1. Module 2.2: Budget planning & performance
INTRODUCTION TO PUBLIC FINANCE MANAGEMENT
Module 2.2: Budget planning & performance

2. Module outline The move towards performance in the Budget
What do performance systems entail?
Types of Budget systems in use

3. Performance in the Budget
What does it mean for the government?
In the traditional or ‘bureaucratic’ approach, performance meant:
ensuring compliance with set rules and regulations;
controlling inputs;
adhering to the public sector ‘ethos’.
This worked well for several decades when governments had relatively less complex tasks to perform.

4. Performance in the Budget
What does it mean for the government?
In the ‘new public management’ approach, there are calls, among other things, for:
Ascertaining the relation of budgetary inputs with what they are meant to achieve;
Determining efficiency and effectiveness of public spending – and accountability thereafter;
Reducing bureaucracy and enhance managerial discretion – managing for results.

5. Performance in the Budget
... it is important to keep in mind...
‘Performance is a deceptively simple idea: simple because it is easy to express key concepts and objectives; deceptive because it is hard to apply these ideas in government’. Allen Schick, the Performing State (2003)

6. Performance in the Budget
Traditional budgeting
Performance oriented budgeting
Input-oriented
Results-oriented
Good for aggregate fiscal discipline
Facilitates efficiency, effectiveness, accountability
Central control (MoF)
Devolved control, discretion to spending units
Easy, Understandable
Complex, sophisticated

7. Performance in the Budget
“ Traditional budgeting”
Focus: economic transaction items (inputs)
Strengths:
The basic processes are ensured
Develop a discipline culture
Weaknesses:
Difficult to reflect policy and performance
Frequently, cumbersome bureaucratic procedures

8. Performance in the Budget
A Traditional Budget would look like this...
Ministry X Budget Appropriation €
Salaries and pension contribution
5,200,000
Goods & Services
100,000
Transfers
3,000,000
Capital expenditure
1,000,000
Total
9,300,000

9. Performance in the Budget
“Performance oriented budgeting”
Focus: programme, output, outcome(?)
Strengths:
Enhanced information framework for making decisions in budgeting
Weaknesses:
Need strong institutional arrangements and considerable technical and human capacity
The higher the sophistication, the more expensive it gets

10. Performance in the Budget
Important to note...
There are no clear cut or ‘off-the-shelf’ performance budgeting systems.
A ‘continuum’ ... systems that simply present performance information in the budget (programme-type budgeting) to systems that integrate performance in the budget by determining budget appropriations through costed units of performance (output-type budgeting).

11. Performance in the Budget
A Programme-type Budget would look like this...
Ministry X Budget Appropriation €
Programme XX
Salaries and pension contribution
5,200,000
Goods & Services
100,000
Transfers
3,000,000
Capital expenditure
1,000,000
Total
9,300,000

12. Performance in the Budget
An Output-type Budget may look like this...
Ministry X Budget Appropriation €
Outlay
Cost
Units
Output 1
1,500,000 5
7,500,000
Output 2 1
Output 3
150,000 2
300,000
Total
9,300,000

13. Performance-oriented budgeting: MoF control at higher level
Traditional budgeting: detailed external control by MoF
Performance-oriented budgeting: MoF control at higher level

14. Module outline The move towards performance in the Budget
What do performance systems entail?
Types of Budget systems in use

15. Performance in the Budget
Inputs
Outputs
Outcome
Impact
Finance
Number of Teachers Number of Classrooms
Enrolment, Transition
Literacy rate, socio-economic benefits
Activities
Transformation of inputs
into outputs

16. Performance in the Budget
Important definitions...
Output: the goods and/or services produced by using inputs, usually measured in absolute quantities.
Outcome: the results arising from using outputs, usually measured in relative terms i.e. percentage (%) change.
Efficiency = output/input
Effectiveness = % of achievement of the outcome

17. Performance in the Budget
Important definitions cont... Outcome-type indicators concern broader developmental issues that would depend on a number of variables not all possible to predict/control; Output-type indicators are time-bound and under the full control of Govt action.
Clearly defined... S.M.A.R.T
SPECIFIC – MEASURABLE – ACHIEVABLE – RELIABLE – TIMEBOUND

18. Performance in the Budget
Important definitions cont...
Features
Output
Outcome
What is measured?
Goods and/or services delivered to target beneficiaries/areas
Improved service delivery (quality)
What is the level of Government control?
Government has primary control
Affected also by factors outside the control of the Government
What is the time-frame?
Short-term
Medium and Long-term

19. Performance in the Budget
Examples of output and outcome indicators...
Output
Outcome
Indicator
Target
Environment
Modernisation of waste management infrastructure
no of units produced
Stabilisation of emission pollutants and greenhouse emissions
% decrease in emissions
Improvement of public access to environmental info
no of access points & publications
Improvement of the surface water quality
% decrease in water pollutants
Transport
Elimination of bottlenecks on routs of international corridors
no of speed limit sections
Increase of foreign trade cargo traffic by sea
% increase in cargo traffic

20. Performance in the Budget

21. Module outline The move towards performance in the Budget
What do performance systems entail?
Types of Budget systems in use

22. Types of Budget systems
Presentational and Performance-informed systems: presents performance information as part of the budget documentation but not used for resource allocation.
The appropriations are not integrated with performance targets;
NB: Many of the ‘programme budgeting’ reforms in transition and developing countries of the last decade often reflected this approach.

23. Types of Budget systems
Performance-based system (or output-type budgeting) where performance information plays an important role for resource allocation.
The performance targets (outputs) are costed and determine the budget appropriations.
OECD, Performance Budgeting in OECD Countries, 2007

24. Types of Budget systems
Important to note: the line between presenting and using performance information can be quite thin…
Does a given performance budgeting reform aim at transforming budgeting or provide a better foundation for informing budgetary decisions?

25. Types of Budget systems
Q-1 MONITORING
Q-2 MONITORING
Q-3 MONITORING
ANNUAL REPORT
Financial information
Performance information

26. Types of Budget systems
CASE STUDY The Budgets of: Armenia, Kosovo, Singapore, and New Zealand. Review the Budget excerpts in your participant’s pack. What type of Budget system does each of the four countries have?

27. Key Messages Issues in introducing/sequencing Budget reform...
Control inputs before controlling outputs
Implement an annual budget good before moving to multi-annual budgeting
Establish external controls before introducing internal controls
Establish internal control before introducing managerial accountability
Budget for work before budgeting for results

28. Key Messages Issues in introducing/sequencing Budget reform...
Adopt and implement predictable budgets before insisting efficient use of resources by managers
Enforce normal contracts in the market sector before introducing performance contracts in the public sector
Traditional vs performance budgeting is not an "either-or" situation (there are many cases in between…)