Unit 2– Domain of PFM and reform sequencing

Module 2.3. Programme/Performance Budget

Budget classification and programme budget

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Day 2: Sub-systems of PFM and prioritising reforms

• Module 2.1. Expenditure Classification, budget Preparation and the MTEF

• Module 2.2. Expenditure Cycle and accounting• Module 2.3. Programme/Performance budget• Module 2.4. External control, legislature and

regulatory framework and IT (information technology)issues

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Module 2.3. The performance/programme budget. Objectives

• This module outlines a programme budget approach

• It identifies the difficulties and possible pitfalls• It presents an approach of gradual

implementation

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Module 2.3 Outline

• Budgetary approaches• The programme• Performance and budgeting• The procedure for implementation• Avoiding the pitfalls

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Budgetary approaches

• 1. “ Classic Budgeting ” : input/resources oriented budgeting

• Strong pointsBasic processes are provided Stimulates the development of a discipline culture

• Weak points: In general terms, little or no concern for public

policies and their outcomesOften, bureaucratic procedures are cumbersome

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Approaches to budgeting: Result oriented

2. “Result-oriented Budgeting” Orientation: Product/Efficiency &/Or

Result/Effectiveness. • Strong Points:

• Reflects the true objective of budgeting• Weak Points:

• Requires strong institutional arrangements• Their effectiveness depends greatly on the

country context (the country context becomes extremely important)

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Budgetary approaches

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“ Traditional ”

Savings-led

“MBO”, “RBM”, “ Programme/Performance

Budget ”

Performance-led

Module 2.3 Outline

• Budgetary approaches• The programme• Performance and budgeting• The procedure for implementation• Avoiding the pitfalls

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A basic concept in the context of “performance” approach: The programme

• A classification of expenditure programmes aimed at :• Better formulating and monitoring the fiscal policies• Providing a basis for effective management• Improving transparency• Ensuring accountability: reporting and accounting for

results

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Definition of a Programme[in the context of performance/programme budget]

• France (LOLF):  A programme includes appropriations to implement an action or a coherent set of actions within the same ministry and which are associated with specific objectives defined in terms of general interest objectives, and expected results ... "

• Directive 06/2009/CM/UEMOA: ”Within the ministries... A programme includes appropriations to implement an action or a coherent set of actions representing a clearly defined public policy in the medium term. These programmes are associated with specific objectives ... ".

• United Nations,1965: “A division of an agency's activities, which identifies activities that produce product or service representing the purposes for which the agency has been established "

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Programmes are established by ministries

• With few exceptions, the countries that have adopted a programming approach have established programmes by ministrieso Ministers are accountable to Parliament;o The budget is implemented by the ministries.

• A programme should therefore take into account both the public policy objectives and the areas of responsibility

• Interdepartmental aspects (sectoral) are to be taken into account in strategies and horizontal policies

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Programme. Some characteristics

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• Grouping of independent expenditures, nature of expenditure and funding sources

• All expenditures are classified in one and only one programme. The programme is a component of the budget nomenclature

• The programme in general is a public policy. It does not end with the completion of specific activities.

• This definition differs from that used in project management or by funders, where the programme is a group of projects.

• In a Programme budget approach, budget management is based on the programme• Importance of the programme manager

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Characteristics of a programme budget

A programme budget includes:• A classification of budget expenditures by program (in addition to

other classifications)• In the documents attached to the Finance Bill

o Objectives presentationo A description of activitieso Performace indicators and targets

• Includes most often multi-year expenditure projections (see MTEF)-years follwing the budget year is indicative

• An annual performance report reflects the results• The programme manager drafts the programme strategy,

oversees its execution and is accountable for the results

Executive degree of freedom• In the programme budget approach, the programme

determines the scope of parliamentary authority• Unit for credits specialization, ownership

• Transfers between programmes are limited to a small percentage of the amounts of the programmes

• Within a programme, virement is possible, i.e. the executive may make transfers/reallocation.o However, only under certain conditions:

One cannot increase the staff cost (France, WAEMU) One cannot reduce the capital (English-speaking

countries, WAEMU) Etc.

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Programme and Organisation

• For reasons of accountability the programmes, must be attached to a single ministry

• Potential conflicts between administrators and programme managers need to be analysed when structuring the budget of a ministry programme

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Performance and Budgeting (1)• The OECD has defined performance budgeting as

budgeting that links the funds allocated to measurable results. There are three broad types:o Presentational performance budgeting o Performance-informed budgeting and o Direct performance budgeting

OECD (2007), The performance-oriented budgeting in OECD countries

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Module 2.3 Outline

• Budgetary approaches• The programme• Performance and budgeting• The procedure for implementation• Avoiding the pitfalls

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Performance and budgeting (2)• Presentational performance budgeting : It is presented in

budget documents or other government documents. The information can refer to targets, or results, or both, and is included as background information for accountability and dialogue with legislators and citizens on public policy issues. It is not intended to play a role in decision making and does not do so.

• Performance-informed budgeting, resources are indirectly related to proposed future performance or to past performance

• Direct performance budgeting, involves allocating resources based on results achieved. This form of performance budgeting is used only in specific sectors in a limited number of OECD countries.

• For example, the number of students who graduate with a Master’s degree will determine the following year’s funding for the university running the programme. ■

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Performance and budgeting -Precautions

• The link between performance and budgeting is usually indirect (“Presentational performance budgeting “,  ”Performance-informed budgeting”)

• It does not punish an underperforming priority sector• Beware the adverse effects!

• Tunnel Vision• Data manipulation• Opportunistic behavior, etc.

• Avoid complex system of over-weighted indicators, poor monitoring, etc.

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Negative Experience of Great Britain-Non-functional Detailed performance goals

• Target : Reducing the waiting time for health care in national healthcarre with strong political pressure

• Results a few year later:• Chairs in the hospital called "beds on wheels“ – A refernce to over-

utilisation of non-substitute goods• Corridors called " pre-admission wards”  - A reference to high patient

density in the corridors• Objective of reducing the waiting time for emergency treatment WAS

achieved• BUT were the patients better off ?

(Presentation of M. Lundsgaard Rabat Avril 2007)

Module 2.3 Outline

• Budgetary approaches• The programme• Performance and budgeting• The procedure for implementation• Avoiding the pitfalls

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The approach

• Proceed step by step• In defining the steps, the following must betaken into

account: • Steps in line with the MTEF (cf. module 2.1)• Developments of a performance-based budgeting

beginning with “Presentational performance budgeting “, direct budgets come at a later stage

• First check that the implementation of the programme budget does not ignore the most urgent reforms, and is supported administratively and politically

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The stages

• 1. The programme is a part of the expenditure classification used to better analyse policyo In the budget or in a separate document (MTEF / budget

programme / project performance)• 2. The budget is managed on the basis of the programme

o Programme manager appointedo Gradual implementation

• 3. Management tools based on performance are developed graduallyo Must be linked with introducing of accrual accountingo Used in partial pilot experiences, generally in

short/medium term, mainly step 1 and 2 should be considered

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Step 1 (“Presentational performance budgeting”)

• Classification of expenditures by programme. Two variants :o Directly introduced in the budgeto Or in a separate document (often annual or multi-annual -

MTEF) Advantages: easy to implement, can be gradual (For

example: with steering ministries) Disadvantage: the supporting documents are not always

consistent with the budget

• Information on the expected performance in the budget and related documents

• Reports on the results

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Step 2 (“Performance-informed budgeting”)

• The programme classification is introduced in the budget• Programme manager appointed

• Under the supervision of the Minister and the Secretary General (permanent): a strategy is chosen, the programme budget is established, and they report on the results

• It has a degree of flexibility to allocate resources within the programme

• Performance indicating documents are discussed along with requests for budget allocation

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Module 2.3 Outline

• Budgetary approaches• The programme• Performance and budgeting• The procedure for implementation• Avoiding the pitfalls

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Budget and strategic objectives• The strategies must be reflected in the budget, but :

• It is often not appropriate to organize the budget along the axes of a strategy

• Certain strategic aspects are cross cutting

Example: Good Governance

• The spectrum of strategies do not necessarily cover all the domains of the state

• Strategy and budget are different documents and have different purposes

• Management responsibilities must be reflected in the structure of the budget

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Who knows how to allocate all the expenses of the Ministry of Education by respective objectives?

• Objective 1: Access• Objective 2: Quality• Objective 3: Enrollment of Girls

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Teacher Salaries: 5000

Constuction ofschools: 1000

Electricity50

Academic Textbooks: 200

Minister’s Car50

• Literally interpreted, would involve the cost accounting methods, and require to;• Allocate personnel expenses• Allocating overhead, the cost of investment, etc..• For example: activity-based costing (ABC -activity based

costing)• In practice, the operation often covers only the

direct expenditures on goods and services (excluding overhead)• Only 10-50% of the full cost of the activity.

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Budget by activities (1)

Budget by activities (2)

• Taking into account the limitations, it is futile to conduct excessively detailed exercises

• Well targeted assessment field• For operations: the activity must often

correspond to the administrative unit (eg. management) – except for separate accounts for specific activities

• For investment: the activity must be the project or a component of the project

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Allocating budget based on activities?Who is responsible for the accounts?• District A Primary inspection activities:

• School visits and inspection• Organisation of exams• Parents-Teacher meeting• Distribution of study material

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Electricity 50

Fuel100

Paper 30

Salaries300

Avoiding failure• Some conditions to avoid failure

• Programmes by ministries• Programme = sub-function (ex.: Primary education, etc..) = All services

+ Project• No cost accounting• Not too many programmes• Not too detailed

Activity= Service + Investment Project• Residual difficulties(If the administration if not functionally organised)

• Conflict between administrative manager and programme manager• Review the basics of personal data• Relationship with local centres: Vertical nature of the programme!

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Module 2.3 Key Messages

• The establishment of a budget programme aims to strengthen the link between budget and the policies and performance in the provision of public services

• It requires a number of precautions such as clarifying the roles of the programme manager, nomenclature programs adapted to fiscal management

• The development of a performance-oriented approach takes time and must be gradual. It can only be considered if the "basics" are present

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