Chapter

chapter eleven Budget Innovations: Performance to Zero-Base Budgeting Systems

Author(s):
A. Premchand
Published Date:
March 1989
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History has many cunning passages, contrived corridors And issues, deceives with whispering ambitions. Guides us by vanities.

T. S. ELIOT, Gerontion

It is a truism that budgetary reform1 bears the imprint of the age and reflects the needs of the period. In fact, problems may be better identified when the material conditions for their solution already exist. Budget innovations cover a wide area and are frequently considered as synonymous with such far-reaching matters as strengthening administrative processes, achieving more effective or more stringent financial controls, ensuring efficiency, and economy, and better utilization of resources, controlling inflation, and improving legislative accountability or the public's understanding of the budget. Some of these aspects have been considered previously. This chapter is concerned with the structural aspects of major budget reforms, the factors leading to the reforms, the manner of their implementation, and their implications for the future. It should be noted at the outset that the new systems have gained some support over the years, as well as severe criticism. If the critics are to be believed, there was no novelty in the systems or, alternatively, they were too ambitious to succeed at any time. Supporters usually found only virtues in the systems advocated and believed that most problems lay in implementation. The course of reforms and their success or failure convey, to a great extent, the economic environment in which budgets have to function and the problems that are inherent in transforming we II-conceived strategies of reform into practical budget routines.

Early Reforms

Budget reforms in specific areas were noted in previous chapters. To recapitulate briefly, reforms in the early nineteenth century were primarily initiated to provide greater accountability. Early efforts in the United Kingdom, France, and elsewhere were aimed at providing a meaningful and operational framework for accountability and the basic features of these systems continued without any major upheavals into the 1920s.

The problems of the 1920s stemmed from the excessive influence exerted by the central agency in the British type of system, while in the United States the difficulty was one of formulating a budget—a responsibility that belonged to the legislature but one that proved difficult to accomplish. Budget reforms, therefore, sought to delegate greater financial powers to the spending departments in the United Kingdom and to the development of budgetary responsibilities in the executive branch, in the United States. A beginning was made with the decentralization of financial powers in the United Kingdom and a framework of coordinated financial working between the central and spending departments began to emerge. This framework and the associated budget system proved viable for several years, but as expenditure grew rapidly, the issue of legislative control and what it could do to stem the growth of expenditures became matters of concern. If the early history of legislative control over the purse of the nation reveals continuing efforts to acquire greater power over the expenditures of the monarch, the budget reforms since World War II suggest that the main attention was not on the exercise of legislative power but on the problems emerging therefrom—in particular, the growth of expenditures that were approved by the legislature. The recognition of the problem, viz., the growth of expenditures, has remained; but the problem's manifestations have changed. It was viewed in the 1950s as declining legislative accountability, in the 1960s as a problem of allocative efficiency, and in the 1970s as a problem of inflation and increasing public sector activities. The first major response to new problems and budgetary reforms came to be formally undertaken in the early 1950s in the United States in the form of performance budgeting. The conceptual framework of performance budgeting underwent some refinements during the 1960s and various forms of it are now in operation both in industrial and in developing countries. There are, however, different interpretations of the system and its components, all of which have contributed to avoidable semantic confusion. It is, therefore, in order to consider in some detail the background and features of this system.

Performance Buedgeting

The problems of controlling public expenditure and restoring legislative control of the government budget prompted the first Hoover Commission to raise two basic questions: (I) What is the desirable magnitude of expenditure on any major government program? and the desirable proportion of total expenditure to the gross national product? and (2) how efficiently and economically can an approved program be executed? or can the same amount of work be performed satisfactorily through other arrangements or through improved procedures at less cost?2 In providing answers to these questions, the Hoover Commission was influenced by the techniques of performance budgeting that were prevalent for a number of years in the county and metropolitan governments of the United States and that were sporadically experimented with in some of the U.S. Federal Government departments.3 The Hoover Commission recommended the introduction of performance budgeting throughout the Federal Government. Although the recommendations of the Commission were not followed completely, they did have an impact in that the Budget and Accounting Procedures Act, 1950 provided for a federal budget based on the functions and activities of the Government.

The performance budget envisaged by the Hoover Commission consisted of three elements (a) program and activity classification of government transactions, (b) performance measurements, and (c) performance reporting. The details of the first aspect were considered in the previous chapter; the concern here is with the other elements. Performance measurement, which was derived from cost accounting and the approaches of scientific management, provided a basis for the use of manpower and other factors of production, the costs of such uses, the effectiveness with which they are used, and the accomplishments made in the process. Its approach was to relate the purpose of doing something with the cost.4 Performance measurements implied the specification of yardsticks for efficiency that could be in terms of predetermined standards, or performance over a period of time, or in comparison with similar other organizations. It was recognized, however, that not all activities of government would have parallel situations, nor would the measurement of productivity in government be an easy task.5

The performance budget was so structured that it provided a descriptive account of the tasks and work plan for each department. In support of the outlays, descriptions of the programs are given with productivity measurements, workload data, and intended goals or accomplishments. It was hoped that such a presentation would shift the focus of budgetary review from the inputs to the consideration of performance-oriented programs. The implementation of this approach, however, ran into difficulties. It required advance programming, the classification of government transactions into programs, measurement of costs and productivity, and the acceptance of a specific responsibility by agencies. There was an implicit belief that with the introduction of a managerial system in which managers were allowed to manage, as in the commercial world, and, if appropriate yardsticks were evolved to measure their performance, problems of government financial management would be solved to a considerable extent.6 Apart from the previously noted difficulties in ensuring proper classification, the measurement of productivity in government proved elusive. Although in the initial attempt productivity measures were evolved for a few organizations, it quickly became apparent that service or policy-oriented agencies offered more challenges. The emphasis was shifted to the costing of operations as a proxy for the measurement of productivity. Computation of costs continued to be equally complex and did not, in any event, sufficiently reveal the qualitative differences in services. Performance budgets offered a better quantitative basis but decision making had to consider the qualitative aspects too, and it appeared that reliance on the former alone could lead to erroneous conclusions. Difficulties were also encountered in reorienting the approaches of practitioners and legislators. Lack of substantial educational effort and phasing of implementation contributed to more problems. These were reviewed by the Second Hoover Commission in 1955, which reiterated its recommendations for program classification in government and for a budget “that was formulated and administered on a cost basis”;7 it noted that only some elements of peformance budgeting were being implemented and, in order to distinguish them from the ideal and the desirable, the Commission introduced what, in the interests of clarity, is considered to be the concept of program budgeting.

Program Budgeting

A question that has not so far been resolved satisfactorily is the basic difference between performance and program budgeting. The task force of the Hoover Commission considered these two terms as interchangeable, although the Commission preferred the use of the term program budget. In the immediate context of implementation, program budgeting was largely considered as a way of living with the acceptable and feasible features of performance budgeting; the emphasis of program budgeting was on classification aspects for which cost and related data could be developed over a period of years. It was, therefore, a preliminary but essential step toward the long-term goal of performance budgeting. However, there are differences between the two systems. Conceptually, program budgeting laid greater emphasis on the classification of the budget and it was, therefore, viewed to be forward looking, as “adapted to the requirements of over-all budgetary planning,”8 and as “an allocative process among competing claims.”9 In this view, performance budgeting was considered as a record of prior accomplishment and as a system that was more than anything else control and management oriented while program budgeting was considered as a planning device. In operational terms, however, it was difficult to envisage that the benefits of classification would stop with presentation or allocation; as a logical extension, the same process would also become a basis for assigning responsibilities. Performance budgeting emphasized the cost aspects but it would be misleading to suggest that such data would be used only for evaluation and not for allocation. In reality, evaluation is a necessary input into allocative decisions. A budget is, by definition, forward looking and it would not serve that purpose without an adequate past. The confusion about the concepts and terms10 was somewhat alleviated later in the UN Manual,11 which viewed performance budgeting as an all-inclusive concept embodying program formulation as well as the measurement of the performance of work in accomplishing program objectives.12

The program budgeting system as it came to be implemented in the U.S. Federal Government departments stressed the classification aspect. Efforts were also made to improve the analysis of productivity, but its success continued to be limited.13 The new system very soon developed bottlenecks, some in relation to its conceptual framework and some in relation to the newly emerging needs. The approach to classification did not solve the problem of interdependence and complementarity among the agencies and their common purposes in view of the predominantly organizational orientation in the program structure. The programs did not, it was felt, delineate the relationship between the objective, on the one hand, and their own content, on the other, nor was there a framework within which choices could be evaluated. The budget covered only the short span of a year and was not useful enough for allocative planning. To overcome these limitations, and influenced by the pioneering work of the Rand Corporation, a variant of program budgeting, still known by that name, was introduced in the U.S. Department of Defense.

The Defense Department's budgeting system, which became operational after 1961, had three principal features: (1) A system of classification in which programs were related to a major objective of policy, were capable of being classified into a number of elements that could be substituted for each other and that lent themselves to a preferred mix, and that cut across service lines and allowed coordination among them. (2) A program analysis allowing effective and efficient ways for reaching the goal. (3) An annual budget cycle in which classification and program analysis became integral parts. Defense's system had several distinguishing features: First, its emphasis was on the application of quantitative criteria (cost effectiveness analysis, systems analysis), and second, it evolved a program structure that facilitated centralized decision making. Defense's system offered a unique combination of economic, managerial, and accounting approaches and constituted a significant attempt at applying the approaches of the commercial world to government.14 To that extent, it was an advancement over performance budgeting as the emphasis was now on efficiency in an operational way, as well as on efficiency in an allocative sense. A distinction was made, however, between effectiveness, which was an expression of relationship between purpose and result, and efficiency, which emphasized the resources used in achieving the result.

Planning, Programming, Budgeting System (PPBS)

The system in the Defense Department was extended throughout the U.S. Federal Government in 1965. Introducing the system, the President claimed that it was a “very new and very revolutionary system” through which “the full promise of a finer life can be brought to every American at the lowest possible cost.”15 Notwithstanding the claim, it was in fact a system that was in the making for a long time. Its basic elements were drawn from previous systems, but it differed from them in that it offered a paradigmatic approach to policymaking involving the specification of objectives, formulation of programs, a critical and systematic examination of alternatives, analysis over the long term, and application of quantitative techniques. Upon its introduction, the name of the system was changed from Program Budgeting to Planning, Programming, Budgeting System (PPBS).16

The PPBS formulated by the government involved three levels of management.17

Policy management: Identification of needs, analysis of options, selection of programs, and allocation of resources

Resource management: Establishment of basic support systems viz., improvements in basic budget structures, financial management practices

Program management: Implementation of policies and related operations; accounting, reporting, and evaluation

Stated in the above manner, however, it appears to be the general characteristics of any budgetary system, including the traditional budget. The differences are to be found both in the basic approaches and in the way in which they are packaged. The formulation of needs, for example, involved in the PPBS “(1) appraisals and comparisons of various government activities in terms of their contributions to national objectives, (2) determination of how given objectives can be attained with minimum expenditure of resources, (3) projection of activities over an adequate time horizon, (4) comparison of the relative contribution of private and public activities to national objectives, and (5) revisions of objectives, programs, and budgets in the light of experience and changing circumstances.” Packaging was different in that these diverse elements were brought into a single system and into a unified budgetary process. In conformity with the above objectives, the PPBS had three major ingredients (a) structural aspects, dealing with the classification of government transactions, (b) analytical aspects, dealing with the application of quantitative criteria for the determination of appropriate programs, and (c) informational aspects, dealing with the development of supporting systems that help policy formulation and appraisal. The flow of these activities is illustrated in Table 20.

Table 20.Schematic Presentation of the PPB System
Structural

Aspects
Analytical AspectsInformational

Aspects
PlanningProgrammingBudgeting
Classification of the budget into:



Functions



Programs



Activities Cost elements
Formulation of objectives



Identification of alternatives



Evaluation of alternatives



Selection of the feasible course
Determination of personnel and resources needed for the fulfillment of objectives



Determination of costs of such resources



Determination of the annual profile of costs
Allocation of resources for selected programs



Presentation of the budget in the program structure evolved for the purpose



Formulation of operational targets
Progress reports on the implementation of the budget



Adjustment in the light of progress



Evaluation

The operational aspects of the PPBS contained five formal elements: (1) Program structures that were required for all government activities to facilitate consideration of programs of a common nature; (2) issue letters to be sent out by the Office of Management and Budget indicating the program issues that should receive attention; (3) program memoranda showing the decisions made by agencies and the reasons for such decisions; (4) special analytical studies and the application of mathematical techniques; and (5) financial plans showing the outlays for each program, the funds committed for the next five years, and the link between annual budget allocations and medium-term plans.

Problem Areas

The implementation of the PPBS raised the question of the feasibility of specifying objectives and the application cost-benefit analysis for assessing alternatives. The system's emphasis on the development of information did not, however, result in any progress; the then existing financial information systems continued by and large with some refinements, particularly in the Defense Department. The issues regarding objectives and cost-benefit analysis were more fundamental, while issues on information were technical.

The contribution of the PPBS lies in the reiteration of rationality approaches to decision making, combining them with other relevant elements into an integrated budgetary framework. In order to ensure rational decision making, operationally defined goals are needed.18 As a basis for allocation of resources, the outputs of the proposed programs should be related to objectives. But the specification of goals is a difficult task. Politicians generally prefer to keep goals as vague as possible. Moreover, goals are in the nature of political ends and cannot be considered in terms of technical means. It should be recognized, however, that the objectives considered by the PPBS are more like intermediate steps in long causal chains between the ultimate ends and means. The final choices of goals are the prerogative of the politician but it would be too far-fetched to suggest that, in a complex economic environment, the choices are totally political; there is often a substantial influence of the planner or the economist on the political process.

The goals and objectives with which the budgeteer is concerned are more tangible.19 Although there are areas in government that do not lend themselves to easy specification, there are other areas that are more amenable. The problems of objectives should preferably be discussed not in philosophical terms of their ambiguities, ambivalences, and conflicts but in more practical terms. It would then appear that the primary difficulty is that objectives tend to be diffuse, both because of their intrinsic features and for administrative convenience and, therefore, they can be nonoperational. Another difficulty arises in achieving proper trade-offs in view of the extensive, covert, or overt operation of different pressure groups.

The second criticism is that relating outputs to objectives is difficult and that consideration of direct or identifiable measures only may not reveal the magnitude of unintended effects. In service-oriented agencies such as education and health, quantitative factors are only partially helpful in assuring the objective-output relationships. This difficulty is again a practical one. Performance budgeting stressed the need for developing appropriate indicators but as everyone tended to overstate the difficulties, the effort itself got bogged down. While such initial failures should have spurred more intensive efforts (as is true in physical and chemical sciences), in fact it received less attention and, in due course, policymakers and analysts found themselves in a vicious circle. Correct policymaking needs accurate data, but accurate data cannot be generated because of conceptual and practical difficulties. The result in such circumstances is predictable and the PPBS did not prove an exception.

The application of cost-benefit analysis was essentially derived from the commercial world. The firm in the private sector appraises the alternatives and estimates the expected rate of return from proposed investments. This involves the estimation of future flows of costs and revenues and the application of a discount rate, which, when applied to these flows, gives a present value of the difference between them equal to the investment. After an assessment of the internal rates, the one with the highest rate of return is selected. The thrust of PPBS is similar, as it seeks allocative efficiency. The analytical aspect of the system consisted of the application of these techniques to the appraisal of goals and their alternative means. The conversion of this basic idea into an operational framework still bristles with problems. The essence of the analysis that actual receipts and expenditures do not fully measure the social benefits and costs, and that the approach should be to analyze the resource use rather than costs, is itself unassailable. It is not the concept—much less the need—that is controversial, but the state of the art of this technique(s). A major problem is that the analysis aims at imputing the monetary value of benefits and costs to some areas that do not have market prices. The identified and measurable benefits may be overwhelmed by those not identified.20 Similar questions arise on the appropriate rate of discount, on the measure of the externalities of one program to the other and on the treatment of additional incomes generated by the project. If such incomes are taken into account, it is only appropriate that incomes not generated because of tax policies are also taken into account so that the inconsistencies could be better analyzed. The system is intended for long-range planning as it permits a broad view of the side effects. But in the short run the behavior of costs could be different. For purposes of long-range planning, there is a built-in incentive for the planner to overestimate demand, but the short-run fluctuations in demand could severely impair the financial outlook of the project; these aspects are not given sufficient recognition in the analysis and, when they are recognized, compensatory technical adjustments may not be sufficient. The techniques of analysis cannot also provide answers (some suggest that they are not intended to)21 to the Pigouvian question of whether more should be allocated to the construction of battleships or to relief for the poor. They have limited applicability for large and complex issues, and can only deal with them in a suboptimal way. At the program or project level, under given circumstances and assumptions, uncertainties are considered and overall feasibility evaluated.

At the operational level, the policymaker has to specify the ingredients—the choice of the discount rate—for uniform application. In such application there is often a bias, but inasmuch as this is uniform, the net result is not as adverse as it might appear. If the specification is not made in detail, it is likely that the imputation of benefits would be inconsistent and would vitiate the merits of judgment. The cut-off point—below which projects would eliminate themselves—also has to be specified. While conceptually these aspects have the desired logical rigor, in practice much would depend on the numbers generated.22 To the extent these aspects are objective and reliable, they would serve as a useful guide. The persistence of difficulties may often make the policymaker skeptical of the technique and its several imputations and make him view the system more as a sensitivity test to his intuitive approach than the other way round. At the same time, not undertaking analysis would imply the return of rule-of-thumb procedures. The virtue of cost-benefit analysis lies in the fact that it provides a benchmark to guide policymaking and to force the decision maker to concentrate on the objectives of the programs and the relative social values placed upon alternative outcomes.23 It is also to be ensured, however, that the application of the technique does not lead to excessive fragmented decision making, which would be true when each project is viewed as a world in itself. Ignoring its linkages to the resource use would harm budgetary decision making.

Another area that is alleged to have been ignored in designing the PPBS is the neglect of the political implications and related aspects of feasibility.24 While political issues are important (the legislative considerations are different and much of their impact would depend on the legislative system), it would be somewhat farfetched to suggest that a budget system could totally eschew these elements. Indeed, no decision maker lives or works in a hermetically sealed atmosphere; one is only too well aware of the intricacies of politics however remote from the powerhouses that generate them. Wildavsky argued that the people engaged in implementing the system in the U.S. Government were not fully aware of the total political implications and that, in any event, the results of the technique tended to vary from one agency to another. While, undoubtedly, political scientists have a point in reminding the practitioners that the political premises of decision making should not be lost sight of, it appears that they indulged in needless exaggeration.

Implementation Experience

The implementation of the PPBS in the U.S. Government, notwithstanding the political commitment, did not deliver the revolution it promised. However, the introduction of the PPBS was followed by a mood of skepticism and disenchantment. The reasons for disillusionment were both situational and administrative. In the traditional context of the legislative and executive relationship in the United States, the former viewed the actions of the latter with distrust and the PPBS did not reduce it. In part, the feeling of distrust was engendered by the way the system was introduced in the Federal Government; this was done in a single move that strained the capabilities all around. Mistakes became quite common. It appears in retrospect that analysis was overemphasized at the expense of operations. The budget reviewers were not sure of their role, particularly in relation to the role of the economists, and there was a fear that the views of the specialist would gain ascendency over those of the generalist. Also, development of the data took time. The system could be applied only to certain segments of new outlays, which constitute a relatively minor proportion of total outlays. Most decisions remained beyond the realm of quantitative analysis. The impact of the system as a whole became marginal. These were compounded further in administering the formal elements of the system. First, difficulties were experienced in sending the issue letters early enough to precede the annual budgetary process and their use was limited by the inadequate analytical capabilities in the agencies. Second, analytical studies proved difficult in view of the lack of proper recognition of the differences between civil and defense areas and among civil agencies. Third, the new program structures became an additional layer rather than a substitute for the previous ones. Finally, with the change of the party in power, the PPBS, which was identified with the previous government, became a liability. The formal identity of the system was, therefore, given up, although some of its elements continue to operate, for example, program classification and the selective application of cost-benefit analysis.25 A major victim was the reform movement itself, and with it the efforts of economists to introduce more organized planning received a setback. It is a moot point whether more assiduous application would have had a greater impact. In the event, however, the important contribution of the PPBS was in ideas, which continue to dominate.

In the years that followed, emphasis was shifted in the U.S. Government to the system of Management by Objectives (MBO). This system was also drawn from private sector organizations and was essentially one in which the objectives for each level were specified, conflicts identified, and opportunities provided to management to monitor progress and to evaluate the results. Its emphasis was managerial, while that of the PPBS was economic and financial.26 The common element was the specification of objectives, which in this case was recognized as a “hierarchy of objectives” that corresponded to the various branches of management Its focus was narrow and allocative efficiency, which was the aim of PPBS, was incidental to MBO. Because of this narrow focus, it cannot be considered as a substitute for any budget system, although it was, and is, a useful additional tool for the budgeting system.

Zero-Base Budgeting (ZBB)

The combination of the PPBS and MBO, and the experience gained over the years, paved the way for the introduction of ZBB in the U.S. Federal Government in 1977. In considering ZBB, however, a distinction needs to be drawn between ZBB that was first introduced in the Department of Agriculture in 1962, and ZBB that was ushered in 1977.

In 1962 the U.S. Department of Agriculture made an effort to introduce comprehensive budgeting in the form of ZBB, which specified that “all programs will be reviewed from the ground up and not merely in terms of changes proposed for the budget year…. The total work program of each agency must be subjected to an intensive review and evaluation…. The fact that certain activities have been carried out for a number of years will not, per se, adequately justify their continuation. Nor will the fact that programs are prescribed by statutory law necessarily be a controlling consideration. Program goals based on statutes enacted to meet problems or needs that are today of lesser priority must be re-evaluated in terms of present conditions.” In theory, ZBB called for total cost analysis of all programs every year. The experiment, which was confined to one major agency, proved too elaborate: there was excessive paperwork and little or no change in the size or direction of the budget. Its implementation revealed conceptual difficulties, as well as lack of priorities, and it never became fully operational.

In the early 1970s, experiments were made in the variants of ZBB in the private sector. In extending that experience to government, it was recognized that the weaknesses of the PPBS were that it did not provide an operating tool for managers, or consider the impact of various funding levels, and was not significantly equipped to force the continual evaluation of ongoing programs.27 These aspects were compensated for in the ZBB when it was applied at the federal level in 1977. By that time, however, the system had gained additional experience in some states as well.

The basic feature of the system is that it requires examination of programs at various levels of resource allocation and performance. Other features are (a) objectives have to be formulated for each agency,28 (b) the activities of each agency are converted into decision packages—that in essence are broadly the same as program categories in previous systems—which are developed to show performance at various resource levels such as “minimum,” “intermediate,” “current,” and “enhancement,” levels,29 and (c) the decision packages are then evaluated and arranged at each level of management in ranking order.30 The ranking order enables the agencies to define the minimum effort and to indicate the incremental levels of effort above the minimum for each program. The levels of effort are then arranged in a decreasing order and a cut-off point is established; items below the cut-off point are not funded. Another important feature of the system is, continuing the tradition of MBO, that it specifically assigns a role to the “line” or management officials in budget making and permits them to rank programs as they think fit, programs that are then evaluated successively at each higher level. Final rankings are prepared at the top agency management level, and to that extent it has the capability of generating more responsible administrative planning with full recognition of financial implications. Supplementing this system are the procedures for the formulation of medium-term budgets within the Government and a form of sunset budgeting in the legislature under which cut-off dates for funding are set for programs by legislation.

The implementation of ZBB had apparently been less difficult than previous systems. This may largely be due to the fact that ZBB came into operation after years of experimentation with Performance, Program, and Planning, Programming, Budgeting Systems. Another contributory factor has been the budget deficits and the feeling that expenditures needed to be controlled. It is noted that ZBB did not represent a conceptual departure, nor did it require a new apparatus; it was, for all intents and purposes, a logical extension of the previous system. Table 21 summarizes the comparative features of Performance, the PPB, and ZBB systems. Admittedly, there are a number of common features and the innovation of ZBB consisted of participation by managerial personnel and planning at different levels of resource availability. Inevitably there was a debate on the merits of ZBB. Supporters of the system argue that it helps to focus equal attention on the budget base and on the increments of that base, and that it permits adjustment in view of the changing picture of resources. The critics suggest that the system is at best a form of institutionalized incrementalism, wherein, by a routine insistence on nonincremental budgets, agencies can obtain financial security; that emphasis on managerial aspects may drive out policy or program analysis; that all it attempted was a change in the terminology. Moreover, its contribution is limited with regard to transfer payments to other levels of government and households, and the system encourages gamesmanship among the participants. These criticisms have considerable validity, although it should be noted that gamesmanship is inevitable in any organization that has many decision-making centers. To stress the obvious, the system is not a panacea. It cannot make tough choices by itself or resolve political differences. The system itself has been in limbo since the change of government in 1981.

Table 21.Features of PPB and ZBB Systems
Systems

Elements
Systems

Terminology
Performance

Budgeting
Planning, Programming, and

Budgeting Systems
Zero-Base Budgeting
1. OrganizationAgencyFunctionDecision unit
2. ObjectivesSpecific objectives of the agencyFunctional objectives and their relationship to national goalsSpecification of short-term objectives, particularly in regard to increments proposed
3. Classification aspectsFunctions, programs, and elements of expense that form integral parts of the budget structure.Functions and programs independent of the budget structureDecision packages and consolidated decision packages that are flexible and independent of the budget structure
4. Analytical aspectsEmphasis on outlays-performance relationshipApplication of quantitative techniques and evaluation of alternativesEmphasis on monetary and performance increment relationships and ranking of decision packages in terms of different assumptions of resource availability. Preference for descriptive and explanatory statements on alternatives and in support of choices made at lower levels
5. Budget and planningSeparateIntergrated within the annual budget cycleIntegrated
6. Time-horizonAnnualFive-year forecastFour-year projections to be indicated but their role in overall budget formulation less specific
7. Evaluation aspectsQuantitative measurement of performanceEmphasis on evolving information systemsEmphasis on performance and its measurement
8. Intended extent of annual applicationThroughout governmentThroughout governmentThroughout government
9. Intended benefitsResults for outlays and greater cost consciousnessAllocative efficiencyGreater involvement of the line managers in the budgetary process, measurement of performance, and a credible rationale for reallocating resources

Implementation of Reforms in Industrial Countries

As noted in previous chapters, the problems of expenditure control spurred a search for new tools and systems. Many industrial countries have undertaken reforms to improve their budget systems since the mid-1960s. Some of these reforms were undoubtedly due to the demonstration and ripple effect of the United States, as its experiences with the new systems came to be closely examined and, as its effort became part of literature, the awareness of the problems grew and solutions were influenced by the design of Performance and the PPB Systems in the United States. This is illustrated by the experiences of the United Kingdom, Canada, France, and Sweden.

United Kingdom

The experience of the United Kingdom is far more varied than others and, in more than one way, parallels experiments in the United States. The difference, however, is that in the United Kingdom the search was also for instruments that would be of greater use in demand management. The first attempt at improving the budgeting system was through functional costing, which was introduced in the mid-1960s. Following the system of program budgeting in the U.S. Department of Defense, a form of functional costing consisting of a program classification of the activities of the current and future costs of military programs and providing a common language for the military and the financial planner was introduced. The application of quantitative techniques for program analysis was also initiated. The application of these analyses and costs were, however, restricted to largely internal management purposes.

Later, following the introduction of the PPBS in the U.S. Federal Government, the U.K. Government also reviewed the applicability of the functional costing system to civil agencies and some pilot studies were carried out.31 The review revealed the need for a system with a different focus and mix to meet the disparate requirements of the wide spectrum of civil agencies. The result was a system known as output budgeting. Output budgeting was, in its initial form, the same as Performance and Program budgeting systems. The basic aim of output budgeting was to relate all costs to functional objectives, to ascertain the use of resources, the ends for which they are used, and the results.32 Later, a formal structure was provided for the system. It consisted of the following: (a) A program budget that showed, for each program, proposed expenditure and whatever quantitative measures of output that could be meaningfully constructed and used on a regular basis. This phase included the review of the continued validity of the objectives. (b) Special studies, either to establish the value for money or alternative ways of achieving the given objectives. These features, it will be recognized, were for all intents and purposes, the same as those of the PPBS.

Output budgeting was never formally introduced in the government. Instead, reflecting the major changes that took place in the organization of the Government, it came in the form of a new package—a three-tier decision-making system, comprising some elements that were already in operation. The ingredients of this package were (a) the Public Expenditure Survey Committee System (PESC), (b) the Program Analysis and Review (PAR), and (c) the Central Policy Review Staff (CPRS).33 The features of PESC have been discussed in Chapter 6. The PESC, it will be recalled, did not explicitly state the objectives of expenditures to be tested against the general government strategy, nor did it embody detailed analysis of policy options. These were to be compensated for through PAR, which in a way was a combination of output budgeting and management by objectives. Its purposes were to contribute to the overall strategy by focusing on issues for collective consideration and to review the major ongoing programs (a feature distinguishing it from the PPBS).34 PAR studies could have a longer time horizon than the three-year period of PESC. The choice of the subjects taken up for analysis was more selective and was made with reference to significant issues or areas that had substantial outlays. PAR required a constant dialogue between the Finance Ministry and the spending agencies and among the spending departments by identifying the main determinants of expenditure and their interaction among programs.35 The third element was the CPRS, which was broad based and was concerned with the strategic objectives and priorities of the government as a whole. Conceptually, its approach and analysis form a vital analytical input into the decision making of government and provides an umbrella over the work of the PESC and PAR. The activities of CPRS preceded the budgetary cycle and its concerns were more than financial. As an agency that functioned as a part of the Cabinet office, its actual operations were dependent on its relationship with the Cabinet. During recent years some of its studies became more controversial, but essentially the budgetary system continues to follow the major elements of the PESC with only incidental influence from CPRS, and PAR appears to have fallen into some disuse as financial crises in the government required more drastic policy measures. Moreover, reflecting the impact of inflation, greater reliance has come to be placed on the system of cash limits.

Canada

The review of the governmental machinery in the early 1960s by the Glassco Commission contributed to the initiation of performance and program budgeting variations in Canada. Following the U.S. Government experiment with the PPBS, a few pilot studies were made to consider its feasibility, and it was decided that the application of the new system should be extended to all government departments. It was later extended to some state governments. The Canadian approach is slightly different from the U.S. PPBS in that greater emphasis was laid on expenditure planning and assessment of efficiency. Expenditure planning itself was in two stages. In the first place, expenditure planning consisted of the preparation of three budgets with varying amounts of expenditures at the current, increased, or reduced levels. It is in the preparation of the second type of budget that cost-benefit analysis was sought to be applied. The second level relating to assessment of efficiency, determination of expenditure inputs was, however, delegated to the administrative departments. Another feature of the Canadian approach is its emphasis on efficiency in resource utilization. Although the measurements or indicators of efficiency have not always been regarded as integral parts of the budget cycle, it is noteworthy that selective measures, such as cost per unit, output per dollar cost, real output per man year, were evolved and responsibility centers for monitoring costs were set up in spending agencies. Experience of the system has been rather limited and in the late 1970s attention was diverted to the political problems of budgeting which were contained through the envelope system.

France

A variant of the PPBS was also introduced in the late 1960s in France. The experience was divided into two phases. As applied in the defense organization, it was known as “Planning, Programming, and Preparation of the Budget,” and offered a coordinated framework for centralized decision making and control. Its application in the civil departments was known as “Optimization of Public Expenditure,” which laid more emphasis on the application of investment appraisal techniques. Later, both of these were combined into what has come to be known as Rationalization of the Budget Choice (Rationalisation des choix budgétaires—RCB). This system, like the PPBS, has three components—a program structure, analytical studies, and an information system. The implementation of RCB reveals three distinctive features. First, analytical studies were undertaken more in the nature of planning inputs for finalizing government investments and were not linked to the budgetary process. This proved efficacious in France in view of its well-developed formal planning systems. Second, it was recognized that central enforcement of the system might lead to the development of counterbalancing forces. To this end, departments were encouraged to develop their own approaches to meet their unique requirements. Third, it was also recognized that the introduction of the system, if it was not to overextend itself, would have to be selective and gradual. The system, as it obtains now, is used by some spending agencies and is not a centralized system imposed from above.

Sweden

Variants of the PPBS have been used in certain areas of civil administration since 1968 and in the defense administration since 1972. Although it was among one of the first European governments to show interest in the PPBS experiments in the United States and published Swedish translations of the PPBS literature, the acronym or its equivalent appears not to have gained acceptance in Sweden. Reviewing the situation, the Budget Commission in its report Proposal for a Reform of the Swedish Budget System (1974) made a distinction between program budgeting or planning and functional budgeting—the former directed more to the planning of inputs and the latter concerned with control—and recommended the latter. Its concept of functional budgeting was, despite the technical distinction, broad based and included the specification of objectives, identification and planning of commitments through medium-term surveys, formulation of program structures, evaluation of reasonable alternatives, and measurement of costs. In making these elements operational, the proposal recognized that there were a number of multigoal activities and several activities contributing to the same goal, and where multiple agencies pursue the same goal, coordination was to be achieved by administrative procedures rather than by program structures or administrative reorganization. The present budget system has several elements that combine planning, medium-term forecasting, and efficiency measurements.

Other Countries

The impact of the PPB and related systems is also to be seen in several other countries, although the application as well as its modes differ from one country to another. Japan, for example, gave active consideration to the introduction of PPBS variants. There was a keenly felt awareness that its budget structure was diffuse, its decision making fragmented and more concerned with consensual validation than with allocative efficiency, and that the budgetary process was nonprogrammatic and iterative. It was to avoid this that the Economic Planning Agency initiated research into the feasibility of systems similar to the PPBS. The emphasis of the Planning Agency was notably on providing a framework with a built-in incentive for the agencies to plan their activities rather than to be concerned with the annual increments in the budget. It was also expected that such an effort at planning would result in the minimization of political influence. Despite a growing recognition of the useful features of the new system by both agencies and the Ministry of Finance, not much headway has been made in its implementation, although during the late 1970s medium-term financial surveys were initiated.

Several other countries saw the need more in terms of selective strengthening of their systems than in total revamping by the introduction of a PPBS. Austria, Denmark, the Federal Republic of Germany, New Zealand, and the Netherlands are among those that introduced a wide variety of reforms involving selective reclassification of budgets into programs, medium-term forecasts, the introduction of appraisal techniques, and the measurement of productivity and performance in some departments. More recently, Greece has initiated a three-year implementation of a form of zero-base budgeting and productivity assessment program. Here again, the effort is oriented more toward selective adoption of some features of ZBB than to a transplantation of the U.S. system.

Developing Countries

As developing countries attained independence in the late 1940s and early 1950s it became clear that inherited systems of financial management were not best suited to the changed role of governments in the context of development. The budget structures and financial management systems were found to be archaic and functionally weak. There was little or no systematic viewing of proposals or planning of expenditures. Central controls were illusory and accounting and reporting received scant attention despite their importance. Identification of these aspects did not take too long and the long journey toward modernization was charted to rectify chronic disorders in obvious areas. The reforms included improved budget agencies, reorganized budget structures, and selective strengthening of financial management capabilities in spending agencies. The emergence of planning as a separate art temporarily cook care of the problems of expenditure planning. It was expected that the allocative efficiency of expenditures would be ensured by the development plans. It is the continuing search for performing traditional and new tasks that caused developing countries to experiment with performance and program budgeting systems after the mid-1960s.36 To some extent, these efforts received added impetus from the publication of a manual and advocacy of Program and Performance Budgeting by the United Nations.37 The system proposed by the United Nations was essentially the same as performance budgeting and consisted of interrelated elements of program structures, a system of accounts, and financial management in line with the classification and measurement of efficiency. It is different from the PPBS approach in that the UN Manual did not advocate the application of cost-benefit analysis or related techniques. It envisaged the new budget system “as an effective instrument in the implementation of development plans,” although the Manual itself did not discuss the nature of problems encountered in the implementation of development plans or the adequacy of the proposed system for meeting these specific tasks. The implications of the new systems for the developing countries were manifold. If the emphasis on quantitative criteria were converted into practical budget making, it would have helped to reduce the extent of dualism discussed earlier. Similarly, the structural features and the appraisal techniques would have enabled decision makers to look beyond their traditional horizons into the wider implications of programs as a whole. Some of these advantages were recognized by the developing world, which tried to make the abrupt transition from conventional budgets to the family of modern budget systems. Several countries in the Asian, African, Middle East, Caribbean, and Latin American regions have introduced types of Performance and PPB systems,38 but the features of the systems introduced, as well as the approaches to reform, are by no means uniform and in fact are considerably diverse.

In some countries, the introduction of the system was influenced substantially by external factors. For example, the Philippines, which was one of the earliest to adopt performance budgeting, was clearly influenced by contemporary developments in the United States and the impetus for introduction came, to a large extent, from external technical assistance. Similarly, in Malaysia the initial thrust for reform came from the review of administrative machinery carried out by foreign consultants (as in Tanzania) and in Nepal the reform movement was initiated through technical assistance arrangements. Bolivia, Honduras, India, Kenya, Lesotho, Malawi, Sri Lanka, Uganda, and Venezuela were all substantially influenced by developments abroad, but the initial efforts (and in some countries total efforts, e.g., India) were organized domestically. It was an awareness of external developments that prompted them to review the inadequacies of the traditional systems and it was the same factor that induced a breakaway from them. The systems, as implemented, represent a wide variety and are such that they cannot be considered as Performance or PPB systems. In countries such as India, which sought to introduce Performance Budgeting, the specification of the efficiency yardsticks and cost implications are still at a nascent stage. In countries that attempted PPB systems, planning machinery has developed independently from budgeting and, to that extent, has permitted convenient adaptations rather than a strict adherence to the PPBS paradigm. The introduction of the system in India, Indonesia, Malaysia, Nepal, and Sri Lanka did not bring about a change in the functioning of planning and budgeting, which continued to be performed on a dual basis. In some countries where revised budget classifications were introduced, better coordination appeared to be achieved in presentation. The analytical aspects of the system remain largely unimplemented and a shift to a more objective or quantitative approach is found to be difficult and is often resisted. The task has not been rendered any easier by the little attraction the terminology of these techniques had for line employees. The coverage of the new systems is also limited. In Malaysia and Indonesia it is limited to the development budget, while in India performance budgets are prepared as supplementary documents. It also appears that the new systems have not yet become instruments of management either in finance ministries or in plan agencies. Thus, implementation has been spotty and several features remain to be introduced. The traditional system still obtains and it will be a long while before it is replaced. Table 22 illustrates features of the new systems in some developing countries in Asia and indicates the extent of progress made.

Table 22.Implementation of PPPB Systems in Selected Asian Countries
Special Features Applicable in Selected CountriesIndiaMalaysiaNepalPhilippinesSri Lanka
General Features of the Systems
I. Determination of objectives
Determination of national objectives*1*1*1*1*1
Determination of objectives of sectors*1*1*1*1*1
Determination of objectives of programs*2*2*2*1*2
Determination of advance program of work
II. Structural or taxonomic aspects
Classification of government transactions into functions, programs, and activities**3***
III. Analytical aspects
Application of cost-benefit analysis, systems analysis, special studies, etc.44444
IV. Predictive features
Projection of government outlays over an adequate time-horizon



Budgeting within specified ranges
*5*5*5*5*5
V. Appraisal and evaluation aspects
Establishment of information systems*6
Quantitative measurement of outputs in relation to specific objectives of programs



Formulation of standards for measurement of performance
*7*7*7
VI. Intended extent of annual application
Throughout the government Selected key areas*****

Denotes features applicable.

This is done as an integral part of the medium-term development plans.

Restricted to the programs included in the development plans.

Restricted to the development budget.

Progress in this regard is highly uneven and, in any event, there is no uniform application of this criteria in the annual budgetary process.

Projections are undertaken for the aggregates and not for individual programs.

Generally restricted to the development budget.

The application is uneven and the quality varies from one to another.

Denotes features applicable.

This is done as an integral part of the medium-term development plans.

Restricted to the programs included in the development plans.

Restricted to the development budget.

Progress in this regard is highly uneven and, in any event, there is no uniform application of this criteria in the annual budgetary process.

Projections are undertaken for the aggregates and not for individual programs.

Generally restricted to the development budget.

The application is uneven and the quality varies from one to another.

Implementation Lessons

The implementation of the systems reveals that those in operation cannot be described as a single system but as a family of systems where selected features that are relevant and feasible are applied. Table 23 summarizes the previous discussion and shows the general features of the systems in selected industrial and developing countries. This indicates that while the systems had various names, they also had several common elements, such as classification, specification of objectives, and evaluation of efficiency. While discussed in terms of a packaged system, they seem to generate greater controversy, in reality and devoid of a label, the ingredients described in the table gain acceptance when viewed as a continuation of the budgetary process. Indeed, some countries such as the Federal Republic of Germany have all the features but no descriptive label. Gibbon wrote that mankind is governed by names. Labels appear to have become more controversial than beneficial when applied to budget technology.

Table 23.Application of Modern Budgetary Techniques: Variations on a Theme1
United StatesUnited KingdomFranceCanadaSwedenUN SystemTanzaniaIndia
General Features of SystemsSpecific Features of Each SystemPerformance budgetingProgram budgetingPlanning, programming, budgeting systemFunctional costingOutput budgetingProgram analysis and review2Rationalisation des choix budgetairesPlanning, programming, budgeting systemFunctional budgetProgram and performance budgetingProgram budgetingPerformance budgeting
I. Determination of objectives
Determination of national objectivesXXXX
Determination of objectives of sectorsXXX
Determination of objectives of programsXXXXXXX
Determination of advance program of workXXX
II. Structural or taxonomic aspects
Classification of government transactions into functions, programs and activitiesXXXXXXXXXXXX
III. Analytical aspects
Applications of cost-benefit analysis, systems analysis, special studies, etc.XXXXXXX
IV. Predictive features
Projection of government outlays over an adequate time horizonXX3XXX
V. Appraisal and evaluation aspects
Establishment of information systemsXXXXXXXX
Quantitative measurements of outputs in relation to specific objectives of programsXXXXXXX
Formulation of standards for measurement of performanceXXXXX
VI. Intended extent of annual application
Throughout the governmentXXXXXXX
Selected key areasXX

X indicates the features applicable to the system.

For this purpose, the features of the work of the Public Expenditure Survey Committee and the work of the Central Policy Review Staff are considered as integral parts of Program Analysis and Review. Each one has a separate role but are so structured that they complement each other.

In Canada more emphasis is laid on Formulating three budgets.

X indicates the features applicable to the system.

For this purpose, the features of the work of the Public Expenditure Survey Committee and the work of the Central Policy Review Staff are considered as integral parts of Program Analysis and Review. Each one has a separate role but are so structured that they complement each other.

In Canada more emphasis is laid on Formulating three budgets.

The above should not be taken to imply that the systems are fully operational in the areas shown or that their benefits have been fully reaped. The implementation in several countries has been difficult and in some case halfhearted, and it seems that in developing countries, it cannot be disassociated from the plethora of problems associated with extensive needs and low capacities. Lack of training facilities, shortage of skilled workers, inadequate phasing, disillusionment with excessive paperwork, nonutilization of the information generated, utilization of the information for strengthening centralized controls, lack of adequate involvement of spending agencies, lack of proper hybridization of some techniques, and too ambitious an application are a few of the easily discerned features. There were also substantial lags in adjusting to the new requirements the supplementary systems such as reporting and accounting. These aspects contributed to poor results, which in turn contributed to a series of questions and doubts about budgetary reforms, their impact, and relevance for the future.

Evaluation of Budget Innovations

Have these reforms succeeded? Wildavsky asserts that “[m]ost reforms fail…the governmental landscape is littered with their debris.”39 Informed skepticism is, however, no substitute for substantive analysis. In evaluating reforms, numerous problems arise. One of the somewhat intractable subjects that has been debated for years in economics is the measurement of technical change and its impact on production. One belief is that the results of technical change become embodied in capital equipment and cannot be distinguished. Another avers that the contribution of technical change may remain disembodied and that it can be measured by selected proxies. The measurement of contribution of budgetary reform is, if anything, even more difficult. For one thing, the period of implementation and experience with reforms has not been long. For another, government activities cover as wide a range as the reforms and trying to measure them by a single yardstick does not permit a fair assessment of the reforms. The contribution of reforms is contingent on the situational factors (need for reform and timeliness in the submission of recommendations), structural factors (relationship between government and the legislature), behavioral factors (motives and attitudes at operational tanks in government), human skills (availability and utilization of skills), and economic factors (phase of the cycles and levels of taxation and expenditure), and the separation and measurement of the contributions of each of these factors is formidable.

Some criteria to assess reforms have been considered during recent years. One test frequently offered is whether the reforms succeeded in reducing expenditure growth. The experience of the previous three decades suggests that the objective of the reforms was different. Primarily it was to improve efficiency rather than to reduce expenditures. The empirical verification of the test was sought by measuring the costs of government services and the general conclusion was that costs tended to rise. It has to be recognized, however, that the tests were concerned with costs rather than with quality. Also, the pursuit of stabilization in certain situations may imply the need for more expenditures (in aggregate) than less. Thus, the validity of this test is somewhat dubious. A second test proposed was that changes in budget concepts should be evaluated in terms of the outcome of the budget process, or the accuracy of budget estimates rather than comprehensiveness or procedural control.40 The problem with this test is that it provides a single criterion for judging a broad range of issues. Several factors, including experience in fiscal marksmanship, affect budgetary outcome and a test of fiscal slippage can, at best, demonstrate the weaknesses of a few selected areas and cannot capture the full implications of the overhauling aimed at by reforms. Other tests include contributions to national development and allocative efficiency. Both these criteria need ex ante specifications with reference to which ex post performance could be measured. Even then, it is difficult to single out budget reform as being responsible for a better or proper economic performance. Similarly, allocative efficiency may be improved or hampered by policy or technical factors and the separation of these factors is not easy. On one hand, it could be argued that properly organized budget processes should imply formulation of proper policies. On the other hand, it is also accepted that decisions affecting the design of allocation of resources are more political in nature and cannot be measured in terms of budgetary reforms. This is not to suggest that reform should be considered on trust and considered a success. Experience of reforms mentioned above reveals that reforms tend to be successive, not because they are less satisfactory in meeting the tasks (although this does arise with inadequate implementation) but more often because of rapid changes in the challenges facing the government. By the time some progress is made in meeting some of the tasks, new problems arise and either new systems have to be introduced or previous ones strengthened. The cumulative capabilities of the systems offered more facilities and greater strengths. When promptly implemented, the reforms are clearly helpful in clarifying the activities of the government, in being a better tool of economic policy and management, in bridging the gap between plan and budget, and in general as an instrument of government administration. It is difficult to imagine that the complex problems of public expenditure management illustrated thus far could have been solved by the traditional budgeting system. While budget innovations do not offer a foolproof system or a panacea, they are capable of offering a more viable long-run alternative to the systems that hitherto prevailed in most of the world. The critics appear to have been more concerned with the negative rather than the positive aspects.41 This approach itself reflects a search for a Holy Grail. In public policy matters, however, experience conclusively indicates that there is no single system that can provide all the answers, and if such a system were to exist, by itself it could not deliver the goods unless supplemented by adequate personnel. Moreover, to yield the benefits expected, it must be given a fair period of trial.

Reforms should perhaps be considered not merely in terms of their shortcomings but in terms of the new issues arising and the large gaps still remaining to be closed. Viewed from this angle, there are areas that need continuing attention—improvement in forecasting, flexible approaches for short-term adjustment in expenditures, inflation budgeting, development of cost and productivity measurement, building up financial management competence in spending agencies, and extending the improved systems to state and local governments. The solutions to these problems are best seen, not in terms of a particular system but as various parts that are appropriate to the specifics so coordinated as to improve the overall financial management system. Therefore, they have to be substantially more than the improved systems discussed earlier. All in all, little respite is in sight for those engaged in improving budget systems. The need for providing a continuing response to changing problems is inherent in government management and cannot be overemphasized.

The term “reform” has extensive connotations. Its use here broadly follows the Webster Dictionary, which defines the act of reform as one of amendment or improvement or removal of faults or abuses.

United States, Report to the Congress on Budgeting and Accounting, Hoover Commission (1949).

For a detailed account of the experience of performance budgeting in municipal and county government and in the Tennessee Valley Authority, see Jesse Burkhead (1956), Chap. 7.

This aspect of cost-based budgeting is also known as factorial budgeting.

For a more detailed account of these aspects, see A. Premchand (1969b).

This approach was later revived in Canada in 1963, and the influence of managerial practices in the commercial world is even more evident in the Canadian Repon of the Royal Commission on Government Organization (GLASSCO) (1963).

United States, Report on Budget and Accounting, Hoover Commission (1955), pp. 13–14.

An interregional workshop organized by the United Nations noted that there were many misinterpretations of the terms. It felt, however, that the connotation of performance budgeting tended to create an initial reaction that was negative to the system as more problems were anticipated in devising and employing measures of performance. It, therefore, suggested the use of program budgeting that implied better formulation of programs and more effective results for its psychological advantage in that its content was the same as performance budgeting but appeared to be more feasible. See United Nations, Report of the Inter-Regional Workshop on Problems of Budget Classification and Management in Developing Countries (1964), pp. 112–113.

United Nations, A Manual for Programme and Performance Budgeting (1965).

Ibid., p. 3.

See United States, Bureau of the Budget (1964).

For a comparative analysis of the principles of military strategy and principles of business planning, see Appendix B prepared by Robert H. Caplan III in Robert N. Anthony (1965). There is considerable similarity between these two practices in matters relating to the importance of the objective, allocation of resources, flexibility, and coordination. There are, however, no business equivalents to the defense features such as offensive, surprise, and simplicity. Military approaches stress operational planning required for the execution of the strategy. In reality, however, business strategy also relies on offensive and surprise, and the growth of strategic planning implies that business is not reluctant to plan.

This did not eliminate semantic confusion. The title of the book that was used to spread the system was Program Budgeting (Novick, 1965). His more recent work does not reduce this problem in that he equates Program Budgeting with PPBS, see David Novick (1973).

In one sense, these are comparable to strategic planning, management, and operational controls. Strategic planning is the process of deciding on objectives of the organization, while management control is the process by which managers assure the allotment of funds and their efficient use. Operational control is the process of assuring that specific tasks are carried out effectively. See Robert N. Anthony (1965), pp. 16–18.

Distinction is usually made between goals—those that are long term and objectives that are more concerned with short term. Their nature is, however, common and the terms are, therefore, used here interchangeably.

Some have, however, tended to de-emphasize the problem altogether. For example, Rivlin says that “despite its elaborate terminology” PPBS is essentially a commonsense approach to decision making. In her view the PPBS is simply an attempt to institutionalize this commonsense approach in the government budgeting process; Alice M. Rivlin (1971), p. 3. This, however, is an oversimplification.

Notwithstanding a skillful application of the technique, it is felt that the benefits that can be measured would be outweighed by those that cannot be quantified. Indeed, this would lead to a situation that would be equivalent to making a stew with a scientifically prepared rabbit and a randomly chosen horse. See Anthony Downs in Robert Dorfman (1965). It could be argued, however, that the technique would be useful in indicating the benefits that are measurable and those that are not. The important thing, as Margolis pointed out, is to extract the values relevant to the policymaker. See Margolis's comment on page 71 in Samuel B. Chase, Jr. (1968).

It is for this reason that manuals on these techniques emphasize projects and programs rather than goals which, to an extent, are given. See I.M.D. Little and J. A. Mirrelies(1974), Chap. 1. In developing countries, the degrees of development being what they are, choices at the level of functions do not appear to pose major problems in view of the availability of recognized “felt needs,” hence, the obvious emphasis on agriculture, education, and the development of infrastructure.

It is also contended that these techniques have not adequately reckoned with the political aspects. For some of these criticisms, see Ida R. Hoos (1969). Her main criticism was directed more to the supersalesmanship of consulting firms (that sprang up in the wake of PPBS) and the overreliance on mathematical tools. Her concern is that analysis could become a power tool in itself. Be that as it may, it cannot be an adequate basis for ignoring the intrinsic merits of the system. Another view is that the provision of guidelines on discount rates, for example, could in due course become a doctrine in large organizations, see James R. Schlesinger (1969).

It should be noted that the proponents of the PPBS did not assume that cost-benefit analysis would be a panacea for all public expenditure problems or that it would substitute for political decisions, see Novick (1965), p. 20.

See, for example, Aaron Wildavsky (1966).

See Allen Schick (1973). Pp. 146–56.

See Peter A. Pyhrr (1973), p. 149 et seq.

By this time the debate about the difficulties in defining objectives simmered down. Formulation of objectives became a chore in government.

To some extent, this resembles the A, B, and X budget systems of Canada and other similar practices.

United States, Office of Management and Budget, Bulletin No. 77–9 (1977).

See, for example, United Kingdom, Output Budgeting for the Department of Education and Science: Report of a Feasibility Study (1970a).

United Kingdom, White Paper on The Reorganization of Central Government (1970b).

See R. J. East (1973), pp. 2–8; and Werner Z. Hirsch (1973), pp. 120–27.

The objectives of PAR were rather ambitious for esentially they sought to review the major policies of government, which probably could not be done through a mechanistic process but required tackling at a political level. In addition, the arguments made against the feasibility of rational analysis of PPBS are also advanced in regard to PAR and it was held that being too bureaucratic and being imposed from the top, it failed to take into account the different requirements of the enormous range of government business. A simplified version of PAR, known as “Scrutinies,” is now in use in the United Kingdom but being essentially oriented to securing efficiency in implementation, it should be considered as a technique that has greater relevance in the budget implementation stage than in budget formulation. See also Chap. 9.

As a UN report pointed out “developing countries were too poor to afford the social cost of available errors and to take the unacceptable risk of losing opportunities which, in a real sense, entailed some comparative advantage for the late-starter,” United Nations, Report of the Interregional Seminar on the Management Techniques in the Public Administration of Developing Countries (1971), Vol. I, p. 8.

United Nations, A Manual for Programme and Performance Budgeting (1965b), p. 5.

For a review of regional developments, see United Nations, Survey of Changes and Trends in Public Administration and Finance for Development, 1975–77 (1978b), pp. 17–38.

Francis Bacon's remark that “they are ill discoverers that think there is no land, when they see nothing but sea” is apposite in this connection.

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