Giving outcomes a financial and social value
In these tough times, we need to know more than ever that what is commissioned works, and at what cost. We first need a clear definition of the outcomes government – central and local – intends for populations. We then need to understand how to achieve these as cost-effectively as possible. This means understanding the relationship between the value of outcomes and what is spent on achieving them. Without knowing the true cost of a programme, and its effectiveness in achieving outcomes, option appraisal is partially guesswork – and furthermore it is more difficult for the good ideas to be recognised and nurtured.
There is currently little scrutiny of the value of outcomes delivered by spending. Outcomes are not well linked to cost, and it is important to know the outcomes that can be expected from a given level of expenditure.
An outcomes focused approach to commissioning interventions requires us to put a financial and social value on the most important outcomes. Understanding both the financial and social value of outcomes – another person into work or a crime prevented – will enable us to:
- evidence the return on investment in terms of whole life costs avoided
- improve the effectiveness of public spending by focusing activity on those outcomes which are most valued
- be clear about what we are prepared to spend to deliver them
- focus cuts in areas of unproductive spend, and invest in interventions demonstrating maximum cost benefit.
Finding that value requires us to know:
a) the investment: the unit cost of delivering a specified outcome (well), i.e. the total cost of providing services and other interventions that achieve a named improvement
b) the outcome value: the whole life value of the outcome itself – the financial saving accruing both now and down the line because of “futures avoided”, rather than simply the short term result. This is sometimes called cost avoidance analysis.
The return on investment, or cost benefit, will be the outcome value less the investment. An SROI analysis enables a ratio of bene?ts to costs to be calculated. For example, a ratio of 4:1 indicates that an investment of £1 delivers £4 of social value. And to be sure that the benefits are due to the investment, we also need to have a means of knowing to what extent the costed set of interventions was responsible for the outcomes.
This gives us the true cost benefit of an intervention. The ability to allocate funds and to spend effectively relies upon an understanding of this. In the past, we have placed a heavy emphasis on “value for money” – which usually expressed the amount of service of reasonable quality that could be obtained in return for a specified financial investment. But we should be much more interested in the social result, or whole life value of the investment.
The final critical step is benefit realisation: having identified the true cost benefit that can be realised, it is vital to ensure that actual savings materialise as predicted by the cost benefit analysis. This involves tracking individual service users to see what services they use over time and how this changes (e.g. do children become looked after, do young people use criminal justice services?) and will need to be calculated on a cross agency basis.
© Carola Bennion