Giving Compass' Take:

• Jeff Shumway, Jake Segal, and Michael Etzel explain the merits of pay-for-success programs as a cost-effective way to fund social services. 

• What social services could best be served by this model? 

• Read about when pay-for-success makes sense.

It’s still early days for governments experimenting with pay-for-success (PFS) projects, in which governments ask private funders to foot the bill for social programs, and then agree to repay those funders if the programs achieve agreed-on results.

But here’s the thing: even if they’re all successful, growth for PFS will be slow. The bespoke nature of PFS projects today suggests a halting path to real scale.

The approach can be too narrow in its focus. Most commentators on PFS focus on the financing. But the financing is not what’s special.

In our view, the concept’s real potential lies elsewhere: as a model for how governments should fund social services.

Imagine what would happen if governments adopted a more performance-based approach to social service contracting. By linking payment more closely with performance, we could build a stronger market for outcomes that we all agree matter—and governments could get more for their, and our, money.

Doing this would require that governments clearly define and measure success, build data-driven program designs, and invest seriously in performance management. It would also require that governments get energized and creative about unsexy things like collaboration, data, and procurement.

Read the source article on pay-for-success by Jeff Shumway, Jake Segal, and Michael Etzel at Stanford Social Innovation Review.