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Budgeting For Results. An idea whose time may be here?. Anwar Shah, World Bank CEPAL Regional Seminar on Fiscal Policy Santiago, Chile January 24-27, 2005. Outline. Theme: Theory and practice of Performance Budgeting Structure: PB: What? PB: Why?

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budgeting for results

Budgeting For Results

An idea whose time may be here?

Anwar Shah, World Bank

CEPAL Regional Seminar on Fiscal Policy

Santiago, Chile

January 24-27, 2005

outline
Outline

Theme:

Theory and practice of Performance Budgeting

Structure:

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

Anwar Shah, World Bank

performance budgeting what4
Performance Budgeting: What?

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

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

Anwar Shah, World Bank

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

Focus on Results

Focus on Control

Increased Managerial Discretion and less control

No Managerial Discretion

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

Managers are accountable for what they achieve.

PB

Line-Item

Anwar Shah, World Bank

performance budgeting paradigm
Performance Budgeting Paradigm

Performance Measurement

Impact

Mission

Strategic Goals

(Medium Term)

Outcomes

Budget

Bottom-up

Program Objectives & Costs

(Annually)

P1 P2 P3

Outputs

Cluster

Activities Targets & Costs

P1 P2 P3

A1 A2 A3 A1 A2 A1 A2 A3 A4

Outputs

Anwar Shah, World Bank

performance measures used in performance budgeting
Performance Measures Used in Performance Budgeting
  • Cost: Inputs/resources used to produce outputs
  • Output: Quantity and quality of goods and services produces.
  • Outcome: Progress in achieving program objectives
  • Impact: Program goals
  • Reach: People who benefit or are hurt by a program
  • Quality: Measure of service such as timeliness, accessibility, courtesy, accuracy
  • Productivity: Output by work hour
  • Efficiency: Cost per unit of output
  • Satisfaction: Rating of services by users

Anwar Shah, World Bank

citizen centered performance budgeting
Citizen-centered performance budgeting
  • Budget format to follow closely service delivery format and also to include a performance report and net worth assessment
  • Citizens charter and sunshine rights
  • Citizen inputs in budget process to be formalized at all stages
    • Formulation: Town Hall meeting on the previous year’s performance and new proposals. Comments on Porto Allegre and Belo Horizonte, Bolivia
    • Review and execution: Formal process for complaints
    • Post: Compliance and feedback reports.

Anwar Shah, World Bank

performance management framework is a pre requisite for the success of pb
Performance Management Framework is a pre-requisite for the success of PB
  • Letting managers manage: operational flexibility and freedom – few rules more discretion
  • Making managers manage. Accountability for results. Contracts/work program agreements based upon pre-specified output and performance targets and budgetary allocations  new civil service framework
  • Activity based costing, accrual accounting, capital charging
  • Subsidiarity principle
  • Competitive service delivery and benchmarking
  • Incentives for cost efficiency (including capital use)

Anwar Shah, World Bank

public sector reform goals
Public Sector Reform Goals
  • Responsive Governance or Doing the Right Things
    • Matching public services with citizens’ preferences
  • Responsible Governance or Doing it Right
    • Prudent management of fiscal resources.
    • Earning trust
    • Working better and costing less
    • Managing fiscal and social risks
    • Improving the quality, quantity and access of public services

Anwar Shah, World Bank

public sector reform goals14
Public Sector Reform Goals ….
  • Accountable Governance:
    • Accountable for all actions to citizens
    • Public Integrity, safeguards
    • Citizens charter

Anwar Shah, World Bank

a framework for improving government performance
A Framework for Improving Government Performance

Mandate

Authorizing

Environment

Operational

Capacity

Outputs, Results,

Outcomes

Anwar Shah, World Bank

performance budgeting how

Performance Budgeting: How?

International Experiences

slide19

Theory to Reality

Diversification in Implementation

Anwar Shah, World Bank

alternate approaches
Alternate approaches
  • PB with Fuzzy New Public Management (Letting Managers Manage, competition, voice and choice, informal agreements): USA, Netherlands, Australia, Uganda, Mongolia, South Africa (small steps towards PB).
  • PB with New Public Management (Making Managers Manage, stronger competition, voice and choice, formal contracts or agreements ): New Zealand, Malaysia (?), Singapore (?)

Anwar Shah, World Bank

output orientation under the malaysian and nz models
Output Orientation under the Malaysian and NZ Models
  • Program agreements monitored for achievement in outputs and impacts
  • Output budgeting
  • Activity based costing
  • capital charging
  • Accrual accounting
  • Monitoring government’s net worth

Anwar Shah, World Bank

singapore pb framework
Singapore: PB Framework
  • Government departments managed as Autonomous Agencies
  • Macro Incremental Factor
  • Targets and output plans
  • Funding linked to output levels
  • Operational and financial autonomy
  • Capital charging including office use, interdepartmental charging
  • 3-year development block vote
  • New Civil Service Framework

Anwar Shah, World Bank

u s experience with pb state governments
U.S. Experience with PB State Governments
  • line-item budget 27 states
  • program budget 10 states
  • Half-way to PB 10 states
  • PB Michigan & Texas

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

Anwar Shah, World Bank

u s experience with pb montgomery country maryland
U.S. Experience with PB – Montgomery Country, Maryland

Anwar Shah, World Bank

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

conclusions
Conclusions
  • Performance budgeting must be an integral element of a broader reform package to bring about performance culture. In the absence of an incentive environment for better performance and accountability for results, the introduction of performance budgeting will not lead to better performance.
  • Managerial accountability must be on outputs and not on outcomes as the latter are influenced by external factors. Outcomes however should be monitored.
  • Transparency of the budget and citizens’ evaluation of outputs helpful in improving budgetary outcomes.

Anwar Shah, World Bank