INTRODUCTION TO
PUBLIC FINANCE MANAGEMENT
Module 2.2: Budget
planning & performance
Module outline
 The move towards performance in the Budget
 What do performance systems entail?
 Types of Budget systems in use
Performance in the Budget
What does it mean for the government?
In the traditional or ‘bureaucratic’ approach,
performance meant:
 ensuring compliance with set rules and regulations;
 controlling inputs;
 adhering to the public sector ‘ethos’.
 This worked well for several decades when
governments had relatively less complex tasks to
perform.
Performance in the Budget
What does it mean for the government?
In the ‘new public management’ approach, there
are calls, among other things, for:
 Ascertaining the relation of budgetary inputs with
what they are meant to achieve;
 Determining efficiency and effectiveness of public
spending – and accountability thereafter;
 Reducing bureaucracy and enhance managerial
discretion – managing for results.
Performance in the Budget
... it is important to keep in mind...
‘Performance is a deceptively simple idea: simple
because it is easy to express key concepts and
objectives; deceptive because it is hard to apply these
ideas in government’. Allen Schick, the Performing
State (2003)
Performance in the Budget
Traditional budgeting
Performance oriented budgeting
Input-oriented
Results-oriented
Good for aggregate fiscal
discipline
Facilitates efficiency, effectiveness,
accountability
Central control (MoF)
Devolved control, discretion to
spending units
Easy, Understandable
Complex, sophisticated
Performance in the Budget
•“ Traditional budgeting”
•Focus: economic transaction items (inputs)
• Strengths:
 The basic processes are ensured
 Develop a discipline culture
• Weaknesses:
• Difficult to reflect policy and performance
• Frequently, cumbersome bureaucratic procedures
Performance in the Budget
A Traditional Budget would look like this...
€
Ministry X Budget Appropriation
Salaries and pension contribution
5,200,000
Goods & Services
100,000
Transfers
3,000,000
Capital expenditure
1,000,000
Total
9,300,000
Performance in the Budget
• “Performance oriented budgeting”
Focus: programme, output, outcome(?)
• Strengths:
 Enhanced information framework for making
decisions in budgeting
• Weaknesses:
• Need strong institutional arrangements and
considerable technical and human capacity
• The higher the sophistication, the more expensive
it gets
Performance in the Budget
• Important to note...
 There are no clear cut or ‘off-the-shelf’
performance budgeting systems.
 A ‘continuum’ ... systems that simply present
performance information in the budget
(programme-type budgeting) to systems that
integrate performance in the budget by
determining budget appropriations through costed
units of performance (output-type budgeting).
Performance in the Budget
A Programme-type Budget would look like this...
€
Ministry X Budget Appropriation
Programme XX
Salaries and pension contribution
5,200,000
Goods & Services
100,000
Transfers
3,000,000
Capital expenditure
1,000,000
Total
9,300,000
Performance in the Budget
An Output-type Budget may look like this...
€
Ministry X Budget Appropriation
Outlay
Cost
Units
Output 1
1,500,000
5
6,500,000
Output 2
2,500,000
1
2,500,000
Output 3
150,000
2
300,000
Total
9,300,000
Traditional budgeting:
detailed external
control by MoF
Performance-oriented
budgeting: MoF
control at higher level
Module outline
 The move towards performance in the Budget
 What do performance systems entail?
 Types of Budget systems in use
Performance in the Budget
Impact
Literacy rate, socioeconomic benefits
Outcome
Enrolment, Transition
Outputs
Buying books, building
schools, hiring teachers
Activities
Transformation of inputs
into outputs
Inputs
Finance
Performance in the Budget
Important definitions...
• Output: the goods and/or services produced by
using inputs, usually measured in absolute
quantities;
• Outcome: the results arising from using outputs,
usually measured in relative terms i.e. percentage
(%) change.
− Efficiency = output/input
− Effectiveness = % of achievement of the outcome
Performance in the Budget
Important definitions cont...
Outcome-type indicators concern broader
developmental issues that would depend on a number
of variables not all possible to predict/control;
Output-type indicators are time-bound and under
the full control of Govt action;
 Clearly defined... S.M.A.R.T
SPECIFIC – MEASURABLE – ACHIEVABLE – RELIABLE –
TIMEBOUND
Performance in the Budget
Important definitions cont...
Features
Output
Outcome
What is
measured?
Goods and/or services
delivered to target
beneficiaries/areas
Improved service
delivery (quality)
What is the
level of
Government
control?
Government has
primary control
Affected also by factors
outside the control of
the Government
What is the
time-frame?
Short-term
Medium and Long-term
Performance in the Budget
Examples of output and outcome indicators...
Output
Indicator
Outcome
Target
Indicator
Target
Environment
• Modernisation of waste
management
infrastructure
• no of units
produced
• Stabilisation of
emission pollutants and
greenhouse emissions
• % decrease
in emissions
• Improvement of public
access to
environmental info
• no of access
points &
publications
• Improvement of the
surface water quality
• % decrease
in water
pollutants
Transport
• Elimination of
bottlenecks on routs of
international corridors
• no of speed
limit
sections
• Increase of foreign
trade cargo traffic by
sea
• % increase
in cargo
traffic
Performance in the Budget
Performance oriented
Traditional
Inputs
Economy
Activities
Outputs
Efficiency
Operational arrangements;
or other benchmarks
Outcome
Quality
Impacts
Effectiveness
Policy objectives
Module outline
 The move towards performance in the Budget
 What do performance systems entail?
 Types of Budget systems in use
Types of Budget systems
Presentational and Performance-informed systems:
presents performance information as part of the budget
documentation but not used for resource allocation.
 The appropriations are not integrated with
performance targets;
NB: Many of the ‘programme budgeting’ reforms in
transition and developing countries of the last decade
often reflected this approach.
Types of Budget systems
Performance-based system (or output-type budgeting)
where performance information plays an important role
for resource allocation.
 The performance targets (outputs) are costed and
determine the budget appropriations.
OECD, Performance Budgeting in OECD Countries, 2007
Types of Budget systems
Important to note: the line between presenting and
using performance information can be quite thin…
Does a given performance budgeting reform aim at
transforming budgeting or provide a better
foundation for informing budgetary decisions?
Types of Budget systems
BUDGET
Financial
information
Performance
information
Q-1
MONITORING
Q-2
MONITORING
Q-3
MONITORING
ANNUAL
REPORT
Types of Budget systems
CASE STUDY
The Budgets of: Armenia, Kosovo, Singapore, and
New Zealand.
Review the Budget excerpts in your participant’s
pack. What type of Budget system does each of the
four countries have?
Key Messages
• Issues in introducing/sequencing Budget reform...
• Control inputs before controlling outputs
• Implement an annual budget good before moving to
multi-annual budgeting
• Establish external controls before introducing internal
controls
• Establish internal control before introducing
managerial accountability
Key Messages
• Issues in introducing/sequencing Budget reform...
• Budget for work done before budgeting for results
to be achieved
• Adopt and implement predictable budgets before
insisting efficient use of resources by managers
• Enforce normal contracts in the market sector
before introducing performance contracts in the
public sector
Key Messages
 Traditional vs performance budgeting is
not an "either-or" situation (there are
many cases in between…);
 Getting the right reform sequencing is
paramount.