Integrating Performance and Budget

In order to manage government agencies effectively, leaders make budgeting decisions to support mission objectives. Ideally, decision-makers take the performance information of various programs into consideration, and by understanding and analyzing the implications of budgeting decisions to fund one alternative over another, leaders can determine the most beneficial uses of limited taxpayer funds. However, integrating budgeting and performance can be challenging for government organizations.

The IBM Center for the Business of Government has published Four Actions to Integrate Performance Information with Budget Formulation. This report was published in order to improve the formulation of budgets by strengthening the performance-budget integration process, and therefore, improve mission outcomes. Below are summaries of the four actionable recommendations contained in the referenced report.

Action 1 – Engage Leadership

Engaging those in leadership positions is essential to improving performance-budget integration. When those in leadership positions are dedicated to the strengthening of performance-budget integration:

  • Decision makers are more likely to seek out and use performance information when making decisions about the budget
  • Individuals and offices supporting the agency will comply with the interests of leadership and devote time and energy to the performance-budget integration process
  • Stakeholders realize that performance data influences the amount of resources they will receive in the future, which will motivate them to participate in the process of collecting and analyzing this data

Motivating leaders to engage in the performance-budget integration process isn’t always easy. Some managers may be unenthusiastic about using performance data to formulate the budget because of:

  • Lack of awareness
  • Other priorities
  • Political risk

Below are some recommendations reform advocates can use to help engage leaders in performance-budget integration:

  • Focus initiatives on the leader’s current priorities
  • Encourage interest by demonstrating the benefits of performance-budget integration for leaders (e.g. performance-budget integration allows for more leadership control and better outcomes in priority mission areas)
  • Address misconceptions, such as the idea that measuring results of initiatives increases political risk
  • Make an effort to understand the current fiscal environment

 

Action 2 – Focus on Analysis

Strengthen the performance-budget integration process by focusing efforts on analysis. Everyone involved in the process must understand the analytics behind how decisions will be made. Although a budget office may provide some assistance in collecting and analyzing performance data, the job of producing, compiling and presenting these analytics is largely the responsibility of a performance office.

Below are some recommendations to improve the capability and effectiveness of a performance office:

  • Staff the performance office with analysts, including economists, statisticians and operations research analysts
  • Focus the analytical process on developing alternatives for decision makers to review
  • Eliminate biases from analysis by staffing the office with objective analysts and enlisting a non-stakeholder to present the results to decision makers
  • Ensure transparency throughout the entire process
  • Before beginning analysis, define realistic goals and objectives
  • Implement a division of labor to ensure that all tasks are completed accurately and in a timely fashion

 

Action 3 – Improve the Budgeting Process

For maximum effectiveness, the budget formulation process should be capable of identifying individual issues, analyzing them and clearly presenting them to decision makers. Recommendations for strengthening the budgeting process include:

  • Provide process, policy and fiscal guidance to subordinate organizations at the beginning of the budget cycle
  • Focus the budgeting process on decisions, as opposed to technical tasks
  • Consider creating a separate analytical staff (i.e. performance office)
  • Budget with multiple years in mind
  • Make decisions earlier in the budgeting process when possible
  • When making decisions, integrate budgeting with performance reporting, program evaluation, program management, requirements determination and strategic planning

 

Action 4 – Reform Structures of Budget Accounts

When formulating a budget, each decision involves the comparison of various alternatives’ costs and benefits.

When calculating costs of alternatives, some costs of programs may be spread across budget accounts, making the true costs difficult to capture. Costs may also occur in different years, and some information may not be available when decisions need to be made.

These problems can be resolved by creating analytic estimates of cost for each alternative. However, the resources required to complete such estimates is high, and conducting an accurate analysis can be challenging. More effective reforms to the budgeting account structure include:

  • Accrual-based accounting – This form of accounting records all transactions in the period where the consumption of the resource in question occurs, as opposed to when the payment is actually made.
  • Programmatic account structure – Accounts are organized based on a systematic categorization of programs and activities.

With these issues and suggestions in mind, reform advocates should use the following recommendations to ensure the collection of accurate cost information:

  • Review the structure of budgeting accounts and consider revising them if necessary
  • Regardless of long-term budget accounting revision strategies, ensure that the current performance-budget integration initiative has the ability to collect accurate cost estimates for priority issues

Integrating predictive performance analysis with budgeting decisions can lead to a more beneficial use of limited funds. Begin today to implement performance-budget integration at your agency.

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