How to Initiate a Performance How to Initiate a Performance

Framework in BudgetingFramework in BudgetingPokar KhemaniPokar Khemani

ICGFM Annual Winter ConferenceICGFM Annual Winter Conference

December 2009December 2009

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OutlineOutline�� Why Performance FrameworkWhy Performance Framework

�� Performance Framework in BudgetingPerformance Framework in Budgeting

�� Introducing Performance FrameworkIntroducing Performance Framework�� Evolution, Prerequisites and Key TasksEvolution, Prerequisites and Key Tasks

�� A wellA well--defined implementation strategydefined implementation strategy

�� LineLine--item to Programitem to Program--based Budgetingbased Budgeting

�� Program Classification: Key AspectsProgram Classification: Key Aspects

�� Budget Classification, Chart of Accounts and Accounting SystemBudget Classification, Chart of Accounts and Accounting System

�� Performance Specification: Common Issues, SMART IndicatorsPerformance Specification: Common Issues, SMART Indicators

�� Performance: Monitor and ReviewPerformance: Monitor and Review

�� Evaluations and Spending ReviewsEvaluations and Spending Reviews

�� Program Budgeting and MTEFProgram Budgeting and MTEF

�� Key Messages Key Messages

�� Concluding RemarksConcluding Remarks

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Why Performance FrameworkWhy Performance Framework

�� Increasing public demands for greater Increasing public demands for greater government accountability, transparency and government accountability, transparency and effectivenesseffectiveness

�� Mounting pressures on public expenditure, Mounting pressures on public expenditure, calls for improved services for the same calls for improved services for the same moneymoney

�� Need for a more responsive system from Need for a more responsive system from politicians and public officialspoliticians and public officials

�� Performance of fiscal policy and budget Performance of fiscal policy and budget management is vital for overall performancemanagement is vital for overall performance

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Performance of Budget Management Performance of Budget Management

Three goals:Three goals:

�� Macroeconomic stability and aggregate fiscal Macroeconomic stability and aggregate fiscal

disciplinediscipline

�� Allocation of resources to the strategic Allocation of resources to the strategic

priorities priorities –– expressed by the societyexpressed by the society

�� Efficiency in the use of resources in the Efficiency in the use of resources in the

implementation of government policiesimplementation of government policies

All three are closely interwoven and All three are closely interwoven and

ultimately relate to efficiency.ultimately relate to efficiency.

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Performance Framework in BudgetingPerformance Framework in Budgeting

�� Wide variety of approaches, practices, and methods Wide variety of approaches, practices, and methods –– considerable literature has been producedconsiderable literature has been produced

�� Common theme is applying the budget to promote Common theme is applying the budget to promote performance by the appropriate use of performance performance by the appropriate use of performance information at each stage of budget cycle to inform information at each stage of budget cycle to inform decisions on resource allocations and improve decisions on resource allocations and improve efficiency of resource usage efficiency of resource usage

�� No single model: performance, program, output, No single model: performance, program, output, resultsresults--oriented budgeting oriented budgeting –– a programmatic a programmatic approach is being commonly followedapproach is being commonly followed

�� OECD defines performance budgeting as relating OECD defines performance budgeting as relating funds allocated to measurable results in terms of funds allocated to measurable results in terms of outputs and/or outcomes and evaluationsoutputs and/or outcomes and evaluations

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Performance Framework in Budgeting: Performance Framework in Budgeting:

EvolutionEvolution

�� Performance budgeting has a long history: Performance budgeting has a long history: 1960s saw the program budgeting 1960s saw the program budgeting techniques developed in USA spread to techniques developed in USA spread to many countriesmany countries

�� In 1980s and 1990s, UK, New Zealand, In 1980s and 1990s, UK, New Zealand, Australia, Canada and various OECD Australia, Canada and various OECD countries developed some form of countries developed some form of performanceperformance--based budgetingbased budgeting

�� In recent years widespread interest and In recent years widespread interest and activity in this area in Eastern Europe, Latin activity in this area in Eastern Europe, Latin America, Asia and Africa region America, Asia and Africa region –– a world a world wide movementwide movement

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Performance Framework: Performance Framework:

Some PrerequisitesSome Prerequisites

�� Credible macroeconomic and fiscal Credible macroeconomic and fiscal frameworkframework

�� Integration of budgeting and planningIntegration of budgeting and planning

�� Well developed budget preparation process Well developed budget preparation process with a MT perspective with a MT perspective –– credible budgetcredible budget

�� Sound budget execution, accounting and Sound budget execution, accounting and reporting frameworkreporting framework

�� Strengthened PFM legal frameworkStrengthened PFM legal framework

�� Clarity on budget roles of legislature and Clarity on budget roles of legislature and executiveexecutive

�� Get Get ‘‘basicsbasics’’ work well work well

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Introducing Performance Framework in Introducing Performance Framework in

Budgeting: Key TasksBudgeting: Key Tasks

�� A well defined implementation strategyA well defined implementation strategy

�� Traditional (LineTraditional (Line-- Item) to ProgramItem) to Program-- based Budgeting based Budgeting (PBB)(PBB)

�� Program Classification: Key AspectsProgram Classification: Key Aspects

�� Enhance Budget Classification, Chart of Accounts, Enhance Budget Classification, Chart of Accounts, and Accounting System to accommodate PBBand Accounting System to accommodate PBB

�� Performance specification Performance specification –– indicators and targetsindicators and targets

�� Performance: Monitor and ReviewPerformance: Monitor and Review

�� Program/Spending ReviewsProgram/Spending Reviews

�� Program Budgeting and MTEFProgram Budgeting and MTEF

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PBB Implementation StrategyPBB Implementation Strategy

�� Well defined reform objectivesWell defined reform objectives

�� Process for introducing and managing Process for introducing and managing

reformsreforms

�� Institutional and human capacities Institutional and human capacities

needed to drive and support reformsneeded to drive and support reforms

�� Sequencing and pacing of reforms: Sequencing and pacing of reforms:

Pilot vs. Big Bang approachPilot vs. Big Bang approach

�� Executive and Legislature commitmentExecutive and Legislature commitment

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Traditional & Program BudgetsTraditional & Program Budgets

�� Traditional BudgetsTraditional Budgets�� based largely on based largely on ““ line itemsline items”” e.g. salaries, e.g. salaries,

travel, overheads, etc.travel, overheads, etc.

�� no indication of objective/outputno indication of objective/output

�� primarily incremental and annualprimarily incremental and annual

�� Program BudgetsProgram Budgets�� line items identified to programs, keep key input line items identified to programs, keep key input

controls controls –– current, capital, interestcurrent, capital, interest

�� programs with well defined outputs and outcomesprograms with well defined outputs and outcomes

�� a mediuma medium--term perspectiveterm perspective

�� performance informs the budget processperformance informs the budget process

�� financial flexibility and accountabilityfinancial flexibility and accountability

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A Programmatic Approach to BudgetingA Programmatic Approach to Budgeting

�� Basis of budgeting in many countries, a building Basis of budgeting in many countries, a building block for performance framework in the budget block for performance framework in the budget processprocess

�� Spending classified by Spending classified by ““programsprograms””

�� Programs reflect expenditure on groups of services Programs reflect expenditure on groups of services (outputs) and have common broad objectives (outputs) and have common broad objectives (intended outcomes)(intended outcomes)

�� Programs should be linked with the organizational Programs should be linked with the organizational structure to establish clear accountability for structure to establish clear accountability for performanceperformance

�� Programmatic classification of budget should aim at Programmatic classification of budget should aim at strengthening the link between policy objectives, strengthening the link between policy objectives, planning and allocation of resourcesplanning and allocation of resources

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Program Classification: Key AspectsProgram Classification: Key Aspects

�� Development of lineDevelopment of line--ministry program structures should be a ministry program structures should be a collaborative effort between MOF and line ministriescollaborative effort between MOF and line ministries

�� Number of programs should be relatively limitedNumber of programs should be relatively limited

�� Program structure consists of various layers with different Program structure consists of various layers with different nomenclature nomenclature -- most common three layers: program, submost common three layers: program, sub--program and activitiesprogram and activities

�� Have a Have a ““Corporate ServicesCorporate Services”” program to include ministry wide program to include ministry wide common services in early yearscommon services in early years

�� Programs should include both the current and capital budgetPrograms should include both the current and capital budget

�� Programs should not normally stretch over several ministriesPrograms should not normally stretch over several ministries--for interministerial programs, accountability needs to be for interministerial programs, accountability needs to be established at the level of subestablished at the level of sub--programs and activities programs and activities

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Budget Classification, Chart of Accounts Budget Classification, Chart of Accounts

and Accounting System: A Must for PBBand Accounting System: A Must for PBB

�� Review and refine the current budget Review and refine the current budget classification structure with the introduction classification structure with the introduction of program budgeting of program budgeting

�� The chart of accounts (COA) needs to be The chart of accounts (COA) needs to be revised to be fully consistent with the revised revised to be fully consistent with the revised budget classification structurebudget classification structure

�� Prepare a wellPrepare a well--designed COA coding designed COA coding structure to support the accounting systemstructure to support the accounting system

�� The accounting system and the payroll The accounting system and the payroll system needs to be enhanced and adopt the system needs to be enhanced and adopt the new budget classification and COAnew budget classification and COA

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Performance Specification Performance Specification

Common IssuesCommon Issues�� Need for right type of robust performance indicatorsNeed for right type of robust performance indicators

�� Better balance of output and outcome indicators and Better balance of output and outcome indicators and improved specification of outputsimproved specification of outputs

�� Various dimensions of output performance including Various dimensions of output performance including quantity, quality, efficiency and cost; lack of quantity, quality, efficiency and cost; lack of volumes for key outputsvolumes for key outputs

�� Mixing of outcome and output indicators, outcomes Mixing of outcome and output indicators, outcomes are not expressed in a measurable form, and some are not expressed in a measurable form, and some outputs are specified in a way that is outside the outputs are specified in a way that is outside the control of the ministry to delivercontrol of the ministry to deliver

�� Performance Targets: too many, difficult to measure, Performance Targets: too many, difficult to measure, absence of baseline indicators, arbitrary targets (too absence of baseline indicators, arbitrary targets (too easy, too tough), reliability issueeasy, too tough), reliability issue

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Performance SpecificationPerformance Specification

SMART ApproachSMART Approach

SMART:SMART:

�� SSpecificpecific –– What is the most critical success What is the most critical success factor(s)?factor(s)?

�� MMeasuredeasured –– What are the quantifiable What are the quantifiable characteristics? characteristics?

�� AAchievablechievable –– Can you improve on past performance?Can you improve on past performance?

�� RRelevantelevant –– Do clients think the target is most Do clients think the target is most important?important?

�� TTimedimed –– How quickly can it be achieved? How long How quickly can it be achieved? How long will it take to respond to needs?will it take to respond to needs?

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Standards for Indicators and TargetsStandards for Indicators and Targets

StandardStandard Good PracticeGood Practice Poor PracticePoor Practice

SSpecificpecific Patients with heart Patients with heart

diseasediseaseIllnessesIllnesses

MMeasuredeasured Recovery rateRecovery rate ImproveImprove

AAchievablechievable 5% increase on last year5% increase on last year WorldWorld’’s best practices best practice

RRelevantelevant National policy priorityNational policy priority DoctorDoctor’’s preferences preference

TTimedimed One yearOne year In the futureIn the future

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Performance: Monitor and ReviewPerformance: Monitor and Review

ActionAction IssueIssue ExampleExampleData collectionData collection What do you need to What do you need to

measure indicators and measure indicators and

targets? targets?

Is collection cost effective?Is collection cost effective?

Cost by subCost by sub--programmeprogramme

Services deliveredServices delivered

Changes observedChanges observed

Data recordingData recording What system do you need to What system do you need to

keep data securely?keep data securely?Current system Current system –– e.g. spreadsheete.g. spreadsheet

New system New system –– e.g. Oracle BSCe.g. Oracle BSC

Collation & Collation &

analysisanalysisHow does the information How does the information

relate to programmes and relate to programmes and

targets?targets?

Time series, variance (budgetTime series, variance (budget--actual),actual),

achievement rate, unit costachievement rate, unit cost

ReportingReporting Who are the users? Who are the users?

What do they need to know? What do they need to know?

When do they need it? When do they need it?

What format(s) do they What format(s) do they

prefer?prefer?

Senior management, Senior management,

Parliament/publicParliament/public

Programme achievements, efficiencyProgramme achievements, efficiency

Monthly, annuallyMonthly, annually

Tables, charts, text, videoTables, charts, text, video

Quality assuranceQuality assurance How can you be sure, How can you be sure,

objectively, that the data are objectively, that the data are

accurate and appropriate?accurate and appropriate?

Internal checkingInternal checking

External peer reviewExternal peer review

External auditExternal audit

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Program Evaluations & Spending Program Evaluations & Spending

ReviewsReviews�� A variety of models and approaches: annual and periodic, A variety of models and approaches: annual and periodic,

targeted and comprehensivetargeted and comprehensive

�� UK UK ““comprehensive spending reviewscomprehensive spending reviews”” are primarily used for are primarily used for an examination of departmentan examination of department’’s budgetary requirements for the s budgetary requirements for the coming three year period in light of existing spending coming three year period in light of existing spending pressures, opportunities for improving efficiency, and the costspressures, opportunities for improving efficiency, and the costsof new policy proposalsof new policy proposals

�� US US ““Program Assessment Rating ToolProgram Assessment Rating Tool”” (PART) assesses the (PART) assesses the management and performance of individual programmesmanagement and performance of individual programmes-- each each PART asks departments to answer 25 basic questionsPART asks departments to answer 25 basic questions

�� Canada evaluations Canada evaluations –– ““Management Resources Results Management Resources Results StructureStructure”” (MRRS) links strategic outcomes to resources, (MRRS) links strategic outcomes to resources, performance measures and actual results for all programmes performance measures and actual results for all programmes

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Program Evaluations & Spending Program Evaluations & Spending

Reviews: Basic QuestionsReviews: Basic Questions

1. What do we do?1. What do we do? 2. What are peoples needs and expectations?

2. What are peoples needs and expectations?

4. Who should do it ?4. Who should do it ?

7. How should we go about change ?

7. How should we go about change ?

6. Who should cover the costs ?

6. Who should cover the costs ?

5. How can we do this better and for less

money?

5. How can we do this better and for less

money?

3. Do we need to continue to do it ?

3. Do we need to continue to do it ?

4. Who should do it ?4. Who should do it ? 6. Who should cover the costs ?

6. Who should cover the costs ?

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Program Budgeting and MTEFProgram Budgeting and MTEF

�� Introduction of a program structure improves Introduction of a program structure improves

the efficiency of MTEF, both in preparing the the efficiency of MTEF, both in preparing the

forecasts and later in detailing out the forecasts and later in detailing out the

budget as per the agreed MTEF ceilingsbudget as per the agreed MTEF ceilings

�� A credible MTEF could facilitate linking A credible MTEF could facilitate linking

resources to policy objectives and resources to policy objectives and

performance performance –– multimulti--year spending year spending

allocations tied with multiallocations tied with multi--year performance year performance

targetstargets

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Some Key MessagesSome Key Messages

�� Introduction of PBB takes time (4Introduction of PBB takes time (4--5 years). Reform needs widespread 5 years). Reform needs widespread political support and intellectual acceptancepolitical support and intellectual acceptance

�� The role and power of the Ministry of Finance is crucial to the The role and power of the Ministry of Finance is crucial to the success success of PBB of PBB

�� PBB should focus on budget reforms and linked with wider reformsPBB should focus on budget reforms and linked with wider reforms on on performance management performance management –– an initiative more than an incremental to an initiative more than an incremental to the budget reform processthe budget reform process

�� Performance information is potentially limitless, complex and Performance information is potentially limitless, complex and expensive to collect, needs to be selective. Too many targets crexpensive to collect, needs to be selective. Too many targets create eate information overloadinformation overload

�� Performance Information needs to be used efficiently and widelyPerformance Information needs to be used efficiently and widely, , including for improving resource allocations, managing for betteincluding for improving resource allocations, managing for better r performance and increasing public accountabilityperformance and increasing public accountability

�� Establishing some link between financial information and performEstablishing some link between financial information and performance ance information needs the right mix of incentives information needs the right mix of incentives –– whether financial whether financial rewards should be given for good performance and bad performancerewards should be given for good performance and bad performanceshould be punished should be punished –– if so, how? Contd.if so, how? Contd.

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Key MessagesKey Messages

�� Empowering Managers is not about Empowering Managers is not about removing controls but devolving the removing controls but devolving the responsibility for applying some of them responsibility for applying some of them ––MOF needs to monitor effectiveness of MOF needs to monitor effectiveness of financial managementfinancial management

�� A change in behavior and culture across A change in behavior and culture across government is essential government is essential -- a struggle and a struggle and longlong--term process term process

�� Realistic expectations needed Realistic expectations needed -- what can be what can be achieved and how long will it take achieved and how long will it take

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Concluding RemarksConcluding Remarks

�� Performance Budgeting is a modern management Performance Budgeting is a modern management tool and not a panacea for all evils tool and not a panacea for all evils –– it is the way to it is the way to go forward for public sector efficiency and go forward for public sector efficiency and performance performance

�� A way forward:A way forward:�� evaluate the ongoing budget reforms, identify gaps and evaluate the ongoing budget reforms, identify gaps and

problems, and think on solutions and what is achievableproblems, and think on solutions and what is achievable

�� prepare a realistic and sequenced reform plan and ensure that prepare a realistic and sequenced reform plan and ensure that there is sufficient capability to support and implementthere is sufficient capability to support and implement

�� OECD states OECD states ““ journey is as important as the destinationjourney is as important as the destination

�� a longa long--term approach and persistence are needed: it takes time term approach and persistence are needed: it takes time to overcome the technical issues and change the behavior of to overcome the technical issues and change the behavior of public servants and politicianpublic servants and politician

�� strong leadership and champion for change and reformsstrong leadership and champion for change and reforms

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Thank youThank you