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

2. 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

3. LEARNING OBJECTIVES

4. 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

5. OUTCOMES BASED BUDGETING - INTRODUCTION

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. PRINCIPLES OF OUTCOMES BASED BUDGETING

14. 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

15. 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.

16. 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

17. 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.

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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)

25. CASE STUDY

26. 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 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

28. 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

29. 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

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

31. 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

32. CONCLUSION

33. 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

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