Budgeting For Results An idea whose time may be here? Anwar Shah, World Bank CEPAL Regional Seminar...
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Transcript of Budgeting For Results An idea whose time may be here? Anwar Shah, World Bank CEPAL Regional Seminar...
Budgeting For Budgeting For ResultsResults
An idea whose time may be An idea whose time may be here?here?
Anwar Shah, World Bank CEPAL Regional Seminar on Fiscal
Policy Santiago, Chile
January 24-27, 2005
Anwar Shah, World Bank
OutlineOutline
Theme:Theme:Theory and practice of Performance BudgetingTheory and practice of Performance Budgeting
Structure:Structure:
• PB: What? PB: What? • PB: Why?PB: Why?• PB: How? -- International ExperiencePB: How? -- International Experience• Some ConclusionsSome Conclusions
Performance Performance Budgeting: Budgeting:
What?What?
Anwar Shah, World Bank
Performance Budgeting: Performance Budgeting: What?What?
A system of budgeting that presents the A system of budgeting that presents the purpose and objectivespurpose and objectives for which funds for which funds are required, the are required, the costs of the programscosts of the programs proposed for achieving these objectives, proposed for achieving these objectives, and and outputs to be produced or services outputs to be produced or services to be renderedto be rendered under each program. under each program.
Strict DefinitionStrict Definition: A system of budgeting : A system of budgeting that explicitly links that explicitly links each increment in each increment in allocated resourcesallocated resources to an to an increment in increment in outputs and outcomesoutputs and outcomes..
Anwar Shah, World Bank
A comparative A comparative perspective on the two perspective on the two budgeting approachesbudgeting approaches
Focus on Results
Increased Managerial Discretion and less control
Managers are accountable for what they achieve.
PB
Focus on Control
No Managerial Discretion
Managers are accountable for what and how they spend on inputs.
Line-Item
Anwar Shah, World Bank
Performance Budgeting ParadigmPerformance Budgeting Paradigm
Mission
Strategic Goals
(Medium Term)
Program Objectives & Costs
(Annually)
P1 P2 P3
Activities Targets & Costs
P1 P2 P3
A1 A2 A3 A1 A2 A1 A2 A3 A4
Performance Measurement
Impact
Outcomes
Outputs
Cluster
Outputs
BudgetBottom-up
Anwar Shah, World Bank
Performance Budgeting Results Performance Budgeting Results Chain Chain
Application in EducationApplication in EducationProgram objectives Inputs Program objectives Inputs Intermediate inputsIntermediate inputs
Improve Improve quantity, quality, quantity, quality, and access to and access to education education servicesservices
Educational spending Educational spending by age, sex, by age, sex, urban/rural; spending urban/rural; spending by level; teachers, by level; teachers, staff, facilities, tools, staff, facilities, tools, books, regulationsbooks, regulations
Enrollments, Enrollments, student-teacher student-teacher ratio, class sizeratio, class size
Outputs Outcomes Impact Outputs Outcomes Impact Reach Reach
Achievement Achievement scores, scores, graduation graduation rates, drop-rates, drop-out ratesout rates
Literacy Literacy rates, supply rates, supply of skilled of skilled professionalsprofessionals
Informed Informed citizenry, citizenry, civic civic engagement, engagement, enhanced enhanced international international competitivenecompetitivenessss
Winners and Winners and losers from losers from government government programsprograms
Anwar Shah, World Bank
Performance Measures Performance Measures Used in Performance Used in Performance
BudgetingBudgeting CostCost: Inputs/resources used to produce outputs: Inputs/resources used to produce outputs OutputOutput: Quantity and quality of goods and services : Quantity and quality of goods and services
produces. produces. OutcomeOutcome: Progress in achieving program objectives: Progress in achieving program objectives ImpactImpact: Program goals: Program goals ReachReach: People who benefit or are hurt by a program: People who benefit or are hurt by a program QualityQuality: Measure of service such as timeliness, : Measure of service such as timeliness,
accessibility, courtesy, accuracyaccessibility, courtesy, accuracy ProductivityProductivity: Output by work hour: Output by work hour EfficiencyEfficiency: Cost per unit of output: Cost per unit of output Satisfaction:Satisfaction: Rating of services by users Rating of services by users
Anwar Shah, World Bank
Citizen-centered Citizen-centered performance budgetingperformance budgeting
Budget format to follow closely service Budget format to follow closely service delivery format and also to include a delivery format and also to include a performance report and net worth performance report and net worth assessmentassessment
Citizens charter and sunshine rightsCitizens charter and sunshine rights Citizen inputs in budget process to be Citizen inputs in budget process to be
formalized at all stagesformalized at all stages Formulation: Town Hall meeting on the previous Formulation: Town Hall meeting on the previous
year’s performance and new proposals. Comments year’s performance and new proposals. Comments on Porto Allegre and Belo Horizonte, Boliviaon Porto Allegre and Belo Horizonte, Bolivia
Review and execution: Formal process for Review and execution: Formal process for complaintscomplaints
Post: Compliance and feedback reports.Post: Compliance and feedback reports.
Anwar Shah, World Bank
Performance Management Performance Management Framework is a pre-requisite Framework is a pre-requisite
for the success of PBfor the success of PB Letting managers manageLetting managers manage: operational : operational
flexibility and freedom – few rules more flexibility and freedom – few rules more discretiondiscretion
Making managers manageMaking managers manage. Accountability for . Accountability for results. Contracts/work program agreements results. Contracts/work program agreements based upon pre-specified output and based upon pre-specified output and performance targets and budgetary allocations performance targets and budgetary allocations new civil service framework new civil service framework
Activity based costing, accrual accounting, Activity based costing, accrual accounting, capital chargingcapital charging
Subsidiarity principleSubsidiarity principle Competitive service delivery and benchmarkingCompetitive service delivery and benchmarking Incentives for cost efficiency (including capital Incentives for cost efficiency (including capital
use)use)
Anwar Shah, World Bank
Output Accountability vs. Outcome Output Accountability vs. Outcome AccountabilityAccountability
R e su lts -b a se d a c c o u n ta b i li ty re la tio n sh ip s in fo rm m a n a g e ria l s tru c tu re s
P re s id e n t/ P rim e M in is te r – A c c o u n ta b le fo r ‘o u tc o m e s c lu s te r ’ M in is te r / S e c re ta ry – A c c o u n ta b le fo r o u tc o m e s D e p a rtm e n ta l h e a d / P ro g ra m m a n a g e rs – A c c o u n ta b le fo r ‘o u tp u t c lu s te rs ’ P ro je c t m a n a g e rs – A c c o u n ta b le fo r o u tp u ts
Performance Performance Budgeting: Why?Budgeting: Why?
Anwar Shah, World Bank
Public Sector Reform Public Sector Reform GoalsGoals
Responsive Governance or Doing the Right Responsive Governance or Doing the Right ThingsThings Matching public services with citizens’ preferencesMatching public services with citizens’ preferences
Responsible Governance or Doing it RightResponsible Governance or Doing it Right Prudent management of fiscal resources.Prudent management of fiscal resources. Earning trustEarning trust Working better and costing lessWorking better and costing less Managing fiscal and social risksManaging fiscal and social risks
- Improving the quality, quantity and access Improving the quality, quantity and access of public servicesof public services
Anwar Shah, World Bank
Public Sector Reform Public Sector Reform Goals ….Goals ….
Accountable GovernanceAccountable Governance: : Accountable for all actions to citizensAccountable for all actions to citizens Public Integrity, safeguardsPublic Integrity, safeguards Citizens charterCitizens charter
Anwar Shah, World Bank
A Framework for A Framework for Improving Government Improving Government
PerformancePerformance
Mandate
AuthorizingEnvironment
OperationalCapacity Outputs, Results,
Outcomes
Anwar Shah, World Bank
Governing for Results: A Road Map
Program/ project
Inputs
Activities
Outputs
Reach
Outcomes
Impacts (goals)
2. Administration concerned with outputs.
2. Executive concerned with
outcomes
Legislature
1. Citizens
1.Make managers
manage for results
2. Manag. flexibility 3.Subsidia
rity 4. citizen
evaluations
3. E V A L U A T I O N S
2. Outcome contract
2. Output contract
3.Citizen evaluations
3. Internal and external Results and
process Evaluations
Anwar Shah, World Bank
Tools for Results Oriented Tools for Results Oriented Management—external, Management—external,
citizen focuscitizen focusQuestion for results-oriented management Management
tool The entire
process driven by a citizen
focus: Contract information—what is the final product we must produce and what do we receive to produce such product?
Performance-based budget
How do we know how we are doing in terms of the contract, and in terms of other producers from whom we can learn?
Benchmarking
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?
Activity-Based Costing (and others)
How do we report our results? Full reporting using accrual accounting
How do we manage the new reporting, production, and contract obligations we have, as well as run a citizen friendly administration?
Balanced Scorecard
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 Performance Budgeting: How?Budgeting: How?
International International ExperiencesExperiences
Anwar Shah, World Bank
Theory to Reality
Diversification in Implementation
Anwar Shah, World Bank
Alternate approachesAlternate approaches PB with Fuzzy New Public ManagementPB with Fuzzy New Public Management
(Letting Managers Manage, competition, (Letting Managers Manage, competition, voice and choice, informal agreements): voice and choice, informal agreements): USA, Netherlands, Australia, Uganda, USA, Netherlands, Australia, Uganda, Mongolia, South Africa (small steps towards Mongolia, South Africa (small steps towards PB). PB).
PB with New Public ManagementPB with New Public Management (Making Managers Manage, stronger (Making Managers Manage, stronger competition, voice and choice, formal competition, voice and choice, formal contracts or agreements ): New Zealand, contracts or agreements ): New Zealand, Malaysia (?), Singapore (?)Malaysia (?), Singapore (?)
Anwar Shah, World Bank
Output Orientation Output Orientation under the Malaysian and under the Malaysian and
NZ ModelsNZ Models Program agreements monitored for Program agreements monitored for
achievement in outputs and impactsachievement in outputs and impacts Output budgetingOutput budgeting Activity based costing Activity based costing capital chargingcapital charging Accrual accountingAccrual accounting Monitoring government’s net worthMonitoring government’s net worth
Anwar Shah, World Bank
Singapore: PB Singapore: PB FrameworkFramework
Government departments managed as Government departments managed as Autonomous AgenciesAutonomous Agencies
Macro Incremental FactorMacro Incremental Factor Targets and output plansTargets and output plans Funding linked to output levelsFunding linked to output levels Operational and financial autonomyOperational and financial autonomy Capital charging including office use, Capital charging including office use,
interdepartmental charginginterdepartmental charging 3-year development block vote3-year development block vote New Civil Service FrameworkNew Civil Service Framework
Anwar Shah, World Bank
U.S. Experience with PB U.S. Experience with PB State GovernmentsState Governments
line-item budgetline-item budget 27 states27 states program budgetprogram budget 10 states10 states Half-way to PBHalf-way to PB 10 states10 states PBPB Michigan & Michigan &
TexasTexas
Source: Hager, G. & Hobson, A. June 2001. Performance-Based Budgeting.
Anwar Shah, World Bank
U.S. Experience with PBU.S. Experience with PB – Montgomery Country, – Montgomery Country, MarylandMaryland
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
Outcomes: Lower maintenance cost and better safety
Outputs: Percentage of roads needing resurfacing that were resurfaced (assuming a 7-year cycle) Lane miles resurfaced
77
300
79
309
76
296
64
248
39
152
42
162 Service Quality: Effective resurfacing cycle (years)
9.1
8.8
9.2
11.0
18.0
16.9
Efficiency: Average cost per lane-mile resurfaced ($)
4,483
5,706
5,115
5,109
5,099
5,230
Inputs: Expenditure ($000) Workyears
1,345
1,763
1,514
1,267
775
847
Source: Office of Management and Budget, Montgomery Country. Montgomery Measures Up! For the Year 2002
Anwar Shah, World Bank
ConclusionsConclusions Performance budgeting must be an integral Performance budgeting must be an integral
element of a broader reform package to bring element of a broader reform package to bring about performance culture. In the absence of an about performance culture. In the absence of an incentive environment for better performance and incentive environment for better performance and accountability for results, the introduction of accountability for results, the introduction of performance budgeting will not lead to better performance budgeting will not lead to better performance.performance.
Managerial accountability must be on outputs and Managerial accountability must be on outputs and not on outcomes as the latter are influenced by not on outcomes as the latter are influenced by external factors. Outcomes however should be external factors. Outcomes however should be monitored.monitored.
Transparency of the budget and citizens’ Transparency of the budget and citizens’ evaluation of outputs helpful in improving evaluation of outputs helpful in improving budgetary outcomes. budgetary outcomes.