Anwarshah Budgeting for Results

Budgeting For Budgeting For ResultsResults

An idea whose time may be An idea whose time may be here?here?

Anwar Shah, World Bank CEPAL Regional Seminar on Fiscal

Policy Santiago, Chile

January 24-27, 2005

Anwar Shah, World Bank

OutlineOutlineTheme:Theme:

Theory and practice of Performance BudgetingTheory and practice of Performance Budgeting

Structure:Structure:

• PB: What? PB: What? • PB: Why?PB: Why?• PB: How? -- International ExperiencePB: How? -- International Experience• Some ConclusionsSome Conclusions

Performance Performance Budgeting: Budgeting:

What?What?


Performance Budgeting: Performance Budgeting: What?What?

A system of budgeting that presents the A system of budgeting that presents the purpose and objectivespurpose and objectives for which funds for which funds are required, the are required, the costs of the programscosts of the programs proposed for achieving these objectives, proposed for achieving these objectives, and and outputs to be produced or services outputs to be produced or services to be renderedto be rendered under each program. under each program.

Strict DefinitionStrict Definition: A system of budgeting : A system of budgeting that explicitly links that explicitly links each increment in each increment in allocated resourcesallocated resources to an to an increment in increment in outputs and outcomesoutputs and outcomes..


A comparative A comparative perspective on the two perspective on the two budgeting approachesbudgeting approaches

Focus on Results

Increased Managerial Discretion and less controlManagers are

accountable for what they achieve.

PB

Focus on Control

No Managerial Discretion

Managers are accountable for what and how they spend on inputs.

Line-Item


Performance Budgeting ParadigmPerformance Budgeting Paradigm

Mission

Strategic Goals

(Medium Term)

Program Objectives & Costs(Annually)

P1 P2 P3

Activities Targets & Costs

P1 P2 P3

A1 A2 A3 A1 A2 A1 A2 A3 A4

Performance Measurement

Impact

Outcomes

OutputsCluster

Outputs

BudgetBottom-up


Performance Budgeting Results Performance Budgeting Results Chain Chain

Application in EducationApplication in EducationProgram objectives Inputs Program objectives Inputs Intermediate inputsIntermediate inputsImprove Improve quantity, quality, quantity, quality, and access to and access to education education servicesservices

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

Enrollments, Enrollments, student-teacher student-teacher ratio, class sizeratio, class size

Outputs Outcomes Impact Outputs Outcomes Impact Reach ReachAchievement Achievement scores, scores, graduation graduation rates, drop-rates, drop-out ratesout rates

Literacy Literacy rates, supply rates, supply of skilled of skilled professionalsprofessionals

Informed Informed citizenry, citizenry, civic civic engagement, engagement, enhanced enhanced international international competitivenecompetitivenessss

Winners and Winners and losers from losers from government government programsprograms


Performance Measures Performance Measures Used in Performance Used in Performance

BudgetingBudgeting CostCost: Inputs/resources used to produce outputs: Inputs/resources used to produce outputs OutputOutput: Quantity and quality of goods and services : Quantity and quality of goods and services

produces. produces. OutcomeOutcome: Progress in achieving program objectives: Progress in achieving program objectives ImpactImpact: Program goals: Program goals ReachReach: People who benefit or are hurt by a program: People who benefit or are hurt by a program QualityQuality: Measure of service such as timeliness, : Measure of service such as timeliness,

accessibility, courtesy, accuracyaccessibility, courtesy, accuracy ProductivityProductivity: Output by work hour: Output by work hour EfficiencyEfficiency: Cost per unit of output: Cost per unit of output Satisfaction:Satisfaction: Rating of services by users Rating of services by users


Citizen-centered Citizen-centered performance budgetingperformance budgeting

Budget format to follow closely service Budget format to follow closely service delivery format and also to include a delivery format and also to include a performance report and net worth performance report and net worth assessmentassessment

Citizens charter and sunshine rightsCitizens charter and sunshine rights Citizen inputs in budget process to be Citizen inputs in budget process to be

formalized at all stagesformalized at all stages Formulation: Town Hall meeting on the previous Formulation: Town Hall meeting on the previous

year’s performance and new proposals. Comments year’s performance and new proposals. Comments on Porto Allegre and Belo Horizonte, Boliviaon Porto Allegre and Belo Horizonte, Bolivia

Review and execution: Formal process for Review and execution: Formal process for complaintscomplaints

Post: Compliance and feedback reports.Post: Compliance and feedback reports.


Performance Management Performance Management Framework is a pre-requisite Framework is a pre-requisite

for the success of PBfor the success of PB Letting managers manageLetting managers manage: operational : operational

flexibility and freedom – few rules more discretionflexibility and freedom – few rules more discretion Making managers manageMaking managers manage. Accountability for . Accountability for

results. Contracts/work program agreements results. Contracts/work program agreements based upon pre-specified output and performance based upon pre-specified output and performance targets and budgetary allocations targets and budgetary allocations new civil new civil service frameworkservice framework

Activity based costing, accrual accounting, capital Activity based costing, accrual accounting, capital chargingcharging

Subsidiarity principleSubsidiarity principle Competitive service delivery and benchmarkingCompetitive service delivery and benchmarking Incentives for cost efficiency (including capital Incentives for cost efficiency (including capital

use)use)


Output Accountability vs. Outcome Output Accountability vs. Outcome AccountabilityAccountability

R e su lts -b a se d a c c o u n ta b i li ty re la tio n s h ip s in fo rm m a n a g e ria l s tru c tu re s

P re s id e n t/ P r im e M in is te r – A c c o u n ta b le fo r ‘o u tc o m e s c lu s te r ’ M in is te r / S e c re ta ry – A c c o u n ta b le fo r o u tc o m e s D e p a rtm e n ta l h e a d / P ro g ra m m a n a g e rs – A c c o u n ta b le fo r ‘o u tp u t c lu s te rs ’ P ro je c t m a n a g e rs – A c c o u n ta b le fo r o u tp u ts

Performance Performance Budgeting: Why?Budgeting: Why?


Public Sector Reform Public Sector Reform GoalsGoals

Responsive Governance or Doing the Right Responsive Governance or Doing the Right ThingsThings Matching public services with citizens’ preferencesMatching public services with citizens’ preferences

Responsible Governance or Doing it RightResponsible Governance or Doing it Right Prudent management of fiscal resources.Prudent management of fiscal resources. Earning trustEarning trust Working better and costing lessWorking better and costing less Managing fiscal and social risksManaging fiscal and social risks- Improving the quality, quantity and access Improving the quality, quantity and access

of public servicesof public services


Public Sector Reform Public Sector Reform Goals ….Goals ….

Accountable GovernanceAccountable Governance: : Accountable for all actions to citizensAccountable for all actions to citizens Public Integrity, safeguardsPublic Integrity, safeguards Citizens charterCitizens charter


A Framework for A Framework for Improving Government Improving Government

PerformancePerformance

Mandate

AuthorizingEnvironment

OperationalCapacity Outputs, Results,

Outcomes


Governing for Results: A Road Map

Program/ project

Inputs

Activities

Outputs

Reach

Outcomes

Impacts (goals)

2. Administration concerned with outputs.

2. Executive concerned with

outcomes

Legislature

1. Citizens

1.Make managers

manage for results

2. Manag. flexibility 3.Subsidia

rity 4. citizen

evaluations

3. E V A L U A T I O N S

2. Outcome contract

2. Output contract

3.Citizen evaluations

3. Internal and external Results and

process Evaluations


Tools for Results Oriented Tools for Results Oriented Management—external, Management—external,

citizen focuscitizen focusQuestion for results-oriented management Management

tool The entire

process driven by a citizen

focus: Contract information—what is the final product we must produce and what do we receive to produce such product?

Performance-based budget

How do we know how we are doing in terms of the contract, and in terms of other producers from whom we can learn?

Benchmarking

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?

Activity-Based Costing (and others)

How do we report our results? Full reporting using accrual accounting

How do we manage the new reporting, production, and contract obligations we have, as well as run a citizen friendly administration?

Balanced Scorecard

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 Performance Budgeting: How?Budgeting: How?

International International ExperiencesExperiences


Theory to Reality

Diversification in Implementation


Alternate approachesAlternate approaches PB with Fuzzy New Public ManagementPB with Fuzzy New Public Management

(Letting Managers Manage, competition, (Letting Managers Manage, competition, voice and choice, informal agreements): USA, voice and choice, informal agreements): USA, Netherlands, Australia, Uganda, Mongolia, Netherlands, Australia, Uganda, Mongolia, South Africa (small steps towards PB). South Africa (small steps towards PB).

PB with New Public ManagementPB with New Public Management (Making Managers Manage, stronger (Making Managers Manage, stronger competition, voice and choice, formal competition, voice and choice, formal contracts or agreements ): New Zealand, contracts or agreements ): New Zealand, Malaysia (?), Singapore (?)Malaysia (?), Singapore (?)


Output Orientation Output Orientation under the Malaysian and under the Malaysian and

NZ ModelsNZ Models Program agreements monitored for Program agreements monitored for

achievement in outputs and impactsachievement in outputs and impacts Output budgetingOutput budgeting Activity based costing Activity based costing capital chargingcapital charging Accrual accountingAccrual accounting Monitoring government’s net worthMonitoring government’s net worth


Singapore: PB Singapore: PB FrameworkFramework

Government departments managed as Government departments managed as Autonomous AgenciesAutonomous Agencies

Macro Incremental FactorMacro Incremental Factor Targets and output plansTargets and output plans Funding linked to output levelsFunding linked to output levels Operational and financial autonomyOperational and financial autonomy Capital charging including office use, Capital charging including office use,

interdepartmental charginginterdepartmental charging 3-year development block vote3-year development block vote New Civil Service FrameworkNew Civil Service Framework


U.S. Experience with PB U.S. Experience with PB State GovernmentsState Governments

line-item budgetline-item budget 27 states27 states program budgetprogram budget 10 states10 states Half-way to PBHalf-way to PB 10 states10 states PBPB Michigan & Michigan &

TexasTexas

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


U.S. Experience with PBU.S. Experience with PB – Montgomery Country, – Montgomery Country, MarylandMaryland

Public Works and Transportation Highway Services

Programs: Resurfacing Program Mission: To resurface the Country’s 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

Outcomes: Lower maintenance cost and better safety

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

77

300

79

309

76

296

64

248

39

152

42

162 Service Quality: Effective resurfacing cycle (years)

9.1

8.8

9.2

11.0

18.0

16.9

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

4,483

5,706

5,115

5,109

5,099

5,230

Inputs: Expenditure ($000) Workyears

1,345

1,763

1,514

1,267

775

847

Source: Office of Management and Budget, Montgomery Country. Montgomery Measures Up! For the Year 2002


ConclusionsConclusions Performance budgeting must be an integral element Performance budgeting must be an integral element

of a broader reform package to bring about of a broader reform package to bring about performance culture. In the absence of an incentive performance culture. In the absence of an incentive environment for better performance and environment for better performance and accountability for results, the introduction of accountability for results, the introduction of performance budgeting will not lead to better performance budgeting will not lead to better performance.performance.

Managerial accountability must be on outputs and Managerial accountability must be on outputs and not on outcomes as the latter are influenced by not on outcomes as the latter are influenced by external factors. Outcomes however should be external factors. Outcomes however should be monitored.monitored.

Transparency of the budget and citizens’ evaluation Transparency of the budget and citizens’ evaluation of outputs helpful in improving budgetary outcomes. of outputs helpful in improving budgetary outcomes.

Tugas Paper (individual) utk Tugas Paper (individual) utk UTSUTS

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


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Anwarshah Budgeting for Results