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The author is grateful for the comments received from colleagues in the Fiscal Affairs Department of the IMF. Particular thanks are due to Messrs. James Brumby. Ian Lieneit, and Fcridoun Sarraf, and Ms. Christian Rochler. As always, any remaining errors are the author’s.
Or as Burkhead put it… “that emphasizes the things which government does, rather than the things which government buys. Performance budgeting shifts the emphasis from the means of accomplishment to the accomplishment itself (Burkhead, 1956, p. 133).
An early definition by the U.S. Bureau of the Budget quoted in Axelrod (1988, p. 266): “A performance budget is one which presents the purposes and objectives for which funds are required, the costs of the programs proposed for achieving these objectives, and quantitative data measuring the accomplishments and work performance under each program.” The Tennessee Valley Authority’s program budget system of the mid-1930s, while a “for profit” agency, is a classic example of the approach, and other federal agencies followed by developing activity schedules within program budgets during the war years.
The Hoover Commission also publicized the concept of a “performance budget” in recommending” that the whole budgetary concept of the federal government should be fashioned by the adoption of a budget based on functions, activities, and projects; this we designate a performance budget.”.
“A program or performance budget should be substituted for the present budget, thus presenting in a document of much briefer compass the Government’s expenditure requirements in terms of services, activities, and work projects, rather than in terms of the things bought” (A. E. Buck in the Hoover Commission’s Task Force Report).
As a consequence, Schick, 1971, complained of hybridization, whereby various aspects of the performance system were assimilated into traditional budget procedures and thereby watered down. He writes… ‘‘once the initial allure of performance budgeting had worn off, it was viewed with indifference. Performance budgeting was not salient to the interest of budget participants, nor was it regarded as an important reform” (p. 62).
However, for some of the critics the data on programs and performance is just window dressing, with decisions being taken based on traditional line-item objects of expense (Schick, 1966).
These problems led Dean to conclude that “the history of performance budgeting is one of high hopes and disappointing achievement” (Dean, 1989, p. 123).
FASA included provisions for agencies to establish cost, performance, and schedule goals for major acquisitions and related pay to performance; Clinger-Cohen included requirements for agencies to develop performance measures for information technology used or acquired by the agency.
These will be country specific, since what constitutes a “public good” is debatable; and governments need not necessarily deliver all such public goods.
That is, the results expected should be explicitly stated and these should be quantified where appropriate and relevant.
The particular problems of performance measurement cannot be addressed here, but it should be acknowledged that many practical problems exist: information on performance is fragmentary and unsatisfactory; often data only reflect certain aspects of performance. Also it has been difficult to relate performance to costs.
For example: by their nature (variable or fixed); production function viewpoint (output or non-output); decision-making (investment, sunk, opportunity cost); accountability (controllable or non-controllable).
There are usually many ways to do this, e.g., time recording systems, coding actual transactions, and judgment by management.
Where costs cannot be directly assigned to cost objects, agencies must identify appropriate bases for assigning them, reflecting in some way the consumption relationship between the costs and cost objects.
For example, the allocation process could begin with depreciation of buildings and fixtures, these costs would be distributed across all remaining cost pools. The amount to be distributed from the next pool (building maintenance) would now include not only its own costs but also the amount allocated to it from the previous step. This total would then be allocated to all the remaining pools, and so forth. (Thompson, 1998, p. 387).
In this way, it supports what is often termed “activity-based management” that focuses on the management of an activity to continuously improve its efficiency and effectiveness. For a case study of its application, see Abrahams and Reavely, 1998.
Although the ABC approach is not used by higher levels to set overall budgets, it can lead to greater knowledge about unit costs, and provide a basis for setting benchmarks for government activities.
Focusing attention on the balance sheet, especially if the government introduces a capital charge on departmental capital encourages them to extract maximum value from the use of their assets and to review whether the assets held are all need to produce their outputs.