Organisation de Coopération et de Développement Économiques
Organisation for Economic Co-operation and Development
PUBLIC GOVERNANCE AND TERRITORIAL DVELOPMENT DIRECTORATE
PUBLIC MANAGEMENT COMMITTEE
HAND OUT
English Text Only
Working Party of Senior Budget Officials
PERFORMANCE & RESULTS
3rd Annual Meeting of SBO Network
EXPERIENCES IN UTILISING PERFORMANCE INFORMATION IN
BUDGET & MANAGEMENT PROCESSES
OECD, Paris
2-3 May 2006
-- DRAFT CASE STUDY—
KOREA
GENERAL GUIDELINES FOR COUNTRY REPORTS
In respect of OECD Project on countries’ experiences of utilising performance and results information
in the budget and management processes
PART 1: DESCRIPTION OF PERFORMANCE SYSTEM
Background and Context
Korea has recently launched a reform to introduce performance-based budgeting into government. What
makes the Korean case particularly interesting is the speed with which the government has moved to usher in
a performance management system, and the fact that other budgetary reforms of similar magnitude are being
pursued concurrently with equal zeal as part of a comprehensive fiscal reform package, known as the 4
Major Fiscal Reforms. An advantage to such a multi-pronged effort is that, if coordinated properly, it creates
an environment that is conducive to building up an effective performance management system. The
downside to such an approach is that it demands a level of commitment in terms of both political willpower
and material resources that may not be readily feasible in many countries.
The Korean government’s 4 Major Fiscal Reforms are: 1) to establish a medium-term expenditure
framework (National Fiscal Management Plan); 2) to introduce top-down budgeting; 3) to establish a
performance management system; and 4) to build a digital budget information system (the latter includes a
transition from the existing line-item to a program budget structure). The scope and pace of this reform
package are quite exceptional. If successful, the Korean budget system will be completely retooled within
the space of a few years into one that incorporates virtually all of the best practices in budgetary systems.
These ambitious reforms were motivated by the deteriorating fiscal situation of the Korean government.
After the Asian financial crisis in the late 1990's, public debt increased dramatically. This was partly driven
by growing public expenditures to strengthen the social safety net, as the economy-wide restructuring
resulted in widening income disparities. Looking forward, population ageing in Korea is progressing at a
pace that is unprecedented among other countries, generating additional pressure on public finances.
The medium term fiscal plan puts government spending decisions in a 5-year framework. Based on
prudent economic growth projections, the plan determines the annual overall expenditure levels over the
medium term, allocated among the 14 major sectors of government spending. The link between such
medium-term resource allocation decisions and annual budget appropriations is enforced through the topdown system. This system assigns firm spending ceilings to line ministries according to the medium-term
fiscal plan, but delegates lower-level budgeting decisions to ministries, provided that their aggregate
expenditures remain within their assigned ceilings. The greater autonomy given to line ministries, in turn,
requires greater accountability of them. This is ensured through the performance management system, which
was introduced to examine the performance of spending programs and thus strengthen the link between
budgeting and performance. The digital budget information system will allow the budget office to monitor
ministries’ spending in real time. The task force charged with developing this information system was also
asked to overhaul the budget classification structure. The resulting new program budget and cost accounting
system was developed in 2005 and will be in full implementation by 2007.
Content and Approaches
The introduction of a performance-based budgeting in Korea can be divided into three phases. The first
phase experimented with performance based budgeting as a pilot project during 2000–2002. Entitled
“Performance Budgeting,” the performance-based system was designed after the US GPRA (Government
Performance Results Act) with some modifications. Selected divisions in 22 ministries and agencies
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participated in this project, and were required to develop annual performance plans. The first initiative
ended with the change of the incumbent Administration.
Building on this experience, the second initiative began as one component of the four major fiscal reforms in
2003. Twenty-two ministries and agencies were selected and were asked to submit their annual performance
plans to the Ministry of Planning and Budget (MPB) along with their annual budget requests. The second
initiative was also inspired by GPRA but implements only a limited subset of GPRA features. While GPRA
requires each agency to submit their strategic plans, annual performance plans and annual performance
reports, covering every single program, the Korean version required only a performance plan and report that
covers only major budgetary programs over 1 million dollars in size. Korea’s second initiative, entitled
“Performance Management System of Budgetary Program,” was expanded to cover 26 ministries/agencies in
2005.
As a third initiative, the “Self-Assessment of Budgetary Program (SABP)” was introduced in 2005. This
system was designed after the Program Assessment Rating Tools (PART) of the United States with some
modifications. Under SABP, 555 programs (about a third of all government programs) were reviewed in
2005, which would allow MPB to review every major budgetary program in three years. Similarly to PART,
the self-assessments were done according to a checklist developed by MPB that lists questions on planning,
management and results.
Legal and Institutional Framework

Has the performance system been defined in law? Regulation? Internal rules in each organisation?
The Korean performance system has been implemented by the initiative of MPB and is not based on
any law yet. However, an umbrella bill, intended to supersede the outdated Budget and Accounts
Act, has been submitted to the National Assembly (the legislature) and is expected to be adopted
within the year. The bill includes a comprehensive, updated definition of the budget system,
including performance management. Meanwhile, a new law was enacted in 2005 that enables the
Office for Government Policy Coordination (OPC) to supervise and coordinate the various existing
performance evaluation systems within the government.

Is there a legal requirement to present performance information in the annual budget proposal or
supporting documents?
There is no legal requirement so far. Nevertheless, the SABP evaluation results were provided by
the MPB to the National Assembly.

Are there legal requirements to develop performance measures and/or conduct evaluations? To
develop mission statements and strategic plans?
The new law enacted last year requires line ministries/agencies to submit strategic plans, annual
performance plans and performance reports. There is no legal requirement regarding program
evaluation.

Who has been the key actor in developing and implement performance based budgeting? For
example ministers/agencies, the Prime Minister’s office, the cabinet, the supreme audit institution?
MPB has been the key actor in developing and implementing performance-based budgeting.
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
What has been the role of the Ministry of Finance (MOF) in developing and implementing
performance based budgeting and management? Please address both formal and informal roles.
MPB issues guidelines on performance-based budgeting to line ministries/agencies and evaluates
their performance information. The Korea Institute of Public Finance (KIPF), a public think-tank,
works closely with MPB to developing manuals and operate training programs for line
ministry/agency staff on performance budgeting.

Does the MOF have a special unit that works on performance measures and /or evaluations? If so
when was it created? What is its role? What has its impact been?
In 2005, MPB created a bureau to oversee the performance system. It issues guidelines and
evaluates performance information. It is the key actor in designing and implementing the
performance system.
Scope and Coverage

Is the approach to performance budgeting comprehensive or partial?
So far, performance budgeting has covered major budgetary programs, either with budgets over 1
million dollars or whose nature merits special attention.

Approximately what percentage of government activities/programmes have performance measure
been developed for?
22 out of 39 ministries/agencies have developed performance measures for 100 percent of their
major budgetary programs. Performance measures have also been developed as well for some of the
other, smaller programs.

How many performance targets (outputs and outcomes) are there in the budget (or supporting
documents) and how has this evolved overtime?
Line ministries/agencies are required to include performance targets along with performance
measures.

How many agencies/ministries conduct evaluations on a regular basis? Do they have special
evaluation units within ministries/agencies?
Ministries/agencies do not have special units solely/mainly for conducting evaluations. The task
usually falls to budget departments within most ministries/agencies.
PART 2: MEASUREMENT AND ASSESSMENT OF RESULTS
Setting Goals

How are strategic goals/objectives set and developed?
It appears that top decision-makers in ministries/agencies have rarely been actively involved in
developing strategic goals/objectives. The usual practice is for the budget department develop them
with the help of outside professionals.
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
What is the role of politicians in setting goals?
Politicians have not been actively involved so far in setting goals.

Is there active involvement of top decision-makers within line ministries/agencies in determining
strategic objectives? Are they determined on programme basis or an organisational basis?
There is some variation across ministries/agencies. But, on average, the involvement of top-decision
makers has been small. Strategic objectives are set on an organizational basis.

How often are these strategic plans modified?
Strategic plans are scheduled to be developed in 2006 and to be updated every 3 years.
Performance measures – outputs and outcomes Measurement issues
What kinds of performance measures are developed? Outcomes or outputs or a combination of both? Is the
performance system mainly orientated towards outputs or outcomes?
The performance system is oriented towards outcomes, but outputs are used when it is difficult to define or
develop appropriate outcome measures.
How has the system evolved overtime? Has it moved from outputs to outcomes? If outcomes are increasingly
playing more of a role, why is this?
The Korean performance system started with outcome-oriented performance information.
What are the key issues with measuring outcomes? In what areas/sectors is it most difficult to measure
outcomes? Outcomes are often beyond the control of ministries how do you cope with this difficulty? Do
you consider external factors, which affect the achievement of outcomes when assessing performance?
Developing outcome measures is a difficult task for ministries/agencies. Since outcome measures are
often too broad, there has been some resistance against embracing outcome measures from
ministries/agencies. External factors are considered in assessing performance information but there is no
systematic approach yet in how to incorporate them in the evaluations.
Setting Targets
How do you set performance targets? Does the MOF judge the appropriateness of the target? Which standard
is applied when judging the appropriateness of the target? Are performance targets reported in the
performance plan?
Ministries/agencies set the performance targets and MPB discusses their appropriateness with
ministries/agencies. Performance targets are included in the performance plan. Judgements on the
appropriateness of the targets are based on time-series data and benchmarking against similar cases.
Who makes a final assessment on performance, MOF line ministries/agencies, legislature or another
independent authority?
MPB makes the final assessment of performance.
If reliability of performance information is in question, who examines it? Is there a formal process for
auditing performance information by the Supreme Audit Authority?
There is no process to check the reliability of performance information. So far it is entirely up to
ministries/agencies.
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PART 3: INTEGRATING AND USING PERFORMANCE INFORMATION IN THE BUDGET
PROCESS

How is performance information (evaluations and performance measures) integrated into the budget
process at the MOF?
MPB utilizes annual performance reports and the SABP in its negotiations with line ministries during the
annual budget process.

What factors influence whether performance information is used in budgetary decision making processes
at the cabinet level, the MOF level and the ministry/agency level?
According to the results from the 2005 SABP, there is a strong correlation between SABP results and
budget requests from ministries/agencies. This ultimately translates into final budget allocation decisions
by MPB that tend to favour programs with strong performance results. It thus appears that the emphasis
by MPB on performance assessments has resulted in a positive feedback between performance
information and budget allocation.

What contextual factors influence use? For example it is more often used when saving are required or in
certain sector or areas.
In the Korean case, a strong need to save and reallocate limited budget resources among programs
motivated ministries/agencies and MPB to utilize performance information. Increasing expenditures for
welfare programs required savings/freezes in other sectors, and the MPB asked ministries/agencies to find
room for new or higher-priority programs through savings and reallocations totalling up to 10 percent of
their budgets. Ministries/agencies utilized performance information heavily in their budget restructuring
efforts.
Budget Negotiations: Linkage of performance information to budgeting decisions

Is performance information discussed as part of the budget negotiations between the MOF and the
spending ministry?
Yes.

Is there any mechanism to link performance information to resource allocation?
SABP produces program ratings, which is used by MPB to reduce the budgets of ineffective programs.
For example, MPB announced that 10% budget cut would be enforced for ineffective programs.

Is last year’s performance and/or targets for next year discussed in negotiations?
Last year’s performance is discussed, but next year’s targets are not discussed in budget negotiations.

How is performance information used by spending ministries in budget negotiations? To get more
money? To justify existing appropriations? To reduce/increase target levels? To prevent cuts?
Performance information is used to reshuffle budget allocations within ministries/agencies and to justify
existing appropriations.

Do you have any difficulties in reaching an agreement on performance targets or indicators between the
MOF and line ministries, particularly at the initial stage of developing performance information?
Disagreement between MPB and ministries/agencies are frequently observed and MPB has final authority
in settling the difference.

What approaches are taken to rationalise performance targets or indicators?
Past performance information is the most frequently utilized rationale for performance targets. Sometimes
the performance of another, comparable organization was cited as a benchmark reference.
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If and how is performance information generally used by ministries/agencies and agencies in their budgeting
and management system? Is it used in some sectors more than others?
Budget departments in agencies utilized performance information in preparing their budget requests.
It is often found that line ministries/agencies lack the capacity to develop effective performance information
systems and to monitor performance? What is the most promising way of developing the capacity? Do
you have a special program for educating staffs in charge of performance management?
MPB offers training courses and provides manuals with the help of its research affiliate, the Korea
Institute of Public Finance.
Is there any mechanism to monitor follow-up actions of agencies after their programmes are evaluated? In
particular, when recommendations from evaluations are about programme management rather than budget
allocation, how do you enforce agencies’ follow-up actions?
MPB has not been able to provide recommendations based on evaluation, but it plans to do that in 2006.
Incentives
Countries have used different mechanisms for creating incentives to motivate ministries/agencies to use
performance information in decision making and to improve performance. These have varied from linking
performance targets or results to organisational funding, to individual pay, to reducing input controls and
increasing flexibility; to naming and shaming those that have performed poorly.

What mechanisms are at the disposal of the ministry of finance or other central government agencies
to encourage ministries/agencies to improve performance?
MPB cuts the budgets of ineffective programs. There are also individual incentives based on staff
performance evaluations. Promotions are often affected by individual performance evaluations.

Are performance results considered before determining the resource level for a programme or used
to justify the resource level after the budget is decided?
Performance results are considered before determining the resource level for a program.

If the performance information does not affect resource allocation, what are the reasons for that? Do
you use another policy tool as an incentive to enhance performance? Do you have any concrete plan
to use performance information more in the budget process?
In 2005, results from the program review (SABP) were utilized in resource allocation decisions.

What action, if any, is taken if an agency/ministries does not meet its performance target or receives a
poor evaluation?
Except for the budget cut, there is no other penalty.
Is organisational performance linked to the pay of senior civil servants or chief executives? If so how does
this work?
There is a performance agreement for senior civil servants, but no explicit penalty or incentives are listed.
However, there is an awareness among civil servants that organizational performance will probably have
an impact on their own career prospects.
Has there been a reduction of input control with the introduction of performance-based budgeting. If so how?
Does the MOF delegate the authority of resource allocation on each programme to line
ministries/agencies?
Top-down budgeting and performance management were introduced at the same time. In theory, this
should have resulted in greatly reduced input control and more authority delegated to line ministries.
However, with top-down and performance budgeting barely out of the inceptive stages, MPB still closely
supervises budgeting decisions by line ministries.
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Can you please explain advantages and disadvantages of relaxation of input control based on your
experiences?
It is too early to judge the pros and cons of top-down budgeting, which was only introduced in 2005.
Have you encountered problems with perverse incentives?
There is no clear evidence of distorted behaviour, but ministries/agencies behave strategically to protect
important programs. For example, they give poor ratings to less important programs and good ratings to
important programs, regardless of their actual performance.
Have you encountered problems of gaming, goal distortion, or presentation of misleading information? If so,
how have these problems been addressed?
There is some gaming, goal distortion or presentation of misleading information. For example,
ministries/agencies select performance indicators not because they are good indicators but because they
improve the odds of earning a good number. In an attempt to prevent distorted behaviour, MPB issued a
warning that misleading information may result in big penalty in the 2006 SABP.
PART 4: REPORTING OF PERFORMANCE INFORMATION
One important aspect of these reforms is to improve transparency by making information about performance
available to the public and to politicians.
Is the non-financial performance data (output or outcome measures) routinely included in the budget
documents? If so, is it integrated to or appended to the budget documents?
The results of 2005 SABP was provided to the National Assembly as separate, supplementary material to
the budget documents.
Who is the major user of performance information, MOF, line ministries /agencies, legislature or the general
public? And for what purpose?
MPB, ministries/agencies and the legislature utilize performance information during budget formulation
and deliberation. The information is not open to public yet.
Are both the performance plan and the performance report available to the public? If so, is there active
response from the public?
They are not available to the public yet.
Do politicians in the executive use this information in decision making about policies, budget and
management? If so, is it used by politicians in the cabinet, the Prime Minister, individual ministers?
It is too early to tell how politicians are utilizing performance information, because systematic
performance information was first provided only in 2005.
If politicians are not using performance information what efforts are being made to encourage proper use of
it?
If reliability of performance information is in question, who examines it? Is there a formal process for
auditing performance information by the Supreme Audit Authority?
There is no formal process for auditing performance information yet.
PART 5: KEY CHALLENGES
Various challenges have been encountered when implementing these reforms. In principle, common types of
problems encountered can be grouped as technical, political, cultural, and institutional.
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
If and how have the nature of the problems encountered changed overtime?
The problems are predominantly of the technical nature because we are still at the early stage of
building a performance system. Political and cultural problems are also observed, especially when it
comes to utilizing performance information and improving the system.
Technical challenges; in an OECD survey countries highlighted a number of problems including
difficulties in attributing outcomes to specific programmes in designing measures for specific
activities and also insufficient or poor quality data and also timing issues. Have you encountered
these or other technical problems?
The limited technical capacity of ministries/agencies impedes efforts to develop useful performance
information. Progress is being made by using training programs to augment technical capacity, but
lack of data availability also hinders agencies from producing useful performance information. It
appears that considerable time and effort will be needed to develop good performance measures and
data.
For example, the Ministry of Construction and Transportation has found it very difficult to come up
with reasonable outcome measures and, as a result, they use mostly output measures. Policy-oriented
ministries are likewise struggling to identify concrete measures/indices that can link their efforts to
outcomes.

Political challenges; lack of political support for reforms? Politicians hinder the reform effort?
Distorted motivation for engaging in reforms? Unclear objectives?
Another problem is civil servants’ incentives for improving the performance management system.
While the motivation for introducing a performance system is often strong, incentives for improving
an existing system may be inadequate because the results may not be prominently visible to the
public and politicians. In contrast newly introducing a performance system is usually counted easily
as a major achievement.

Cultural challenges; are there problems with bureaucratic resistance at all levels? Difficulties in
creating a results-orientated culture? Difficulties in getting ministries or agencies to implement
change? Problem of individual organizational culture? Lack of communication with participants and
partners? Failure of both politicians and civil servants to change behavior?
After some initial resistance/inertia, Korean civil servants are recently coming to accept resultoriented performance management.

Institutional challenges; are the existing institutional structures incompatible with a performance
management program? Is there a lack of the necessary institutional structures or support to
implement these changes? Is there a problem with creating the right incentives for improving
performance and encouraging ministries to use performance information?
In Korea, civil servants rotate through different assignments on a regular basis. The practice allows
civil servants to accumulate general knowledge and skills and also helps to circumvent opportunities
for corruption, but it obviously tends to work against their building up expertise in any specialty,
including performance management.
Another problem is the existence of too many fragmented evaluation systems. Not counting a
myriad of many small evaluation systems, there are four major evaluation systems, each operated by
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a different ministry/agency. As a result, line ministries/agencies are voicing complaints about the
redundant administrative burden imposed by these evaluation systems.
PART 6: SOLUTIONS

What strategies, if any, have been adopted to overcome these problems?
MPB, together with KIPF, has recently organized a task force and established training programs to
address these problems. Currently we are compiling a manual for developing performance
information, which should hopefully help to disseminate a standardized framework for performance
evaluations.

What solutions have been adopted to overcome some of the technical difficulties with developing
outputs and especially outcome measures? What has been done to improve the quality of
performance measures and of evaluations? To balance the number of targets? To overcome
bureaucratic resistance? To tailor performance information to the needs of politicians? To address
issues or problems with gaming? What solutions have been adopted to encourage the use of
performance information in budgeting?
The President’s leadership has greatly helped to give the necessary impetus for introducing the
performance management system, and was key to overcoming the initial bureaucratic resistance.
The strong link between performance information and budget allocations has also acted as additional
motivation for ministries/agencies to invest in improving the quality of their performance
information.
There is no explicit mechanism to cope with gaming. How instances of gaming are resolved is
entirely up to MPB and the agency budget departments.

Have these strategies worked? What has not worked about these strategies?
PART 7: LESSONS LEARNED AND IMPACT
This report seeks to provide important lessons learned from member countries’ experiences.

What is the general assessment of performance-based budgeting at present?
At present, Korea is at the inceptive stage of implementing performance-based budgeting.
Therefore, it is too early to assess performance-based budgeting. However, it should be noted that having
performance based budgeting introduced as one component out of a broader range of comprehensive reforms
has helped to lower resistance and resolve institutional problems.

What impact has the introduction of performance information had on budgetary decision making?
What impact has it had on performance?
Performance information is utilized to positive effect in the budgeting process. As regards the
impact of performance information on ministry/agency performance, it is too early to tell.

What has worked and what has not with these reform initiatives in your country? Have there been
any unintended consequences of these reforms?
There is concern that the concurrent implementation of multiple major reforms in itself imposes an
inappropriately heavy burden on the government.
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 What are the main lessons you have learned from implementing this approach over a number of
years? What have you learned about implementation approaches, the design, and sequencing of
reform initiatives? Do you think it is important to have these reforms enacted in Law? What changes
do you think are necessarily in the organisational structure and design of incentive systems for these
reforms to be successful? What are important success factors in getting actors at all levels to use this
performance information? What lessons have you learned on how to best structure an incentive
system for performance budgeting and management so as to motivate organisations to use
performance information and improve performance?
Reorganizing ministries/agencies and the budget structure need to be done before introducing the
performance system. In Korea, performance information is focused on individual programs/projects,
but cost information is not readily available because organizational units, programs, and the budget
structure need to be realigned so that they are consistent with each other. As a result, it is hard to
develop meaningful outcome measures and efficiency/effectiveness measures.
 What conditions are most favourable (benefits and strengths)and what are most dangerous (risks and
weaknesses) for the successful implementation and impact of the performance system? For example,
cultural and administrative background, the design of the system, communication, political and
economic circumstances, etc.
In introducing the performance system, top-decision makers should be patient to reap its benefit.
There is a concern that top-decision makers in Korea may not be patient enough. They have more
interest in introducing the performance system than in monitoring and improving it. If a particular
country is accustomed to getting quick returns from the reforms, it will not be easy to develop and
improve the performance system.
 What particular characteristics of the political and administrative culture of your country are important
to take into account for the design of performance based budgeting and management systems?
Regular rotation of assignments in the civil service may work against capacity development of
ministries/agencies. Impatience of top-decision makers may force MPB to take ill-advised excessive
measures in order to show quick results. It was partly because of this kind of pressure that MPB felt
forced to quickly implement a 10% budget cut for ineffective programs.
 What are the important lessons to learn about how the performance system evolves overtime and how
different challenges emerge?
At the initial stage, developing relevant performance information is the challenge. As the
performance system evolves, other changes become more important: behavioural change, such as
how to make various actors use performance information in the decision-making process, and how to
monitor the performance of the performance system itself.
 What do you recommend that other countries do and not do in the future as they develop their reform
initiatives?
Make sure your infrastructure is ready for the reforms. Proper cost accounting and a solid program
budget structure will greatly help to maximize the benefits of the performance system. There should
proper understanding of performance-based budgeting among the civil service. Otherwise, wasteful
and distorting behaviour may proliferate.
 What are the on-going problems? How do you plan to change your system in the future?
The major on-going problem is the quality of performance information. More training and research
is needed, along with a greater commitment to invest in collecting and organizing performance
information.
The capacity of MPB and ministries/agencies needs to be improved. Reinforcement of units
specialising in evaluation at the MPB and ministries/agencies may be required.
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