I subscribe to the daily feed from Higher Education Strategy Associates and I enjoy the main analyst’s take on things usually. He’s got one going this week on “Performance-Based Funding” that looks promising. Here’s an excerpt from today’s post:

At one level,PBF is simple: you pay for what comes out of universities rather than what goes in.
[…]
Take graduation numbers, which happens to be the simplest and most common indicator used in PBFs. A government could literally pay a certain amount per graduate – or maybe “weighted graduate” to take account of different costs by field of study. It could pay each institution based on its share of total graduates or weighted graduates. It could give each institution a target number of graduates (based on size and current degree of selectivity, perhaps) and pay out 100% of a value if it hits the target, and 0% if it does not. Or, it could set a target and then pay a pro-rated amount based on how well the institution did vis-a-vis the target. And so on, and so forth.

Each of these methods of paying out PBF money plainly has different distributional consequences. However, if you’re trying to work out whether output-based funding actually affects institutional outcomes, then the distributional consequence is only of secondary importance. What matters more is how different the distributional outcomes are from whatever distribution existed in the previous funding formula.
[…]
In effect, the real question is: how much funding, which was formerly “locked-in”, becomes “at-risk” during the shift to PBF? If the answer is zero, then it’s not much of a surprise that institutional behaviour doesn’t change either.

Performance-Based Funding (Part 1) | HESA

While I know that the site has a bit of a constraint in the length of the posts, it’s a bit misleading to suggest that the “big” issue is distributional or even “locked-in” vs. “at risk”. That might be an issue between institutions, but as a government funding formula, there are two bigger issues in my view.

First and foremost, there is a risk that universities could cream-pick good students and good students only. That seems like a difficult thing to do, but it isn’t. If you get funding for those who graduate, and none or even just less for those who don’t, you want to make sure that the people you let in are actually capable of making it through. It happens in other services all the time with PfP — if you want the numbers up, don’t take anyone with a cognitive disability, or lower economic background, or divorced parents, or a whole host of other sociological factors that impact performance — simply exclude them as a group and thus increase the likelihood of graduation. It’s one of the reasons some of the more élite programs have much higher completion rates…they cream their intake to those who are likely to complete. Goodbye diversity, hello clones, usually white and male.

Second, and more dangerous, is the desire to “promote for performance pay” i.e. even if they can’t spell or even read, a PpF grade school might still promote the kid into high school who then promotes them and graduates them — the board can’t risk a funding cut or not getting reimbursed for the work done to that point. So standards get lowered — “Everybody graduates! Yay!”.

There are, of course, solutions to that problem including partial lock-ins or differentiated performance pays i.e. if you take a regular client and get them to completion, it’s 100%; take someone from a disadvantaged group and get them to the same point, you get 120% (which sounds like a reward, but is also likely it cost you more in staff time to help that person get to completion). Or move to a “partial” system of reward. You’d still have to adjust for input costs by field of study (it costs more to have science labs than social science lecture halls), but mixed PpF works better usually than pure PpF.

There are also other types of perversions with the “management by outcomes approach”. In health care, there is an example used regularly with VA stats in the U.S. One of the service standards was 90 days to see a medical specialist once you’ve been initially assessed. The perversions were then two-fold. First, some clinics never completed the assessment until “all the info” had been provided (like asking for the maternal grandmother’s maiden name — not needed, but sorry, patient hasn’t completed their part, not the hospital’s problem). Second, if the person doesn’t see someone for 90 days and slips to 91, at that point, there is no reason to ever rush to help them…120 days, 200 days, 300 days, it makes no difference because the funding was already “lost”. Better to spend time helping those under 90 days where you can still get funding. Happens in triage rooms too where less serious patients were often helped ahead of those with more serious injuries who had already gone past the “performance pay” clock, because helping the needy patient would cost more lapses in p-pay.

I’m sure there are other perversions in the education sector at the university level, but rarely is a “one size performance funding” model going to work well for anyone. I look forward to the rest of the series this week.