Pay for Success Explained (and Illustrated)

By Chris Ellis and Sara Blumenstein

At Fourth Economy, we are interested in—and experts in—a new generation of funding mechanisms that are enabling the expansion of interventions with proven results. (See these posts from last year introducing Social Impact Bonds and Three Questions to ask to demonstrate impact.)

The key stakeholders involved in a Pay for Success transaction

 


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The Four Keys to Effective Collaborations

The Fourth Economy team strongly believes in the power of partnerships in improving community and economic development outcomes. Through our work, we have managed numerous collaborations and identified four keys that lead to effective partnerships.

Patience, Participation, and Partnership

Effective collaboration can be difficult and often takes time. Therefore, it requires that all stakeholders have patience throughout the process of building partnerships and developing solutions. As partnership groups face challenging times, it is critical that they overcome these difficulties together and remain engaged in the effort. One difficulty that may arise is that as individuals and organizations collaborate to further a common purpose, they are typically guided by their own self-interest. These motivations are not always negative and can often support the success of collaborative groups when they are aligned with the goals of the larger partnership. In addition to acknowledging these self-interests, during initial conversations, these groups should identify outcomes and boundaries to focus their work. The group should allow for some flexibility in these areas as issues can change, but too much flexibility will impede the group’s ability to effect change and could cause stakeholders to leave the group. Continue reading “The Four Keys to Effective Collaborations”

Innovative Financing: Paying for What Works

ellis-main-blog_imageA new generation of innovative funding tools is enabling change agents to expand programs that are meeting their community’s needs. Pay for Success (PFS) transactions, or Social Impact Bonds, represent an emerging financing mechanism that is driven by cross-sector partnerships, robust data, and a commitment to outcomes.

PFS utilizes upfront private investment to expand social programs that have proven results. In order to encourage this type of investment in their programs, service providers must be able to use data to show that their proposed intervention measurably improves outcomes for their clients and leads to an avoidance of cost. Additionally, these transactions depend on the collaborative efforts of a diverse set of stakeholders. PFS engages partners from the public, private, and nonprofit sectors in five critical roles: an investor who funds the expansion of the program; a service provider who administers the program; an independent evaluator who measures the effectiveness of the program; a public entity, or other outcome payer, who repays the investment based on the success of the program; and an intermediary who facilitates the partnerships and ensures that the project operates effectively and efficiently. Continue reading “Innovative Financing: Paying for What Works”