Performance Budgeting

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Performance Budgeting

• Linking Resources to Results in Government
  Budgeting

Carl DeMaio Reason Public Policy
Institute Environmental Performance Institute
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The Bureaucratic Mindset

• Who worries about results? Nobody seems to
  care as long as we spend the money.
• --A Federal Manager
• June 1997 meeting on Results Act

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The Performance MindsetManaging for Results

• What gets measured, gets done.
• --Peter Drucker

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The Evolution of the Federal Budget Document

• 1923 Budget Act
• Agencies should submit a budget on a timetable
  with all resources needed for the fiscal year
• 1950 Budget and Accounting Procedure Act
• Design program activities to justify the budget
  request
• 1993 Government Performance and Results Act
• Strategic planning that drives budgeting
• Outputs and outcomes for each program activity
• Government-wide performance plan and budget

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The Latest News

• Bush Administration fully committed to the
  Results Act performance budgeting is part of the
  Presidents management plan
• Performance-budgeting will be included in the FY
  03 budget
• Cost allocation legislation will be proposed to
  start the move towards fully allocating costs to
  programs
• GAO Studying results-oriented budget practices
  (see GAO-01-1084SP)

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Insanity of Public Sector Budgeting

• Most government agencies cannot produced audited
  financial statements
• Adjustments to base is the focus of the budget
  process
• Re-allocations made after the budget is finalized
  (the difference between the budget on the Hill
  and the real budget)
• Timing problems Prepare budgets 24 months out
  from actual spending, continuing resolutions,
  etc.
• Gimmicks
• The end-of-year binge spending
• Overlap and duplicationand fragmentation
• Across federal government
• Among levels of government (state/local and
  grantee funding levels)

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Insanity, cont

• GPRA put into budget shops
• What company would turn to the CFO and say
  define and track our market strategy (and
  success)
• The most important performance measures
• 218 in the House
• 60 in the Senate
• Agencies merely update last years
  justificationmost have no idea why certain
  information is reported the way it is
• Members/clerks dont read budget documentation
  clerks focus on contentious areas (used mainly as
  reference)

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The Results Act

• The Results Act is a tool Congress created to
  focus the budget process on results, rather than
  merely good intentions.
• It tells taxpayers what they are and are not
  getting for their money--an audit of the
  government by Congress, as the advocate of the
  taxpayer.

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Amendments to the budget laws
The Director of the Office of Management and
Budget shall require each agency to prepare an
annual performance plan covering each program
activity set forth in the budget of such an
agency. Such a plan shall (1) establish
performance goals to define the level of
performance to be achieved by a program
activity... (4) establish performance
indicators to be used in assessing the relevant
outputs, service levels, and outcomes of each
program activity.
--The Results Act, PL 103-62
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Lessons Learned Pitfalls

• Too many measures
• Too process and activity oriented not enough
  strategic logic
• Measures only the things you can count
• Negative uses of measurement
• Thinking that outcome measurement is a substitute
  for evaluation, tracking important activities, or
  common-sense thinking
• Staffed out into measurement shops (this only
  shifts resources away from service delivery)
• Might give the incentive to favor near-term
  interventions
• Promotes gaming and poaching

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What is Performance Budgeting?

• The use of performance information in a budgeting
  process to
• Justify Decisions
• Calculate and Communicate Full Costs
• Allocate Resources
• Forecast the effects of different budget
  decisions
• The intended impact of this tool is to
• Resource change initiatives
• Improve the quality of dialogue between resource
  requestor (agency) and resource appropriators
  (OMB and Congressand the taxpayer)
• Enhance agency performance

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Managing the Shift to Performance Budgeting

• Dialogue extensively with stakeholders and
  legislative officials throughout EACH of the
  following stages
• Develop a clear agency strategic plan
• Align programs to your goals AND strategies
• Select performance measures for program
  contributions to end outcomes
• Calculate resources (sometimes requires
  modification of financial management system
  sometimes requires changes in budget/program
  structures)
• Devise crosswalks and test the new budget
• USE new budget approach to justify resource
  allocation decisions

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The Critical Pre-Cursor!

• Before attempting to link resources and results,
  you must clearly establish your strategic logic
  and outcome-oriented performance measures!

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YOU HAVE TWO OPTIONS!
Performance Budgeting
Devise new Cost Accounting Systems and Methods
Change the Budget and Program Structures
Or Both!
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Managing Dialogue with OMB and the Hill

• Performance Budgeting

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Some Realities on the Hill

• The budget is a political document (not D vs. R)
• Agency budget structures have evolved--the is no
  logic behind them
• Budget structures have served different people at
  different times for different purposes
• They often reflect committee jurisdiction
• The real iron triangle the budget officer, the
  budget examiner, and the Approps. Clerk
• The primary focus adjustments to base

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Policymaker and Stakeholder Buy-In

• Get your own house in order
• Stakeholder Dialogue Sessions
• What landscape do we face?
• What is our role?
• What value does that role provide?
• How do you prove it? (Measures)
• Start with the authorizors
• Consult on program evaluations and strategic
  assessment
• Make Members and staff de facto parts of a
  strategic planning steering committee
• Use re-authorization as opportunities for
  alignment
• Move to Appropriators AFTER program alignment is
  a fait accompli

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Step One Selecting Measures

• Including Performance Measures in the Budget
  Document

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Managing the Shift to Performance Budgeting

• Dialogue extensively with stakeholders and
  legislative officials throughout EACH of the
  following stages
• Develop a clear agency strategic plan
• Align programs to your goals AND strategies
• Select performance measures for program
  contributions to end outcomes
• Calculate resources (sometimes requires
  modification of financial management system
  sometimes requires changes in budget/program
  structures)
• Devise crosswalks and test the new budget
• USE new budget approach to justify resource
  allocation decisions

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The Fundamental Question!

• If we werent already doing this today, would
  we start doing this tomorrow?
• --Peter Drucker

A question successful businesses ask on a daily
basis! A question rarely asked, and almost never
answered in government.
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Building a Results-Oriented Agency
Measure Performance
Manage for Results
Mission Outcome Goals Strategy Program
Alignment Budget Alignment
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Agency Strategy and Outsourcing
Other Government Agencies
Devolution
Mission Outcome Goals Strategy Program
Alignment Budget Alignment
Information Technology
Deregulation, in favor of partnerships with
industry
Performance-based Contracting
Privatization
Partnerships with religious/civic institutions
The Results Act
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Definitions of Key Terms, with example measures
for a job training program
INPUT OUTPUT OUTCOME
Assessment of the results of a program activity
compared to its intended purpose.
Tabulation, calculation, or recording of
activity or effort, expressed in a quantitative
or qualitative manner.
Amount of resources devoted to a program
activity,
Examples 8000 people--trained by program--will
land and keep their jobs more than 6 months 90
of those who land jobs will earn the same or more
in their new job as in their old one 75 of those
with jobs will report via survey that the skills
they learned were important factors in getting
the job
Examples 50 courses will be offered 10,000
people will complete the courses Exit tests of
participants will demonstrate 85 of participants
are competent in the skills taught in the
training courses
Examples 1,000,000 broken down by object class
50 FTE, broken down by position grades
Areas where agencies are comfortable
Real Results
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Performance Measurement Definitions
Inputs Outputs Intermediate
End Outcomes Outcomes

Assessment of the results of a program activity
compared to its intended purpose.
Tabulation, calculation, or recording of
activity or effort, expressed in a quantitative
or qualitative manner.
Amount of resources devoted to a program
activity
Direct influences and impacts that the outputs of
an agency have on short-term, leading indicators.
These can be seen in changes in 1)
Attitudes 2) Behaviors 3)
Conditions Its as simple as A, B, C!
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Strategic Management and Performance Measurement
Framework
Senior Management Buy-In and Use
Validate Strategic Logic
Benchmark and Compare
Report on Outcomes
Data Systems
Validity Verification
Give Incentives and Drive Action
Budget Justification Cost per Unit
Policymaker and Stakeholder Buy-In and Use
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Strategic Management and Performance Measurement
Framework
Senior Management Buy-In and Use
Validate Strategic Logic
Benchmark and Compare
Report on Outcomes
Data Systems
Validity Verification
Give Incentives and Drive Action
Budget Justification Cost per Unit
Policymaker and Stakeholder Buy-In and Use
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Step Two Aligning Goals and Measures to Budget
Accounts and Program Activities

• Including Performance Measures in the Budget
  Document

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Managing the Shift to Performance Budgeting

• Dialogue extensively with stakeholders and
  legislative officials throughout EACH of the
  following stages
• Develop a clear agency strategic plan
• Align programs to your goals AND strategies
• Select performance measures for program
  contributions to end outcomes
• Calculate resources (sometimes requires
  modification of financial management system
  sometimes requires changes in budget/program
  structures)
• Devise crosswalks and test the new budget
• USE new budget approach to justify resource
  allocation decisions

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Case Studies in Alignment

• Slapping measures on the current structure
• Creating a separate document with the Performance
  Plan contents
• Aligning to business lines
• Aligning to strategic and program goals, without
  changing the program structure
• Using strategic goals to devise a new program and
  budget structure

Plus Added bonus of a performance budgeting
example