1. A New Approach to Performance Budgeting: Agency Strategic Planning and Service-Based Budgeting
Richard D. Brown
Director,
Virginia Department of Planning and Budget

2. The Basics Many Factors and Perspectives Influence State Government Budget Development
Changes in regulations and laws
Demand for services
Increase in number of clients
Automation
Increases/decreases in federal funds
Traditional practices
Public sentiment
Priorities of the Governor and General Assembly

3. The Basics Most States View Budget Development as a Zero-Sum Game Whereby Competing Demands Must Be Balanced
Fiscal Conditions (increases/decreases in available revenues)
Fixed Costs (mandatory demands vs. discretionary actions)
Economy (efficiency and cost savings, i.e. price per unit of service)
Effectiveness (continuing need for existing programs and agencies)
Priorities (agency budget requests vs. Governor’s agenda)
Overall performance (quality of operations, focus on outcomes and return on investment).

4. The Issues Agency Strategic Planning vs. State Budget Development
Agency strategic plans may not be based on fiscal realities (visionary vs. practical)
Agency goals and objectives may not address statewide priorities (agency budget requests vs. statewide priorities)
Agency performance measures may not adequately address overall performance (hard to measure desired outcomes and degree of state influence to achieve results may be limited)
Agency strategic plans almost never address potential enterprise-wide or efficiency improvements (planning silos)

5. The Issues All Spending Decisions Are Not Focused on Results
Types of Spending Decisions:
Maintenance or fixed costs requirements (rent, insurance, gas, retirement/social security, etc.)
Case load or unit cost thresholds (school enrollment, cost per unit, $xx per capita, etc.)
Political considerations (budgeting is a compromise process)
Results oriented actions (true investments, deal or no deal!)

6. Bringing It Together Guidelines For Improving Performance Budgeting
Tie agency planning efforts to state goals (be really strategic in approach)
Some things are more important to measure than others (concentrate efforts on what moves the needle; decisions that are true investments and results-oriented)
Don’t just record performance, evaluate it (have a thrust for what works and why it works)
Look outside agency silos (create new enterprises for desired results)
Recognize results and reward performance (promote consistency and desired behavior)

7. The Virginia Experience

8. Virginia’s Budgeting System is Evolving
1980:
Program Budgeting and Evaluation :
Agency strategic planning and Performance Measures
2005:
Service Planning & Performance-Based Budgeting

9. Previous Budget Structure
Program structure Level of control
Function
Subfunction
Program
Central budget control
(by fund, by positions)
Subprogram
Element Cost center
Object of expenditure
Agency budget control

10. Previous Performance Budgeting Process

11. Previous Dual Structure Orientation
Budgeting
Programs/Subprograms =
Accounting System
Strategic Planning
Activities =
Virginia Results

12. The Task At Hand

13. Establishing a Vision and Goals for the Commonwealth

14. Making a Change Establishing a Statewide Vision The Council for Virginia’s Future
Created in 2003 (Code of Virginia ) to advise the Governor and the General Assembly on the implementation of a Roadmap for Virginia's Future. Responsibilities include:
developing a set of guiding principles that are reflective of public sentiment and relevant to critical decision-making;
establishing a long-term vision for the Commonwealth;
conducting a situation analysis of core state service categories;
setting long-term objectives for state services;
aligning state services to the long-term objectives;
instituting a planning and performance management system consisting of strategic planning, performance measurement, program evaluation, and performance budgeting; and
performing plan adjustments based on public input and evaluation of the results of the Roadmap.

15. Composition of Council on Virginia’s Future
The Council shall be composed of 18 members that include eight legislative members and ten nonlegislative members as follows:
The Governor,
The Speaker of the House,
The majority and minority leaders of the House of Delegates,
The Chairman of the House Committee on Appropriations,
The President Pro Tempore of the Senate,
The majority and minority leaders of the Senate,
The Chairman of the Senate Finance Committee,
One nonlegislative citizen member appointed by the Speaker of the House,
One nonlegislative citizen member appointed by the Senate Committee on Rules,
Two Cabinet Secretaries appointed by the Governor, and
Five nonlegislative Citizen members appointed by the Governor.

16. Organizational Framework
LEGISLATIVE
BRANCH
COUNCIL ON VIRGINIA’S FUTURE
EXECUTIVE BRANCH
Planning Group
Council Steering Committee
Planning, Budgeting & Assessment Advisory
Sub-Committee
Governor’s Performance Leadership Group
CEO Advisory
Group
Private Sector Reengineering Advisory Group
Innovation & Improvement Advisory Sub-Committee
Performance Leadership Steering Group
Private Sector Reengineering Support Teams
MAP

17. The Council on Virginia’s Future Has Articulated Seven Long-Term Objectives For Virginia
Be recognized as the best managed state in the nation.
Be a national leader in the preservation and enhancement of our economy.
Elevate the levels of educational preparedness and attainment of our citizens.
Inspire and support Virginians toward healthy lives and strong and resilient families.
Protect, conserve, and wisely develop our natural, historical, and cultural resources.
Protect the public’s safety and security, ensuring a fair and effective system of justice and providing a prepared response to emergencies and disasters of all kinds.
Ensure that Virginia has a transportation system that is safe, enables easy movement of people and goods, enhances the economy, and improves the quality of life.

18. Scorecard at a Glance

19. Linking Strategic Planning and Performance Budgeting at State Agency Level

20. A Mandate for Change at Agency Level
HB2097(03) (affecting § )
“…each agency shall develop and maintain a strategic plan for its operations” defined in the legislation as “the systematic clarification and documentation of what a state agency wishes to achieve and how to achieve it. The objective of strategic planning is a set of goals, actions steps, and measurements constructed to guide performance.” 
HB1838(03) (affecting § )
“The Executive Budget document is to include a statement of “major goals, objectives, and specific outcomes related to expenditures for programs” in each agency.”

21. Process Design – Strategic Plan
Service area structure is key:
Generally, “service areas” are what agencies do for the citizen or for other agencies
They consist of allocations of resources toward a specific objective
Each service area forms the basic unit of both budgeting and of planning
Principal objectives of these plans are:
To provide agencies with a tool to assist them in self-management
To give decision makers uniform and dependable data for budgeting and accountability
To link state resources to results
To eliminate current fragmented processes of strategic planning, budget development, workforce planning, capital planning, and technology planning

22. Service Area Structure
Current Structure
Programs/Subprograms =
Budgeting
Accounting System
Strategic Planning
Activities =
Virginia Results
Future Structure
Budgeting
Service Areas =
Accounting
Strategic Planning
Performance Measurement

23. Service Area Structure
Current Programs/Subprograms
Recommended Service Structure
Proposed Services = “*”
Current Activity
Planning, Budgeting, and Evaluation Services (71500)
Budget Development and Execution Services (715 02)
Budget Development and * Budget Execution Services*
Budget Development and Budget Execution
Legislation and Executive Order Review Service *
Legislative Review Service
Performance Management Service
Forecasting and Regulatory Review Services*
Regulatory Review Service
Program Evaluation
Service *
Program Evaluation Service
Federal Budget Service
Executive Orders Service
Administrative Services (71598)
Administrative Services *
Support Service

24. Budget Bill Display

25. Process Design

26. Agency Strategic Plan Content

27. Looking At The Enterprise The Executive Progress Report
Current Performance
Productivity
Major Initiatives and Related Progress
Virginia ranking
Customer Trends and Coverage
Future Direction and Priorities
Impediments

28. Agency Strategic Plan Content

29. The Revised Budget System Will Foster Transparency By Linking Together Expected Results, Funding, and Actual Performance For State Government Service
Product
Contents
Agency Strategic Plan
Establishes strategic and operational plan for the agency and its service areas
Service Area Plan
Articulates expected results (objectives) for each service area and defines performance criteria to measure progress toward expected results (sets baseline and target data for results).
Budget Bill
Allocates funding among the various service areas of state agencies
Budget Document
Brings together and begins to explain relationships between expected results and proposed funding in the budget for service areas and state agencies
Budget Execution
Accounts for actual spending by service area and monitors accomplishments and results though reporting system for performance measured data.
The Service Area is the link between all of the above.
It is the common unit at which strategic planning, funding (budget), and performance information (results) is presented.

30. Integrating Planning and Budgeting
Old New
COVF
Vision & Objectives
Guiding Principles
DPB
Data Repository
Legislators
Agency
Strategic Plan
Agency Budget & Performance Measures
X objectives and
measures submitted to DPB/VaResults B U D G E T P R O C S S E R V
I T
C I
E E D A
R T
E O B
S U
T D
R G
C E
T T U
Service Area
Budget Performance
Service Area
Budget Performance
Agency Selects
X objectives and
measures
Service Area
Budget Performance
Service Area
Budget Performance
Program
Program
Service Area
Budget Performance

31. Tying Agency Planning and Budgeting Efforts to Statewide Goals

32. Virginia’s Performance Leadership System for State Government
Organization & Leadership Development (2006)
Subject Area Results Teams
Analysis and Strategy Formulation to Improve Quality-of-Life Outcomes
(Transforming Virginia)
Management Results Teams
Analysis and Strategy Formulation to
Improve Management Outcomes
(Transforming Government)
Planning & Budgeting
Innovation & Improvement
(2006)
Transforming
Government
Virginia
VISION (2003) & LONG-TERM GOALS (2004)
Government & Citizens
Economy, Education, Health & Family, Transportation Public Safety, Natural / Historic / Cultural Resources
ENTERPRISE LEADERSHIP AGENDA
High-Level Priorities and Enterprise Quantifiable Objectives
AGENCY LEADERSHIP AGENDAS
Initial Agency Strategic & Service Area Plans & Budgets (2005)
Refinement of Plans and Implementation of Strategies to Improve Outcomes (2006)
Enterprise Indicators
Agency Management & Programmatic Measures
(2005)
Societal Indicators
Assessment

33. Virginia’s Performance Leadership System Levels of Results Accountability
DESIRED SOCIETAL RESULTS
Council’s vision and long-term goals 
SOCIETAL-BASED INDICATORS
Environmental Scan: How is Virginia doing?
AGENCY LEADERSHIP AGENDAS
Agencies’ strategic and service area plans
AGENCY PERFORMANCE MEASURES
Are agency programs that serve our customers
producing desired results?
ENTERPRISE LEADERSHIP AGENDA
Targeted quantifiable objectives for long-term goals
(Includes Gubernatorial, Legislative & Cabinet priorities)
MEASURES TO MONITOR PROGRESS
Are we achieving desired results?
Are we improving the factors that influence the results?

34. Bringing It Together Guidelines For Improving Performance Budgeting
Tie agency planning efforts to state goals (be really strategic in approach)
Some things are more important to measure than others (concentrate efforts on what moves the needle; decisions that are true investments and results-oriented)
Don’t just record performance, evaluate it (have a thrust for what works and why it works)
Look outside agency silos (create new enterprises for desired results)
Recognize results and reward performance (promote consistency and desired behavior)

35. VISIT Virginia Department of Planning and Budget Council on Virginia’s Future