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Outcome Based Scrutiny

The Mercatus Center has developed a 7-step analytical framework called "Outcome-Based Scrutiny" to assist Congress in its responsibility of setting budget priorities and to encourage performance improvements in federal agencies. The purpose of Outcome-Based Scrutiny is to identify how effectively various federal programs accomplish their intended results. By doing this, the process also explores whether reallocation of resources among programs could produce greater public benefits at a lower cost.

Step 1: Outcome: "What is the issue to be examined and the intended outcome?"

A Congressional committee chooses a specific outcome of a government activity, e.g. "improving children's health" or "increase in minority entrepreneurship." The committee should identify the authorization for that outcome: statute, regulation, administrative order or other source and determine whether or not the chosen outcome is consistent with the original intent.

Step 2: Agencies: "Who is responsible?"

The committee should now determine which agency has primary responsibility for this outcome, and then list all other agencies whose activities impact this outcome.

Step 3: Programs: "How do they do it?"

At this point the committee should research and identify all federally funded programs (across agency boundaries) that impact this outcome. The agency programs managers themselves are likely to be the best sources for current and accurate information.

Step 4: Results: "Are they effective?"

Using annual performance reports and other data, the committee should note the impact or the quantity of progress on the outcome for each of these programs and examine the responsible agencies to clarify the results information as reported. How effective are the programs under examination at advancing the stated outcome? This information may be collected in a hearing or other public forum.

Step 5: Cost/Benefit: "What is the best value?"

Financial information should now be added to the equation so that cost comparisons can be made between programs. Again, those responsible for the programs should be asked to clarify where necessary, perhaps in a public hearing.

Step 6: Reallocation: "What changes give the greatest benefits?"

The Reallocation stage is really an academic exercise and in many cases will be done outside a committee hearing or meeting. Using data collected in Stage 5, programs are ranked according to public benefit produced against the dollar invested. Then the committee engages in the hypothetical exercise of reallocating resources to the most effective programs. From that, the committee can calculate the potential public benefit available if optimal allocation is made.

Step 7: Opportunity: "What benefits are lost by the status quo?"

In this stage, the committee compares the public benefit of optimal allocation to the status quo. The difference represents the public benefit forgone by sub-optimal allocation of resources. This information should add great value to the appropriations process, if accurate.

Conclusion?

How Congress deals with the dividend identified from this process is going to be an intensely political debate. However, the very process of making opportunity cost transparent and open to public scrutiny unleashes powerful incentives for the owners of delinquent programs to either elevate their performance to that of the best performers or to abandon them. Competition will flourish inside the public sector, providing the American public with responsive, high-quality services that rival those they have traditionally expected only in the private sector. These results may be slow to take hold, but they will eventually bring about improvements in government accountability and in the public's well being.

The outcome-based framework is flexible enough to accomodate diverse values and judgments about policy priorities.  Whether one defines public benefits in terms of number or people helped or meeting greatest perceived needs, the same analytical framework allows decision makers to determine the most effective ways of accomplishing the goal.  The calculations employed in Outcome-Based Scrutiny do not make decision automatic, but they do give decision makers a clearer understanding of the effects of their decisions.

Outcome-Based Scrutiny should appeal to any member of Congress who is interested in ensuring that various federal programs do a good job of seving the consituencies they are intended to serve.  Relevant constituencies, and hence program priorities, will sometimes vary depending on which party controls Congress, who chairs relevant committees, and myriad other political factors.  Nevertheless, all members have an interest in ensuring that the constituencies they care about are served well.  Outcome-Based Scrutiny is harmful only to programs that fail to deliver benefits to the people they are supposed to help.

Related Link:

Putting a Price on Performance: A Demonstration Study of Outcome-Based Scrutiny