“Expenditure Analysis”
Two main types:
1. Pre-approval appraisal of new spending programs
(Recurrent Budget) and projects (Development
Budget)
2. Periodic, or ad hoc, review of existing (on-going)
spending programs – usually core spending activities
of line ministries
Role of the Budget Officer in
Managing Expenditure Analysis
1. As normal, analyse new budget proposals during
budget preparation cycle.
2. Design and manage a program of on-going
expenditure reviews each year:
•
•
•
•
•
Identify expenditures that should be reviewed
Propose list to Director and DG for approval
Advise/consult with line ministry
Manage (conduct, participate or oversee) review work
Present results of reviews and recommendations to DG (for
possible inclusion in next budget preparation cycle)
Technical Capacity of Budget Officer
Budget officers must be able to:
• Understand and assess any spending proposal analysis submitted
by line ministries
• Conduct a brief analysis for GBD of any spending proposal, with or
without help from line ministry
• Commission a detailed analysis by experts (set ToR, explain findings
to DG, propose changes to design, etc.)
• Participate in expert teams for detailed studies – especially the
“economic analysis” components
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General Scope of Analysis
Required amount of time/effort for analysis is
determined by:
• Size / cost (EGP, JD, etc.) of the proposal – 1st year + on-going cost
• Capacity, skills & reputation of line ministry
• Amount of time available for analysis – within current budget cycle?
• Size of risk for Government : financial risk, political risk
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5 Key Objectives of Analysis
Budget officers need to determine:
1. Does the proposed spending conform to government’s
present economic policies & objectives?
2. Is the proposed spending the best way to achieve these
policy objectives – what is the “intervention logic” ?
3. Does the proposed spending involve an efficient use of
resources (both financial and non-financial resources)?
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5 Key Objectives (Contd.)
Budget officers need to determine:
4. Are there clear & strong linkages between:
Inputs >>> Outputs >>> Results
5. Are the costs correctly estimated and affordable for the
Budget (within medium term budget framework)?
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Managing An Expenditure Analysis
Discussions with BD will usually identify two principal methods for
managing expenditure analysis and reviews:
1. “Basic Analysis” – a short analysis (usually by the Budget Officer)
of a new spending proposal or a problem area in current spending
of one or more line ministries.
2. “Researched Analysis” – a detailed study (usually by team
appointed by BD and line ministry) of a major spending program
or proposed capital investment project
All expenditure analyses should follow a structured process, but a
Basic Analysis will be much simpler and shorter than a Researched
Analysis.
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Focus for Expenditure Analysis
Basic Analysis
Researched Analysis
• INPUTS: utility costs; vehicle use;
staff travel; salary levels;
• LARGE PROGRAMS: hospital
drug/medical supplies; disease
control; social benefits
• ACTIVITIES: staff training; building
maintenance; public information
services
• SMALL PROGRAMS: passport
services; adult literacy; midwifery
services
• SUB-SECTORS: health centers;
secondary education; courts
system
• SECTORS: education; railways
• MAJOR CAPITAL PROJECTS
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The Analytical Process
A Structured Approach to Managing Expenditure Analysis (“Basic” & “Researched”)
1.
Define
expenditure
policy
“Problem”
Have the budget
issues or needs
been correctly
specified: raise
costeffectiveness,
reduce waste,
meet new social
need, improve
behavior, etc.?
2.
Consider
Output(s)
& Timing
What is needed
by BD: an
internal paper for
DG/Cabinet,
sector workshop,
budget guideline,
new procedures,
publication n,
draft law, etc.?
by when?
3.
Define an
appropriate
Methodology
What is the best
technique for
analyzing this
expenditure policy
issue: a financial
audit? a comparative
analysis (by dept.,
region, country)?, a
cost-effectiveness
study, cost-benefit
analysis, etc.?
10.
Assign
Implementation
Responsibilities
4.
Undertake
Research
& Analysis
Assemble as much
relevant info &
data as possible
(within available
timeframe), from
budget docs, local
organizations,
other countries,
int’l sources, etc.
5.
Consider all
possible
Interventions
Such as: budget
instruction, new
budget program, new
law/regulation, (e.g.
procurement),
structural reorganization, deleted
function, private
sector incentives, etc.
9.
Present Report
(for High Level Consideration)
(to DG, Minister, Cabinet etc.)
What conclusions (not
recommendations yet)
come out of the
analysis so far? What
remains uncertain?
6.
Prepare
initial
Findings
Peer review,
brainstorming
recommendations
(within BD plus
other relevant
MoF and LM staff)
7.
Make
Internal
Presentation
8.
Review, revise, prepare
Final Report &
Recommendations
(within BD, line ministries, etc,)
David Webber METAC Adviser
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Analysis Using “Program Budgeting”
First Question: Is the spending activity (whether recurrent or
development) part of an existing Budget Program in that ministry, or
should it be considered as a “New Spending” activity?
1. If it is part of an existing budget program:
• do the objectives fit within the overall program objectives?
• is the cost within the amount likely to be available for that budget
program over the next few years?
2. If it is “new spending”:
• does the proposal involve creating a new budget program?
• are the objectives of that new budget program within the ministry’s
present mandate?
• is there sufficient financial space for a new program in that line ministry’s
budget?
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Single Budget Allocation vs.
“Cross-cutting” Expenditure Studies
1. Single ministry/agency budget allocation:
- work conducted by one Budget officer
- consultation with one line ministry/department/agency
Benefits: efficient, quick, recommendations readily applicable
2. Cross-cutting policy/activity: (usually 3+ ministries)
- several budget officers collaborating
- several ministries involved/affected
Benefits: helpful to many (all?) ministries, bigger potential impact
on budget spending/savings
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Basic Analysis: Methods of Analysis
Applying the tools of basic analysis through:
1.
Desk study – collating information; literature review
2.
Field work – questioning stakeholders; gathering primary data
3.
Benchmarking comparisons – local; regional; international
4.
Key Performance Indicator (KPI) assessment - and, if necessary,
expanding the KPI framework for better future assessments
5.
Cost-Benefit Analysis (CBA) or Cost-Effectiveness Analysis (CEA)
techniques – where some explicit quantification of net benefits and/or
ranking of expenditure priority is needed.
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Basic Analysis: Tools of Analysis
Measuring and assessing:
1. the “Rationale” for the expenditure
2. the “Efficiency” of output/service delivery
3. the “Effectiveness” of the expenditure
4. the “Impact” of the expenditure
5. the “Continued Relevance” of the expenditure
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1. Assessing “Rationale”
Two key concepts:
1. “Intervention Logic”
- is the expenditure necessary?
- is government the best provider of this service / asset?
2. “Program Logic”
- are the objectives of the spending activity clear?
- are these objectives consistent with government policy?
- are the objectives consistent with ministry’s role/function
- are the responsibilities clearly defined and accepted?
- are the inputs, outputs and results (impacts) aligned?
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Program Logic - Alignment
Inputs
>>>
Salaries
Operating costs
Minor capital
Outputs
Services
Goods
Regulations
>>>
Results
Immediate:
(direct) benefits
Long term:
(socio-economic)
impacts
Efficiency
Effectiveness
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Program Logic: Example
Operation of Lower Courts
Inputs
>>>
Salaries of judges
Salaries court staff
Courtroom operations
Court equipment
Witness costs
Etc.
Efficiency
Cost of cases
Speed of hearings
Outputs
>>>
Proceedings held
Decisions made
Results
Immediate:
Problem resolved;
Justice served
Long term impacts:
Rule of law prevails;
Business confidence;
Property & other rights
are respected / protected
Effectiveness
Timeliness of process
Quality / consistency of judgments
Clarity / enforcement of decisions
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2. Analysing Efficiency
How are resources (inputs) transformed into outputs?
1. Measureable in terms of:
- unit of output per $ (EGP, JD, etc.) of inputs
- time required to produce output
2. Relative concept (i.e. needs to be compared with)
- previous years
- baseline period/cost
- performance of other departments, ministries, provinces,
jurisdictions
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Identifying Efficiency & Economy
Efficiency
Economy
• What are the outputs?
• Are they adequately
defined?
• How many are produced?
• How long does it take?
• What are the backlogs?
• How complete are the
outputs?
• Are there complaints?
• Are the best input prices
obtained?
• Could these prices be
improved?
• Is the quality of inputs
sufficient / consistent?
• How do these inputs
compare with others of
same kind?
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3. Analysing Effectiveness
Is the spending activity achieving the expected results? (This may be a matter
for careful judgements.)
1.
Have Output and Result indicators been specified for the spending
activity/program?
2.
What results have been achieved so far in terms of these (or some other)
indicators?
3.
Are these results consistent with expectations, or is their a gap?
4.
What is the current level of satisfaction with results – amongst users/customers,
providers, politicians?
5.
Could the same/better results be achieved in a different (cheaper) way?
6.
Has a baseline been established for measuring effectiveness over time? (Should
that be done now as part of this review?)
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Measuring Effectiveness at an Early Stage
Many ministries argue that it is “too early” to measure the
effectiveness of the spending activity. If so, look at:
•
•
•
•
•
rationale of the project
robustness of the program logic
assess strengths, weaknesses, opportunities, threats (SWOT)
performance of personnel delivering the outputs
existence of positive and negative factors around the activity that
may affect results (e.g. adequacy of funding, political support,
experience of providers, etc.)
In summary, what are the prospects for success (effectiveness)?
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4. Analysing Impact
• What are the expected medium & longer term effects (benefits) of
the expenditure for the target group?
• Are there specific socio-economic indicators attached to this
spending?
• How is the behaviour of beneficiaries changing over time – in a
positive or negative way?
• Is there evidence of any unintended side effects from the spending?
• Are there any proxy indicators for longer term benefits?
(e.g. a proxy indicator for improved children’s health – from an
immunisation program - may be attendance rates at local schools)
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5. Analysing Continuing Relevance
Involves assessing whether the program Rationale is still valid.
• Is the expenditure still justified? Should the objectives be revised?
• Are the same, or similar, services now being provided by anyone
else?
• Is the program design (delivery mechanisms) for these outputs still
the best option?
• Should the rationale be kept under review (perhaps re-tested in 2
years when better data is available?)
• Are other countries / jurisdictions approaching the problem in a
different (better) way?
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Expenditure Analysis Output:
Structure of the Report
A 2-10 page report (BD template?):
1. Reason for the analysis/review (the “problem”)
2. Brief outline of methodology; plus list of people & organisations
consulted
3. Rationale - intervention is logical (not logical)
- structure (program logic) is sound (not sound)
- weaknesses in specification objectives, KPIs
- duration of operation (measurability of results)
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Expenditure Analysis Output:
Structure of the Report (Contd.)
4. Efficiency of delivery: high/low/etc. (use benchmarks)
5. Effectiveness: high/low/uncertain (clarify who benefits)
6. Impact: contribution to economic and social
development is clear and significant (not clear and not
significant)
7. Relevance: continue / discontinue / modify the
expenditure activity in future budgets
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Conclusion
• Budget funds are nearly always insufficient – so just
recommending more spending is not usually helpful
• Good expenditure analysis and review opens up
information and creates policy options
• Hard decisions are still hard – but decision-makers are
better informed and equipped
That’s all Budget Analysts can do: Good luck!
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Recommended Reading
1.
World Bank: Tools for Institutional, Political and Social Analysis of Policy
Reform, (Chapters 3 & 9).
2.
UK (HM) Treasury: The Spending Review Framework
3.
Government of Ireland (MoF): Value for Money Reviews Guidance
Manual (Chapter 5)
4.
United Kingdom: The Green Book – Appraisal and Evaluation in Central
Government
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