©2014 CliftonLarsonAllen LLP cliftonlarsonallen.com Timothy Murphy, Facilitator Budgeting for Results Outcomes Based Budgeting.

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cliftonlarsonallen.com

Timothy Murphy, Facilitator

Budgeting for ResultsOutcomes Based Budgeting

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AGENDA

• Learning objectives

• Outcomes Based Budgeting - Introduction

• Principles of Outcomes Based Budgeting

• Case Study

• Conclusion

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LEARNING OBJECTIVES

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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

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OUTCOMES BASED BUDGETING - INTRODUCTION

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Discussion 1

1. What types of budget processes does your organization use?

2. Is the process effective? If yes, why?

3. How could this process be improved?

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Common Types of Budgeting

• Zero based budgets• Program budgets• Line item budgets• Outcomes (performance) based budgets

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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

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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

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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?

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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

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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

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PRINCIPLES OF OUTCOMES BASED BUDGETING

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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

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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.

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Output or Outcome?

Building houses for 100 familiesAnswer: 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%

Answer: Outcome

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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.

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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

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Discussion 21. Has your organization linked outputs to outcomes?

2. If yes, how have you accomplished this? Is this done at the organization level, department level or both?

3. If no, what are the challenges that you are facing that prevent you from making this connection?

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Principle 3 – Develop a Budget for Approaches1. Set departmental/program goals (link to outcomes)2. Understand your revenue sources (program service

revenue, unrestricted or restricted contributions, grants, etc….) Not all will be as easily allocated as others

3. Develop a link of outputs to outcomes (principle 2)4. Develop a link of inputs to outputs (efficiency

indicators)5. Allocate inputs to achieve desired outputs***In practice many of these steps are accomplished at the

department/program level***

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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

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Exercise – Efficiency Indicators

Exercise:

For each mission and outcome provided develop the following items related to efficiency indicators

1. Develop output efficiency indicators that the organization could use to measure input to output efficiency

2. Develop outcomes efficiency indicators that the organization could use to measure output to outcomes efficiency

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Exercise (Continued)

1. 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.

2. 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%

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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)

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CASE STUDY

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Case Study - IntroductionOrganization:

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.

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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

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Case Study – Outcome 1

GoalsBe the #1 college/job placement organization in

the community.Build strong community partners with

companies/individuals that have job opportunities

DepartmentCollege/Job Placement

Outcome 1Increase the number of children attending college or gaining employment

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Case Study - Outcome 2

GoalsDevelop competency

based curriculumImprove child achievement

Build a program that measures achievement

DepartmentEducation Administration

Outcome 2Education Excellence

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Case Study – Outcome 3

GoalsProvide unparallel assistance to

families in needImplement new family mentoring

programImprove number of families

members placed into employment

DepartmentFamily Support

Outcome 3Family Engagement

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CONCLUSION

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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

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cliftonlarsonallen.com

twitter.com/CLA_CPAs

facebook.com/cliftonlarsonallen

linkedin.com/company/cliftonlarsonallen

Timothy Murphy, [email protected]

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