Payment by result: how to deliver result-based financing

What is payment by result (PBR)? An overview on its definition, key terms and conditions

Payments upon demonstrating a set of agreed results is an emerging contractual modality that many donors are choosing to pursue. DFID together with USAID are leading this discourse and applying this funding approach to an increased number of thematic areas, especially in health and education.

Knowledge of the context, risks and experience from past programmes are important conditions to propose a set of activities that can generate evidence of results on a continuous basis.
The condition for payment is in fact agreed upon a set of indicators that typically represent outputs and selected outcomes. At this time it is reasonable to assume that donors will increasingly focus on longer-term and structural changes, both in development and humanitarian sectors. For example, a choc of natural or political nature now require proposals that are multi-component/multi-area ranging from immediate response to primary needs all the way to livelihood rehabilitation linked to markets.

This is an interesting shift of focus from short-termism to more strategic programming that require rigorous evidence to be used in replicating or scaling up successful interventions.
For instance, a better service entails budgetary considerations and tracing the contribution in ensuring future funds becomes necessary. A possible way to achieve this is to communicate what works so to influence the debate of regulators about what works in target areas.
If similar objectives are now asked to be proven as condition to receive payments, development actors become accountable to show results that can be measured over time through multiple methodologies.

Reasons and challenges behind donor shift to a result-based approach to aid

The principle of putting evidence at the centre of payment flows is a bold and complex approach since some areas of change or attribution are hard to measure with a level of rigour that is satisfactory. For instance, 1) how to mitigate the risk of spill-over effects between two groups of recipients and non-recipients; 2) what is the percentage of recipients’ retention in an intervention and 3) what are the conditions associated to cash flows, risk-sharing and pre-financing requirements?
All relevant issues on the adequate method to measure behavioural or policy shifts should be discussed and debated in a payment by result modality from design.

Beside the existing bias of statistical validation to measure project achievements, there is an on-going opening from donors to negotiate on alternative ways to monitor and communicate what yield the greatest results. In some cases, the donor can agree to stop the requirement of tracking control groups (individuals receiving a different or no intervention) in view of the contextual barriers in following two distinct clusters of girls (Girls Education Challenge). In selected countries, the recipient group has been tracked for the whole duration of the project and evidence indicated a series of significant improvements in their condition. This example shows that an appreciation of the context allows for an open discussion with key donors on realistic targets and incentives to highlight observable change. Mastering this language opens a gateway to partnerships and it represents a vehicle for further funding.

It is likely that donors will continue to favour a greater commercialisation and result-based financing of suppliers; the inclusion of the private sector to further national is a clear indication of this trend.
At the same time, the payment based on evidence boosts the incentive to seriously consider management approaches focused on the use of evidence as a top priority.
Therefore, even if PBR has an inherent limitation in striking a balance between adaptive response and the ability to forecast and quantify results it also compels development partners to boost resources in systems to generate evidence real-time on what delivers value for money. Despite this, the effort to extract evidence should not overwhelm any partner but directly address the areas of measurable change that have been agreed and are under constant review with a key donor.

What are the implications for monitoring, evaluation, accountability and learning ?

In a PBR scenario, the business case to select the best indicators and trackable group of respondents is stronger than ever. An open discussion with donors and implementing partners on what is feasible and its costs requires a certain dose of conviction when advancing valid alternatives to experimental designs, which organisations can best substantiate given their long-standing presence in countries and thought leadership in certain methodologies. In support of this dialogue, there are also MEAL trends that confirm the need to trace contribution instead of measuring attribution when results ought to be reported, particularly if related to social transformations or modifications of regulatory frameworks.

The agreement with donors on how to generate and use evidence to inform activities can lead to a renewed management approach. For instance, if a particular training showed more effectiveness once repeated, the project lead should discuss with the donor on how to reallocate resources to reinforce a specific information or investment on set of skills that proved to cause remarkable improvements. A constant review of evidence and assumptions might even sustain some degree of standardisation in tackling particular conditions or feedbacks (Core Humanitarian Standards).
In other words, the fluidity of many contexts implies that a set of assumptions and risks (internal and external) need to be well-appraised at design and constantly tracked along the whole cycle of the intervention. If a new government comes to power, will it remain accountable to policy reforms agreed previously thanks to the engagement of donors and their partners? If a pre-condition is favourable at design, how would a sudden change in power dynamics either boost or restrict the scale of interventions in domains like social activism or minorities’ protection?

Interventions shall then embed triggers to adapt to possible contextual variations and a superior level of rigour when revealing their implications to target population. Multiple courses of actions need to be identified and considered at inception to outline scenarios in case these shifts occur.  Thus, MEAL vests a critical role in adjusting project objectives based on the evolving circumstances. Evidence of changes and the perceived quality/relevancy of activities by beneficiaries require a link to contextual fluctuations, particularly if of political nature.
The public from donor countries expects that sustainability of development interventions is borne by recipients’ capacity to resource the continuation of funded initiatives, preferably via market-based solution. To deal with this demand and result-based prerequisites, solid and well-resourced MEAL frameworks can validate in real-time if a sequence of activities is triggering a structural change and the roles of multiple stakeholders in that process. With it, the ability of programme managers to collaborate closely with MEAL advisors signifies the foundation for learning when extracting, synthetizing and sharing data from the field.

Areas to invest on to establish performance benchmarks and result-based delivery

The ability of organisations to manage a fund or to deliver technical assistance within the context of PBR-like arrangements is emerging due to contracts established on output and outcome targets in the domain of girls’ education and resilience building.

The key steps to consider are an overall improvement in processes to handle similar contractual arrangements and a way to track systematically all project experiences that contain examples of adaptive response and strong MEAL frameworks. Their compilation can support a management toolkit and skills growth strategies to enable teams involved in programmes to: 1) articulate indicators clearly, 2) link inputs to long-term changes, 3) resource MEAL sufficiently via large monitoring teams, 4) focus on updating context-based assumptions and the theory of change.
All these actions are the way forward to respond to PBR requirements if coupled with a progressively deeper understanding of an area of intervention from previous programmes that have been implemented by development organisations. What donors seem inclined to favour in PBR is the identification of what has worked in the past within a defined geography and its replication or scale-up based on a market opportunities and local circumstances/risks affecting target groups.

Learning from past projects on how management choices delivered the most cost-effective activities linked to a theory of change can position any organisation as supplier.
In international development, it is reasonable to expect that plenty of examples can inform the debate on “measurability” but most importantly they can consolidate recognition of how past achievements were attained or exceeded.
Some organisations hold impressive portfolio remains and their work is to distil a system that can respond and even influence the very definition of payment by result and outcome areas.
The wealth of evidence that is within reach is surely the next big opportunity to engage donors in a deeper understanding of where flexible programming and testable assumptions meets conditions for payment and validation of a programme theory.

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