How to Initiate a

Performance
Framework in
Pokar Khemani
Budgeting
ICGFM Annual Winter Conference
December 2009
 Outline
 Why Performance Framework
 Performance Framework in Budgeting
 Introducing Performance Framework
 Evolution, Prerequisites and Key Tasks
 A well-defined implementation strategy
 Line-item to Program-based Budgeting
 Program Classification: Key Aspects
 Budget Classification, Chart of Accounts and Accounting System
 Performance Specification: Common Issues, SMART Indicators
 Performance: Monitor and Review
 Evaluations and Spending Reviews
 Program Budgeting and MTEF
 Key Messages
 Concluding Remarks

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 Why Performance
Framework
 Increasing public demands for greater
government accountability, transparency and
effectiveness
 Mounting pressures on public expenditure,
calls for improved services for the same
money
 Need for a more responsive system from
politicians and public officials
 Performance of fiscal policy and budget
management is vital for overall performance

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 Performance of Budget
Management
Three goals:
 Macroeconomic stability and aggregate fiscal
discipline
 Allocation of resources to the strategic
priorities – expressed by the society
 Efficiency in the use of resources in the
implementation of government policies
All three are closely interwoven and
ultimately relate to efficiency.

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 Performance Framework in
Budgeting
 Wide variety of approaches, practices, and methods
– considerable literature has been produced
 Common theme is applying the budget to promote
performance by the appropriate use of performance
information at each stage of budget cycle to inform
decisions on resource allocations and improve
efficiency of resource usage
 No single model: performance, program, output,
results-oriented budgeting – a programmatic
approach is being commonly followed
 OECD defines performance budgeting as relating
funds allocated to measurable results in terms of
outputs and/or outcomes and evaluations

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 Performance Framework in
Budgeting: Evolution
 Performance budgeting has a long history:
1960s saw the program budgeting
techniques developed in USA spread to
many countries
 In 1980s and 1990s, UK, New Zealand,
Australia, Canada and various OECD
countries developed some form of
performance-based budgeting
 In recent years widespread interest and
activity in this area in Eastern Europe, Latin
America, Asia and Africa region – a world
wide movement

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 Performance Framework:
Some Prerequisites
 Credible macroeconomic and fiscal
framework
 Integration of budgeting and planning
 Well developed budget preparation process
with a MT perspective – credible budget
 Sound budget execution, accounting and
reporting framework
 Strengthened PFM legal framework
 Clarity on budget roles of legislature and
executive
 Get ‘basics’ work well

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 Introducing Performance
Framework in Budgeting:
Key Tasks
 A well defined implementation strategy
 Traditional (Line- Item) to Program- based Budgeting
(PBB)
 Program Classification: Key Aspects
 Enhance Budget Classification, Chart of Accounts, and
Accounting System to accommodate PBB
 Performance specification – indicators and targets
 Performance: Monitor and Review
 Program/Spending Reviews
 Program Budgeting and MTEF

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 PBB Implementation
Strategy
 Well defined reform objectives
 Process for introducing and managing
reforms
 Institutional and human capacities needed
to drive and support reforms
 Sequencing and pacing of reforms: Pilot vs.
Big Bang approach
 Executive and Legislature commitment

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 Traditional & Program
Budgets
 Traditional Budgets
 based largely on “ line items” e.g. salaries, travel,
overheads, etc.
 no indication of objective/output
 primarily incremental and annual
 Program Budgets
 line items identified to programs, keep key input controls –
current, capital, interest
 programs with well defined outputs and outcomes
 a medium-term perspective
 performance informs the budget process
 financial flexibility and accountability

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 A Programmatic Approach
to Budgeting
 Basis of budgeting in many countries, a building block for
performance framework in the budget process
 Spending classified by “programs”
 Programs reflect expenditure on groups of services
(outputs) and have common broad objectives (intended
outcomes)
 Programs should be linked with the organizational
structure to establish clear accountability for performance
 Programmatic classification of budget should aim at
strengthening the link between policy objectives, planning
and allocation of resources

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 Program Classification:
Key Aspects
 Development of line-ministry program structures should be a
collaborative effort between MOF and line ministries
 Number of programs should be relatively limited
 Program structure consists of various layers with different
nomenclature - most common three layers: program, sub-
program and activities
 Have a “Corporate Services” program to include ministry wide
common services in early years
 Programs should include both the current and capital budget
 Programs should not normally stretch over several ministries-
for interministerial programs, accountability needs to be
established at the level of sub-programs and activities

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 Budget Classification, Chart of
Accounts and Accounting
System: A Must for PBB
 Review and refine the current budget
classification structure with the introduction
of program budgeting
 The chart of accounts (COA) needs to be
revised to be fully consistent with the revised
budget classification structure
 Prepare a well-designed COA coding
structure to support the accounting system
 The accounting system and the payroll
system needs to be enhanced and adopt the
new budget classification and COA

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 Performance Specification
Common Issues
 Need for right type of robust performance indicators
 Better balance of output and outcome indicators and
improved specification of outputs
 Various dimensions of output performance including
quantity, quality, efficiency and cost; lack of volumes for
key outputs
 Mixing of outcome and output indicators, outcomes are
not expressed in a measurable form, and some outputs
are specified in a way that is outside the control of the
ministry to deliver
 Performance Targets: too many, difficult to measure,
absence of baseline indicators, arbitrary targets (too easy,
too tough), reliability issue

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 Performance Specification
SMART Approach
SMART:
 Specific – What is the most critical success factor(s)?
 Measured – What are the quantifiable characteristics?
 Achievable – Can you improve on past performance?
 Relevant – Do clients think the target is most
important?
 Timed – How quickly can it be achieved? How long
will it take to respond to needs?

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 Standards for Indicators
and Targets
Standard Good Practice Poor Practice

Specific Patients with heart Illnesses

disease
Measured Recovery rate Improve

Achievable 5% increase on last year World’s best practice

Relevant National policy priority Doctor’s preference

Timed One year In the future

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 Performance: Monitor
and Review
Action Issue Example
Data collection What do you need to measure Cost by sub-programme
indicators and targets? Services delivered
Is collection cost effective? Changes observed

Data recording What system do you need to Current system – e.g. spreadsheet
keep data securely? New system – e.g. Oracle BSC
Collation & analysis How does the information Time series, variance (budget-actual),
relate to programmes and achievement rate, unit cost
targets?
Reporting Who are the users? Senior management, Parliament/public
What do they need to know? Programme achievements, efficiency
When do they need it? Monthly, annually
What format(s) do they prefer? Tables, charts, text, video

Quality assurance How can you be sure, Internal checking

objectively, that the data are External peer review
accurate and appropriate? External audit

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 Program Evaluations &
Spending Reviews
 A variety of models and approaches: annual and periodic,
targeted and comprehensive
 UK “comprehensive spending reviews” are primarily used for
an examination of department’s budgetary requirements for the
coming three year period in light of existing spending
pressures, opportunities for improving efficiency, and the
costs of new policy proposals
 US “Program Assessment Rating Tool” (PART) assesses the
management and performance of individual programmes- each
PART asks departments to answer 25 basic questions
 Canada evaluations – “Management Resources Results
Structure” (MRRS) links strategic outcomes to resources,
performance measures and actual results for all programmes

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 Program Evaluations &
Spending Reviews: Basic
Questions 2. What are peoples
1. What do we do?
needs and expectations?

3. Do we need to
continue to do it ?

5. How can we do this

6.
6. Who
Who should
should cover
cover the
the better and for less
4.
4. Who
Who should
should do
do itit ??
costs
costs ?? money?

7. How should we go
about change ?

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 Program Budgeting and
MTEF
 Introduction of a program structure improves
the efficiency of MTEF, both in preparing the
forecasts and later in detailing out the budget
as per the agreed MTEF ceilings
 A credible MTEF could facilitate linking
resources to policy objectives and
performance – multi-year spending allocations
tied with multi-year performance targets

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 Some Key Messages
 Introduction of PBB takes time (4-5 years). Reform needs widespread political support and
intellectual acceptance
 The role and power of the Ministry of Finance is crucial to the success of PBB
 PBB should focus on budget reforms and linked with wider reforms on performance
management – an initiative more than an incremental to the budget reform process
 Performance information is potentially limitless, complex and expensive to collect, needs
to be selective. Too many targets create information overload
 Performance Information needs to be used efficiently and widely, including for improving
resource allocations, managing for better performance and increasing public
accountability
 Establishing some link between financial information and performance information needs
the right mix of incentives – whether financial rewards should be given for good
performance and bad performance should be punished – if so, how? Contd.

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 Key Messages
 Empowering Managers is not about removing
controls but devolving the responsibility for
applying some of them – MOF needs to monitor
effectiveness of financial management
 A change in behavior and culture across
government is essential - a struggle and long-term
process
 Realistic expectations needed - what can be
achieved and how long will it take

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 Concluding Remarks
 Performance Budgeting is a modern management tool
and not a panacea for all evils – it is the way to go
forward for public sector efficiency and performance
 A way forward:
 evaluate the ongoing budget reforms, identify gaps and problems,
and think on solutions and what is achievable
 prepare a realistic and sequenced reform plan and ensure that there
is sufficient capability to support and implement
 OECD states “ journey is as important as the destination
 a long-term approach and persistence are needed: it takes time to
overcome the technical issues and change the behavior of public
servants and politician
 strong leadership and champion for change and reforms

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 Thank you

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