When to Say No to Outcomes-Based Finance

The Most Expensive Mistake in Outcomes-Based Finance Is Not Saying “No” Early

Outcomes-based finance has moved from the margins to the mainstream of public policy, development, and philanthropy. Governments, foundations, and delivery organizations are increasingly drawn to its promise: paying for results rather than activity, aligning incentives across actors, and focusing scarce resources on what demonstrably works.

When it works well, outcomes-based finance can be a powerful tool. It can sharpen accountability, create room for innovation in service delivery, and help public and philanthropic funders redirect spending toward interventions that generate real, measurable value. It can also provide governments with a structured way to share risk, test new approaches, and improve the efficiency of existing expenditure without abandoning core public responsibilities.

And yet, despite this potential, many outcomes-based initiatives stall long before they reach implementation. Others are piloted once and never scaled. A smaller number are launched with ambition, only to be quietly diluted over time.

This pattern is often explained by complexity, data limitations, political risk, or a lack of investor appetite. While these factors matter, they obscure a more fundamental issue—one that emerges much earlier in the process.

The most expensive mistake in outcomes-based finance is not poor execution.

It is failing to decide, early and honestly, whether outcomes-based finance is the right tool for the problem at hand.

Where Things Go Wrong

In many cases, outcomes-based finance is approached as a solution in search of a problem, rather than as one option within a broader public finance toolkit. Once the idea is introduced, momentum builds. Design funding is allocated. Stakeholders are convened. Expectations begin to solidify.

Only later—often after significant time and resources have been committed—do the harder questions surface.

• Can the outcome be measured in a way that is objective, verifiable, and politically defensible?

• Is the intervention truly responsible for the observed result, or would much of it have occurred anyway?

• Does the payer achieve real value for money, or simply repackage existing expenditure?

• Are service providers and investors genuinely willing to bear performance risk?

• Can the institution procure, contract, and govern such a structure within its legal and budgetary constraints?

By the time these questions are addressed, the cost of stopping feels too high. The result is rarely outright failure. More often, it is gradual compromise: softened metrics, implicit guarantees, or structures that resemble outcomes-based finance in name but not in substance.

The Problem Is Not Outcomes-Based Finance

It is important to be clear: the issue is not that outcomes-based finance is flawed or over-hyped. When applied in the right contexts, it can deliver meaningful improvements in effectiveness, transparency, and accountability.

The issue is fit.

Outcomes-based finance is not appropriate for every policy area, every service, or every institution. Treating it as a default solution—rather than as a selective instrument—creates pressure to force alignment where it does not exist. This is how complexity accumulates, trust erodes, and pilots proliferate without leading to sustained change.

Decision Discipline as Public Stewardship

What is often missing is not expertise, but decision discipline.

Decision discipline means creating structured space, early in the process, to ask a simple but critical question: Should this be outcomes-based at all? Not “Can we design something?” but “Does this intervention meet the technical, economic, and institutional conditions required for outcomes-based financing to work?”

For governments, this is not an abstract concern. It is a matter of public stewardship. Outcomes-based finance can be used not only to design new initiatives, but also to interrogate existing expenditure—to understand which programs are suitable for performance-linked approaches and which are better delivered through conventional funding.

Seen this way, outcomes-based finance becomes a tool for improving spending quality, not just for launching pilots. It can help governments distinguish between areas where innovation and risk-sharing add value, and areas where stability, scale, or universality matter more.

For philanthropic foundations, decision discipline is a fiduciary responsibility. For NGOs and service providers, it is a safeguard against unsustainable risk. In all cases, the ability to say “no” early is not a rejection of innovation, but a commitment to using it responsibly.

Why Early Decisions Are So Rare

Early decisions are rare precisely because they challenge familiar incentives. They require separating a strong intervention from a suitable financing mechanism. They require acknowledging institutional constraints rather than working around them. And they require accepting that some outcomes—however important—are not easily priced or contracted without distortion.

Yet without this discipline, outcomes-based finance risks becoming another well-intentioned approach that promises transformation but delivers fragmentation.

A More Mature Starting Point

If outcomes-based finance is to mature as a field, the starting point must shift. Before design, before partnerships, before contracts, there must be a moment of structured honesty.

Not every intervention should proceed.

Not every expenditure should be performance-linked.

Not every outcome should be monetized.

Creating the conditions to make that determination early is not a technical exercise alone. It is a governance choice—one that protects institutions, partners, and ultimately the people these systems are meant to serve.

The Future

The future of outcomes-based finance will not be defined by the number of pilots launched or contracts signed. It will be shaped by the quality of decisions made before momentum takes over.

Outcomes-based finance works best when it is applied selectively, grounded in evidence, and aligned with institutional reality. The willingness to say—clearly, calmly, and early—this is not the right tool for this problem is not a loss. It is what allows the right applications to succeed, scale, and endure. For more on how we approach these decisions, here is our diagnostic process.