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Glossary

A glossary of key terms and working definitions

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This glossary provides working definitions for some of the key terms used across this Knowledge Platform. For many of the concepts included, there are no universally-agreed definitions. In compiling this glossary we consulted a wide range of practitioners and experts in the field, but always welcome further feedback and suggestions. Get in touch

Chapter 1

Glossary A - G

6 mins read

A

Additionality

Something (e.g. outcomes) that would have not happened otherwise, i.e. without a specific intervention, policy or investment

Attribution

The extent to which changes in the relevant outcomes can be attributed to an intervention or investment

Attrition (rate)

The drop out (rate) of participants during the intervention

Attrition is relevant for impact bonds because often interventions are based on voluntary participation but measured on a fixed number of participants.

Example: An impact bond whose target is to integrate at least 50% of a pre-determined cohort of 100 vulnerable individuals into the labour market. In case participation in the intervention is voluntary and the 50% target outcome is based on a fixed number of 100 individuals, an attrition rate of 20% would mean that the adjusted target outcome is 62,5% (50% x 100 / 100 x (1-20%)).

B

Baseline

The state before the intervention, against which progress can be assessed or comparisons made 

Baseline data is collected before a programme or policy is implemented to assess the before state. The availability of baseline data is important to document balance in pre-programme characteristics between treatment and comparison groups.Baseline data is required for some quasi-experimental designs.

Example: Baseline data for an educational intervention might encompass attendance rates or grades of a specific cohort before the intervention takes place.

Binary outcome

A binary outcome is a type of outcome that has only two states; either an outcome is achieved, or it is not. For outcomes-based contracts, they are used where it is deemed unacceptable for the public sector to pay for outcomes that include negative events (e.g. outcomes not being achieved).

Example: An example of a binary outcome in the health sector could be seen in the area of diabetes. Based on the blood glucose level, a person is or is not considered pre-diabetic or diabetic. An example of a non-binary outcome would be the % reduction in the risk of someone becoming pre-diabetic pre and post intervention

Find out more about different types of outcomes in our Setting and Measuring Outcomes guide

Blended finance

According to OECD, blended finance is the strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries.

Convergence, the global network for blended finance, provides a range of resources and information on their website

Bond

A bond is a fixed income instrument that represents a loan made by an investor to a borrower. A bond has an end date (when the principal of the loan is due to be paid to the bond owner) and it usually includes the terms for variable or fixed interest payments that will be made by the borrower. Owners of bonds are debtholders, or creditors, of the issuer.

Despite the name, impact bonds are not typically this type of bond instrument because they are not fixed income instruments and payments are dependent on the achievement of outcomes (and are not made regardless of impact performance).

Business case

The business case provides justification for undertaking a project or programme 

It evaluates the benefit, cost and risk of alternative options and provides a rationale for the preferred solution. The business case entails five domains: 

  • Strategic case, to demonstrate strategic fit
  • Economic case, to demonstrate the social and economic value of the preferred option
  • Commercial case, to demonstrate a viable deal between stakeholders
  • Financial case, to demonstrate affordability and funding of the preferred option
  • Management case, to demonstrate that all arrangements are in pace for delivery, monitoring and evaluation

For impact bonds, the business case also includes the impact case, which demonstrates how impact is intended to be achieved.

Read more about the key considerations around developing a business case for an impact bond

C

Capital recycling

A situation whereby investors provide upfront funding and in case of periodic outcome payments, they can recycle those payments as investment capital. Capital recycling allows the size of the investment capital needed upfront to be only a fraction of the total investment needed to fund the impact bond.

Cashability

The extent to which a change in an outcome or output will result in a reduction in spending, such that the expenditure released from that change can be reallocated elsewhere

Example: An example of a cashable saving is often observed in the area of employment. If a person is receiving unemployment subsidy previous to an intervention and as a result of that intervention enters the labour market, government spending related to that unemployment subsidy is reduced and is available to be spent elsewhere elsewhere. An example of a non-cashable saving could be observed in the health sector, where an intervention leads to, for example, less emergency visits or use of hospital services. In this case, while the intervention may result in less demand, it may not lead to cashable savings unless services become surplus to requirements and are terminated or surplus facilities are closed.

Cherry picking

This is a perverse incentive whereby providers, investors or intermediaries select beneficiaries that are more likely to achieve the expected outcomes and leave outside the cohort the most challenging cases 

The process of designing an impact bond and defining the target population, outcome evaluation methods and targets should consider potential perverse incentives and include mechanisms to avoid it. Cherry picking is also known as creaming.

Example: An intervention that promotes employment deliberately selects participants that are more likely to achieve employment outcomes.

Find out more about how to avoid perverse incentives in an outcomes-based contract in our Setting and Measuring Outcomes guide

Commissioning

The cyclical process by which entities assess the needs of people in an area, determine priorities, design and contract appropriate services, and monitor and evaluate their performance. These entities are often national or sub-national public sector bodies but can also include development agencies, multilateral institutions or supranational bodies in the international sphere. This term is used widely in the UK public sector context, but less so elsewhere. It is sometimes used interchangeably with 'contracting'.

Commissioner

An organisation responsible for commissioning (contracting) services. In impact bonds, commissioners are typically the outcome payer and are typically (1) a central or local government organisation or (2) a multilateral agency. Sometimes private or philanthropic sources act as co-payors.

Example: In the Belgian Social Impact Bond “Duo for a Job”, the commissioner (or outcome payer) is Actiris, the Brussels-Capital Region Employment Office. In the Indian Development Impact Bond “Educate Girls”, the outcome payer is the Children’s Investment Fund Foundation.

Cost benefit analysis

A method to estimate the total expected benefits of a programme, compared with its total expected costs

It seeks to quantify all the costs and benefits of a programme in monetary terms and assesses whether benefits outweigh costs.

In the UK, the Treasury's Green Book provides comprehensive guidance on assessing the costs, benefits and risks of social policies, programmes and projects.

Counterfactual

A counterfactual is an estimate of what outcomes would have occurred without the intervention. In the impact bond context, a counterfactual enables a comparison with what would have happened without the impact bond. The counterfactual is an important element in assessing the additionality of an intervention or investment.

Find out more in our Evaluation guide

Creaming

This is a perverse incentive whereby providers, investors or intermediaries select beneficiaries that are more likely to achieve the expected outcomes and leave outside the cohort the most challenging cases. The process of designing an impact bond and defining the target population, outcome evaluation methods and targets must consider potential perverse incentives and include mechanisms to avoid it.

Creaming is also known as cherry picking.

Example: An intervention that promotes employment deliberately selects participants that are more likely to achieve employment outcomes

Find out more about how to avoid perverse incentives in an outcomes-based contract in our Setting and Measuring Outcomes guide

D

Deadweight

Outcomes which would have happened anyway, regardless of an intervention, policy or investment 

To understand the additionality of a certain intervention it is important to have an estimation of the deadweight. 

Find out more in our Evaluation guide

Development impact bond (DIB)

This is a term used for an impact bond that is implemented in low- and middle-income countries where a donor agency, multilateral institution, multilateral or a foundation pays for the desired outcomes as opposed to the government (although some combination of government with third party is also possible).

Find out more about DIB projects across the world in our Projects Database

Due diligence

The process whereby an organisation’s financial, organisational, operational and programmatic strengths and weaknesses are assessed in detail by a potential investor with a view to investment or an outcome payer with a view to commission an intervention

E

Evaluation

A periodic, objective assessment of a planned, ongoing, or completed project, programme, or policy 

Evaluations are used to answer specific questions, often related to design, implementation, or results. Evaluation is the application of systematic methods to address questions about programme operations and results. Evaluation can include ongoing monitoring or one-shot studies. Evaluation often relies on social science methodologies and professional standards.

In terms of impact bonds, one type of evaluation is the determination of whether and to what degree the intervention in an impact bond project has had an impact on the measured outcome variables over time. Another type of evaluation is related to determining whether the way a project is financed has had an impact on the measured outcomes variables. 

Find out more in our Evaluation guide

Exchange rate risk

Exchange rate risk, also known as currency risk, arises from the change in price of one currency in relation to another.

Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. In impact bonds, exchange rates risk can lead to changes in the business and financial case of the intervention.

Experimental design evaluation

An evaluation method in which participants are randomly allocated to a treatment group or a control group 

Experimental evaluation methods lead to the highest confidence that observed effects are attributed to the intervention. Randomised Controlled Trials (RCTs) are a common experimental evaluation method.

Find out more in our Evaluation guide

F

Fiduciary duty

A legal or ethical relationship of trust, specifically in relation to taking care of someone else’s money

Gaming

This is where someone or an organisation behaves opportunistically, deciding to choose a path that benefits themselves over the interests of their clients. 

There are different types of gaming, such as creaming and parking.

Find our more in our Setting and Measuring Outcomes guide

Chapter 2

Glossary H - M

3 mins read

H

Hard outcomes

Hard outcomes can be objectively and independently measured

Example: A child being in or out of care, an adult being in employment

Find out more in our Setting and Measuring Outcomes guide

Hawthorne effect

Occurs when the mere fact that units are being observed makes them behave differently

The Hawthorne effect can happen among the beneficiaries of a certain intervention, but it can also happen among control groups, which are sometimes used to as the basis of measurement in an impact bond.

Example: Consider an intervention where support is given to families with youngsters with high school absenteeism. If there is someone from the evaluation team at school who is tracking absenteeism, the students might become less likely to skip class for the simple fact that they are being observed, and not necessarily as a result of the support to the family.

Humanitarian impact bond (HIB)

This is a variation of a development impact bond, through which private investors finance a social benefit/development program and receive a return according to the programme’s results from a donor. The difference is that a HIB is used in a conflict or post-conflict setting.

Read our case study on the International Committee of the Red Cross Committee HIB

I

Impact

In the context of impact evaluations, an impact is a change in outcomes that is directly attributable to a programme; also known as causal effect

Find out more in our Evaluation guide

Impact bond

Impact bonds are outcome-based contracts that incorporate the use of private funding from investors to cover the upfront capital required for a provider to set up and deliver a service. The service is set out to achieve measurable outcomes established by the commissioning authority (or outcome payer) and the investor is repaid only if these outcomes are achieved. Impact bonds encompass both social impact bonds and development impact bonds.

Read more in our Introduction to Impact Bonds

Impact evaluation

An evaluation that makes a causal link between a programme or intervention and a set of outcomes 

An impact evaluation answers the question: what is the impact (or causal effect) of a programme on a desired outcome?

Find out more in our Evaluation guide

Impact investment

Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors' strategic goals. 

Impact investment is described (and differentiated from other forms of investment) by three guiding principles:

  1. The expectation of a financial return: impact investors expect to earn a financial return on the capital invested, below the prevailing market rate, at the market rate or even above it.
  2. The intention to tackle social or environmental challenges (i.e. the impact or intentionality): in addition to a financial return, impact investors aim to achieve a positive impact on society and/or the environment.
  3. A commitment to measuring and reporting against the intended social and environmental impact: impact investors commit to measure performance using standardized metrics.

Impact investment is not limited to a specific asset class or sector: it includes, for example, fixed income, venture capital, private equity and social and development impact bonds

Find out more about impact investing on the Global Impact Investing Network (GIIN) website

Implementer

Also known as service providers or service delivery organisations, implementers are the entities responsible for delivering an intervention or service to participants. Implementers work in collaboration with the outcome payer(s) and the investor(s) to make the impact bond work. An implementer can be a private sector organisation, social enterprise, charity, NGO or any other legal form.

Inputs

The financial, human, and material resources used for a specific intervention or service

Intermediary

Impact bonds are often supported by experts that provide specific advice. These are typically all referred to as “intermediaries” but encompass at least four quite different roles: 

  • A consultant who supports the commissioner to develop a business case for the project that secures internal and external approval to proceed to procure and implement the new service. 
  • A social investment fund manager who manages a fund on behalf of social investors and manage the project with commissioners.
  • A performance management expert works together with providers, reporting the performance of the impact bond and providing an independent source of information and scrutiny to investors and the commissioner. This might be required if there is a perceived conflict of interest in the provider measuring and reporting on their own performance, or if the provider lacks the skill to deliver the standard of reporting required by stakeholders.
  • A special purpose vehicle who brings together other parties in a contractual relationship and holds the contract directly with the commissioner. 

Lead outcome (also known as progression outcome)

Lead or progression outcomes show movement towards a primary (later) outcome. This may be necessary if the primary outcome takes a long time to measure. 

Example: For children with highly complex needs, a lead outcome may be better attendance at school that is indicative of progression towards achieving a specific educational achievement (primary outcome).

Find out more in our Setting and Measuring Outcomes guide

Chapter 3

Glossary N - S

7 mins read

Negative externality

A negative externality is a cost that is suffered by a third party as a result of an economic transaction. Externalities commonly occur in situations where property rights over assets or resources have not been allocated, or are uncertain.

O

Outcome

The outcome is what changes for an individual as the result of a service or intervention. 

Example: Improved learning in school, better mental health, sustained employment 

Find out more in our Setting and Measuring Outcomes guide

Outcomes-based contracting

Outcomes-based contracting is a mechanism whereby service providers are contracted based on the achievement of outcomes. This can entail tying outcomes into the contract and/or linking payments to the achievement of outcomes. 

In international development these approaches are more commonly referred to as results-based financing.

Find out more in our Introduction to Outcomes-based Contracting

Outcome fund

Outcome funds pool capital from one or more funders to pay for a set of pre-defined outcomes. Outcome funds allow the commissioning of multiple impact bonds under one structure. Payments from the outcomes fund only occur if specific criteria agreed ex-ante by the funders are met.

Outcome measure (or indicator)

An outcome measure is the specific way the commissioner chooses to determine whether that outcome can be achieved. Often this encompasses a single dimension of an outcome.

Example: The outcome measure for educational attainment can be a test score; the outcome measure for employment may be a job contract.

Find out more in our Setting and Measuring Outcomes guide

Outcome payer

The organisation that pays for the outcomes in an impact bond 

Outcome payers are often referred to as commissioners.

Example: In the Belgian Social Impact Bond “Duo for a Job”, the outcome payer (or commissioner) is Actiris, the Brussels-Capital Region Employment Office. In the Indian Development Impact Bond “Educate Girls”, the outcome payer is the Children’s Investment Fund Foundation.

Outcome target (or metric or trigger)

An outcome target is the specific value attached to the measure of for the purposes of determining whether satisfactory performance has been achieved. In an impact bond, these targets will usually determine whether a payment is made to the provider of investor.

Example: A test score of 95 out of 100 or improvement of 30 points in a test score over a 5 month period.

Find out more in our Setting and Measuring Outcomes guide

Output

The tangible goods and services that are produced (supplied) directly by an intervention. The use of outputs by participants contributes to changes which lead to outcomes.

Find out more in our Setting and Measuring Outcomes guide

P

Parking

This is a perverse incentive whereby providers, investors or intermediaries neglect beneficiaries that are less likely to achieve the expected outcomes and leave them outside the cohort. The process of designing an impact bond and defining the target population, outcome evaluation methods and targets must consider potential perverse incentives and include mechanisms to avoid it.

Example: An intervention that promotes employment deliberately excludes participants that are less likely to achieve employment outcomes.

Find out more in our Setting and Measuring Outcomes guide

Pay-for-success

Pay-for-success is the term used in some countries (in particular the US) for impact bonds.

Payment-by-results (PbR)

The practice of paying providers for delivering public services based wholly or partly on the results that are achieved

Performance-based incentives

These include both monetary and non-monetary incentives to encourage the achievement of performance targets

Performance-based transfers

These are transfers of money or other material rewards usually between governments, that are provided contingent on improved performance or a particular type of behaviour change

Perverse incentive

An incentive to act in manner that goes against the desired outcome or aims of a service or programme

Find out more in our Setting and Measuring Outcomes guide

Positive externality

A positive externality is a benefit that is enjoyed by a third-party as a result of an economic transaction. Generally these are positive effects that beneficiaries do not pay for.

Primary outcome

In an impact bond the primary outcome is the most important outcome in the contract, the one that the outcome payer most wants to see positively impacted. 

Find out more in our Setting and Measuring Outcomes guide

Procurement

Acquisition of goods and services from third party suppliers under legally binding contractual terms

Public sector procurement is normally achieved through competition and is conducted in line with each government’s policy and regulation. In impact bonds, the procurement process identifies the partners, namely the services provider(s) to deliver the selected intervention. 

Procurement by government or public institutions is an important part of strategic governance and services delivery for governments. Public procurement is often a high portion of a government’s budget and may be a significant portion of national GDP, so is often highly regulated. Public procurement is often used strategically to help achieve policy goals such as environmental protection, job creation and the development of small and medium enterprises. Public procurement is often subject to transparency, accountability, and integrity requirements.

In impact bonds where the government is the outcome payer, procurement processes may play a role shaping the market, in defining the outcome specifications, the terms of the outcomes contract, pricing the outcomes, and selecting the parties. The award of a public contract as part of the public procurement process may in an impact bond may limit the ability to make subsequent changes and be subject to monitoring or auditing by government agencies. 

Read more in our guide to Contracting for Impact Bonds

Progression outcomes (also known as lead outcomes)

Lead or progression outcomes show movement towards a primary (later) outcome. This may be necessary if the primary outcome takes a long time to measure. 

Example: For children with highly complex needs, a lead outcome may be better attendance at school that will eventually lead to achieving a specific educational level (primary outcome).

Find out more in our Setting and Measuring Outcomes guide

Provider

Also known as a service provider or service delivery organisation, providers are the entity(ies) responsible for delivering the intervention to participants. Providers work in collaboration with the outcome payer(s) and the investor(s) to make the impact bond work. A provider can be a private sector organisation, social enterprise, charity, NGO or any other legal form.

Proxy outcomes

These are indirect measures of the desired outcome which is itself strongly correlated to that outcome used when direct measures of the outcome are unobservable and/or unavailable. 

Example: A proxy outcome for managing long term health conditions could be decreased hospital admissions.

Find out more in our Setting and Measuring Outcomes guide

Quasi-experimental design evaluation

Quasi-experimental methods share similarities with experimental design, but they lack the element of random assignment to treatment or control.

In quasi-experimental design evaluation, different strategies are used to try to mimic the experimental design principles. Quasi-experimental evaluation presents lower levels of confidence that observed effects may be attributed to the intervention, in comparison with experimental design evaluation. 

Find out more in our Evaluation guide.

R

Rate card

In the context of payment-by-results, a rate card is a schedule of payments for specific outcomes a commissioner (outcome payer) is willing to make for each participant, cohort or specified improvement that verifiably achieves each outcome.

Example: The UK's Department of Work and Pensions has used rate cards to commission impact bonds. 

Find out more in our Setting and Measuring Outcomes guide

Rate of return

The profit on an investment, normally expressed as an annual percentage

This is typically the ratio of the income from the investment over the cost of the investment

Results-based aid

A payment-by-results scheme between a donor (who pays for the outcomes) and a national government in a developing country (who implements the programme)

Results-based finance

A term used in some countries, in particular in the USA, that refers to payment-by-results schemes

S

Secondary outcome

After the primary outcomes (the most important) the secondary outcomes are the other important outcomes that the commissioner wishes to see improved. They may capture different dimension of the programme or reinforce the primary outcome. 

Find out more in our Setting and Measuring Outcomes guide

Social impact bond (SIB)

A type of outcome based contract that incorporates the use of private funding from social investors to cover the upfront capital required for a provider to set up and deliver a service 

The service is set out to achieve measurable outcomes established by the commissioning authority and the investor is repaid only if these outcomes are achieved. In the United States, social impact bonds are often referred to as pay-for-success projects, while in Australia they are called social benefit bonds. In Europe they are often referred to as social outcomes contracts. 

There is no singular, standard definition of what constitutes a social impact bond. In practice, social impact bond approaches vary across a number of aspects, including: the nature and amount of payment on outcomes; the nature of capital used to fund services; strength of performance management; and social intent of service provider(s). As more projects are being developed across the world, the model is likely to continue to evolve and be adapted to specific local circumstances. 

Read more in our Introduction to Impact Bonds or visit our Projects Database for a comprehensive list of the impact bonds launched to date.

The 'social impact bond (SIB) effect'

This refers to an assessment of the effectiveness of commissioning services using an impact bond structure compared to other available structures. 

Social impact investment

According to OECD, social impact investment is the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return.

Social impact investor

An investor seeking social impact in addition to financial return. Social investors can be individuals, institutional investors, dedicated social investment funds and philanthropic foundations, who invest through their endowment. 

Soft outcomes

Soft outcomes depend on measurement which is more subjective and less quantifiable.

Example: An individual's self assessment; a change in behaviour or attitude

Find out more in our Setting and Measuring Outcomes guide

Special purpose vehicle (SPV)

A legal entity (usually a limited company) that is created solely for a financial transaction or to fulfil a specific contractual objective 

Special purpose vehicles have been sometimes used in the structuring of impact bonds. 

Example: The outcomes funder(s) might prefer to contract with a SPV set up specifically to deliver the IB programme. Investor(s) might also prefer this structure since the company that is set up as the SPV is the entity into which they invest. SPV are commonly used because they provide contractual ease and flexibility.

Stretch target (or metric)

Stretch targets go beyond the targets that are expected and can act as an incentive.

Example: A primary outcome target may be someone being in employment for 13 weeks and a stretch target may be that the person is in employment for 26 weeks.

Find out more in our Setting and Measuring Outcomes guide

Sustainable outcome

An outcome that is sustained beyond the duration of the intervention

Find out more in our Setting and Measuring Outcomes guide

Chapter 4

Glossary T - Z

1 min read

T

Theory of change

Explains the channels through which programmes can influence final outcomes

It describes the causal logic of how and why an intervention will reach its intended outcomes. A theory of change is a key underpinning of any impact evaluation, given the cause-and-effect focus of the research.

Find out more in our Evaluation guide

V

Value for money

Good value for money is the optimal use of resources to achieve the intended outcomes. Optimal means the most desirable possible given expressed or implied restrictions or constraints.

In the UK, the National Audit Office (NAO) uses three criteria to assess the value for money of government spending (i.e. the optimal use of resources to achieve the intended outcomes): 

  • Economy: minimising the cost of resources used or required inputs. Spending less
  • Efficiency: the relationship between the output from goods or services and the resources to produce them. Spending well
  • Effectiveness: the relationship between the intended and actual results of public spending (outcomes). Spending wisely. 

Venture philanthropy

Venture philanthropy (VP) takes concepts and techniques from venture capital and applies them to achieving a social, rather than a financial, return. VP takes a high-engagement approach and is characterised by the investee receiving management support and specialist expertise, as well as financial resources

Find out more about venture philanthropy at EVPA and AVPN websites.

Are you looking for a term that is not included in this glossary? Would you like to suggest any changes, or are you looking for clarification on any of the terms above? You can get in touch with us at golab@bsg.ox.ac.uk.