Outcomes-Based Budgeting: What is it and how can we make this work?
Tuesday, June 16, 2020
Posted by: Rachel Werner
If dealing with the COVID-19 crisis has taught us anything, it’s how to become resourceful during a time of crisis. In addition to nonprofit pivots related to service delivery, staff changes (or reductions or modifications), funding shortages, and more significant needs for specific essential programs, nonprofits are also trying to figure out budget planning and preparing for the future. However, how can you plan in a fiscally prudent way when there are so many uncertainties in the future?
As many nonprofits are completing their 2020 fiscal years (for those with a June 30th end date), the budget preparation process is now in full force. I am a big proponent of outcomes-based budgeting to bridge the gap between the short-term and the long-term and revise how we approach budgeting. Traditionally, many nonprofits factor in specific costs when going through a budgeting process (i.e., database upgrade, website redesign) and factor in a cost of living adjustment (COLA). There might be some discussions and back and forth exchanges, but generally, the focus is on anticipated expenditures.
Outcomes-based budgeting is a bit different. Essentially, it is a process whereby the anticipated outcomes fuel the projected expenses. The result of this process helps to create more balanced and well-informed budgets that support programmatic and organizational goals. By using a logic model, the budget is mapped to resources and inputs required to achieve anticipated outputs and outcomes based on available inputs and resources.
How can outcomes-based budgeting allow nonprofits to get creative during the time of COVID-19?
- What are your needs? The process requires brainstorming and discussion to identify the current and future needs of the organization and its component programs. This can include not just key leaders, but frontline staff, peer organizations, and board members.
- Creating the logic: The development of a logic model is necessary to create specific goals, objectives, outputs, and outcomes related to these needs. There can be a clear linkage between needs (operational, programmatic and client-based) and how the organization is mapping its programs and services to address these needs. The W.K. Kellogg Foundation has some fantastic guidance and an example that nonprofits can use.
- Tools to use: There are some great resources available that have templates to put together programmatic and organizational budgets. This one is a favorite of mine, as it is clear and links to different worksheets within the document.
- Make way for changes: You might want to consider creating a full-year budget and a budget for the next six months. Since this is an iterative process, the financial outlook will change. You might need to create a budget for the short-term and long-term – what are some variations that you are seeing?
Even if you have never used this approach before, it is an opportune time to try something new. It may allow for more strategic and creative thinking on issues related to fiscal management.
How will you develop a budget in the coming year?
Rachel Werner is the Owner and CEO of RBW Strategy, LLC. She and her team provide grants, fundraising, and project management consulting support to nonprofits, government, and business entities.
02: Knowledge of organizational development as it pertains to grant seeking
03. Knowledge of strategies for effective program and project design and development
07. Knowledge of practices and services that raise the level of professionalism of grant developers