Results-Based Budgeting and Costing - Research Paper Example

Running header: Results Based Budgeting and Costing Results Based Budgeting and Costing First & Sur Table Of Contents Introduction 1 2. Overview Or Background 3. Research Focus 3.1 Research Problem 3.2 Research Question 3.3 Research Aim 4. Research Methodology 4.1 Qualitative Research 4.2 Quantitative Research 4.3 Data Collection 4.4 Data Analysis 5. Merit Of The Research And Proposed Contribution 6. Literature Review 7. Research Conclusions 8. References Introduction For the last five years, a number of organizations and governments across the globe have witnessed significant changes in the way in which the budget is presented and managed. The United Nations and its agencies, the European Union and some states in the United States have adopted the new approach of budgeting referred to as result based budgeting. The financial management decentralization has stipulated a clear line of responsibility for the appropriations and the enhancement of the full cost identification of the activities. Budgeting is an annual process by which various organizations estimate the existing resources and project the future allocations towards accomplishment of a particular goal. (Mullen, 2006) Result based budgeting and costing is a subset of the results based management which is a planning and a strategic tool. It intends to align various budget allocations with the expected results. It is therefore a program based management whereby the formulation of the program revolves mainly around some key stated objectives and the results which are expected to be achieved; the projected results would be a justification of the resources which are required and derived and linked from the required outputs to be able to achieve such results; the real measured performance in the achievement of the results is evaluated and measured by the objective performance indicators. The commitment of the result based budgeting and costing is to be an approach that is driven by the outcome to the organizations and governments budgeting that includes an extensive examination of how the public and the users can achieve the benefits from the activities. Its mandate is the comprehensive review of various organizations and governments program and services to analyze and asses whether the programs and the commissioned projects are meeting the objectives and can be delivered in effective and efficient manner. (Klase, & Dougherty, 2008) The study will focus on the investigation of the effects of result based budgeting on the allocation of the budget of the agency. A number of studies sin the past analyzed the application of the result based planning through the reliance on both the perceptions and the outcomes of the aggregate budget. The research combines both the measurement of the result and performance and the decisions taken by the actors. Up to now, there is a very minimal study on the decisions of the main actors of the budget to analyze the effectiveness of the result based budgeting. By focusing on this study, the research mainly allowed for the analysis of the effects of the performance of the agency with regards to the decisions taken by some of the key actors. The main aim of the study is therefore to understand the effectiveness of the result based budgeting and costing to enable them make informed decisions that will ensure effectiveness in term of project delivery. Background Information The result based marketing is not a new concept with the history being traced back during the 1950s. Peter Drucker in his book, the practice of management introduced the concept of management by objectives and stipulated its key principles as below; Cascading of the organization objectives and goals The specific objectives of each member of the organization The explicit time period Evaluation of the performance and the feedback The concept has been used for a number of years by different organizations and government agencies. A number of developed economies and organizations like the United Nations and its agencies have appreciated the need to use the result based budgeting. Despite its wide acceptance, the concept with the definitions and the methodology cannot be easily and automatically transplanted to the operational environment of the various international organizations. There are a number of United Nations agencies that have not adopted the use of result based budgeting and costing due to their multilateral and universal character covering broad and complex areas in terms of socio and political structures. The decisions in these agencies are intended to get a balance of interests by finding consensus among different states having unique priorities objectives with regards to the programs they intend to implement. (United Nations, 1999) In a number of international forums, there is no single constituted definition of result based budgeting and costing. Despite different definitions, the concept and the understanding of the working principle remains the same. According to the secretary Generals’ desk of the United Nations, result based budgeting is delineated as a program budget whereby the formulation of the program revolves around a number of preferred objectives and expected results. Through the definition, the expected results should be the justification of the resources to be injected to get the required output; also, the actual and real performance when it comes to the achievement of the result is measured by the objectives of various stipulated performance indicators. According to the United Nations, the result based reporting is all about the formulation of programs that are engineered and pushed by a desire to achieve specific results and goals which are usually stated and formulated a the beginning of the budgeting process and against which the entire actual performance to be gotten is analyzed and measured ay the end of every biennium. (Klase, & Dougherty, 2008) Result based budgeting mainly entails the creational of working logical framework which is inclusive of the reasonable and well measured objectives, the expected result, various indicators of the performance and the outputs. The logical framework stipulated works towards the establishment of a top-down link and the inter-connections between the link and the interrelationship among the objectives, results and the resources which are required. One of the key features of the of the result based budgeting and costing is the establishment of various expected results with their achievement being measured by the indicated performance indicators which are also stipulated during the formulation stages of the program or project. Therefore the measurement of the program is usually linked or associated to the budget and therefore a more clear and transparent and accountability towards those who manage the programs. One of the advantages of the result based budgeting is its ability to focus on the results that should be achieved by the organization. Result based budgeting and costing is one of the management tools that is often used by different policy to help in meeting the needs they are currently facing, inter alia to ensure that scarce resources are put in priority areas, provide member states and donors with the actual results; assure that there is more transparency in the formulation of the budgets, approval and the process of implementation, enhance the dialogues with member countries on various proposed programs and organizational activities and also to ensure the organizations get competitive edge and relevance. Despite the a rationale of using the method as will be discussed below, the approach faces some barriers as discussed; Pretense of unbiased objectivity – The assumption that result based budgeting offers an objective and unbiased reporting and costing can be a barrier to the judgments and decisions taken by the policy makers. The challenge of measurement- The experiences from a number of UN agencies and jurisdictions make it clear that it is quite difficult to adopt some of the best ways of evaluating the services offered by the public, and compilation of data to establish a reasonable connections between the outcomes and the spending. (Stever, 1997) Increased administrative burden and inflated costs- The result based budgeting come with associated costs of the dollars which can be spent on other constructive issues. The organization or the jurisdiction might find itself in the vicious circle whereby there are continuous rising expenditures connected to the constraint of budget evaluation resulting into services which are not effective. Failure to bring meaningful change- The technique as reported in other organizations has failed to fulfill some expectations of the proponents. In a number of jurisdictions, the techniques have resulted to a tedious exercise by the professionals involved. (Mullen, 2006) Research Focus Result based budgeting is within the specific spectrum of the performance management systems that entails the management by objectives, result based management and the new financial management practices. A number of governments and UN agencies have experimented with the performance management with success. Result based management is one of the extreme forms of the performance management. It entails an attempt by the government to focus its decisions with regards to funding decisions on the outcomes of the programs to be implemented. It is mainly intended to focus on ensuring that the programs of the governments and the UN are meeting the intended goals. It also ensures the verification that the projects are being delivered in the most effective and efficient manner. It is mainly rooted in the strategic means and methods of ensuring that the budgets are cut to reasonable level. The most important thing is to focus on the deliverables with the intention of achieving the goal of comprehensiveness. The main focus of the study will be to analyze the effectives of the study and why it should be used by various government departments and agencies. (United Nations, 1999) Research Problem It is axiomatic to argue that any government agency and donors of various projects are interested in ensuing that there is effectiveness in terms of project implementations. Any project that is being implemented must remain within its scope. The main aim of the donors is to ensure that the objectives are clear and the entire plan should be intended towards achieving such objectives. As the policy formulators think of implementing different projects, the main focus should be on how to benefit the intended people. According to the formulators, the main intention is to ensure that there is value for money. The entire costing and budgeting processing should be focused on the expected results and the benefits that are to be derived. (United Nations, 2000) For a number of years, a number of organizations and governments have depended on the item budgeting or the traditional ones which mainly depended on the spending limit. The methods were mainly based on the long lasting notion that there will be accountability and the management would be held responsible incases where there are the misappropriation of funds. The focus of the budget was mainly anchored n the past spending; therefore the analysis of the achievable/deliverables was quite cumbersome. The raised concerns then resulted into the need to come up with a budgeting process that facilities the analysis and measuring of some of the benefits and deliverables from a specific program. A number of organizations have therefore adopted the result based budgeting and reporting. There is however critiques of the method with regards to objectivity of the method and the financial costs involved. The research is therefore to analyze the effectiveness of the result based budgeting and costing. (Klase, & Dougherty, 2008) Research question Result based budgeting is purposed to establish a relationship whereby the need to have the resources is mainly derived from the objectives and the expected results. One of the key characteristic of the result is the definition of the expected results. The result therefore establishes a connection between the budget and the results obtained therefore there is an expected greater transparency, efficiency gains and the enhanced direct responsibility of the staff that are in charge of the project. Some of the research questions that the paper will deal with two main questions; the first one is the analysis of the effectiveness of the result based budgeting and cost and whether there is need to encourage organizations and government to adopt the result based budgeting and costing. Research objective There are a number of studies that have been conducted to evaluate the use of different budgeting methods. There are also different criticisms that have been put forward when analyzing the relevance of various methods of budgeting. Some of the objectives of the study include; To analyze the effectiveness of result based budgeting as applied in the organization To analyze the need and relevance of result based budgeting to some of the major international organizations The effectiveness of the result based planning by different actors in various organizations Research aim There are a number of key issues that have been debated in the past with regards to result based budgeting and costing. According to the United Nation General Assembly some of the key issues in the performance management includes; the performance indicators and the results should be linked to the program objectives; the performance indicators and the expected result should be clearly defined, taking onto consideration the link between the outputs and the products; the key concepts such as performance indicators, expected results, external factors, objectives and measurement performance should be clearly delineated; the flexibility with results to resource management to enhance accountability; the business intelligence systems and the result based systems should be constantly reviewed with the intention of establishing system which can properly handle both soft and hard data. The aim of the study therefore is to analyze the relevant and effectiveness of result based budgeting and costing as applied in various organizations and government agencies. Methodology In order to understand the relevant and the effectiveness of the result based budgeting and costing, an ordinary least square regression method was adopted. A number of regression analysis was adopted to fully understand how and whether the independent variables influences the behavior of various actors in taking decisions with regards to budgeting and allocation of resources. The paper holds that a clear analysis using the data will help in coming up with a data that explains what happens and understanding of the same. Through the analysis of both dependent and independent variables, it is possible that multicollineraity can be detected easily. The data used in the study was mainly the budget decisions and those used in various UN agencies such as World Food Program, United Nations Office for Project Services, United Nations Environmental Program, Government departments and entities such as the European Union and West Virginia in the US. The study mainly analyzed the qualitative information obtained from the existing secondary sources. The paper also analyzed some of the processes and mechanisms in these countries. The documents are mainly obtained from various online sources and website for these organizations. An analysis of the budget documents facilitated the collection of data to help in the empirical study. Dependent variable A dependent variable is defined depending on how it manifests in the model. During the entire analysis and study, the variables can be used in the formulation of the results and relating the same with the literature review. Independent variable This is delineated as a variable that is not dependents on others for its manifestation. It is through the independent variables that an analyst can use to formulate a reasonable conclusion in the study. Qualitative study Qualitative technique was adopted in better part of the study to help understand the effectiveness of result based budgeting. There are a number of publications that have been done in the field of budgeting. The paper consulted different budgets and other publications to facilitate the understanding of the concept and the paper. The organizations websites and budgets also formed part of the materials which were used to help in the analysis. Quantitative technique Different form of data obtained from different budgets was analyzed through the quantitative technique. An analytical information obtained from websites and various presented budgets were analyzed so us to understand the benefits. Through the use of E-Views software the information helped in the formulation of the model and the explaining of the same. Data Collection There are two main different forms of data that can be used; primary and the secondary form of data. The paper has mainly focused on the secondary information that is available in different platforms and websites. As stated above there are a number of existing publications that were depended on to get the information to be used in the analysis. The study analyzed some of the organizations that have used the budget and some of the challenges they have experienced in the past. Model The research was mainly conducted to facilitate the understanding of the influence and effectiveness of the result based budgeting and costing in various organizations that adopt it. The dependent variable in the study was the increase in the number of agencies and governments adopting the use of result based budgeting. The research paper believes that the decision for more requests depends on the effectives of the result based budgeting and costing. The independent variable that is used in the study is the number of recommendations by the current users and the lagged agencies that are interested in adopting the use of result based budgeting. Change in Agencies Request = β0 + β1 Lagged Agency Request + β2 Lagged Data Analysis The purpose of the study was mainly to understand the effectiveness of result based budgeting and costing. In the above model, the study realized a positive correlation between the change in terms of the number of agencies interested in adopting the use of result based reporting and costing. There is also a positive correlation with regards to the number of the increased number of agencies and government departments interested in the use of result based budgeting. A number of qualitative studies indicated that most organizations are interested in using the result based budgeting to ensure that the funds that are set are intended to achieve the gals and objectives they were set to accomplish. A number of agencies that are preparing the budget often project the values for the various performance indicators of the coming years. The projection of the outcomes and outputs are purposed to reflect the projected consequences of the resources which are budgeted for. According to the documents, the projections represent what the governments are getting for spending its money. The data that was obtained from the performance measurement system of the agency provided some of the basic information for the development of the budget proposals that have been developed already. The information is likely to have a serious impact on the strategic plans of the organizations. Throughout the documented information, result based budgeting should enable the decision makers to achieve; achieve poorly performing programs, identify programs that are performing well, asses new programs, compare different proposed options, and the justification of the budget choices. The documents from the United Nations show that the agencies have elaborated sophisticated performance management systems. As they get the donors and funding from other organizations, the main focus should be the delivery and the objectives of the study. The systems have strong internal monitoring and evaluation tools that facilitates in the measurement of whether the organization is meeting its stipulated objectives. Through a cohesive platform, the program approach provides assistance and helps in the linking of some of the set objectives. The data also shows that donors and other organizations are always willing to work with organizations that are focused on the result. The main purpose of the donor investments is the focus of delivery. Itemizing of various available sin the budget make it quite complex with regards to measurement of performance and delivery. The existing literature also shows that when the performance management is high, the level of complexity of the policy or program level will be high. It means that if the aim, goals and the objectives are stipulated, it is likely that the expected result should also be high. The good performance and high results cannot be obtained when result based budgeting is used. When doing the costing, the expected result is linked to the objectives of the study. Therefore irrespective of the level of complexity, it is likely that the approach will help in the achievement of the goals. The documents show that result based budgeting is advisable and effective when it comes to the delivery of various programs. (Wang, 2000) According to the above model, the obtained figures show that Change in agency request = -0.461 + (-0.90) + (-0.60) lagged recommendations change For the above model, the adjusted R was calculated R2 is 0.21 meaning that the 21% of the agency is explained and accounted for by the independent variables. The other percentage is explained by variables which are not considered in the sudsy. According to the p-value of the t-test, the change in the performance does no t have any impact on the number of requests for change? The above model shows that there is high effectiveness when it comes to the application of result based budgeting and costing. A number of organizations will be interested in invested more in the system that will ensure that they remain appealing to the donors and that they ensure that all the objectives are delivered as planned. Merit and proposal for future research The paper has give an in-depth understanding of the result based budgeting and costing and how effectiveness. The advantage of the study is that it gives the organizations and policy makers an opportunity to discuss and evaluate the possibility of success and how they can improve their internal procedures. The possible area for the research is how to seal some of the existing holes and a way of dealing with the weaknesses. Literature Review To fully understand the effectiveness of the result based planning, a number of studies of the past research have been analyzed in this section. Policy analysts state that any possible change in the in the budget system is likely to change the allocations of the budget at the end of the product. When the goals and objectives are properly defined before the projected implementation, it becomes easy to track and if necessary conduct necessary revisions. With some of the existing conceptual framework, it is high likely that the organization will get value for money. Every reasonable budget should be in a position to select the best indicators that would make it possible to measure the progress of each activity. There are a number of activities that are involved in a project, through the result based budgeting and costing, it is easy to measure the performance of each and evaluate the success of the activities. Each activity should be able to add value for money. The setting of explicit targets for every indicator used in judging the performance and the results obtained will help the company evaluate the reason for each project. When preparing the project document, it is easier for the management and the project board to include some of the targets that must be obtained at a [particular time. Without the achievement of the target, a keen look and an analysis can be conducted to see how well the program is performing. The result based budgeting and costing enables the policy formulators to measure whether it is reasonable to continue with the project and formulations. The donors and the project owners are often interested in analyzing what is expected against what is planned. The main focus is that the funding should only be released going by the budgeted areas and the deliverable. Through result based budgeting costing, various units and activities can easily be analyzed and the level of performance can be evaluated. The integration of the evaluations with regards to the provision of various complementary result based information that cannot be found in the performance measuring system will ensure that costing and analysis of the same is easier. As stated above the keen interest of the organizations is the value for money and the most important thing is how various objectives can be used to measure the performance and output. Conclusion It is unarguable that result based budgeting has changed the way budgeting is done across various organizations across the globe. Through its ability to link the cost to he expected output, the method is preferred by most organizations because of high level of accountability. The program managers are accountable with regards to how the funds and spent. It specifies some of the reporting mechanisms, making it easier even to the project board to decide on the approval of the next stage of the project. A number of government departments and organizations have shown keen interest in adopting the use of result base planning. The continued interest is an indication of the effectiveness of result based budgeting and costing. References Klase, K. A., & Dougherty, M. J. (2008). The Impact of Performance Budgeting On State Budget Outcomes . Journal of Public Budgeting, Accounting & Financial Management, 20 (3), 277-298. Mullen, P. R. (2006). Result-Based Budgeting: The Contribution of the Program Assessment Rating Tool. Public Budgeting & Finance , 26 (4), 79-88. Stever, J. A. (1997). The General Accounting Office: Its Origin, Expansion, and Dilemma. In R. T. Golembiewsky, & J. Rabin (Eds.), Public Budgeting and Finance (4th Edition ed., pp.347-357). New York: Marcel Dekker, Inc. Wang, X. (2000). Performance Measurement in Budgeting: A Study of County Governments. Public Budgeting & Finance , 20 (3), 102-118. United Nations, (2000). Ways in which the full implementation and the quality of mandated programmes and activities could be ensured and could be better assessed by and reported to Member States, Report of the Secretary-General, New York: United Nations, (A/55/85), paragraph 25. United Nations, (1999). Results-based budgeting, Report of the Secretary-General. New York: United Nations, (A/54/456) Read More