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Performance Budgeting

Performance Budgeting

Budgeting is a system for producing and exchanging information pertaining to the finances of government. To change the way budgets are made, it is necessary to alter its informational content and structure. To implement performance budgeting or budgeting for results, it is necessary to insert information on results into the budget and to link that new information to expenditures. Although this may appear to be an easy task, it has proven to be quite demanding for governments striving to budget for results.

To understand the challenge facing PB, one must decompose it into its two main elements. We have identified three technical and three managerial elements that ensure successful and sustainable implementation of PB and embedded them into a master model, DIAMOND model, and wrote a best seller book on it.
The three technical elements are planning, costing and performance measurement to link cost information with performance information. In short, a government entity is required to
* Identify outcomes (long-term objectives), outputs (products and services as annual targets) and activities (day-to-day operations),
* Calculate the unit cost of each products and services using management accounting techniques such as activity based costing,
* Measure annual targets (outputs quantity) and long-term objectives (outcomes progress) to link the unit costs to the extent we have achieved our targets and objectives for budget implementation phase.
The three managerial elements involve change management, management flexibility and management accountability. To put it in a nut shell,
* We have to contemplate the requirements for a successful transition from a traditional budgeting to a performance budgeting system. Can it happen overnight? If not, how long do we have wait? Are there any necessary training for managers and employees operating in the new budgeting system? Any laws and regulations changes required? Any managerial freedom and flexibility required? Etc.
* The introduction of performance budgeting is often linked to broader efforts to improve expenditure control as well as public sector efficiency and performance. Thus, performance budgeting is generally combined with increased flexibility for managers in return for stronger accountability for the results, so as to enable them to decide how to best deliver public services. If not linked to broader reforms, there is a risk that managers will view performance budgeting as simply another layer of central control and will resist it. Provisions for sanctions ā€“ including dismissal of staff ā€“ in the case of non-performance need to be in place. And finally,
* Robust systems of accountability and control, including internal and external audit, are required before granting increased flexibility.
EXPERFORM enables an organization entity to go through the required elements of DIAMOND model.

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