Budgeting for Outcomes

There has been much talk lately in budgeting circles about Budgeting for Outcomes. In short, this means making an effort to determine an organization’s priorities and budgeting towards those priorities. I think most everyone would agree this is a great idea. But then, why do so few organizations do it? Ultimately it comes down to the fact that most organizations look at their budget as a financial document instead of also as a management document.

Budgets are treated as financial documents by most organizations for two main reasons. The first is that it is the minimum they are required to do. You might as well roll up into the fetal position as an organization if you can’t at least broadly identify how you plan to spend your money over the next 12 months. Second, it is much easier to update and project numbers than it is to update and project what services are provided with those numbers and whether anyone wants those services.

Budgeting for Outcomes means you need to start with identifying your current outcomes. What services are you providing to your community and how much do they cost? While it is nice to identify in your budget how much the Police Department costs, that doesn’t really identify what services are provided with that money, let alone what each of the services cost.

Which brings us to the first component of treating the budget as a management document: what services are currently being provided and at what cost? What some people call “pricing,” and what we have been calling “costing” for over 30 years, is really just breaking down your organization to the level of services that are meaningful from a management standpoint, and then identifying the service level being provided. While RCS is often asked by an agency to identify services for fee recovery purposes, we can also provide the broader identification of the cost the rest of the services provided by an agency.

But first, this involves a discussion at the management level and then at the departmental level to determine how finely to parse the services being provided. Do you just identify fire emergency response as a service or do you break out medical calls from other calls? Do you just identify street maintenance or do you break it down to arterial, collector, and residential street maintenance? There is no right answer but your organization needs to think about this as your customers would. A customer probably doesn’t care how much Police patrol costs in different parts of the City, but they probably do care about how much emergency calls cost versus non-emergency calls, as well as the response times for each. The organization needs to decide early on about what its service list looks like. It is especially important that this discussion takes place across departments as many services are provided by multiple departments.

If time and effort is not spent on the costing component, the prioritization component will die from a lack of meaningful information and you will be left at the same place you started, which is managing by instinct without much input from actual data or from customers, the taxpayers.

So while everyone should strive to clearly and precisely identify what they want for the future, you must first identify in a meaningful way what you are really providing now.