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Don’t bank on Payment by Results

…Still frustrated by ‘payment by results’ funding. Even more so when someone from Barclays bank decides to explain to charities how to make it work. Because it won’t, and we need to make that clear. Its costs will be significant, if we let it become the standard for public funding.

Diego Rivera w/ a monkey: better than payment by results

Diego Rivera w/ a monkey: better than payment by results

I’m going to offer David McHattie the benefit of the doubt and assume his recent piece on how charities should prepare for payment by results (PBR) funding was based on a naive pragmatism, rather than a more cynical attempt to make public services run more like the disgraced bank he works for.

There are so many fundamental and damaging problems with the Payment by Results model, that no one article could give them all the space they need. From crowding-out smaller organisations who can’t afford the financial risk, to encouraging exactly the types of ‘gaming’ approaches that target-driven funding has long-fostered, and ignoring the unpredictable complexity of social problems (that most funding regimes are guilty of), PBR is a powder keg for the voluntary sector and anything shy of an outright denouncement can only lend it a legitimacy it doesn’t deserve.

What McHattie has done is offered some seemingly innocuous steps for voluntary organisations to begin adopting the same toxic metric culture that has recently put his own employer into disrepute for fixing interest rates.

…Let me explain.

To start, for all of its claims of being ‘outcome funding,’ PBR is still target funding. But with bonuses attached.

Here’s why:

  • An organisation receives funding based on achieving its outcomes
  • Those outcomes are measured by outputs – ‘x’ number of ‘y’ achieved = outcome
  • The number of outputs deemed to represent the completion of an outcome are set in advance
  • Outputs set in advance, and required to achieve funding, are targets.

With this in mind, all the arguments against target funding continue to apply to this supposedly new system. PBR is no improvement on what has come before. The addition of bonuses – much like at Barclays and the other big banks – will only worsen the effects of older target-based approaches.

The core of what’s wrong with both the old and the new target-driven funding regimes, is what former Bank of England director Charles Goodhart called ‘Goodhart’s Law’; that when numbers are used to control people (whether as bonuses, targets, or standards), they will never offer the improvements or accountability they are meant to. David Boyle of the New Economics Foundation has gone a step further, arguing that such systems create worse results than not having them in place, as a range of dishonest means are inevitably devised by those being judged on their abilities to create particular numbers, to make sure those numbers are created!

If your job is on the line over the number of people who have received work-readiness training, you will find a way to make those numbers add up to what they need to, to keep yourself in a job. The training might get shortened, 1 full-day course might become 2 half-day courses, people might be counted multiple times for what are essentially the same efforts, those who are more difficult to reach will be ignored in favour of the easiest recipients. Whatever the definitions set, you will find ways around them. And so will your organisation.

When this happens, learning opportunities are lost, accountability is destroyed, and those who are meant to be helped become numbers to be gamed.

These problems are also reinforced by a reality many of our organisations struggle to admit: that we live in a world far too complex to be able to say in advance that ‘a’ will lead to ‘b’. Even in broad-brush terms this kind of organisational fortune telling is hit-and-miss, but when it gets taken a step further (‘this many ‘a’ will lead to this many ‘b’), we are truly taking the piss. We are giving ourselves (and those who fund us) false illusions of control over situations that are the emergent results of countless interdependent factors beyond our organisational reach, whether individuals’ family lives, the economy, or the communities they are a part of, to name but a few.

And if we acknowledge that we can only play a partial role in preventing even one former inmate from reoffending (to draw on McHattie’s example), then the rest of the PBR/targets house-of-cards comes crumbling down. The only ways to keep it standing are through luck or dishonesty.

And dishonesty has been a hallmark of similar systems at Barclays and other banks. The impacts that ‘bonus culture’ has had on the financial sector were made clear by the 2008 economic collapse; from the most local level, to the most global, bonuses incentivised not ‘better performance’ but a range of quasi-legal and outright fraudulent activity designed to benefit particular individuals, rather than whole systems.

This is an inevitable result of what Dan Pink describes as if/then’ motivators (‘if you do this, then you get that’). Whether as bonuses for individual bankers reaching sales targets, or bonuses for charities hitting targets supporting former inmates to stay out of prison, the results will be the same: more dishonesty, less accountability. The paperwork might tell us that ‘more is being achieved for less,’ but the on-the-ground reality will tell us otherwise.

Taking charitable advice from a bank is like taking health advice from a fast food chain, and our sector deserves better than to quietly apply the models that have brought so many problems to the rest of the world, to the practicalities of our own critical work.

Going along with PBR might feel like a necessary evil in the interests of those we serve, but we have far too much evidence to the contrary to honestly think that might be the case. This is a system that needs to be scrapped, not ‘navigated.’ The people we exist to serve deserve nothing less.

This is the 3rd in our unexpected series on the issues of Payment by Results funding:

Give Trust, Get Accountability

Bonzo funding: Payment by Results


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Posted in accountability and funding and leadership + management and measurement and power and professionalism.

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