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:
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•
•
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PB: What?
PB: Why?
PB: How? -- International Experience
Some Conclusions
Anwar Shah, World Bank
Performance
Budgeting: What?
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
Focus on Results
Focus on Control
Increased
Managerial
Discretion and less
control
No Managerial
Discretion
Managers are accountable
for what they achieve.
Managers are accountable
for what and how they
spend on inputs.
PB
Line-Item
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Performance Budgeting Paradigm
Performance Measurement
Impact
Mission
Strategic Goals
Outcomes
(Medium Term)
Budget
Program Objectives & Costs
Outputs
Cluster
(Annually)
P1
P2
P3
Activities Targets & Costs
P1
A1 A2 A3
P2
A1 A2
P3
A1Anwar
A2 Shah,
A3 World
A4 Bank
Outputs
Bottom-up
Performance Budgeting Results Chain
Application in Education
Program objectives
Improve quantity,
quality, and access to
education services
Inputs
Intermediate inputs
Educational spending by age, Enrollments, studentsex, urban/rural; spending by teacher ratio, class size
level; teachers, staff, facilities,
tools, books, regulations
Outputs
Outcomes
Achievement
scores, graduation
rates, drop-out
rates
Literacy rates,
supply of skilled
professionals
Impact
Reach
Informed
citizenry, civic
engagement,
enhanced
international
competitiveness
Winners and
losers from
government
programs
Anwar Shah, World Bank
Performance Measures Used in
Performance Budgeting

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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
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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
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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
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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)
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Output Accountability vs. Outcome Accountability
Results-based accountability relationships inform managerial structures
President/ Prime Minister – Accountable for
‘outcomes cluster’
Minister/ Secretary – Accountable for
outcomes
Departmental head/ Program managers –
Accountable for ‘output clusters’
Project managers – Accountable for outputs
Anwar Shah, World Bank
Performance
Budgeting: Why?
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 Goals ….

Accountable Governance:
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Accountable for all actions to citizens
Public Integrity, safeguards
Citizens charter
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A Framework for Improving
Government Performance

Authorizing
Environment
Mandate
Operational
Capacity
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Outputs, Results,
Outcomes
Governing for Results: A Road Map
Program/
project
Inputs
Activities
Outputs
Reach
Outcomes
Impacts
(goals)
2. Administration concerned with outputs.
1.Make
managers
manage for
results
2. Manag.
flexibility
3.Subsidia
rity
4. citizen
evaluations
2. Output
contract
2. Executive
concerned with
outcomes
3. Internal
and external
Results and
process
Evaluations
3. E V
A
L
U
A T
I
O
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2.
Outcome
contract
Legislature
1. Citizens
N S
3.Citizen
evaluations
Tools for Results Oriented
Management—external, citizen focus
Question for results-oriented management
Contract information—what is the final
product we must produce and what do we
receive to produce such product?
How do we know how we are doing in terms of
the contract, and in terms of other producers
from whom we can learn?
How much does it cost to produce such product
(the complete cost)? How can we produce the
product better so we can be sure of meeting and
exceeding our contract obligation and receiving
rewards?
How do we report our results?
How do we manage the new reporting,
production, and contract obligations we have,
as well as run a citizen friendly administration?
Management
tool
The entire
process driven
by a citizen
focus:
Performancebased budget
Benchmarking
Activity-Based
Costing (and
others)
Full reporting
using accrual
accounting
Balanced
Scorecard
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All these tools
are connected to
Total Quality
Management
and such devices
used to create a
results and
participation
culture, and
work effectively
where roles
emphasize
results.
Performance
Budgeting: How?
International Experiences
Theory to Reality
Diversification in
Implementation
Anwar Shah, World Bank
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 (?)
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Output Orientation under the
Malaysian and NZ Models
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Program agreements monitored for achievement
in outputs and impacts
Output budgeting
Activity based costing
capital charging
Accrual accounting
Monitoring government’s net worth
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Singapore: PB Framework
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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
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U.S. Experience with PB
State Governments
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line-item budget
program budget
Half-way to PB
PB
27 states
10 states
10 states
Michigan & Texas
Source: Hager, G. & Hobson, A. June 2001. Performance-Based Budgeting.
Anwar Shah, World Bank
U.S. Experience with PB – Montgomery Country, Maryland
Public Works and Transportation
Highway Services
Programs: Resurfacing
Program Mission: To resurface the Country’s roads on a seven year cycle to assure an aesthetically pleasing,
adequately maintained, functional roadway surface
Program Measures
FY99
Actual
FY00
Actual
FY01
Actual
FY02
Budget
FY02
Actual
FY03
Approved
77
79
76
64
39
42
300
309
296
248
152
162
9.1
8.8
9.2
11.0
18.0
16.9
4,483
5,706
5,115
5,109
5,099
5,230
1,345
1,763
1,514
1,267
775
Outcomes:
Lower maintenance cost and better safety
Outputs:
Percentage of roads needing resurfacing that
were resurfaced (assuming a 7-year cycle)
Lane miles resurfaced
Service Quality:
Effective resurfacing cycle (years)
Efficiency:
Average cost per lane-mile resurfaced ($)
Inputs:
Expenditure ($000)
847
Workyears
Source: Office of Management and Budget, Montgomery Country. Montgomery Measures Up! For the Year 2002
Anwar Shah, World Bank
Conclusions
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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