Performance Budget

Performance budgets use statements of missions, goals and objectives to explain why the money is being spent. It is a way to allocate resources to achieve specific objectives based on program goals and measured results.” The key to understanding performance-based budgeting lies beneath the word “result”. In this method, the entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these objectives and these form the foundation of the overall evaluation.

Performance based budgeting has been defined as a system wherein managers are provided with the flexibility to utilize agency resources as required, in return for their commitment to achieve certain performance results.

Performance budgeting comprises three elements:

·         the result (final outcome)

·         the strategy (different ways to achieve the final outcome)

·         activity/outputs (what is actually done to achieve the final outcome)

There are three types  of Performance budget:

1. Presentational,:  simply means that performance information 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
2. Performance-Informed,  :    resources are indirectly related to proposed future performance or to past performance And
3. 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.

Common characteristics of performance budgets include:

· Focuses on results. Departments are held accountable to certain performance standards. There is a greater awareness of what services taxpayers are receiving for their tax dollars.

· Is flexible. Money is often allocated in lump sums rather than line-item budgets, giving managers the flexibility to determine how best to achieve results.

· Is inclusive. It involves policymakers, managers, and often citizens in the budget “discussion” through the development of strategic plans, identification of spending priorities, and evaluation of performance. 3

· Has a long-term perspective. By recognizing the relationship between strategic planning and resource allocation, performance budgeting focuses more attention on longer time horizons. 

Performance budgeting has more of a policymaking orientation. It:

· Connects plans, measures, and budgets;

· Forces departments and policymakers to think about the big picture;

· Provides better information about the impact of budget decisions on people;

· Gives departments increased budgetary flexibility and incentives for generating budget savings;

· Allows for ongoing monitoring to see if agencies are moving in the right direction;

· Strengthens legislative decision making and oversight;

4 Performance Budgeting: Overview

· Enhances financial accountability to citizens, decision makers, and governmental monitoring agencies.

 At End

Decisions made on these types of budgets focus more on outputs or outcomes of services than on decisions made based on inputs. In other words, allocation of funds and resources are based on their potential results. Performance budgets place priority on employees' commitment to produce positive results, particularly in the public sector.