Budgeting For Results

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Budgeting For Results

• An idea whose time may be here?

Anwar Shah, World Bank CEPAL Regional Seminar on
Fiscal Policy Santiago, Chile January 24-27,
2005
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Outline

• Theme
• Theory and practice of Performance Budgeting
• Structure
• PB What?
• PB Why?
• PB How? -- International Experience
• Some Conclusions

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Performance Budgeting What?
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Performance Budgeting What?

• A system of budgeting that presents the purpose
  and objectives for which funds are required, the
  costs of the programs proposed for achieving
  these objectives, and outputs to be produced or
  services to be rendered under each program.
• Strict Definition A system of budgeting that
  explicitly links each increment in allocated
  resources to an increment in outputs and outcomes.

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A comparative perspective on the two budgeting
approaches
Focus on Results
Focus on Control
Increased Managerial Discretion and less control
No Managerial Discretion
Managers are accountable for what and how they
spend on inputs.
Managers are accountable for what they achieve.
PB
Line-Item
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Performance Budgeting Paradigm
Performance Measurement
Impact
Mission
Strategic Goals (Medium Term)
Outcomes
Budget Bottom-up
Program Objectives Costs (Annually) P1 P2 P3
Outputs Cluster
Activities Targets Costs P1
P2 P3 A1 A2 A3
A1 A2 A1 A2 A3 A4
Outputs
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Performance Budgeting Results Chain Application
in Education
Program objectives Inputs Intermediate inputs Program objectives Inputs Intermediate inputs Program objectives Inputs Intermediate inputs
Improve quantity, quality, and access to education services Educational spending by age, sex, urban/rural spending by level teachers, staff, facilities, tools, books, regulations Enrollments, student-teacher ratio, class size
Outputs Outcomes Impact Reach Outputs Outcomes Impact Reach Outputs Outcomes Impact Reach Outputs Outcomes Impact Reach
Achievement scores, graduation rates, drop-out rates Literacy rates, supply of skilled professionals Informed citizenry, civic engagement, enhanced international competitiveness Winners and losers from government programs
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Performance Measures Used in Performance Budgeting

• Cost Inputs/resources used to produce outputs
• Output Quantity and quality of goods and
  services produces.
• Outcome Progress in achieving program objectives
• Impact Program goals
• Reach People who benefit or are hurt by a
  program
• Quality Measure of service such as timeliness,
  accessibility, courtesy, accuracy
• Productivity Output by work hour
• Efficiency Cost per unit of output
• Satisfaction Rating of services by users

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Citizen-centered performance budgeting

• Budget format to follow closely service delivery
  format and also to include a performance report
  and net worth assessment
• Citizens charter and sunshine rights
• Citizen inputs in budget process to be formalized
  at all stages
• Formulation Town Hall meeting on the previous
  years performance and new proposals. Comments on
  Porto Allegre and Belo Horizonte, Bolivia
• Review and execution Formal process for
  complaints
• Post Compliance and feedback reports.

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Performance Management Framework is a
pre-requisite for the success of PB

• Letting managers manage operational flexibility
  and freedom few rules more discretion
• Making managers manage. Accountability for
  results. Contracts/work program agreements based
  upon pre-specified output and performance targets
  and budgetary allocations ? new civil service
  framework
• Activity based costing, accrual accounting,
  capital charging
• Subsidiarity principle
• Competitive service delivery and benchmarking
• Incentives for cost efficiency (including capital
  use)

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Output Accountability vs. Outcome Accountability
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Performance Budgeting Why?
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Public Sector Reform Goals

• Responsive Governance or Doing the Right Things
• Matching public services with citizens
  preferences
• Responsible Governance or Doing it Right
• Prudent management of fiscal resources.
• Earning trust
• Working better and costing less
• Managing fiscal and social risks
• Improving the quality, quantity and access of
  public services

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Public Sector Reform Goals .

• Accountable Governance
• Accountable for all actions to citizens
• Public Integrity, safeguards
• Citizens charter

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A Framework for Improving Government Performance

Mandate
Authorizing Environment
Operational Capacity
Outputs, Results, Outcomes
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(No Transcript)
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Tools for Results Oriented Managementexternal,
citizen focus
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Performance Budgeting How?

• International Experiences

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Theory to Reality
Diversification in Implementation
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Alternate approaches

• PB with Fuzzy New Public Management (Letting
  Managers Manage, competition, voice and choice,
  informal agreements) USA, Netherlands,
  Australia, Uganda, Mongolia, South Africa (small
  steps towards PB).
• PB with New Public Management (Making Managers
  Manage, stronger competition, voice and choice,
  formal contracts or agreements ) New Zealand,
  Malaysia (?), Singapore (?)

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Output Orientation under the Malaysian and NZ
Models

• Program agreements monitored for achievement in
  outputs and impacts
• Output budgeting
• Activity based costing
• capital charging
• Accrual accounting
• Monitoring governments net worth

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Singapore PB Framework

• Government departments managed as Autonomous
  Agencies
• Macro Incremental Factor
• Targets and output plans
• Funding linked to output levels
• Operational and financial autonomy
• Capital charging including office use,
  interdepartmental charging
• 3-year development block vote
• New Civil Service Framework

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U.S. Experience with PB State Governments

• line-item budget 27 states
• program budget 10 states
• Half-way to PB 10 states
• PB Michigan Texas

Source Hager, G. Hobson, A. June 2001.
Performance-Based Budgeting.
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U.S. Experience with PB Montgomery Country,
Maryland
Source Office of Management and Budget,
Montgomery Country. Montgomery Measures Up! For
the Year 2002
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Conclusions

• Performance budgeting must be an integral element
  of a broader reform package to bring about
  performance culture. In the absence of an
  incentive environment for better performance and
  accountability for results, the introduction of
  performance budgeting will not lead to better
  performance.
• Managerial accountability must be on outputs and
  not on outcomes as the latter are influenced by
  external factors. Outcomes however should be
  monitored.
• Transparency of the budget and citizens
  evaluation of outputs helpful in improving
  budgetary outcomes.