Making Sound Cost Decisions in Pay for Success Projects
Pay for success (PFS) represents a significant departure from the status quo for funding public social programs. Through PFS, the government repays the cost of service delivery only to the extent agreed-on outcomes are achieved. This model aims for high-priority outcomes rather than simply contracting for outputs.
Identifying the costs of achieving these outcomes can be a significant hurdle. Governments and other project partners need to identify and estimate project costs in order to make sound cost decisions. This report outlines the information and basic steps needed to estimate key costs in PFS projects. It discusses how to use that information during planning and development, specifically in the calculation of success payment rates. The good practice recommendations in this report are based on research on existing PFS projects (see table 1), including interviews with several stakeholders.