Performance Budgeting

PERFORMANCE BUDGETING Performance Budgeting is a system under which the physical aspect of every programme or activity is correlated with the financial aspect of the budget. Purpose of Performance Budgeting 1.To improve budget formulation, review and decision-making at all levels of operation. 2.To facilitate better appreciation and review by the cabinet and legislature. 3. To enable better performance audit. 4. To facilitate progress in terms of plans. 5. To bring annual budgets and plans together through a common yardstick of measurement and a common language.

STATUTORY ANNUAL BUDGETING SYSTEM 1.High past data orientation; More like a projection based on percentage increase, 2.Justification for grants supported by administrative reports and explanatory memorandum. Financial part remains segregated from justifications. 3. Control based on annual or near annual review. 4. Control based on spending, not on performance or target achievement.

Performance Budgeting in India Estimates Committee Administrative Reforms Commission Planning Commission

Types of Budget Focus of Control Commercial sector

ROI profit

Actual expenditure ≤ Budget expenditure Actual physical ≥ Budgeted output output. S.T. budget limits on expenditure.

Budgeting

Actual output ≥ Budget Output Actual Output Budget Input

Appropriation Budgets

Noncommercial Sector

Programme Budgets Performance Budgets

Methods of Expenditure Classification -Salary Object wise classification -TA

-Investigations -Grants -Projects

Functional Classification

-

Economic Classification

General Services Social & Community services Economic Services Un-allocable

-Current

A/C of Govt. Administrative -Current A/C of departmental undertaking -Capital A/c of governmental administration/departmental undertaking -Changes in financial assets -Changes in financial liabilities -Reconciliation between govt. administration/undertakings. Functions Programmes Activities

Programme – Projects Activity Classification

To ensure that a specific predetermined segment of expenditure is committed to development work. To monitor and review the overall pattern of expenditure. To monitor the impact on capital formation, transfer etc.; useful for fiscal decisions.

To measures activities at micro level in relations to facilities.

Activity-wise classification

Object-wise classification

Salary Programme

Investigation Travel & others expenses

Budget outlay

Programme Programme

Works Grants etc.

Activity Activity Activity Activity Activity Activity Activity Activity Activity

S C H E M E S

FUNCTIONS, PROGRAMMES, ACTIVITIES TERM

MEANING

Function

A major category of distinct public service

Programm e

A part of a function having and end object and identifiable with a major organization A segment of

Activity

programme with homogeneous type of work, normally identifiable with a lower operating level in organization.

EDUCATIO N Education

HEALTH

AGRICULTURE

Public Health

Agricultural Development

Elementary Education

Control of communi cable diseases

Development of commercial crops

Elementary Teachers’ Training

Malaria Eradicati on

Cotton Development

MEASUREMENT OF PHYSICAL PERFORMANCE Direct Measure Absolute Output

Intermediate workload measure Symptoms

Measures

Indirect measure Unit cost approach Relative Output

Ratios

Complementing results

STEPS IN PERFORMANCE BUDGETING 1. Evolving meaningful classification structure in terms of programmes, projects and activities under each function. 2. Entrust these programmes, projects and activities to organizational units and sub-units. 3. Develop precise objectives for these programmes, projects and activities for the organization as well as for its subunits. 4. Establish suitable work units for measurement of the workdone, and also norms, standards and performance indicators, and 5. Realign the accounting systems, management information system, and reporting system to match the requirements of the Performance Budgeting System.

Difficulties in implementing Performance Budgeting System 1. Common cost allocation among different programmes and activities may be difficult, eg., in multipurpose river valley projects. 2. Cost in some subhands may related to more than one activity; e.g. Remote sensing. 3. Some activities and projects overlap in scope, such as, education for handicapped. 4. Accountability is diluted when activity falling within the jurisdiction of one department, is carried out by another department e.g., minor irrigation. 5. Multiplicity of functions, activities and programmes.

Public Sector Activities for which Performance Budgeting can be effectively used.

3.Advertising & Publicity 4.Research & Development 5.Projects 6.Rural and community services 7.Survey, Investigation etc. 8.Personnel function

Difference Between MOU’s & Performance Budgeting MOU’s

Performance Budgeting

1. In the nature of a contract between Ministry & PSU.

1. No such contract; only an intraorganizational mechanism for greater efficiency.

2. Related to overall performance.

2. More concerned with detailed performance, subsequently integrated into overall performance.

3. Thrust: Autonomy for PSU and 3. Thrust: Output in relation to division of responsibility between resource. PSU and Ministry. 4. Assumption: Result maximization if specific objectives and targets are sets.

4. Assumption: Result maximization if input – output relationship is adequately understood.

5. Involves performance evaluation and incentives.

5. Review is of rudimentary and of subjective nature; no incentive.

6. Application possible to any situation – commercial or non-

6. Applicable priority to situations, where projects, as a yard stick of

Similarities Between MOU’s & Performance Budgeting 1. Both are result oriented. 2. Both involved quantification as far as possible.