The type and volume of performance information required, varies based on the nature of the programme.
Government uses a mix of performance measures, reflecting the multi-dimensional nature of performance in the public sector.
Programme structures are aligned with the administrative responsibilities and service delivery functions of ministries and agencies.
Expenditure classification and control frameworks are revised to facilitate programme management and promote accountability for results.
OECD Good Practices for Performance Budgeting
Good Practice 3: The performance budgeting system incorporates flexibility to handle the varied nature of government activities and the complex relationships between spending and outcomes.
Choosing the right mix of performance indicators
The OECD Recommendations of Budgetary Governance define good indicators as:
limited to a small number for each policy programme or area;
clear and easily understood;
allow for tracking of results against targets and for comparison with international and other benchmarks;
make clear the link with government-wide strategic objectives.
A common challenge facing many OECD countries is to identify a balanced set of indicators that reflect the multi-dimensional character of performance in the public sector. Key dimensions of performance that need to be considered are; achievement of key government policy goals, delivery of high quality public services, value for money and compliance with internal business rules.
France’s approach uses indicators of efficiency, effectiveness and quality, equating these to the perspectives of individuals as both taxpayers, citizens’ and users of public services. The following example from the justice programme illustrates the application of these different perspectives:
1. Efficiency, or the taxpayer’s view: e.g., number of court cases dealt with by a judge in a year
2. Social-Economic Effectiveness or the citizen’s view: e.g., rate of repeat offenses for the justice/correctional services
3. Service Quality or the user’s view: e.g., waiting time to receive a judgement or to receive treatment in the public health system
The Australian department of finance’s guidance on developing good performance information (see Box 6) similarly emphasises the need for a mix of indicators that tell a cohesive story on performance. This is backed up with practical support and guidance to government bodies on this topic.
Box 6. Australia - Department of Finance Guidance on Developing Good Performance Information (RMG 131)
In April 2015, the Department of Finance (Finance) issued guidance to government entities emphasising that good performance information tells a cohesive performance story that demonstrates the extent to which an entity is meeting its purposes through the activities it undertakes. The key focus of the guidance, and subsequent Quick Reference Guide (July 2016) is to support development of good performance reporting, including:
creating a common understanding of an entity’s purposes and the activities through which those purposes are achieved,
identifying a mix of quantitative and qualitative measures that demonstrates the effectiveness with which purposes are achieved,
selecting appropriate methods to collect and analyse performance information, and
presenting performance information to tell a clear and accurate performance story.
A system of advice and assurance also supports entities in setting their performance information. For example, Finance supports entities in drafting performance documentation, each entity’s audit committee reviews the appropriateness of its performance measures, and the ANAO conducts periodic audits of the system.
Source: Australian Government, Department of Finance (2015)
Other good examples of guidance on selection of good performance indicators are provided by the Treasury Board Secretariat of Canada (www.canada.ca/en/treasury-board-secretariat/services/audit-evaluation/centre-excellence-evaluation/guide-developing-performance-measurement-strategies.html) and the Performance Improvement Council, which supports the United States administration in implementing the Government Performance and Results Modernization Act (https://pic.gov/)
Programme structure
An important issue to be addressed in the design of a performance budgeting system is to define parameters for programmes. Governments face the following common questions:
How broad should programmes be, and to what extent should programmes be broken down into smaller units, (e.g. sub-programmes and activities)?
At what level to define performance indicators and targets, e.g. programme, sub-programme and activity?
To what extent programmes should be aligned with existing administrative structures?
Should all expenditures be incorporated within a programme structure?
A programme can be defined as a set of activities that are combined to deliver a specific policy objective or outcome. Good programme architecture should match public policy objectives, and link those objectives with the financial resources dedicated to their achievement. Programmes also enable the government to assign responsibility for achieving results to identified individual programme managers thus strengthening accountability for results.
As a general principle, programmes should be designed around outcomes, reflecting the delivery of key public goods and services. At the same time, as a matter of practicality, budget resources are allocated to organisational units that have both the authority to spend and the mandate to deliver specific services. While there is normally a high degree of consistency between organisational structures and programme structures there is not always a simple one-to-one relationship. For example, one programme may cover several organisational units. Cross-cutting programmes may also be developed to meet complex objectives that require coordinated action by a number of agencies such as improved mental health. Such ambitious programmes require strong inter-governmental coordination to manage risks related to effective coordination of budgets and operations and collective accountability.
Above the programme level, policy areas or missions can be defined, grouping several ‘programmes’ possibly belonging to different ministries. Sub-programmes may be used to disaggregate ‘programmes’, following the same logic and features as programmes. There may be interest in defining activities or interventions below sub-programme level. However, below programme level it is important to avoid excessive detail.
The budgets of all entities under the direct control of a ministry should be included in the programmes of the ministry. Thus, in setting objectives, the role and contribution of different entities should be reviewed and aligned. Programmes should group all resources contributing to the achievement of its goals, including wages, goods and services, subsidies and transfers, and investments as well as expenditures funded from own resources of entities included in the programme (gross budgeting);
While desirable, splitting payroll across different programmes may be difficult. Similarly, common services and support functions like legal, communications, HR management, IT, utilities etc. cannot easily or meaningfully be allocated to specific programmes. In such cases it makes sense to create a general “support” programme rather than to build elaborate, and possibly inaccurate, mechanisms to allocate shared costs.
Differentiated approaches
The performance budgeting methodology needs have the flexibility to deal with the very varied nature of government funded activities, and the different relationships that exist between financial resources and performance. Rather than a “one size fits all” approach, governments should differentiate between programme types, reflecting the relationship between budgetary inputs and outcomes. For example, where government is directly responsible for delivering public services, e.g. issuing visas, constructing roads, or preventing crime, it makes sense to have a tight link between the provision of budget and outcomes. In contrast, budgets for entitlement programmes are driven by fixed legislative commitments and the relevant performance measures would be concerned with efficient management and citizen satisfaction with service standards. Clear differentiation can be made between the following types of expenditure programmes:
1. Direct service delivery, for example police and education services
2. Entitlement programmes, for example pensions and social insurance
3. Transfers, grants and subventions, for example financing of local government services
4. Investments, for example construction of roads and bridges
5. Policy programmes, for example foreign affairs, trade and
6. Running costs
An additional reason for having a differentiated approach is that a “one size fits all” approach, for example where requiring outcome indicators for all programmes, results in a “make work” scheme. A smart system recognises that the relationships between budget resources and outcomes vary considerably across different activities of government and allows departments a degree of flexibility, while maintaining a consistent overall approach.
One such approach to flexibility is characterised by the United States, where departments and agencies are granted a wide degree to freedom to identify performance indicators within an overall performance framework. The Government Performance and Results Modernization Act (2010) requires that each agency develop a strategic plan and identify agency priority goals, linked to federal priority goals. The Office of Management and Budget provides an oversight role, supports and advises departments and agencies on methodology, follows up on priority goals of the administration and intervenes in cases of poor performance. The challenge with this type of approach is to prepare a single coherent budget report to the legislature.
The Netherlands has provided an analytical framework to differentiate programmes, asking ministries to identify the degree to which they control a policy outcome; four distinct levels of involvement are distinguished (see Figure 5).
Figure 5. Netherlands: Differentiated approaches based on relationships between budget and outcomes
Source: D. Moynihan and I Beazley (2016).
Budget classification and control frameworks
The adoption of performance based budgeting requires governments to revise the budget classification system, and financial reporting framework. The programme structure of the budget should be formalised in a ‘programme’ classification, which is one distinct segment in the Chart of Accounts. In combination with other types of classifications – economic, administrative, fund and functional (COFOG) classifications – the programme structure characterises all financial transactions.
An important principle that underpins performance budgeting is that programme managers are empowered to manage budgetary resources in a more flexible way than in traditional budgeting. This implies a substantial relaxation of traditional budgetary controls, reducing the number of line items.
However, abandoning line item controls fully carries risks of loss of control. Most countries have retained some line item control based on a simplified classification. Key controls that governments may want to retain are to protect capital spending and to control increases in payroll. Australia, France, the Netherlands, Sweden and the United Kingdom offer good examples of reclassified budgets based on mainly programmatic criteria.