Progress and Challenges in Performance Based Budgeting; an Air Force Perspective

1. Progress and Challenges in Performance Based Budgeting; an Air Force Perspective Mr. Mark Danburg Mr. Matt McGuire SAF/FMBMA

2. Agenda • Emphasis on Performance • Performance-Driven Organizations • Evolution of the Air Force Performance Budget • Progress to Date • Meeting the Challenges for Continued Progress • Examples of a Performance Budget Methodology • Questions • Back Up Slides • Analysis of Performance

3. Emphasis on Performance

4. Performance Budgeting Guidance/Legislation • 1990 Chief Financial Officers Act • 1993 Government Performance Results Act • 1993 National Performance Review • 2002 President’s Management Agenda, MID 901, 910, 913 • 2004 OMB Circular A11 - Performance Budget Meets GPRA Requirements

5. OMB Circular A-11 required agencies to develop and report on performance based budgets …measures that show results • Key terms/phrases of interest: • Clearly explains • Relationship • Strategic goals • Outcome-oriented long-term and annual performance goals

6. Increased Focus on Performance fromCurrent Administration “It is time to pay far more attention to the use of Federal performance information as a powerful performance-improving tool: 1) useful for communicating priorities, progress, and raising issues; 2) for illuminating what works and should be continued and what does not work that needs attention; 3) for allocating scarce resources wisely.” Oral testimony of Jeffrey Zients, Oct 2009 Deputy Director Management Office of Management and Budget

7. Performance-Driven Organizations

8. Attributes • Establish a Leadership Tone at the Top • Commit to rewarding leaders who produce results • Build an Analytics-Based Mindset • Reward production of relevant outcome-based performance measures, reliable performance information, and a disciplined approach to monitoring, evaluation and reporting on the program (both internal and external) • Develop Relevant Performance Goals and Supporting Measures • Determine achievement of anticipated outcomes and contribution to the success of the mission • Performance measurement systems should provide intelligence for decision- makers, not just compile data • Build an Analytics Capability • Establish best practices in the performance lifecycle processes • Leverage and enhance organizational structure, policies, staff competencies, staff motivators, and enabling technology tools • Establish/enhance integrated decision support and information reporting processes

9. Elements Required forPerformance-Based Decision Making • Relevant Information (e.g., appropriate performance measures) • Reliable Information (e.g., timeliness, completeness, and data accuracy) • Strong Analytic Capabilities • Timely Decisions and Cost-Effective Implementation • External Reporting Transparency • A Spirit of Accountability

10. Strategic Planning Linkage withPerformance Budgeting Performance Budgets Should be Linked to each Agency’s Strategic Plan Strategic Goals and Objectives Need to be Established with Measurable Outcomes (and supported by senior leadership) Programs Aligned with Strategic Goals and Objectives Performance Budgets Should Link the Resources Used to Meet Performance Targets Use of a Consistent Set of Performance Measures from Planning through Budget Execution The Goal is to Continually Deliver Better Quality Products and Services While Increasing Efficiency and Effectiveness

11. Performance Measure Best Practices Focus on Agency Strategic Plan – Each priority should have several objectives. The Performance Measures should track progress on meeting the objectives that support each priority Measures should be outcome oriented. A series of measures may be necessary to address some objectives Data should be available to provide information on measures – if it is not, focus on measures that can be supported with existing data Keep the number of performance measures to a minimum. Having hundreds of measures is too hard to analyze and doesn’t support leadership understanding on key issues Study how other organizations build their performance strategy – benchmarking is an excellent way to conceptualize design of a performance measurement system for your agency

12. Evolution of the Air Force Performance Budget

13. The Air Force Framework Has Evolved Over Time FY 2011 PB FY 2010 PB FY 2009 PB AIR FORCE STRATEGIC PLAN FORMAT Linked Appropriation Budget Highlights and PBB Demonstrated Relationship with Air Force Core Functions FY 2008/2009 PB AIR FORCE STRATEGIC PLAN FORMAT Linked AppropriationBudgetHighlights and PBB DoD DECISION LANES FORMAT BALANCED SCORECARD FORMAT May 2009 Feb 2010 Feb 2007 Feb 2008

14. Current Air Force Performance Budget Framework Discusses linkage with higher level guidance documents Shows the budget as it is presented for Congressional action Discusses progress and performance aligned to AF Strategic Plan Addresses supplemental requests, OCO, and other key budget areas • Major sections: • Overview • Appropriations Summaries • MILPERs, O&M, RDT&E, Acquisition, MFH, MILCON, etc • Performance Based Budget • Overview and linkages with AF Core Functions • Reinvigorate the Air Force Nuclear Enterprise • Partner with the Joint and Coalition Team to Win Today’s Fight • Develop and Care for Airmen and their Families • Modernize Our Air and Space Inventories, Organizations and Training • Recapture Acquisition Excellence • Overseas Contingency Operations Funding • Air Force Working Capital Funds • Appendices

15. Progress to Date Establishment of a Performance Measures community of stakeholders across the Air Staff Sharing of information with Air Force Posture Statement and Air Force Budget Overview has resulted in improvements in both products and better consistency of messaging Better understanding across the Air Staff of who is measuring what and how to leverage other products and analysis Feedback from Congressional staffs has been very positive on the product (easy to read and understand Service priorities and progress)

16. Meeting the Challengesfor Continued Progress Garner agreement on Performance Measures that link to Strategic Goals and Objectives (working closely with AF Strategic Plan office) Determine relationship between performance and funding (increased analytics) Applying performance measures to aid decision support in all PPBE phases (evolving from a compliance item to a decision tool) Transparency of performance measures

17. Examples of a Performance Budget Methodology

18. Start with Senior Leadership Priorities(Example Only) Objectives supporting each Priority need to be documented and have leadership buy-in Priority X: Train and take Care of our People and Their Families 1) Objective: Right people, right skills at the right time 2) Objective: Meet the needs of our people and their families 3) Objective: Highly trained workforce Priority Y: Priority Z:

19. Example of Construct (continued) Performance Measures should focus on meeting each objective Specific Goals and Thresholds Determined by Leadership Priority X: Train and take Care of our People and Their Families Objective 1: PM = Recruiting Goal versus Actual by Specialty Code Objective 1: PM = Retention Goal versus Actual by Specialty Code Objective 2: PM = Member Satisfaction Rate versus Goal Objective 2: PM = Spouse Satisfaction Rate versus Goal Objective 3: PM = Percentage meeting Training Goals versus Actual

20. Example of Construct (continued) Each priority should be addressed with a summary if possible. The sections that follow should discuss the overall situation, how the performance measures are calculated and provide details of each initiative funded in the budget. Explain what the Agency plans to achieve with each initiative in performance terms.

21. Ideal use of Performance Measures Across PPBE Phases Performance Measures can be used to integrate all phases of PPBE

22. How Performance Measures Assist Decision Support Answers to questions should drive funding or process decisions in the PPBE • Are we meeting recruiting and retention goals? • Funding changes to recruiting or retention bonuses? • Increases in recruiting and retention initiatives in challenging specialty codes? • Are our People and their Families happy? • Issues causing satisfaction increases or decreases? • Options to increase initiatives or change processes to increase satisfaction • Are we meeting training goals and addressing changing mission needs? • What training is required to meet forecasted mission requirements?

23. Performance and Budget Integration Conclusion Progress is Ongoing More resources is not always the solution to better performance Continued emphasis on using consistent measures for improved decision support (planned outcomes versus actual across the PPBE) Still working to evolve performance measures to be more “outcome” oriented Need to share best practices across Services (especially for similar performance areas like “People” and “Modernization” Need to include performance measures in existing information systems

24. Questions?

25. BACK UP SLIDES

26. Analysis of Performance

27. Performance AnalysisDrivers on Performance • Historical budget execution analysis with performance measures by fiscal year may provide some insight to the level of impact funding has on performance • Need an understanding of policy or process changes impacting performance for analysis • Lagging indicators are fairly common • Analysis is not as easy as pulling execution data from the accounting system. Meeting with the program managers is important to get an understanding of the baseline, key initiatives, or other changes impacting program performance over time • Correlation Analysis can be performed after an understanding of changes (both funding and process) to programs is captured

28. Data Validation andVariable Identification • Technique: • Graph Data : Picture is worth a thousand words; so convert your data to a graphical representation. • Toolsets: • Scatter Plot Diagrams, Histograms, Pareto Charts (MS Excel) • What you're looking for: • Clusters of data points, Trend Indications, Potential outliers, Frequency amongst variables

29. Application and Descriptive Statistics • Technique: • Determine central tendency & Normality: Compute the Mean, Confidence Intervals, & determining the shape of the data distribution. • Toolsets: • Goodness-of-Fit feature (Crystal Ball), RI$K wizard (ACE-IT), Cost Estimating Manuals/Guidebooks (Multiple acceptable sources) • What you're looking for: • Skewness, Symmetry about the mean, Kurtosis (Peakness), variable frequency fit within the distribution curve -- all will indicate what distribution your data tends to follow (normal, lognormal, weibull, triangular, etc.)

30. Define InteractionBetween Variables • Technique: • Correlation / Regression Analysis: Statistically quantify how one variable effects the other. Defining these dependencies are crucial to understand impact of What-If scenarios requested by Decision Makers. • Toolset: • Goodness-of-Fit feature (Crystal Ball), CO$TAT & RI$K wizard (ACE-IT), Computations, Add-Ins, and Stats Functions (Visual Basic & Excel) • What you're looking for: • Correlation Coefficients (e.g. r2, and others) and their tendency towards -1.0 & +1.0, indicating degree of pos. or neg. correlation.

31. Accounting for Multiple Scenarios • Technique: • Monte Carlo Simulation: Regardless of the pedigree of your data and the diligence of your analysis, there will be inherent “error” due to the uniqueness of the circumstances generating data; nonetheless, data driven responses to this risk can be accounted for by assigning statistical distributions and correlation parameters to your data variables. • Toolset: • Monte Carlo Simulation features(Crystal Ball), (ACE-IT), (SEER), • What you're looking for: • Delta change in output as degree of certainty increases or decreases.

32. Filename/RPS Number Example of Trend Analysis: Air Force Recruiting

33. Government Performance Results Act of 1993 led the way • GPRA 1993 found that waste and inefficiency in Federal programs undermines the confidences of the American people in Government • Purpose of GRPA 1993 • (1) improve the confidence of the American people in the capability of the Federal Government, by systematically holding Federal agencies accountable for achieving program results; • (2) initiate program performance reform with a series of pilot projects in setting program goals, measuring program performance against those goals, and reporting publicly on their progress; • (3) improve Federal program effectiveness and public accountability by promoting a new focus on results, service quality, and customer satisfaction; • (4) help Federal managers improve service delivery, by requiring that they plan for meeting program objectives and by providing them with information about program results and service quality; • (5) improve congressional decision making by providing more objective information on achieving statutory objectives, and on the relative effectiveness and efficiency of Federal programs and spending; and • (6) improve internal management of the Federal Government.