Presentation on theme: "How to Initiate a Performance Framework in Budgeting"— Presentation transcript:
1 How to Initiate a Performance Framework in Budgeting Pokar KhemaniICGFM Annual Winter ConferenceDecember 2009
2 Outline Why Performance Framework Performance Framework in Budgeting Introducing Performance FrameworkEvolution, Prerequisites and Key TasksA well-defined implementation strategyLine-item to Program-based BudgetingProgram Classification: Key AspectsBudget Classification, Chart of Accounts and Accounting SystemPerformance Specification: Common Issues, SMART IndicatorsPerformance: Monitor and ReviewEvaluations and Spending ReviewsProgram Budgeting and MTEFKey MessagesConcluding Remarks
3 Why Performance Framework Increasing public demands for greater government accountability, transparency and effectivenessMounting pressures on public expenditure, calls for improved services for the same moneyNeed for a more responsive system from politicians and public officialsPerformance of fiscal policy and budget management is vital for overall performance
4 Performance of Budget Management Three goals:Macroeconomic stability and aggregate fiscal disciplineAllocation of resources to the strategic priorities – expressed by the societyEfficiency in the use of resources in the implementation of government policiesAll three are closely interwoven and ultimately relate to efficiency.
5 Performance Framework in Budgeting Wide variety of approaches, practices, and methods – considerable literature has been producedCommon theme is applying the budget to promote performance by the appropriate use of performance information at each stage of budget cycle to inform decisions on resource allocations and improve efficiency of resource usageNo single model: performance, program, output, results-oriented budgeting – a programmatic approach is being commonly followedOECD defines performance budgeting as relating funds allocated to measurable results in terms of outputs and/or outcomes and evaluations
6 Performance Framework in Budgeting: Evolution Performance budgeting has a long history: 1960s saw the program budgeting techniques developed in USA spread to many countriesIn 1980s and 1990s, UK, New Zealand, Australia, Canada and various OECD countries developed some form of performance-based budgetingIn recent years widespread interest and activity in this area in Eastern Europe, Latin America, Asia and Africa region – a world wide movement
7 Performance Framework: Some Prerequisites Credible macroeconomic and fiscal frameworkIntegration of budgeting and planningWell developed budget preparation process with a MT perspective – credible budgetSound budget execution, accounting and reporting frameworkStrengthened PFM legal frameworkClarity on budget roles of legislature and executiveGet ‘basics’ work well
8 Introducing Performance Framework in Budgeting: Key Tasks A well defined implementation strategyTraditional (Line- Item) to Program- based Budgeting (PBB)Program Classification: Key AspectsEnhance Budget Classification, Chart of Accounts, and Accounting System to accommodate PBBPerformance specification – indicators and targetsPerformance: Monitor and ReviewProgram/Spending ReviewsProgram Budgeting and MTEF
9 PBB Implementation Strategy Well defined reform objectivesProcess for introducing and managing reformsInstitutional and human capacities needed to drive and support reformsSequencing and pacing of reforms: Pilot vs. Big Bang approachExecutive and Legislature commitment
10 Traditional & Program Budgets Traditional Budgetsbased largely on “ line items” e.g. salaries, travel, overheads, etc.no indication of objective/outputprimarily incremental and annualProgram Budgetsline items identified to programs, keep key input controls – current, capital, interestprograms with well defined outputs and outcomesa medium-term perspectiveperformance informs the budget processfinancial flexibility and accountability
11 A Programmatic Approach to Budgeting Basis of budgeting in many countries, a building block for performance framework in the budget processSpending classified by “programs”Programs reflect expenditure on groups of services (outputs) and have common broad objectives (intended outcomes)Programs should be linked with the organizational structure to establish clear accountability for performanceProgrammatic classification of budget should aim at strengthening the link between policy objectives, planning and allocation of resources
12 Program Classification: Key Aspects Development of line-ministry program structures should be a collaborative effort between MOF and line ministriesNumber of programs should be relatively limitedProgram structure consists of various layers with different nomenclature - most common three layers: program, sub-program and activitiesHave a “Corporate Services” program to include ministry wide common services in early yearsPrograms should include both the current and capital budgetPrograms should not normally stretch over several ministries- for interministerial programs, accountability needs to be established at the level of sub-programs and activities
13 Budget Classification, Chart of Accounts and Accounting System: A Must for PBB Review and refine the current budget classification structure with the introduction of program budgetingThe chart of accounts (COA) needs to be revised to be fully consistent with the revised budget classification structurePrepare a well-designed COA coding structure to support the accounting systemThe accounting system and the payroll system needs to be enhanced and adopt the new budget classification and COA
14 Performance Specification Common Issues Need for right type of robust performance indicatorsBetter balance of output and outcome indicators and improved specification of outputsVarious dimensions of output performance including quantity, quality, efficiency and cost; lack of volumes for key outputsMixing of outcome and output indicators, outcomes are not expressed in a measurable form, and some outputs are specified in a way that is outside the control of the ministry to deliverPerformance Targets: too many, difficult to measure, absence of baseline indicators, arbitrary targets (too easy, too tough), reliability issue
15 Performance Specification SMART Approach Specific – What is the most critical success factor(s)?Measured – What are the quantifiable characteristics?Achievable – Can you improve on past performance?Relevant – Do clients think the target is most important?Timed – How quickly can it be achieved? How long will it take to respond to needs?
16 Standards for Indicators and Targets Good PracticePoor PracticeSpecificPatients with heart diseaseIllnessesMeasuredRecovery rateImproveAchievable5% increase on last yearWorld’s best practiceRelevantNational policy priorityDoctor’s preferenceTimedOne yearIn the future
17 Performance: Monitor and Review ActionIssueExampleData collectionWhat do you need to measure indicators and targets?Is collection cost effective?Cost by sub-programmeServices deliveredChanges observedData recordingWhat system do you need to keep data securely?Current system – e.g. spreadsheetNew system – e.g. Oracle BSCCollation & analysisHow does the information relate to programmes and targets?Time series, variance (budget-actual),achievement rate, unit costReportingWho are the users?What do they need to know? When do they need it?What format(s) do they prefer?Senior management, Parliament/publicProgramme achievements, efficiencyMonthly, annuallyTables, charts, text, videoQuality assuranceHow can you be sure, objectively, that the data are accurate and appropriate?Internal checkingExternal peer reviewExternal audit
18 Program Evaluations & Spending Reviews A variety of models and approaches: annual and periodic, targeted and comprehensiveUK “comprehensive spending reviews” are primarily used for an examination of department’s budgetary requirements for the coming three year period in light of existing spending pressures, opportunities for improving efficiency, and the costs of new policy proposalsUS “Program Assessment Rating Tool” (PART) assesses the management and performance of individual programmes- each PART asks departments to answer 25 basic questionsCanada evaluations – “Management Resources Results Structure” (MRRS) links strategic outcomes to resources, performance measures and actual results for all programmes
19 Program Evaluations & Spending Reviews: Basic Questions 1. What do we do?2. What are peoples needs and expectations?4. Who should do it ?7. How should we go about change ?6. Who should cover the costs ?5. How can we do this better and for less money?3. Do we need to continue to do it ?
20 Program Budgeting and MTEF Introduction of a program structure improves the efficiency of MTEF, both in preparing the forecasts and later in detailing out the budget as per the agreed MTEF ceilingsA credible MTEF could facilitate linking resources to policy objectives and performance – multi-year spending allocations tied with multi-year performance targets
21 Some Key MessagesIntroduction of PBB takes time (4-5 years). Reform needs widespread political support and intellectual acceptanceThe role and power of the Ministry of Finance is crucial to the success of PBBPBB should focus on budget reforms and linked with wider reforms on performance management – an initiative more than an incremental to the budget reform processPerformance information is potentially limitless, complex and expensive to collect, needs to be selective. Too many targets create information overloadPerformance Information needs to be used efficiently and widely, including for improving resource allocations, managing for better performance and increasing public accountabilityEstablishing some link between financial information and performance information needs the right mix of incentives – whether financial rewards should be given for good performance and bad performance should be punished – if so, how? Contd.
22 Key MessagesEmpowering Managers is not about removing controls but devolving the responsibility for applying some of them – MOF needs to monitor effectiveness of financial managementA change in behavior and culture across government is essential - a struggle and long-term processRealistic expectations needed - what can be achieved and how long will it take
23 Concluding RemarksPerformance Budgeting is a modern management tool and not a panacea for all evils – it is the way to go forward for public sector efficiency and performanceA way forward:evaluate the ongoing budget reforms, identify gaps and problems, and think on solutions and what is achievableprepare a realistic and sequenced reform plan and ensure that there is sufficient capability to support and implementOECD states “ journey is as important as the destinationa long-term approach and persistence are needed: it takes time to overcome the technical issues and change the behavior of public servants and politicianstrong leadership and champion for change and reforms