Modern Approaches to Expenditure Planning –

Programme Performance Budgeting

Simon Stone

CABRI / WBI PFM Training Seminar

Pretoria June 2007

Programme Performance Budgeting (P²B) Outline

• Part 1 - Background– History– Principles– Terminology– Classification

• Part 2 – Elements of P²B– Design– Institutions– Accountability– Implementation challenges

• Part 3 – Implementing a Performance approach

Part 1

Background

History

• Line Item (incremental budgeting)

• Zero-based budgeting

• Programme Based Budgeting

• Output Budgeting

• Linked Planning and Budgeting “MTEF”

• Programme Performance Budgeting

• P²B

Principles of P²B

• Where do we want to go?• What do we need to do to get there?• How much does it cost?

• Policy-Strategy-Planning-Budget-linkage

• Performance targets and measures in a value for money context

• Reporting and audit to support– performance measurement, enhancement, and accountability

Terminology

• Essentially all terms are just labels for public finance concepts and process

• Understanding the labels requires an understanding of the concepts and processes

• A lot of overlap and sometimes conflict – beware!

Terminology problems two examples

• “MTEF”

• Programme Performance Budgeting

“MTEF”

• MTEF – Medium Term Expenditure Framework

• MTBP – Medium Term Budget Programme

• Medium Term Budget PLAN

P²B

• Programme

• Performance

• Budgeting

• What happened to “medium term” and where’s “planning” gone?

Programmes have

• Programme Name• Programme Description• Programme Policy• Programme Policy Goals• Programme Policy Objectives• Programme Sub-programmes• Programme Projects• Programme Outputs• Programme Activities• Programme Inputs (expenditures)

Performance Measures

• Political– Programme Policy Goals– Programme Policy Objectives

• Technical– Programme Outputs– Programme Activities– Programme Inputs

Labels and terminology

• Political– Level 1 “Result”– Level 2 “Result”

• Technical– Level 3 “Result”– Level 4 “Process”– Level 5 “Resource use”

Budget Classifications

• Source of funds

• Administrative/organisational

• Economic

• Functional

• Programme

• Geographic

Classification – Administrative and Programme

• Ministries• Administration structure

– “Departments” “Directorates” Sections, Units, etc.• Where do programmes fit in?

– Cross ministry programmes – original PBB– Programmes within Ministries– Cross “department” programmes

• Potentially same problems as original PBB (co-ordination and performance accountability)

• Never going to be perfect, department structure should migrate towards programme structure

• Inter-departmental (and inter-ministerial) co-operation• Managerial and performance accountability must be clear

Part 2

Elements of a

Programme Performance Budget

Programmes

• Meaningful and manageable group of activities – that directly or indirectly contribute to the delivery of SMART

outputs objectives goals

• Meaningful – primary education– road transport

• Manageable – primary curriculum development

• In primary education? Or combined with secondary in a curriculum development programme

– road safety initiative• In road transport or separate programme (high political profile)

Performance Responsibility and Accountability Structure

• Who is responsible for setting the performance target?

• To whom are they accountable?• When are they held accountable?• How is performance measured?

– Quantitative e.g., x per cent of target– Qualitative e.g., satisfactorily delivered– Process milestones – on track/ behind schedule

• What happens if achievement is “unsatisfactory”

Programme Policy Goal

• Long term (outcome)

• The desired, measurable results that the Government wishes to achieve in the long term

• Millennium Development Goals

• Universal Primary Education by 2015

Primary Education Goal

• Universal Primary Education by 2015– All children?– All children of primary school age in 20015?– Have access to a primary school?– Enrolled in school (that their parents chose)?– Attending school (state, NGO, or private)?– Complete x years of primary education?

Programme Policy Goal Performance

• Responsible– Minister

• Accountable– To Prime Minister, (Council of Ministers,

Parliament, People)

• Measurement– Long term – on track, etc.

Minister of Education Speech 2015

• Madame Speaker…I am delighted to announce that all children in our country now have the opportunity to attend a primary school…

• [Pause for loud cheering from Government members…]

Opposition Member’s Question

• I welcome my RHF’s announcement…, would she care to comment on recent UNICEF reports that … – Actual primary school enrolment is less than

90% of children of primary school age; – only 80% of those actually attend school for

more than 100 days of the school year;– and of those only 10% achieve a satisfactory

grade in the PS Certificate…?– Is this Universal Primary Education

Programme Policy Objectives

• Short - Medium term – (MTBP years 1, 2 and 3)

• specific results, • precisely measured

– in terms of time, number and cost,

• that can be accomplished – in the short-to-medium term and

• that are intermediate steps in achieving a policy goal

UPE Objectives

• MTBP 1– Primary school “education” (see goal for meaning)

increased

• MTBP 2– Primary school “education” (see goal for meaning)

increased

• MTBP 3– Primary school “education” (see goal for meaning)

increased

• …Objectives are often poorly stated

PE Policy Objectives MTBP 1

• Proportion of primary school age children enrolled increased to 81% from 80% in current year

• Proportion (…) with access to PS within 10 km increased to 80% from 75% in CY

• Proportion of children in PS “repeating” reduced to 0% from 10% in current year

Programme Policy Objectives

• Responsible – Minister, in consultation with technical staff

(feasibility, affordability)

• Accountable – to Prime Minister

• Measurement– Annually result against target .

Cabinet Tapes: Budget Discussion

• MoE: Yes, Prime Minister, I agree the enrolment objectives seems unambitious relative to our long term goals, (and at that rate it will take us 20 years to achieve what we have committed to achieve in 8 years), but…

• The enrolment issue requires us to address the access issue first, the rate of enrolment increase will be higher in later years, as (you may recall…) we presented in our sector strategy document

Programme Outputs

• Goods and services to be produced to contribute to the achievement of objectives and the goal.

• SMART: specific; measurable; achievable; realistic; and time-bound.

• One or more contributing to one or more policy objectives

Programme Outputs

• Responsible – Ministry technical staff and are set in

consultation with the Minister will outputs deliver objectives?

• Accountable – to Minister

• Measurement– Result against target (annually and more

frequently as relevant)

PE Outputs

• X primary schools built– how big? – classes?– opened, by (one month before) start of academic year

2007/08– staffed (what teacher/learner ratio?)– equipped– where?

• Enrolment outputs? convince a Minister• Repetition outputs

– Law changed?– All head-teachers informed?

Activities

• things (processes) that will be done to produce an output.

• There may be several activities to an output.

• An activity is not a SMART performance target but timely and complete achievement of an activity within budget can be used as a performance indicator

Programme Activities

• Responsible – are designed by the programme technical and

managerial staff - will the activities deliver the outputs?

• Accountable – to General Secretary

• Measurement– Milestones start, completion, interim

• Line Ministry management tool

PE Activities

• Enrolment

• Schools

• Repetition

Inputs

• financial, human and physical resources used (by activities) to produce outputs.

• When calculated in financial terms they are presented as articles of expenditure

• The “budget” line items

Programme Inputs

• Responsible – Programme managerial and technical staff

• Accountable – to General Secretary

• Measurement– Physical amounts and costs actual against

target – monthly mostly accounting in budget monitoring

• Unit costs vs “unit output expenditures”

Constrained, continuing, iterated processTop Down Bottom Up

Expenditure

Ceiling

Strategic

Choice

Operational

Choice

Goals

Desired Feasible,

Affordable

Objectives

Outputs

Activities

Inputs

Part 3

Implementing a

Performance Approach

Performance

• Value for money– Economy– Efficiency– Effectiveness– Respect for due process

Value for Money

Economy Efficiency Effectiveness

Goals

Objectives

Outputs

Activities

Inputs

Who assesses VFM?

• Programme managers ex post and ex ante– Internal auditors

• Ministry of Finance – the challenge function

• Cabinet?

• Parliament?

• External Audit – Auditor General/Supreme Audit Institution

Ministry of Finance and a badly presented programme

Complain Critique “Advise”

Goal

Objectives

Outputs

Activities

Inputs

VFM

Implementation Challenges

• High cost of setting up an MTBP

• Intangible performance indicators– Production function approach doesn’t work for

all outputs

• Predictability for line ministries– Ceilings change – why plan?

• Make years 2 and 3 meaningful

Sequencing (1)

• Create the demand for performance accountability• Leaders, sponsors, champions of change• Strengthen the policy process• Strategic plans - standardise• Medium term budget plans• Relevant performance targets in budget documentation• Effective auditing and reporting with feed backs in the

PEM Cycle• Move from strong central co-ordination to programme

management autonomy

Sequencing (2)

• Performance measures– Many to few– Some and then more

• Too many– Who can verify?

• Too few– Will tend to be vague and high-level, limiting

accountability

• The “right” amount– Use the accountability hierarchy

Demand for Performance

• Who cares?• What happens if performance is inadequate?

– More money/resources?• throwing good money after bad?

– Money/resources reallocated?• from primary education to defence?

– Debt reduction?• our grandchildren will do it better

• Human Resource Management and P²B– Promotion, bonuses, sanctions

The Performance Story

• Judgement• P²B looks highly linear - it is in design• Implementation in the real world is not so linear• A good performance story

– This programme will deliver the results indicated and provide value for money

– The results were not delivered/ VFM less than planned, but …

• Lessons learned and changes made• Beyond our control – unforeseen events – improved risk

assessment and management

USA - Programme Assessment Rating Tool - PART

• Does the program address a specific and existing problem, interest or need?

• Is the program designed so that it is not redundant or duplicative of any other federal, state, local or private effort?

• Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

• Does the program have ambitious targets and timeframes for its long-term measures? • Does the program (including program partners) achieve its annual performance goals? • Are independent evaluations of sufficient scope and quality conducted on a regular basis or as

needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

• Are budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

• Does the program use strong financial management practices? • Has the program demonstrated adequate progress in achieving its long-term performance goals? • Does the program demonstrate improved efficiencies or cost effectiveness in achieving program

goals each year

A (biased) conclusion

• A budget is a representation of policy

• Does it represent the stated polices?

• If budgeting isn’t done like this, how can it be done meaningfully?

• How do you know execution is good if you don’t measure performance beyond money actuals against money budget