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

Outline
Theme:

Theory and practice of Performance Budgeting

Structure:

PB: What?
PB: Why?
PB: How? -- International Experience
Some Conclusions

Anwar Shah, World Bank

Performance
Budgeting:
What?

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
Managers are
accountable for
what they achieve.

No
Managerial
Discretion
Managers are
accountable for
what and how they
spend on inputs.

PB

Line-Item
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Performance Budgeting Paradigm

Performance Measurement
Impact
Mission

Strategic Goals

Outcomes

(Medium Term)

Budget

Program Objectives & Costs

Outputs
Cluster

(Annually)
P1

P2

P3

Activities Targets & Costs

P1
A1 A2 A3

P2
A1 A2

P3
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A1 A2 A3 A4

Outputs

Bottom-up

Performance Budgeting Results

Chain
Application in Education
Program objectives
Intermediate inputs
Improve
quantity, quality,
and access to
education
services

Outputs
Reach
Achievement
scores,
graduation
rates, dropout rates

Inputs

Educational spending
by age, sex,
urban/rural; spending
by level; teachers,
staff, facilities, tools,
books, regulations

Enrollments,
student-teacher
ratio, class size

Outcomes
Literacy
rates, supply
of skilled
professionals

Informed
citizenry, civic
engagement,
enhanced
international
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World Bank
ss

Impact
Winners and
losers from
government
programs

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
Results-based accountability relationships inform managerial structures
President/ Prime Minister Accountable for
outcomes cluster
Minister/ Secretary Accountable for
outcomes
Departmental head/ Program managers
Accountable for output clusters
Project managers Accountable for outputs

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Performance
Budgeting: Why?

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

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Outputs, Results,
Outcomes

Governing for Results: A Road Map

Program/
project

Inputs

Activities

Outputs

Reach

Outcomes

Impacts
(goals)

2. Administration concerned with outputs.

1.Make
managers
manage for
results
2. Manag.
flexibility
3.Subsidia
rity
4. citizen
evaluations

2. Output
contract

2. Executive
concerned with
outcomes

3. Internal
and external
Results and
process
Evaluations

3. E V

A T

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2.
Outcome
contract

Legislature

1. Citizens

N S

3.Citizen
evaluations

Tools for Results Oriented

Managementexternal,
citizen focus
Question for results-oriented management

Contract informationwhat is the final

product we must produce and what do we
receive to produce such product?
How do we know how we are doing in terms of
the contract, and in terms of other producers
from whom we can learn?
How much does it cost to produce such product
(the complete cost)? How can we produce the
product better so we can be sure of meeting and
exceeding our contract obligation and receiving
rewards?
How do we report our results?
How do we manage the new reporting,
production, and contract obligations we have,
as well as run a citizen friendly administration?

Management
tool

The entire
process driven
by a citizen
focus:

Performancebased budget
Benchmarking
Activity-Based
Costing (and
others)
Full reporting
using accrual
accounting
Balanced
Scorecard

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All these tools

are connected to
Total Quality
Management
and such devices
used to create a
results and
participation
culture, and
work effectively
where roles
emphasize
results.

Performance
Budgeting: How?
International
Experiences

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
program budget
Half-way to PB
PB
Texas

27 states
10 states
10 states
Michigan &

Source: Hager, G. & Hobson, A. June 2001. Performance-Based Budgeting.

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U.S. Experience with PB Montgomery Country,

Maryland

Public Works and Transportation

Highway Services

Programs: Resurfacing
Program Mission: To resurface the Countrys roads on a seven year cycle to assure an aesthetically pleasing,
adequately maintained, functional roadway surface

Program Measures

FY99
Actual

FY00
Actual

FY01
Actual

FY02
Budget

FY02
Actual

FY03
Approved

77

79

76

64

39

42

300

309

296

248

152

162

9.1

8.8

9.2

11.0

18.0

16.9

4,483

5,706

5,115

5,109

5,099

5,230

1,345

1,763

1,514

1,267

775

Outcomes:
Lower maintenance cost and better safety

Outputs:
Percentage of roads needing resurfacing that
were resurfaced (assuming a 7-year cycle)
Lane miles resurfaced

Service Quality:
Effective resurfacing cycle (years)

Efficiency:
Average cost per lane-mile resurfaced ($)

Inputs:
Expenditure ($000)

847

Workyears

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.
Anwar Shah, World Bank

Tugas Paper (individual) utk

UTS
Telaah Kritis terhadap Penerapan
Penganggaran Kinerja dan
Akuntansi Akrual di Sektor
Pemerintahan Indonesia.

Anwar Shah, World Bank