Performance Budgeting

Performance Budgeting

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This paper examines the benefit of performance based budgeting as a practical theory of efficiency for government programming. Confronted by fiscal limitation and demand for improved public services, government agencies are utilizing the budget as a means to elevate government accountability and efficiency, rather than simply as a means for distributing funds and controlling expenses.
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. (Brewer, 3) Performance budgeting is a system of planning, budgeting, and evaluation that emphasizes the relationship between money budgeted and results expected. (Government of Alberta, 1) Performance budgeting signifies an important divergence from habitual line item budgeting. A line item budget is mainly a tool for controlling expenditures it characteristically indicates the amount of spending permitted for particular purposes. As a fiscal year progresses, departmental spending must remain within the budgeted amounts unless formal budget amendments are approved. Under line item budgeting spending in one category cannot automatically be used to supplement another category. (Government of Alberta, 2)
While traditional budgets can be useful in assisting managers with internal control, they are not typically as useful as a policy or decision making tool. Line-item budgets assure elected and administrative officials that money is being spent only for approved purposes, but they do not show what is being accomplished with the money. (Government of Alberta, 3) Additional drawbacks to line-item budgets involve the promotion of indolence, due to the minor modifications made to budget planning each year. Line-item budgeting can result in ineffective and costly actions because management is not allowed the flexibility to address changing situations. (Virginia Society of Certified Public Accountants, 7) Many government programs are often forced to use funding, or lose funding at the end of a program year; these restrictive processes have the potential to invite micromanagement and impede the fulfillment of program objectives. (Government of Alberta, 3) In comparison, performance budgeting has more of a policymaking orientation it links plans, measures, and budgets and it pushes administrators and policymakers to contemplate the big picture. (Brewer, 23) Performance budgeting provides useful information about the impact of budget decisions on people and gives departments increased budgetary flexibility. Additionally, performance budgeting allows for ongoing monitoring and strengthens legislative decision making and oversight.

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(Brewer, 24) The shift from a traditional budgeting approach enhances financial accountability to citizens, it provides specific and insightful information to decision makers, and promotes increased monitoring results by supporting better management and evaluation. (Government of Alberta, 3) A performance budget informs stakeholders about what the department does and what it is expected to accomplish with the funds it has budgeted. (Allen, 12)
Strategic budget planning is a effective tool for establishing priorities and making knowledgeable decisions about the future. Therefore, it can provide a lasting framework for annual budget decisions. (Allen. 12) The observation has been made that “although strategic planning has become popular in government in recent years, it is frequently difficult to see the connection between what a strategic plan says and what next year’s budget does.” Performance budgeting initiatives can provide that important connection. (Government of Alberta, 4)
Common characteristics of performance budgets include agency identification of mission, goals, and objectives. Performance budgets link strategic planning information with budget development and performance measures. Expenditures are placed into very broad categories (such as personnel, operating expenses, and training and technical assistance opportunities) rather than more specific line-items approach. Performance budgeting is an integral part of an ongoing process that focuses on government accountability and performance improvement. Performance based budgeting is the logical and practical theory of efficiency at each level of government programming.

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