APPROACHES AND TECHNIQUES IN APPROACHES AND TECHNIQUES IN BUDGETING: THE PHILIPPINE BUDGETING: THE PHILIPPINE

EXPERIENCEEXPERIENCE

Public Fiscal Public Fiscal AdministrationAdministration

JOHNNY A. GERARDO, LL.B, JOHNNY A. GERARDO, LL.B, MPAMPA

INTRODUCTION ORIENTATION IN BUDGETING a. Control Orientation b. Management Orientation c. Planning OrientationLINE-ITEM BUDGETINGPERFORMANCE BUDGETING a. Components 1. Functional and Activity Classifications 2. Performance Measurements 3. Performance Reports

b. Attitude Towards Performance Budget

c. Philippine Experience in Performance Budgeting Problem 1. Lack or Absence of Performance Measures 2. Problems on Personnel 3. Organization 4. LegislativePLANNING, PROGRAMMING AND BUDGETING SYSTEM a History and Development b. Specific Features c. PPBS: The Philippine. Experience d. An Assessment of PPBS

ZERO-BASE BUDGETING a. Introduction and definition b. Features and Objectives c. Basic ZBB Terms d. The ZBB Process e. ZBB in the Philippines f. An Appraisal of ZBBCONCLUSION

INTRODUCTIONINTRODUCTION American-introduced, American-American-introduced, American-

installed, and for a while American installed, and for a while American supervisedsupervised

American influence in local fiscal American influence in local fiscal administration is most apparent in the administration is most apparent in the area of budgetingarea of budgeting

American themselves set-up the American themselves set-up the administrative system in the administrative system in the Philippines when the latter was still a Philippines when the latter was still a colony of the United States.colony of the United States.

This system was largely unchanged This system was largely unchanged even after the granting of the even after the granting of the independence and our transition from independence and our transition from the various regimes to the present the various regimes to the present Republic. Republic. back

ORIENTATION IN BUDGETINGORIENTATION IN BUDGETINGThe stages in the evolution The stages in the evolution of the United States’ federal of the United States’ federal government budget are government budget are characterized, according to characterized, according to Allen Schick, by three major Allen Schick, by three major orientation: control, orientation: control, management and planning.management and planning.

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CONTROL ORIENTATIONCONTROL ORIENTATIONIt is the process of It is the process of enforcing limitations and enforcing limitations and conditions set in the budget conditions set in the budget and in appropriations, and and in appropriations, and of securing compliance with of securing compliance with the spending restrictions the spending restrictions imposed by central imposed by central authorities. authorities.

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Management OrientationManagement Orientation

It involves the use of It involves the use of budgetary authority at budgetary authority at both agency and central both agency and central levels to ensure the levels to ensure the efficient use of staff and efficient use of staff and other budgeting, the focus other budgeting, the focus is on agency activitiesis on agency activities

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PLANNING ORIENTATIONPLANNING ORIENTATIONIt is the process of determining public It is the process of determining public

objectives and the evaluation of objectives and the evaluation of alternative programs. To use the alternative programs. To use the budget for planning, central budget for planning, central authorities must have information authorities must have information concerning the purposes and concerning the purposes and effectiveness of programs. They must effectiveness of programs. They must also be informed of multi-year also be informed of multi-year spending plans and of the linkage spending plans and of the linkage between planning, spending, and between planning, spending, and public benefits. public benefits.

Three Important developmentsThree Important developments influenced the influenced the evolution from a management to a planning evolution from a management to a planning

orientation (Schick)orientation (Schick) Economic analysis- the emergence of macro Economic analysis- the emergence of macro

and micro analysis has had an increasing and micro analysis has had an increasing part in the shaping of fiscal and budgetary part in the shaping of fiscal and budgetary policy;policy;

The development of new information and The development of new information and decision technologies has enlarged the decision technologies has enlarged the applicability of objective analysis to applicability of objective analysis to policymaking; andpolicymaking; and

There has been a gradual convergence of There has been a gradual convergence of planning and budgetary processes. planning and budgetary processes.

CharacteristicsCharacteristics ControlControl ManagementsManagements PlanningPlanning

Personnel SkillPersonnel Skill Accounting objectsAccounting objects AdministrationAdministration EconomicsEconomics

Information focusInformation focus ExecutionExecution ActivitiesActivities PurposesPurposes

Key budget stage (central)Key budget stage (central) DiscreteDiscrete Preparation Discrete/ Preparation Discrete/ ActivitiesActivities

PreparationPreparation

Breath of measurementBreath of measurement FiduciaryFiduciary EfficiencyEfficiency ComprehensiveComprehensive

Role of Budget agencyRole of Budget agency Upward aggregativeUpward aggregative Upward aggregativeUpward aggregative Policy Downward Policy Downward disaggregatedisaggregate

Decisional-flowDecisional-flow IncrementalIncremental IncrementalIncremental TeleticTeletic

Type of Choice Control Type of Choice Control ResponsibilityResponsibility

CentralCentral OperatingOperating OperatingOperating

Management ResponsibilityManagement Responsibility DispersedDispersed CentralCentral SupervisorySupervisory

Planning ResponsibilityPlanning Responsibility DispersedDispersed DispersedDispersed CentralCentral

Budget-Appropriations Budget-Appropriations classificationsclassifications

SameSame SameSame DifferentDifferent

Appropriations-organizational Appropriations-organizational linklink

DirectDirect DirectDirect CrosswalkCrosswalk

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LINE-ITEM BUDGET LINE-ITEM BUDGET APPROACHAPPROACH

Gives emphasis on listing of objects for itemized Gives emphasis on listing of objects for itemized expenditures-supplies, personnel, equipment-expenditures-supplies, personnel, equipment-without much regard for the purposes of without much regard for the purposes of programs for which such items are proposed.programs for which such items are proposed.

Also called “Item of Expenditure Approach”Also called “Item of Expenditure Approach” Manifestation of process budgetary, “incremental, Manifestation of process budgetary, “incremental,

fragmented, non-programmatic and sequential.fragmented, non-programmatic and sequential. Little explicit consideration of objectives and Little explicit consideration of objectives and

policies and almost no search for alternatives.policies and almost no search for alternatives.

According to Robert Golembiewski, According to Robert Golembiewski, (Percolate-up characteristics)(Percolate-up characteristics)

It is the chief executive issues a call for estimates It is the chief executive issues a call for estimates which are generated from belowwhich are generated from below

Line item is the product of many “factorings” Line item is the product of many “factorings” beginning at low organization levels whose requests beginning at low organization levels whose requests were aggregated and perhaps trimmed as they rose were aggregated and perhaps trimmed as they rose through an hierarchy.through an hierarchy.

Lessens the top executive’s control over planning Lessens the top executive’s control over planning and programmingand programming

Fait accompli, by the time it reaches the top Fait accompli, by the time it reaches the top executive.executive.

Adopted through the enactment of Commonwealth Adopted through the enactment of Commonwealth Act No. 2546, --Budget Act of 1937.Act No. 2546, --Budget Act of 1937.

Advantages of Line-Item budget Advantages of Line-Item budget approach (Schick)approach (Schick)

It enables central authorities to control inputs; that is, to It enables central authorities to control inputs; that is, to control the cost of inputs before the expenditure is made or control the cost of inputs before the expenditure is made or obligated.obligated.

It provides external control by legislators and central It provides external control by legislators and central monitors who are not beholden to a particular agency.monitors who are not beholden to a particular agency.

Line-item control is especially effective for salaries and Line-item control is especially effective for salaries and purchases, which together account for the bulk of state purchases, which together account for the bulk of state government spending, perhaps 90 percent or more in some government spending, perhaps 90 percent or more in some instances.instances.

Control is uniform.Control is uniform. Control is comprehensive.Control is comprehensive. Control is exact.Control is exact.

There are multiple opportunities to There are multiple opportunities to control.control.

Both aggregate and detailed control Both aggregate and detailed control are promoted.are promoted.

Line-item controls establish the basis Line-item controls establish the basis for budget cutting. for budget cutting.

Why do agencies, despite frequent disclaimers, prefer the line-item budget even with the introduction of the performance budgeting type in the 1950’s? Line item budgeting gives agencies plenty of

opportunities to manipulate the facts to their advantage and considerable leeway in estimating the projected benefits of proposed activities.

Agencies are able to express their subjective interpretation of anticipated benefits without being encumbered by analytical instruments. Nor are they required to weigh in a systematic and uniform manner the cost effectiveness of their proposals.

Budgeting by object obtains “the best care” for the agency.

Philippine Experience of line-item budget During the legislation or authorization

phase of the line-item budget, the legislature wielded so much influence on agencies of their choice.

Through the line-item budget, the lawmakers were able to pinpoint “objects of future choice” especially those referring to new positions.

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PERFORMANCE BUDGETINGKnown as “activity” or “functional” budgeting, the Hoover Commission succeeded in creating a feeling of novelty and excitement for the post-war generation of public administrators. The objects of expenditures are deemed as significant factors in relation to what they are used for and not in relation to their specific character.

Hoover Commission Report to US Congress in February 1949 explained the meaning of performance budgeting

“We recommended that the whole budgetary concepts of the Federal Government should be refashioned by the adoption of a budget based upon function, activities, and projects, this we designate as a performance budget.

“Such an approach would focus attention upon the general character and relative importance of the work to be done, or upon the service to be rendered, rather than upon the things to be acquired such as personal services, supplies, equipment, and so on. The latter objects, are after all, only the means to an end. The all important thing in budgeting is the work or service to be accomplished, and what that work or service will cost.”

The salient features of a performance budget and its basic differences from the traditional line-item budget are depicted in this comprehensive definition of the concept. A performance budget is one which states:

The short term and long term goals in the major functional areas for which funds are requested;The programmes in each function and activities or projects in each programme proposed for the accomplishment of the goals in the various functional areas;

The cost of the programs and activities or projects proposed;The qualitative and quantitative data for the program and activities proposed;The organization units responsible for carrying out the programmes;The sources and amount of all money receipts and expenditures; andThe units of work measurement which measure the results of programs, projects and activities.

A performance budget is in essence a work-plan of the government which specifies the concrete proposals to be established during the financial year.

These systems serve as a continuous check on actual performance in terms of work as well as of expenditure against the approved budget.

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COMPONENTSCOMPONENTSPerformance Budget Techniques. Like all Performance Budget Techniques. Like all other budget approaches, performance other budget approaches, performance budgeting has its distinctive methods. budgeting has its distinctive methods. While these have not been described While these have not been described comprehensively in the literature, the comprehensively in the literature, the main elements can be inferred from the main elements can be inferred from the practices of governments and the practices of governments and the proposals of reformers. The common proposals of reformers. The common components of performance budgeting components of performance budgeting systems are: activity classifications, systems are: activity classifications, performance measurements, and performance measurements, and performance reports. performance reports.

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FUNCTIONAL and ACTIVITY FUNCTIONAL and ACTIVITY CLASSIFICATIONSCLASSIFICATIONS

• Performance budgeting places considerable Performance budgeting places considerable emphasis on redesigning expenditure emphasis on redesigning expenditure accounts and grouping expenses into accounts and grouping expenses into functional and activity categories. In functional and activity categories. In performance budgeting technology, a performance budgeting technology, a function refers to a group related activities function refers to a group related activities for which a governmental unit is for which a governmental unit is responsible. Functions such as public safety, responsible. Functions such as public safety, health, and transportation, are divisible into health, and transportation, are divisible into specific groupings of work and expenditures. specific groupings of work and expenditures. Ex. the health activities of government Ex. the health activities of government include food inspection, the licensing of include food inspection, the licensing of doctors, and the operation of clinics. doctors, and the operation of clinics.

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PERFORMANCE MEASUREMENTS PERFORMANCE MEASUREMENTS • Measurement is essential to the success of Measurement is essential to the success of

performance budgeting. Performance performance budgeting. Performance measurements generally are derivatives of measurements generally are derivatives of cost accounting and scientific management. cost accounting and scientific management. Adopted from cost accounting are methods of Adopted from cost accounting are methods of measuring the total or partial cost of each measuring the total or partial cost of each unit of production or service; from scientific unit of production or service; from scientific management, techniques for relating units of management, techniques for relating units of input (such as labor) to quantities of output. input (such as labor) to quantities of output. In its application to government, cost In its application to government, cost accounting is more often used for accounting is more often used for ascertaining than for controlling costs. ascertaining than for controlling costs.

Scientific management- measures the Scientific management- measures the efforteffort

Cost accounting- measures the costCost accounting- measures the cost bac

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PERFORMANCE REPORTSPERFORMANCE REPORTS• Reports are a special type of performance Reports are a special type of performance

measurement, a retrospective assessment of measurement, a retrospective assessment of what as accomplished with budgeted what as accomplished with budgeted resources. The performance report can resources. The performance report can either be an interim-audit or a post-audit of either be an interim-audit or a post-audit of work and costs. It compares the actual cost work and costs. It compares the actual cost and accomplishment with what was and accomplishment with what was projected in the project. A performance projected in the project. A performance report may show deviations thereby report may show deviations thereby prodding managers or budgeters to take prodding managers or budgeters to take corrective actions. A report may lead to a corrective actions. A report may lead to a reappraisal of performance. reappraisal of performance.

Advantages of the new Advantages of the new budgetary system budgetary system

(Hoover Commission)(Hoover Commission)• It gives more comprehensive and It gives more comprehensive and reliable information to the chief reliable information to the chief executive, the legislative body and the executive, the legislative body and the general public on the policies of general public on the policies of government;government;

• It helps individual legislators to understand It helps individual legislators to understand what the government is doing and what the what the government is doing and what the costs are;costs are;

• It improves legislative examination of It improves legislative examination of budgetary requirements and enables the budgetary requirements and enables the legislative committees to decide more legislative committees to decide more easily the basic expenditure issues each easily the basic expenditure issues each year;year;

• It makes possible the submission It makes possible the submission and consideration of the budget and consideration of the budget for a shorter length of time;for a shorter length of time;

• It enables the administration to It enables the administration to place responsibility upon place responsibility upon subordinate officials for the clear subordinate officials for the clear execution of the provisions made execution of the provisions made by the legislative;by the legislative;

• It permits effective performance in It permits effective performance in reporting on budgeting and reporting on budgeting and management.management.

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ATTITUDE ATTITUDE TOWARDS TOWARDS PERFORMANCE BUDGETPERFORMANCE BUDGET

Throughout the performance budget era, there Throughout the performance budget era, there as persistent confusion over the meaning of as persistent confusion over the meaning of performance budgeting and program: and performance budgeting and program: and others considered the program budget to be a others considered the program budget to be a step beyond the performance budget. step beyond the performance budget. Performance budgeting meant the elevation of Performance budgeting meant the elevation of management concerns to central prominence. management concerns to central prominence. Performance budgeting also meant Performance budgeting also meant abandoning control traditions which the abandoning control traditions which the budget examiners had strong interests and budget examiners had strong interests and over which they serve as guardians. over which they serve as guardians.

Performance budgeting was castigated as too Performance budgeting was castigated as too radical and too complicated, particularly with its radical and too complicated, particularly with its over-refinement in details, which could obscure over-refinement in details, which could obscure the prime purpose of an agency’s program to the the prime purpose of an agency’s program to the point that budgeting becomes a mere exercise in point that budgeting becomes a mere exercise in accounting. accounting. Expressing faith in common sense in contrast to Expressing faith in common sense in contrast to scientific budgeting traditional budgeters, asserted scientific budgeting traditional budgeters, asserted that “budgeting is 90 percent common sense and that “budgeting is 90 percent common sense and don’t let anybody tell you anything else.”don’t let anybody tell you anything else.”Never before was the evolution the Philippine Never before was the evolution the Philippine budgetary system as colorful and memorable as budgetary system as colorful and memorable as with the country’s experience in performance with the country’s experience in performance budgeting.budgeting.

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The Philippine Experience in The Philippine Experience in Performance BudgetingPerformance Budgeting

Cognizant of the lag in the development of public Cognizant of the lag in the development of public fiscal management in the field of budgeting in the fiscal management in the field of budgeting in the early 1950’s. early 1950’s.

The budget, accounting and auditing The budget, accounting and auditing modernization project was launched in July 1954 modernization project was launched in July 1954 in collaboration of US management. in collaboration of US management.

Like other reform projects implemented under the Like other reform projects implemented under the broad US technical assistance program in the broad US technical assistance program in the Philippines, budgetary improvements represented Philippines, budgetary improvements represented an attempt to initiate requisite changes in an area an attempt to initiate requisite changes in an area relatively neglected in the past. relatively neglected in the past.

However, it differed from other program in that in However, it differed from other program in that in involved a technique that was untested in other involved a technique that was untested in other jurisdictions: performance budgeting. jurisdictions: performance budgeting.

The performance budgeting introduced in the The performance budgeting introduced in the Philippines as part of the package of reforms Philippines as part of the package of reforms during the incumbency of late President during the incumbency of late President Magsaysay by the Economic Survey Mission Magsaysay by the Economic Survey Mission headed by Daniel Bell in 1950. headed by Daniel Bell in 1950.

The purpose of the reforms, including the The purpose of the reforms, including the modernization of fiscal administration, was to help modernization of fiscal administration, was to help the government cope with severe social, economic, the government cope with severe social, economic, and political problems.and political problems.

The passage of R.A. No. 992 or the Revised Budget The passage of R.A. No. 992 or the Revised Budget Act on June 4, 1954, formally launched the Act on June 4, 1954, formally launched the establishment of performance budgeting in the establishment of performance budgeting in the Philippines. This act required that the whole Philippines. This act required that the whole budgetary concept be based on the triad of functions, budgetary concept be based on the triad of functions, projects, and activities defined in terms of expected projects, and activities defined in terms of expected results. results.

For the part of executive agencies, they pointed out For the part of executive agencies, they pointed out two factors which they believed made performance two factors which they believed made performance budgeting unsuccessful: indifference in the execution budgeting unsuccessful: indifference in the execution of programs, and lack of understanding on the part of of programs, and lack of understanding on the part of key operating officials. key operating officials.

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LACK or ABSENCE of PERFORMANCE LACK or ABSENCE of PERFORMANCE MEASUREMENTSMEASUREMENTS

Units of work measurement characterize Units of work measurement characterize performance budgeting. While line-item performance budgeting. While line-item budgeting merely lists the items of budgeting merely lists the items of expenditures, performance budgeting is expenditures, performance budgeting is based on programs, projects and activities. based on programs, projects and activities. The formulation of precise and accurate The formulation of precise and accurate units of work measurement is the most units of work measurement is the most critical problem. critical problem.

The DBM has been in an endless search for The DBM has been in an endless search for exact work measurement units on which to base exact work measurement units on which to base the financial requirements of governmental the financial requirements of governmental agencies. The unit of work measurement is the agencies. The unit of work measurement is the very essence of performance budgeting as it very essence of performance budgeting as it measures the results of agency programs and measures the results of agency programs and activities. activities.

The attainment of accurate work measurement The attainment of accurate work measurement units depends largely on a common units depends largely on a common understanding and framework between the understanding and framework between the central budget agency and the operating central budget agency and the operating agencies. agencies.

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PERSONNELPERSONNEL Performance budgeting is hampered by Performance budgeting is hampered by

the lack or absence of personnel the lack or absence of personnel processing necessary technical skills and processing necessary technical skills and competencies such as management and competencies such as management and cost accounting. The responsibility for cost accounting. The responsibility for preparing the budget shifts from the preparing the budget shifts from the accountants to the manager who has to accountants to the manager who has to express his agency’s plans in terms of express his agency’s plans in terms of programs and projects.programs and projects.

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ORGANIZATIONORGANIZATION Performance budgeting demanded no less than a Performance budgeting demanded no less than a

restructuring of the government’s organizational restructuring of the government’s organizational system. system.

Out of 50 plans presented in the Congress in Out of 50 plans presented in the Congress in 1955, only one was approved and out of 53 plans 1955, only one was approved and out of 53 plans in 1956, 20 were rejected. in 1956, 20 were rejected.

For those plans which were passed into law, For those plans which were passed into law, complicated problems led to an overweight, complicated problems led to an overweight, overstaffed, and sufficient bureaucracy. overstaffed, and sufficient bureaucracy.

Such frustrations in streamlining the Such frustrations in streamlining the government’s organizational structure impeded government’s organizational structure impeded the success of performance budgeting which the success of performance budgeting which requires logical, rational, and efficient requires logical, rational, and efficient organizational structure. organizational structure. bac

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LEGISLATIVELEGISLATIVE Lack of congressional support added to the Lack of congressional support added to the

unsuccessful implementation of performance unsuccessful implementation of performance budgeting. Initial support leading to R.A. No. budgeting. Initial support leading to R.A. No. 992 eventually changed to downright hostility on 992 eventually changed to downright hostility on the part of the Congress. the part of the Congress.

A leading authority on Philippine budgeting, A leading authority on Philippine budgeting, remarked that “the most depressing reason for remarked that “the most depressing reason for the present superficial adoption of performance the present superficial adoption of performance budgeting in the government is the complete budgeting in the government is the complete reversal of Congress with respect to performance reversal of Congress with respect to performance budgeting.”budgeting.”

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PLANNING, PLANNING, PROGRAMMINGPROGRAMMING and and BUDGETING SYSTEMBUDGETING SYSTEM

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HISTORY and DEVELOPMENTHISTORY and DEVELOPMENT It was originally developed by the Rand It was originally developed by the Rand

Corporation in Sta. Monica, California, for Corporation in Sta. Monica, California, for use by the US Air force. PPBS was adopted use by the US Air force. PPBS was adopted in 1961 by the Defense Secretary in 1961 by the Defense Secretary MacNamara for his department’s operations.MacNamara for his department’s operations.

President Johnson issued an executive order President Johnson issued an executive order on August 1965 instructing all executive on August 1965 instructing all executive departments to adopt PPBS: thus making departments to adopt PPBS: thus making this system the decision-making and this system the decision-making and financial tool of the federal government. financial tool of the federal government.

PPBS is a result of three distinct but closely PPBS is a result of three distinct but closely related current thoughts in budget-making: related current thoughts in budget-making: economic planning, efficiency in economic planning, efficiency in government, and management of national government, and management of national economies to control cyclical fluctuationseconomies to control cyclical fluctuations..

PPBS also offers an answer to the classical PPBS also offers an answer to the classical question: how does the government allocate question: how does the government allocate resources appropriately and rationally resources appropriately and rationally without resorting to a hit-and-miss without resorting to a hit-and-miss procedure? PPBS respond to the question by procedure? PPBS respond to the question by eclectically corporating in the system three eclectically corporating in the system three distinct administrative processes, namely: distinct administrative processes, namely: strategic planning, management control, strategic planning, management control, and operational control. and operational control.

PPBS aims to specify (and PPBS aims to specify (and where possible to quantify) where possible to quantify) the objectives or “output” of the objectives or “output” of government's spending government's spending programs and then to programs and then to minimize the costs. To do so minimize the costs. To do so requires the systematic use of requires the systematic use of analysis in connection with analysis in connection with budget formulation, planning, budget formulation, planning, program development and program development and evaluation. evaluation.

Smithies defines the purpose : a. to Smithies defines the purpose : a. to improve the basis for major program improve the basis for major program decisions; b. to subject decision about decisions; b. to subject decision about resources allocation to systematic resources allocation to systematic analysis, comparing alternative courses of analysis, comparing alternative courses of action in a framework of rational action in a framework of rational objectives clearly and especially stated; c. objectives clearly and especially stated; c. to use the rule of efficiency in choosing to use the rule of efficiency in choosing the alternative that optimizes the the alternative that optimizes the allocation of public resources; and d. to allocation of public resources; and d. to help responsible officials make decisions help responsible officials make decisions while taking into account that PPBS is not while taking into account that PPBS is not a mechanical substitute for the good a mechanical substitute for the good judgments, political wisdom and judgments, political wisdom and leadership of those officials. leadership of those officials.

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SPECIFIC FEATURESSPECIFIC FEATURES Specifications of objectives to be Specifications of objectives to be

achieved through government achieved through government spending and expenditures;spending and expenditures;

Existence of a multi-year planning Existence of a multi-year planning and programming process which and programming process which incorporates and uses an incorporates and uses an information system to present data information system to present data in meaningful categories essential to in meaningful categories essential to major executive decisions, thus a major executive decisions, thus a budget system which is future and budget system which is future and planning-oriented. planning-oriented.

Selection of a decision from various Selection of a decision from various alternatives to achieve program alternatives to achieve program objectives where the choice is objectives where the choice is arrived at using economic method of arrived at using economic method of analysis such as cost-benefit analysis analysis such as cost-benefit analysis and feasibility studies which leads o and feasibility studies which leads o minimization of costs and comparison minimization of costs and comparison of costs and benefits, especially of costs and benefits, especially when benefits can be quantified.when benefits can be quantified.

Existence of analytic capability used Existence of analytic capability used by the agency’s by permanent by the agency’s by permanent specialized staffs to meet objectives. specialized staffs to meet objectives.

Existence of a budgeting process Existence of a budgeting process which can take broad program which can take broad program decisions, translate them into more decisions, translate them into more refined decisions in a budget context, refined decisions in a budget context, and present the appropriate program and present the appropriate program and financial data for presidential and financial data for presidential and legislative action; andand legislative action; and

Systematic use of analysis Systematic use of analysis throughout the process, hence throughout the process, hence holistic and integrative in approach holistic and integrative in approach requiring economic and planning requiring economic and planning skills. skills.

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PPBS: THE PHILIPPINE PPBS: THE PHILIPPINE EPERIENCEEPERIENCE

The introduction of PPBS brought a damaging The introduction of PPBS brought a damaging gap between publicity and performance. In gap between publicity and performance. In the US, agencies went through the motions the US, agencies went through the motions of preparing PPBS documents.of preparing PPBS documents.

In the Philippines, after the declaration of In the Philippines, after the declaration of Martial Law in September 1972, P.D No. 1 Martial Law in September 1972, P.D No. 1 called for the reorganization of the entire called for the reorganization of the entire government system in accordance with the government system in accordance with the Integrated Reorganization Plan Integrated Reorganization Plan recommended by the Presidential recommended by the Presidential Commission on Reorganization—formulate Commission on Reorganization—formulate short term and long term development plans short term and long term development plans and to monitor.and to monitor.

The same P.D. provided for the creation The same P.D. provided for the creation of the NEDA chaired by the president of the NEDA chaired by the president himself. The Philippine Navy attempted himself. The Philippine Navy attempted to work out a PPBS model for entire to work out a PPBS model for entire Department of National Defense in 1976.Department of National Defense in 1976.

As a result of PPBS, Filipino scholars and As a result of PPBS, Filipino scholars and experts read papers in seminars on the experts read papers in seminars on the possible usefulness of PPBS in the possible usefulness of PPBS in the Philippine setting. Philippine setting.

Philippine Association of Government Philippine Association of Government Budget Administration (PAGBA) devoted Budget Administration (PAGBA) devoted several conferences to a discussion several conferences to a discussion merits of PPBS.merits of PPBS.

Even the Career Executive Service Even the Career Executive Service Development Program undertaken by Development Program undertaken by the Development Academy of the the Development Academy of the Philippines invariably included an Philippines invariably included an overview of the PPBS in its course overview of the PPBS in its course modules. modules.

Likewise, course syllabi in fiscal Likewise, course syllabi in fiscal administration, organization and administration, organization and management, and management management, and management planning and control courses in the planning and control courses in the NCPAG included assessments of NCPAG included assessments of PPBS.PPBS.

Early proponents of PPBS in the Early proponents of PPBS in the Philippines avoided using the Philippines avoided using the term to minimize negative term to minimize negative reactions to another “imported reactions to another “imported technique”. They preferred to technique”. They preferred to call it the IBS or the Integrated call it the IBS or the Integrated Budget System. Despite such Budget System. Despite such Incognito, it was implied that IBS Incognito, it was implied that IBS or PPBS, like the performance or PPBS, like the performance budget, was the same animal, budget, was the same animal, only much bigger this timeonly much bigger this time

Local budget officials were very Local budget officials were very careful about openly advocating PPBS, careful about openly advocating PPBS, perhaps due to the earlier experiences perhaps due to the earlier experiences with performance budgeting. However, with performance budgeting. However, they admitted the usefulness of the they admitted the usefulness of the system in this sense:system in this sense:

a. PPBS provides a clear linkage a. PPBS provides a clear linkage between planning and budgeting; andbetween planning and budgeting; and

b. PPBS offers techniques which b. PPBS offers techniques which might help solve the problem of might help solve the problem of resource allocation and setting of resource allocation and setting of positions.positions.

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AN ASESSMENT OF PPBSAN ASESSMENT OF PPBS Compared to the critics of performance Compared to the critics of performance

budgeting, the critics of PPBS are more budgeting, the critics of PPBS are more outspoken and emphatic in their outspoken and emphatic in their assessment of PPBS implementation. assessment of PPBS implementation.

Topping the list is Aaron Wildavsky Topping the list is Aaron Wildavsky whose appraisal of PPBS and politics of whose appraisal of PPBS and politics of the budget process may now be the budget process may now be considered a classic and from whom a considered a classic and from whom a lot of scholars on government lot of scholars on government budgeting owe a lot. budgeting owe a lot.

A positive view of PPBS is A positive view of PPBS is noteworthy. Although presenting noteworthy. Although presenting no panacea, PPBS offers a logical, no panacea, PPBS offers a logical, objective approach to planning and objective approach to planning and budgeting. Potentiality, PPBS budgeting. Potentiality, PPBS allows administrators to evaluate allows administrators to evaluate the anticipated results of proposed the anticipated results of proposed programs and systems alternatives, programs and systems alternatives, and to compare results from and to compare results from different proposals in search of a different proposals in search of a “best” or “satisfying” alternative. “best” or “satisfying” alternative.

With that, one should With that, one should recognize the fact that PPBS recognize the fact that PPBS is only a tool for budgetary is only a tool for budgetary forecasting, planning and forecasting, planning and programming. The tool programming. The tool never makes decision; never makes decision; decision-makers who use decision-makers who use the data derived from the the data derived from the tool make the choice. tool make the choice. back

ZERO-BASE ZERO-BASE BUDGETING (BUDGETING (ZBBZBB) )

APPROACHAPPROACH

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INTRODUCTION AND INTRODUCTION AND DEFINITION of the CONCEPTDEFINITION of the CONCEPT

The zero-base approach The zero-base approach ”revolutionized" the budgetary ”revolutionized" the budgetary systems in both developed and systems in both developed and developing countries. As usual, developing countries. As usual, the trend-setter was the US, the trend-setter was the US, and its gospel was echoed and and its gospel was echoed and adopted by many developing adopted by many developing countries. countries.

According to Phyrr,According to Phyrr, zero-zero-base budgetingbase budgeting is an is an operating, planning and operating, planning and budgeting process which budgeting process which requires each manager to requires each manager to justify his entire budget justify his entire budget request in detail, and shifts request in detail, and shifts the burden of proof to each the burden of proof to each manager to justify why he manager to justify why he should spend any money. should spend any money.

ZBBZBB is a management and is a management and budgeting process which budgeting process which necessitates each manager necessitates each manager responsible for a major responsible for a major activity, cost center or activity, cost center or function to justify fully his function to justify fully his budget proposal following a budget proposal following a systematic method of systematic method of identifying, analyzing, identifying, analyzing, evaluating, and ranking evaluating, and ranking present and new projects.present and new projects.

The term “The term “zero-basezero-base” refers to the ” refers to the yearly analysis, evaluation, and yearly analysis, evaluation, and justification of each activity, program justification of each activity, program or project starting from a “zero” or project starting from a “zero” performance level. performance level.

For the uninitiated, the term “zero” For the uninitiated, the term “zero” in budgeting connotes a negative in budgeting connotes a negative impression. impression.

However, “However, “zero-basezero-base” really means ” really means the analysis of the entire budget the analysis of the entire budget from a starting point of zero or from from a starting point of zero or from “scratch”. “scratch”.

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FEATURES and OBJECTIVES of FEATURES and OBJECTIVES of ZBBZBB

•It is a total budget approach.

•It is a budget based on need, not want.

•It reallocates resources.•It identifies alternative ways and levels of performance and funding.

In effect, ZBB system hopes to In effect, ZBB system hopes to achieve the following achieve the following

objectivesobjectives::

Strengthen the present Strengthen the present performance budgeting performance budgeting systemsystem

Eliminate or reduce the Eliminate or reduce the funding of low-priority funding of low-priority activitiesactivities

Improve the quality of Management and Budget information

Encourage the application of improved or new performance measurements

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BASIC ZBB TERMS Decision Unit is a major activity,

group of related activities, cost center or organizational unit which requires significant managerial decisions on performance and funding levels.

Decision Level is the level of the organization responsible for analyzing, reviewing, ranking, and grouping activity justification document. Each division, regional office, and bureau are required to analyze and rank activities.

Three parts of Levels of Performance and Funding

Current Level (CL)- level of performance and funding that is required to carry on the year’s service or output level without major policy changed, also referred to as “BUSINESS AS USUAL” level.

ACVITY JUSTIFICATION and DOCUMENT (AJD) DECISION PACKAGE is a document that identifies and describes a specific operation in a manner that enables management to evaluate and rank it against other operations competing for limited resources and to decide whether to approve or disapproved it.

Minimum Level (ML)- level of performance and funding below which an activity is not feasible to operate because it cannot make a constructive contribution towards fulfilling an objective.

ENHANCEMENT LEVEL (EL)- level performance and funding above the current level wherein increased output and service will warrant the service review of higher management; the enhancement level may be divided into EL(1) and EL(2) is higher than EL (1) and is closer to attaining completely the objective of an Activity.

Levels of Performance and Funding besides the following

information

Objectives

Description of activity

Alternative methods considered

Output performance measurement

RANKING is the process by which higher level managers evaluate an array activity levels (as shown in the decision packages) in descending order of priority.

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THE ZBB PROCESS 8 steps necessary to establish in agency Development and issuance of agency

planning assumption and policy guidelines; Identification of decision units; Identification of objectives for each decision

unit; Identification and evaluation of alternative

methods of accomplishing objectives;

Analysis of different levels of performance and funding;

Preparation of justification documents or decision packages;

Ranking of activities at various performance and funding levels; and

Consolidation of activity justification documents and accomplishment of standard budget preparation forms.

2 major steps (simplified ZBB PROCESS)

Development of decision packages

Ranking back

Development of decision packages

For decision units, take activities that are not so low or detailed as to focus too limited options for decision-making, and not so high or broad as to hide major activities and commitments. Consider the time required for analysis and amount of paper work needed.

Set objectives for each activity. They must be operational, measurable and related to the agency’s “what” (response to issue or problems), “how much” (rate of response) and “when”.

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RANKING This is done at levels in the

organization. Phyrr stresses that the ranking process has to be started by the manager who directly supervises the operation. Then the manager above him reviews the ranking and consolidates the ranking and consolidates the ranking of all the packages of managers below him.

The ranking is repeated upward until a final ranking is produced at some appropriate organizational level.

TWO routes are suggested for this ranking process:

1. Based on the organizational structure and

2. By functional groupings of activities even if such activities cut across present organizational boundaries

Fundamental questions associated with the ranking processes Who will do the ranking? How will it be done? What will be the basis for ranking? What ranking methods will be used? How will the results be presented?

-Well defined and objective answers to these questions will rationally lead to a meaningful ranking process

The heart of ZBB is the ranking process

All decisions are listed in the order of decreasing benefit by the managers in charge of them. Package has a price tag attached, there is a cumulative cost as the list proceeds in descending order.

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ZBB in the PHILIPPINES

Introduced in the Philippines in 1977 during the preparation of the Calendar year 1978 national budget.

The legal basis of adopting ZBB is found in Section 8 of PD 1177 (Budget Reform Decree).

Establish “bench marks” for outlays category:

Personal servicesMaintenance and operating expenses, and

Equipment

It is better that a ‘bench mark be established for each category rather than proceed to evaluate requests equal to or in excess of previous limits.

Justifications for adopting ZBB in the Philippine Budget system:reasons advanced by the Office of Budget and ManagementLack of managerial involvement in

budgetingLimited priority setting of projects and

activitiesLack of performance measurements

and cost benefit analysisUnnecessary spending

Weak planning and budgeting linkage

Inadequate probing organization and methods of operation

Ineffective allocation resources

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An Appraisal of ZBBBenefits claimed after the implementation of ZBB: (Texas) No. of budget forms were

reduced ZBB provided a procedure for

focusing evaluation of resources only for those activities with the highest contribution to profit.

In Georgia:

The establishment of a financial planning phase before the budget was prepared

Greater involvement in the budgetary process by personal in the lower organizational levels of state government.

Negative side in New Jersey:

Problems were encountered in different areas:Resistance to the systemLack of understanding of the basic

concepts of ZBBPoor quality of information

submitted

Weakness or constraints in full implementation of ZBB in the Philippine system

• Support from top management • Translation of concepts• Management of system

•Claudio has added certain requirements:•Clear-cut organizational structure which defines duties and responsibilities of each manager•Clearly stated functions and objectives of the department or bureau•Competent managers•Well defined outlines and planning assumptions

Defects or weaknesses in the execution of ZBB

Insufficient training of agency personnel on the intricacies of implementing ZBB.

Lack of guidance in implementing ZBB, especially in the ranking system;

Lack of central staff fully trained in ZBB so as to guarantee an effective reecho or orientation to agency budget and planning personnel;

Lack of appreciation and real support from dept heads and officials

Emphasis on forms or too much paperwork

Difficulty of translating the ZBB concepts to more comprehensible, concrete terms which are socially digestible and palatable to end-users

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Conclusion:Conclusion:The Philippine experience in applying The Philippine experience in applying

various approaches to budgeting has been various approaches to budgeting has been described.described.

These were adopted from approaches These were adopted from approaches developed in the united states- starting developed in the united states- starting with the line item budget, then the with the line item budget, then the performance budget, on to the PPBS and performance budget, on to the PPBS and ZBBZBB

What budget approach are we actually What budget approach are we actually using in the Philippine budgeting at using in the Philippine budgeting at present:present:The chief of the financial management The chief of the financial management

office of a leading agency, when office of a leading agency, when confronted with this question, answered: confronted with this question, answered: “at the agency level, we are actually “at the agency level, we are actually subjected to all these approaches. In subjected to all these approaches. In budget preparation, we are enjoined to use budget preparation, we are enjoined to use ZBB; in budget authorization and ZBB; in budget authorization and accountability, it is performance budgeting accountability, it is performance budgeting which sets the standards. which sets the standards.

Few Observations on Few Observations on budgeting Approaches used budgeting Approaches used

in the Philippinesin the PhilippinesThese are from the United States. These are from the United States. It cannot be claimed with great confidence It cannot be claimed with great confidence

that these approaches have been that these approaches have been completely successful in making the completely successful in making the budget an effective instrument of fiscal budget an effective instrument of fiscal policy. policy.

These approaches are premised on These approaches are premised on rationality. rationality.

Reference:Reference:

Briones, L. Public Fiscal Administration. UP-Briones, L. Public Fiscal Administration. UP-NCPAGNCPAG