Foundational Concepts and Terms of Pay for Success

“Pay for Success, or PFS, is an innovative financing mechanism that shifts risk from a traditional funder (usually a government) to a new funder (usually a private organization or nonprofit). That funder expands (or ‘scales’) an evidence-based social program to improve outcomes for a vulnerable population. If an independent evaluation shows that the program achieved the agreed outcomes, then the traditional funder repays the new funder’s investment with interest.

By prioritizing evidence, outcomes, performance management, and the strategic deployment of resources, PFS could improve delivery of social services to vulnerable populations, yielding benefits to individuals, governments, and society at large.

With support from the Laura and John Arnold Foundation, the Urban Institute has launched the Pay for Success Initiative to strengthen PFS projects. Through this initiative, Urban is building tools to scale the PFS sector; guiding, designing, assisting, and assessing PFS projects; and sharing lessons learned with key stakeholders through communities of practice” (p.1).

“This brief asks and answers questions that governments and social service providers often pose as they consider constructing, negotiating, and executing a pay for success project. As a mechanism for using private capital to shift risk and bring evidence-based innovations and proven programs to scale, pay for success is an ongoing enterprise. This document provides a foundational understanding of this dynamic and evolving field” (p.1).

The brief was published in 2015 and provides guidance for those considering Pay for Success projects drawn from the experience of current projects in the United States and the United Kingdom. It can be considered part of a larger series. The authors note that “The Urban Institute has produced a number of papers and blog posts describing PFS projects, their potential, and their limitations” (p.5).

(Abstractor: Author and Website Staff)

The guide is structured as a series of questions that governments or social service providers might have when considering a Pay for Success project. They fall under the following larger topics: • “Getting Started with Pay for Success” (p.1). • “Pay for Success Stakeholders” (p.3). • “Current Pay for Success Projects” (p.5). • “Bringing Pay for Success to you Community” (p.5). • “Putting Together a Pay for Success Project” (p.7). • “Evidence, Evaluation, and Pay for Success” (p.10). Under each topic, the guide poses questions and then answers them, citing other resources and using examples from the field. For example, under the “Putting Together a Pay for Success Project” heading, the brief answers the question “What are the main steps of a PFS project?” as follows: “Most PFS deals begin at the state or local level. • First, a government engages in strategic planning. Through a comprehensive analysis, it identifies inefficiencies in social service programs that lead to disadvantage (Roman et al. 2014). • Second, a government identifies the potential barriers to greater efficiency in reducing disadvantage and determines if those problems have evidence-based solutions. • Third, the government compares the evidence-based intervention against PFS suitability criteria, such as those described below. • Fourth, once an intervention is selected, the government contracts with an intermediary to raise up-front funding that becomes the multiyear financing for the program. As part of this process, the government and funders agree on outcomes. • Fifth, an evaluator monitors the progress of the intervention, and an independent validator determines whether the program meets its agreed outcomes, affecting if and how much the government should repay funders” (p.7). (Abstractor: Author and Website Staff)

• Last Updated:
• Created:
• Resource Publication Date: 2015
• Author(s): Roman, John K.; Eldridge, Matthew; and Hawkins, Rayanne.
• Organizational Author(s): Urban Institute
• Resource Availability: Publicly available
• Posted by: Long Dang
• Posted in: Workforce System Strategies