Are Public Services a “Good Investment”? Modelling Social Impact Bonds.

Background

Symmetric’s main contribution to work on Social Impact Bonds (SIB) is to highlight the value of using modelling and simulation at an early stage in testing and improving innovative propositions.

System Dynamics modelling goes beyond conventional cash-flow forecasting. We built this concept model to stimulate debate, not for a client.

Concept Model of a SIB in the Criminal Justice System

The model is not just a diagram. It provides the basis for a complex set of calculations showing behaviour of the whole system over time under a wide range of scenarios.

In the example shown, the graph on the right shows (blue line) the performance of a bond (note its growth depends on periodic reimbursement payments) compared with the performance of an alternative investment (red line).

The model shows “stocks”, “flows” and interconnectedness of several domains.

The top chain shows service users flowing through the criminal justice system, ultimately benefitting from a new, SIB-funded, service on release from prison.

The bottom chain shows cash-flow. Services are funded initially on external investment and in time from savings generated by the changed behaviour of service users.

The model highlights and tests important operational assumptions, such as:

  • Whether the level and timing of reimbursement represents a “satisfactory” return on investment
  • Whether changes, such as in this case a reduced prison population, translate into realisable savings, e.g. reduced prison capacity
  • What is the Bond, an instrument to effect a “start up” or a long-term buffer between periodic reimbursements and the need for constant expenditure on services?

The model is not just a diagram. It provides the basis for a complex set of calculations showing behaviour of the whole system over time under a wide range of scenarios.

In the example shown, the graph on the left shows (blue line) the performance of a bond (note its growth depends on periodic reimbursement payments) compared with the performance of an alternative investment (red line).