Management. Performance Based Budgeting - Essay Example

? Management Task: Management The commonly known line item budget is associated with showing details of expense on may be office supplies, transport, accrued benefits, wages or salaries. This is the point of distinction between it and Performance Based Budgeting (PBB). PBB is distinguishable from it by the fact that it considers and assumes a projection of performance (Miller, 2001 p.3034). It predetermines what given available resources will accomplish by using some measurable parameters of results achieved. This type of budget is an outcome management system of allocating resources being that it is performance triggered, result oriented and customer based. While traditional budget tends to attach budget based on expense on specific items, PBB is concerned with general event outcomes (Last, 2009 p.2456). The planned and actual performance are both evaluated in terms of efficiency and effectiveness and the assessment used to allocate resources rather than using blind resource allocation system which emphasizes on organizational units and line item expenses. PBB has an objective of improving efficiency and effectiveness in public expenditure by linking allocation of funds to public organizations to their actual and projected performance (Guajardo, 2001 p.457). A basic form of PBB has a design, which ensures that the participating decision makers provide a systematic consideration to the results achieved by the expenditures at various government units when formulating budget on government expenditure. Performance Based Budgeting needs the following essential elements for proper budgetary planning. First it requires a measurable quantity of inputs available for the given project. These include monetary value of all resources ready to be injected in the project. Another requirement is units of output from the project. This involves assessment of the outcome of the project (Hughes, 2012 p.1004). Next is calculation of efficiency. This involves assigning an amount of input to each unit produced in order to get productivity per unit unit or activity. Lastly is analysis of achievement of the predetermined level of performance. The organization must have set goals, which it wants to accomplish; hence, it is necessary to measure the effectiveness of the management system used in terms of objectives achieved. Policy objectives and organizational goal development is the starting point in the PBB process. The achievement of goal and objectives should be reflected using developed performance measures. In the process of budget preparation, the main considerations are, past performance, current performance and projected future performance information (Hood, 2009 p. 456). A detailed decisional analysis is undertaken in order to come up with the best and the most appropriate decision. The final decision should be the best in interlinking resources allocations to the measures, objective and goals. The outcome is a final report financial details and the recommended performance information. The report has a description of how the initiated measures taken influence the strategic plan and the projected result from the project. PBB is effective in Periodic project evaluation as regularcheckup is performed as the project proceeds. Financial information and performance information should be appropriately aligned and coincided during the duty execution in order to enhance efficiency in its implementation. Performances audit is done at the end of the financial period or project to determine the effectiveness of the PBB system used. PBB is beneficial in the sense that it raises accountability of an organization, as it sets targeted outputs that enable the organization to work hard towards achieving. It encourages proper decision-making that are aimed at reducing the gap between the desired level of output and the actual level of output. PBB ensures that government strategic decisions are carefully implemented in terms of financial analysis. It is a tool of trigger to policy makers, customers and service delivers to carry out dignified program management that would accurately account for their resources (Hager, 2001 p.567). It enables organizations establish and make clear projections for the results to be achieved and makes flexibility available for organizations to accomplish goals and objective in a given financial period or project. Performance Based Budgeting is applicable government programs. Operations get well defined within every department and similar activities seem to be grouped together under one project manager. A complete PBB report contains details of the objectives and purposes of the decisions indicated alongside cost which is exhaustively justified. Effective monitoring of the the program is done by relating proceeding performance with their cost and periodically providing a report, for example, monthly program assessment. This helps the manager make necessary adjustment to the program using the monthly budget report. An end year report is also prepared at the end of every fiscal year to be used in project annual analysis. Through, regular monitoring and reviewing of program peromance, there is possibility of understanding service trends and make strategic decisions to avert poor performance if there is. Periodic assessment reports enables a revisit on though goals and objectives (Robin, 2001 p.789). The report also creates motivation, as it can show success in implementing the program level by indicating a measurable performance towards the set targets. In recent years, most governments have adopted PBB in accomplishing medium term expenditure frameworks to enable them reinforce credibility and accountability in fiscal policy. Study has shown that most European Union member states realized many benefits from the reforms made in implementing PBB (Bakuzonis, 2008 p. 456). The achievements have been in terms of professionalism and quality administrative performance, fiscal stability, extra evidence-based decision-making, efficient budget management and expenditure effectiveness. Performance Based Budgeting has received a lot of criticism. It has been realized that the system management program lacks standard measurement criteria and, therefore, makes it difficult to measure the outcome effectively. This is especially noticed at public programs like economic development. These are associated with long-term measurements hence it is tedious to get a precise measurement. There is no reliable method of measurement in order to quantify performance hence frustrating efforts to develop a precise report of project performance. Furthermore, it requires a lot of time to move around and assess performance of government projects (Frinkler, 2008 p. 2789). PBB requires close monitoring whereby assessment is carried out periodically, which is time consuming as some government projects cover a wide geographical scope. PBB is a very complicated program and requires a lot of funding in order to implement it exhaustively, to achieve the desired reliable result. In addition, the system heavily relies on numerical data. It presents the input parameters in terms of monetary value so as to standardize units of resources measurement scale. The output is also quantified in the same units as inputs (Hood, 2009 p.325). This is to create ease of calculation of relative efficiency or productivity. Since the process is highly involving, the results are subject statistical to unaccountability. The managers trying to avoid the difficult work of detailed assessment of the project are likely to cook data or use data which are complimentary. Performance Based Budgeting may also be affected by politics. This mostly happens in developing counties in which government operations, projects and institutions have been intensely politicized. Political leaders in government would be willing to approve funding for projects, which improves their political image and fit their politicalstrategies (Miller, 2001p.694). This would frustrate PBB implementation process as organization units that perform and are proposed to be funded do not get prioritized. PBB has got an advantage that it is flexible. It allows for tracking of any possible inefficiency. This is achieved through periodic assessment of performance, for example, monthly assessment. Managers then use these reports to come up with strategic measures to restore the system back to be in line with the organization objective. The availability of room for change could also give a loophole for making of changes that could make preceding cost assessments and budget to be obsolete (Robin, 2000). PBB enables political leaders to have strategic power to change public projects to satisfy their own interest rather than being economically efficient. A new political appointee might utilizethe flexibility opportunity to change the objective of the government project to build their prestige, for example, diverting some funds to subjects of theirinterest. Inside the PBB program, there is a detailed framework of financial information to show how funds would be used in different stages of the project. Besides, the main financial analysis, and the program itself, have their own financial analysis. This is because it is complicated and requires professional manpower to manage it. It has got operational costs, for example, payment to manpower that move around the scope of the project to assess the situation. Therefore, the program requires a separate cost analysis structure (Last, 2009 p.678). The additional cost analysis is a drain of resources. Furthermore, it brings confusion to the main budget. PBB is based on setting goals to achieve and working hard towards accomplishing them. For example, a goal may be set build classrooms in 50 classrooms. It looks advantageous as focus will be given to hit the target. However, the target might be set not considering the amount of money that can be spent to build the classrooms. This limits on quality and cost of constructing the classrooms (Frinkler, 2008p567). A budget that is only driven by a target can sometimes be unrealistic and inaccurate If the PBB does not make a relationship between the set goals and strategies to achieve them, the results are likely to be ambiguous. Many organization management have been deterring smooth operation of PBB. PBB should be a distinct entity from the management. In fact, it should guide the management of leadership steps to take in order to steer goal focus. The program is meant to give guidance for productive allocation of resources (Miller, 2001 p.1456). If the process gets politicized, it is upon the community to ensure that the leaders respect and not manipulate the PBB. The citizens should stand firm to defend public resources. Legal organizations such as the civil society should closely supervise public projects. The civil society can look for whom to blame and whether there is timely allocation of resources. PBB ties politicians in form of a contractual relationship. Non-governmental organizations should be out to inspect the government in delivering its mandate. Performance Based Budgeting is a complex system analysis. It, therefore, requires professionalism in handling. A state that that uses PBB to spur its economy is to able implement it effectively by giving it the necessary requirements (Last, 2009 p.543). Enough Professional manpower has to be hired to run the system. Many PBB programs have not been succeeding due to lack of enough and qualified personnel well distributed across the scope of the project. Another criticism of PBB is in some states, which have long procedures of obtaining a legally approved PBB. This is where there is a requirement of the recommendation of Commission and Budget and Accounting Procedures Act with approved accounting methods used in government parastatals. This is a deterrent to implementation of PBB many agencies never had substantial capacity to carry out an assessment of the cost information (Hood, 2009 p.890). Hence no important recommendations were got implemented. This could have limited application of PBB, especially in Chile. The system of resource allocation might not be appropriate for certain sector of the economy. For example, using performance based formulas to fund government institutions and colleges. This is in the sense of the formula affecting the level and quality of education. The funding formulas refer to the mathematical basis used in allocating resources to government institutions. Essentially the parameters used in funding education should achieve predictability, adequacy, equality and stability. However, funding formulas have evolved to be complicated and use of wrong parameters lead to poor accountability in PBB efficiency (Hager, 2001, p. 945). Therefore, it is necessary to come up with fair and more realistic formulas to be used in resource allocation. Improvement to PBB can be made to enhanceefficiency. A better relationship should be created between the budgetary recommendations and the results. Good performance indicators should be selected to sample the performance accurately (Hughes, 2012 p. 90). An effective baseline numbers should be established in order to device performance targets for agencies. The agency must have a clear description of its mission so as to achieve an effective PBB.Strategic planning should be done. This means a well-defined procedure of the targets an agency wants to achieve and how to achieve it (Frinkler, 2008 p. 1067). The agency is then able to use the strategic plans to determine the baseline elements in advance before implementation is carried out. Initiatives have to be put in place with the strategic plans so as to be related with the outcome of the process. Previous PBB have not been successful because of lack of identification and involvement of stakeholders. Before an agency delivers its service to the citizen it has to predetermine what the citizens require of the government so as to reduce the gap between government expenditure and the public desire (Hood, 2009 p.402). Meeting targets, achieving of goals and getting outcome measurements are only effective if the government projects represent the public’s desire. Therefore, all the necessary state stakeholders should be involved in decision-making process of determining inputs for the targeted outputs. The experience from the unsuccessful past PBB should be used to identify the shortfalls. PBB is very costly. For example, a PBB system can cost about five million dollars and yet fail to improve efficiency in fund allocation (Frinkler, 2008 p.845). It is also necessary that a state avoids allowing agencies to carry out performance analysis using their own information systems and formats because this is more costly. A uniform method of approach has been proposed to be the best though the other method allows for more flexibility. For PBB to be beneficial, it should be considered in the perspective of being a management and admistrative tool for the accountability on the side of the agency for efficient service delivery rather than being considered a legislative enforcement (Guajardo, 2000 p. 40). PBB has requires a huge initial cost hence should be considered a government investment rather than being a cost reducing measure. It is also recommendable that execution of the system be done from down to up. It is noticed that many developing are often unrealistic in setting their targets on the period that would be taken to develop a measurement system that is comprehensive. They do not consider the fact that the developed countries took decades to attain the advanced positions. It is unrealistic for the developing countries to set performance standards that are beyond their abilty.These include incorporating thousands of indicators in relatively short period of time. It is advisable to prioritize a few essential numbers of indicators then gradually advancing (Robin, 2000). Care should be taken to ensure adequacy in matters pertaining systems used in collection, processing and validation in relation to the group of indicators considered. In order to get less biased results, it is necessary that independent auditors be used to supervise the agencies operation relative to the PBB mandates. In the recent years, PBB efficiency has been frustrated by political ideologies (Bakuzonis, 2008, p.678). This is observed in how priorities are given to different sectors of the economy. This is the basis as to why states like Florida opt to resort to independent auditors to conduct performance evaluation. This has got an advantage of keeping away politicians who might manipulate the process to fit their own interest. Implementation of a result oriented system has to include all sections of the government. Main budget office’s lack the time and personnel to come up with each and every performance strategy. It is therefore upon the agencies to develop result indicators that are related with the reflected strategies (Miller, 2001, p.934). It is also essential that the government provides a standard format to ease comparison facilitation. Bibliography Bakuzonis, K 2007, Performance-based Budgeting AA Measures Outcomes in Florida Community Colleges, University of Florida, Miami. Finkler, S 2008, Budgeting Concepts for Nurse Managers, Elsevier Health Sciences, Philadelphia. Guajardo, S., et al 2000, an elected Official’s guide to Performance Measurement, Government Finance Officers association, Chicago. Hager, G., et al 2001, Performance-based Budgeting: Concepts and examples, Legislative Research Commission, Committee for Pram Review and Investigation, London. Hood et al 2009, Public spending in hard times, Institute for Fiscal Studies, London. Hughes, O E 2012, Public management and administration: An introduction, Palgrave, Basingstoke. Hughes, O E 2012, Financial and Performance Management, Palgrave, Basingstoke. Last, D 2009, A basic Model of Performance Based Budgeting, International Monetary Fund, New York. Miller, G., et al 2001, Performance-Based Budgeting, Westview Press, New York. Rabin, J 2000, Handbook of Strategic Management, Marcel Dekker Incorporated, New York. Read More