Outcomes Qualitative results associated with the program. Outcomes focus on “why” you are providing the goods or services. Differ from outputs as outcomes are the results of such outputs Q2 Nonprofit Roundtable

Outcomes Based Management Process Budgeting for Results - Outcomes Based Budgeting Outcomes Based Management Process Establish Desired Outcomes Define Strategies to Achieve Appropriate Resources Develop Measurable Targets Measure and Monitor Progress Analyze Performance Report Results OUTCOMES BASED MANAGEMENT Introduction to how a OBB process may be carried out. This diagram is a high level over view of the full OBB management process. The slide is meant to give participants an idea of what the complete cycle looks like. However, the focus of this presentation is more introductory so does not cover the complete process. Q2 Nonprofit Roundtable

PRINCIPLES OF OUTCOMES BASED BUDGETING

Four Principles of Outcomes Based Budgeting Budgeting for Results - Outcomes Based Budgeting Four Principles of Outcomes Based Budgeting #1 Establish Outcomes #2 Develop Approaches to Achieve Outcomes #3 Develop a Budget with Approaches to Achieve Outcomes #4 Evaluate Performance and make Adjustments Note that principle 4 is not part of the presentation. The evaluation of results is important but there is not enough time to cover in this session. Q2 Nonprofit Roundtable

Principle 1 – Establish Outcomes Ideally outcomes are tied to a strategic plan There may not be a need to measure every outcome Outcomes should be the results of outputs from programs. The outcomes are the “why” you are performing the program.

Budgeting for Results - Outcomes Based Budgeting Output or Outcome? Building houses for 100 families Answer: Output Increasing the number of students that find employment after college Answer: Outcome Reducing the number of violent crimes over the next three years to below 10% May want to talk the group through the inverse of the answer. I.e. for the first question once the group discusses that this is an output ask them to determine the outcome. Suggested answers Outcome – Reduce homelessness in the community to below the national average Output – Number college preparatory classes conducted Output – How many violence prevention classes conducted in a year or average police hours on duty daily. Consideration: Ask participants what their output and outcome indicators are. Q2 Nonprofit Roundtable

Principle 2 – Define Strategies to Achieve The steps an organization takes to achieve outcomes “How are we going to do this?” or “How are we going to get there?” are common questions Linking of outputs to outcomes is a significant part of this principle. For example, the number of meals provided by a homeless shelter is an output. Increasing the number of people who have access to food would be the outcome.

Linking Outputs to Outcomes Budget preparers and reviewers should be able to determine that outcomes data make sense related to the amount of output How many persons are expected to find employment after receiving training services, and when? What percentage of elderly will be able to live independently after rehab services? How long will they be able to live independently? Historical data as well as internal and external factors will be needed to make this link

Budgeting for Results - Outcomes Based Budgeting Discussion 2 Has your organization linked outputs to outcomes? If yes, how have you accomplished this? Is this done at the organization level, department level or both? If no, what are the challenges that you are facing that prevent you from making this connection? Discussion 2 – Give the group 10 to 15 minutes for discussion 2. Then have individuals or groups report back the results (10 min). Total time is 20 to 25 min. Q2 Nonprofit Roundtable

Principle 3 – Develop a Budget for Approaches Budgeting for Results - Outcomes Based Budgeting Principle 3 – Develop a Budget for Approaches Set departmental/program goals (link to outcomes) Understand your revenue sources (program service revenue, unrestricted or restricted contributions, grants, etc….) Not all will be as easily allocated as others Develop a link of outputs to outcomes (principle 2) Develop a link of inputs to outputs (efficiency indicators) Allocate inputs to achieve desired outputs ***In practice many of these steps are accomplished at the department/program level*** Q2 Nonprofit Roundtable

Efficiency Indicators Important to measure both ratio of inputs to outputs and ratio of outputs to outcomes Significant part of measuring the budgeting process Commonly used to set targets in budgets Allows for cost/benefit analysis to be performed

Exercise – Efficiency Indicators Budgeting for Results - Outcomes Based Budgeting Exercise – Efficiency Indicators Exercise: For each mission and outcome provided develop the following items related to efficiency indicators Develop output efficiency indicators that the organization could use to measure input to output efficiency Develop outcomes efficiency indicators that the organization could use to measure output to outcomes efficiency Give participants 10 minutes for case study and then 5 to 10 minutes for report back (15 to 20 min total) Q2 Nonprofit Roundtable

Budgeting for Results - Outcomes Based Budgeting Exercise (Continued) Organization’s mission is to repair roads for safe travel. Outcome is to have roads meet the recommended safety standards as designed by the city. Organization’s mission is to find permanent residents for the homeless. Outcome is to reduce the percentage of people who are homeless to under 5% Answer Key: Output efficiency indicators – (a) cost per road repaired and (b) number of roads repaired annually Outcomes efficiency indicators – (a) cost per road repaired that met city safety standards, (b) number of roads repaired annually that met city safety standards, (c) percentage of roads in city that meet the cities recommended safety standards Output efficiency indicators – (a) number of homes found for individuals, (b) cost per placement Outcomes efficiency indicators – (a) percentage of people who are homeless as compared to the prior year, (b) number of people who maintain permanent residents for over 2 years Q2 Nonprofit Roundtable

The Role of Performance Targets Service as projected values of output and outcome efficiency indicators Can help account for uncertainty in efficiency indictors. Especially those that may not be determined until after the year has concluded There are several ways to develop targets including: Based on benchmarking information Based on a range of acceptable outputs or outcomes Based on a variable known after uncertainty is removed (i.e. once the number of clients is known)

CASE STUDY

Case Study - Introduction Budgeting for Results - Outcomes Based Budgeting Case Study - Introduction Organization: CLA Children’s Services Vision: To enhance the lives of children in the community Mission: Our mission is to provide children in the community with the skills and resources necessary to achieve long-term goals. We accomplish this through education, community programs and family development. Case Study Preparation: Need to have computers with the case study directions (word document) and budget template (excel document). Also, necessary to have printed materials. Case Study Tips: May want to email attendees excel template prior to roundtable and ask them to bring computers (indicate if they can’t bring a computer we will have some available). To the extent possible you want to have CLA representatives at each table performing the case study. Need to assist groups in moving through the materials. Show the answer to the first measurement grid. Will give groups an understanding of how to complete. You may want to print this out for groups as well. Q2 Nonprofit Roundtable

Case Study – CLACS Outcomes Increase the number of children attending college or finding jobs Robust career resource center designed to be the premiere link between children and college and/or job placement Educational excellence Develop and implement a measurable curriculum that will enhance critical life skills to enable children to achieve their fullest potential Family engagement Proactive engagement identifying families in need and delivering the resources necessary to overcome life's challenges

Case Study – Outcome 1 Outcome 1 Increase the number of children attending college or gaining employment Department College/Job Placement Goals Be the #1 college/job placement organization in the community. Build strong community partners with companies/individuals that have job opportunities

Case Study - Outcome 2 Outcome 2 Education Excellence Department Administration Goals Develop competency based curriculum Improve child achievement Build a program that measures achievement

Case Study – Outcome 3 Family Engagement Family Support Outcome 3 Department Family Support Goals Provide unparallel assistance to families in need Implement new family mentoring program Improve number of families members placed into employment

CONCLUSION

Budgeting for Results - Outcomes Based Budgeting CONCLUSION Having a strategic plan or defined outcomes is imperative in order to accomplish outcomes based budgeting It will be necessary to gather historical data about the performance of programs/outcomes Management should consider how to link inputs to outputs and outputs to outcomes. Departments or program managers can play a critical role in this. The implementation of outcomes based budgeting can be evolutionary vs. revolutionary Slide summarizes the key takeaways of the roundtable. Set these up as items that they can go back to their organizations and implement with their management or governance team. Q2 Nonprofit Roundtable

Timothy Murphy, CPA Principal Tim.Murphy@CLAconnect.com 317-569-6292