Transcript
Objective-Based Objective-Based BudgetsBudgets
Lisa Glickstein, PhDLisa Glickstein, PhD
Andover Public SchoolsAndover Public Schools
Googlisms!Googlisms!
Budgeting is…Budgeting is…
…”…”a vehicle for making a vehicle for making performance management performance management operational in the public sector.”operational in the public sector.”
…”…”a framework that streamlines a framework that streamlines resource allocation decisions.”resource allocation decisions.”
……connecting evaluation, connecting evaluation, management and costs.management and costs.
Presentation OverviewPresentation Overview
BackgroundBackground Definitions & ModelsDefinitions & Models BenefitsBenefits
Creating an Objective-Based Creating an Objective-Based BudgetBudget ProcessProcess Accounting Accounting
Best PracticesBest Practices
BackgroundBackground
……say what now?!say what now?!
A Brief History…A Brief History…
International Monetary Fund: International Monetary Fund: Program Budgeting (1980’s)Program Budgeting (1980’s)
Government Performance & Results Government Performance & Results Act (1993): Federal agencies must Act (1993): Federal agencies must report on performance (GPRA) report on performance (GPRA) measures annuallymeasures annually
Federal Performance Progress Federal Performance Progress Report (SF-PPR) adopted in 2008Report (SF-PPR) adopted in 2008
General Budget BenefitsGeneral Budget Benefits
Help to eliminate debt & adjust Help to eliminate debt & adjust expenses to needs & circumstancesexpenses to needs & circumstances
Keep you informed as you compare Keep you informed as you compare plans with performance & allocate plans with performance & allocate funds to close gapsfunds to close gaps
Improve financial communication Improve financial communication among stakeholdersamong stakeholders
Allow you to take advantage of Allow you to take advantage of opportunitiesopportunities
Help to achieve definite objectivesHelp to achieve definite objectives
Measures of successMeasures of success
Effectiveness: Effectiveness: extent to which extent to which programs programs achieve achieve intended & intended & other outcomesother outcomes
Efficiency: Efficiency: delivery of delivery of services at the services at the lowest possible lowest possible cost, without cost, without sacrificing sacrificing qualityquality
Definitions:Definitions:
Program – initiative designed to Program – initiative designed to change a condition or situationchange a condition or situation
Indicator – a change in characteristic Indicator – a change in characteristic of an individual, social structure or of an individual, social structure or environment as a result of the environment as a result of the program, eliminating external factorsprogram, eliminating external factors
Performance measure – instrument Performance measure – instrument or assessment tool used to measure or assessment tool used to measure an indicatoran indicator
Impact – amount of progress Impact – amount of progress towards meeting objectives as a towards meeting objectives as a result of the programresult of the program
Definitions part 2:Definitions part 2: Objective – a measurable desired Objective – a measurable desired
change change Activity – discrete action item in your Activity – discrete action item in your
program planprogram plan Output – a group of activities that Output – a group of activities that
together are capable of producing a together are capable of producing a desired outcomedesired outcome
Inputs – the people & things (with Inputs – the people & things (with costs) needed to do activities & costs) needed to do activities & produce outputsproduce outputs
Outcome – a qualitative or Outcome – a qualitative or quantitative result of an output quantitative result of an output (measured during evaluation)(measured during evaluation)
Logic Model FrameworkLogic Model Framework
Begin with Objectives (Goals)Begin with Objectives (Goals) Develop Performance Measures & Develop Performance Measures &
IndicatorsIndicators Link Inputs, Activities & Outputs (if-Link Inputs, Activities & Outputs (if-
then relationships)then relationships) Collect data on PM&ICollect data on PM&I EvaluationEvaluation Connect Performance (Outputs & Connect Performance (Outputs &
Outcomes) back to Objectives Outcomes) back to Objectives (Impact)(Impact)
Evaluation: Indicators in the context of Evaluation: Indicators in the context of design & implementation, program design & implementation, program relevance, efficiency, effectiveness, relevance, efficiency, effectiveness, impact & sustainabilityimpact & sustainability
Purpose in budgeting:Purpose in budgeting: Identify programs or activities that are Identify programs or activities that are
not cost-effective & cannot be made so not cost-effective & cannot be made so & should be cut& should be cut
Identify savings that can improve Identify savings that can improve efficiencyefficiency
Make judgments about the likely impact Make judgments about the likely impact of external factors on PMIof external factors on PMI
Enable useful judgments about Enable useful judgments about effectiveness when outcome measures effectiveness when outcome measures are lackingare lacking
Old Line-Item BudgetOld Line-Item Budget
PersonnelPersonnel ContractualContractual TravelTravel EquipmentEquipment SuppliesSupplies OtherOther
Line-Item Budgets: Line-Item Budgets: WeaknessesWeaknesses
Lack information for resource Lack information for resource allocation decisionsallocation decisions ““[a] short-term perspective encourages [a] short-term perspective encourages
incremental decisions, where the next incremental decisions, where the next budget is built on the previous one with budget is built on the previous one with only incremental adjustments”only incremental adjustments”
Requires top-down management to Requires top-down management to approve spending changes approve spending changes
Weak accountability for results Weak accountability for results (focus on line items)(focus on line items)
Lack transparencyLack transparency
Alternate Budget ClassificationsAlternate Budget Classifications
TypeType LevelsLevels ExamplesExamples
FunctionalFunctional FunctionFunction
Main programMain program
Agriculture, forestry, fishing Agriculture, forestry, fishing & hunting& hunting
AgricultureAgriculture
OrganizationalOrganizational Department/agencyDepartment/agency
OfficeOffice
Department of AgricultureDepartment of Agriculture
Office of Extension ServicesOffice of Extension Services
Objective or Objective or Program-basedProgram-based
ProgramProgram
ActivityActivity
Capital projectCapital project
Cooperative ExtensionCooperative Extension
Farm management Farm management educationeducation
Construction of storesConstruction of stores
Input/accountingInput/accounting
(line item)(line item)
CategoryCategory
ItemItem
Sub-ItemSub-Item
Goods & ServicesGoods & Services
UtilitiesUtilities
ElectricityElectricity
Objective-Based BudgetsObjective-Based Budgets
Connect costs to outputs & Connect costs to outputs & outcomesoutcomes
How much did it cost to achieve How much did it cost to achieve outcomes (& objectives)?outcomes (& objectives)? How much per unit of change?How much per unit of change? How much per unit of service?How much per unit of service?
Compare relative cost (including all Compare relative cost (including all activities) of competing activities activities) of competing activities based on impactbased on impact
Linked to funding formulas, Linked to funding formulas, incentives or penalties in some incentives or penalties in some modelsmodels
Objective-Based Budgeting: Objective-Based Budgeting: BenefitsBenefits
Improved prioritization of Improved prioritization of expendituresexpenditures
Improved service effectiveness Improved service effectiveness &/or efficiency&/or efficiency
Greater freedom in allocating Greater freedom in allocating resources…resources…
……in exchange for greater in exchange for greater accountability for resultsaccountability for results
Objective-Based ModelsObjective-Based ModelsTypeType DescriptionDescription PrioritizationPrioritization Effectiveness Effectiveness
& Efficiency& Efficiency
ProgramProgram Simple Simple Expenditure by Expenditure by objectivesobjectives
Primary benefitPrimary benefit Indirect onlyIndirect only
Zero-BasedZero-Based Cost/impactCost/impact
Ranking system Ranking system for cuts/growthfor cuts/growth
Primary benefitPrimary benefit SecondarySecondary
Performance-Performance-LinkedLinked
Penalties for Penalties for failure to meet failure to meet performance performance targetstargets
SecondarySecondary Primary; risk of Primary; risk of performance performance distortion & distortion & cheatingcheating
Formula-Formula-FundingFunding
Sector-specificSector-specific
Failure to meet Failure to meet cost objectives is cost objectives is penalizedpenalized
SecondarySecondary Primary; risk of Primary; risk of chronic chronic underfundingunderfunding
Performance Performance IncentivesIncentives
Growth targeted Growth targeted to areas meeting to areas meeting performance performance targetstargets
SecondarySecondary Primary; risk of Primary; risk of overfundingoverfunding
Creating an Objective-Creating an Objective-Based BudgetBased Budget
Critical QuestionsCritical Questions
Program-Budget ProcessProgram-Budget Process
Forecast revenue, expenditures, Forecast revenue, expenditures, deficit or surplus, & debtdeficit or surplus, & debt
Adopt strategic plan policies & Adopt strategic plan policies & prioritiespriorities
Top-down budget for department & Top-down budget for department & program allocations using the program allocations using the forecast & plansforecast & plans
Assess prior year & projected Assess prior year & projected outcomes for activities & outputsoutcomes for activities & outputs
Create a bottom-up program budget Create a bottom-up program budget within the allocationwithin the allocation
Simplified Process Simplified Process (grant or single program)(grant or single program)
Forecast total amount of grant & Forecast total amount of grant & institutional resources (match)institutional resources (match)
Adopt objectives (logic model or Adopt objectives (logic model or strategic plan)strategic plan)
Allocate funds per objectiveAllocate funds per objective Assess prior & projected outputs & Assess prior & projected outputs &
outcomesoutcomes Create the budget for each objective Create the budget for each objective
based on activities & outputsbased on activities & outputs
Creating a Zero-Based BudgetCreating a Zero-Based Budget
Identify activities for each Identify activities for each objective (include alternatives)objective (include alternatives)
Calculate costs of inputs for Calculate costs of inputs for each activityeach activity
Predict outputs, cost per unit Predict outputs, cost per unit output, & expected outcomesoutput, & expected outcomes
Select activities & outputs by Select activities & outputs by relating impact to cost, budgetrelating impact to cost, budget
New Objective-Based BudgetNew Objective-Based Budget
Admin CostsAdmin Costs Objective 1Objective 1
Output 11Output 11 Activity 111Activity 111
Output 12Output 12 Activity 121Activity 121 Activity 122Activity 122
Objective 2Objective 2 Output 21Output 21
Activity 211Activity 211 Output 22Output 22
Activity 221Activity 221
Objective 3Objective 3 Output 31Output 31
Activity 311Activity 311 Activity 312Activity 312
Indirect CostsIndirect Costs
Barriers to changeBarriers to change
Accounting softwareAccounting software Supporting administrative or indirect Supporting administrative or indirect
costs (not linked to an outcome)costs (not linked to an outcome) Apportioning a single direct cost Apportioning a single direct cost
across objectives (or sub-programs)across objectives (or sub-programs) Conforming programs to Conforming programs to
organizational boundariesorganizational boundaries Performance distortion (failure in Performance distortion (failure in
non-measured areas) & cheating, if non-measured areas) & cheating, if linked to incentives or penaltieslinked to incentives or penalties
Accounting SoftwareAccounting Software
Assign PO a tag by activity or output Assign PO a tag by activity or output and record separately (Excel)and record separately (Excel)
Add extensions to current accounting Add extensions to current accounting cost center for activities, outputs & cost center for activities, outputs & outcomesoutcomes
Create programs as a group of cost Create programs as a group of cost centers (alternative approaches or centers (alternative approaches or linked activities) that are functionally linked activities) that are functionally linked to outputs & outcomeslinked to outputs & outcomes
Organizational boundariesOrganizational boundaries
Split interdepartmental programs into Split interdepartmental programs into sub-programs managed by each sub-programs managed by each departmentdepartment
Give ownership to one program Give ownership to one program partner (fiscal agent model)partner (fiscal agent model)
Ownership includes responsibility for Ownership includes responsibility for fiscal record-keeping, data collection, fiscal record-keeping, data collection, personnel management, spending personnel management, spending decisions & resultsdecisions & results
Handling Direct & Indirect Handling Direct & Indirect CostsCosts
Direct costs can Direct costs can be entirely be entirely allocated to a allocated to a single program single program or sub-program, or sub-program, objective, or objective, or even a single even a single output or activity output or activity with some effortwith some effort
ALLOCATEALLOCATE
Indirect costs Indirect costs are shared are shared across an entire across an entire program or program or even multiple even multiple programs and programs and are impossible are impossible to allocate fairly to allocate fairly & accurately& accurately
SEPARATESEPARATE
Tracking ToolsTracking Tools
Activity LogsActivity Logs Track POTrack PO
Grant Activity Log – Project Director
Date Hours Activity Performance Measure
3/3/09 2 Volunteer Training Build Capacity for Client Support
Expense Activity Log
Date InvoiceAmount
Activity & Vendor Performance Measure
3/3/09 $ 800 Volunteer Training (YMCA)
Build Capacity for Client Support
Time & Effort (Direct Cost)Time & Effort (Direct Cost)
TE ToolsTE Tools TaskCoachTaskCoach ToDoListToDoList ProjectTimerProjectTimer TimeToolTimeTool TimeGTTimeGT Xpenser (app)Xpenser (app) TimeRecording (app)TimeRecording (app)
Best PracticesBest Practices
““Make it work!”Make it work!”
Create a Solid ProgramCreate a Solid Program Each program or sub-program has Each program or sub-program has
one owner who reports on outputs one owner who reports on outputs &/or outcomes & is not accountable &/or outcomes & is not accountable solely for spending according to solely for spending according to budgetbudget
Expenditures that serve the same Expenditures that serve the same purpose should be placed in the purpose should be placed in the same program, even if operated by same program, even if operated by different departments or partners different departments or partners (create sub-programs if needed)(create sub-programs if needed)
Check that activities match program Check that activities match program outputs (don’t just match similar outputs (don’t just match similar activities)activities)
Select Strong IndicatorsSelect Strong Indicators
Relevant to users (comprehensive Relevant to users (comprehensive summary measures)summary measures)
Representative (less likely to be Representative (less likely to be influenced by external factors)influenced by external factors)
Cost effectiveCost effective Comparable within sectorComparable within sector Minimize perverse effectsMinimize perverse effects May be quantitative, qualitative or May be quantitative, qualitative or
efficiency (cost per unit)efficiency (cost per unit)
Take Care with OutputsTake Care with Outputs Standardized outputs can be linked tightly Standardized outputs can be linked tightly
& predictably with funding for formulas, & predictably with funding for formulas, targets & incentivestargets & incentives
Heterogeneous outputs are of limited utility Heterogeneous outputs are of limited utility in funding decisions because of variabilityin funding decisions because of variability
Quality-based outputs only lend Quality-based outputs only lend themselves to incentive funding but can themselves to incentive funding but can help reduce perverse effectshelp reduce perverse effects
Outcomes are unpredictable due to Outcomes are unpredictable due to external factors which makes them less external factors which makes them less useful for incentives or targetsuseful for incentives or targets
Assign outcomes (impact) to higher level Assign outcomes (impact) to higher level organizational structures or entities and organizational structures or entities and outputs to lowest levelsoutputs to lowest levels
PresentationPresentation
Leave out inputs (useful for Leave out inputs (useful for managers, not for anyone else)managers, not for anyone else)
Present a small number of the Present a small number of the best & most relevant indicatorsbest & most relevant indicators
Use summary measures Use summary measures (combine PMI)(combine PMI)
Perform cost-benefit analysis, Perform cost-benefit analysis, especially among alternative especially among alternative approachesapproaches
Measure Twice…Measure Twice…
Data collection system – robust Data collection system – robust instruments & processinstruments & process
Data processing & analysis is Data processing & analysis is timely & accuratetimely & accurate
Validate indicators for errors, Validate indicators for errors, manipulation, & methodological manipulation, & methodological deficienciesdeficiencies
……Cut Once!Cut Once! Evaluation must be timely & include Evaluation must be timely & include
periodic spending review - linking does periodic spending review - linking does nothing by itself to improve effectiveness or nothing by itself to improve effectiveness or efficiencyefficiency
Allocate direct costs as accurately as is Allocate direct costs as accurately as is cost-effectivecost-effective
IF you can estimate a cost per unit service IF you can estimate a cost per unit service you can plan future budgets based on you can plan future budgets based on cost/unit and number of projected units of cost/unit and number of projected units of service (formula funding)…service (formula funding)…
……OR recalculate inputs (with cost OR recalculate inputs (with cost changes) for desired outputs & account for changes) for desired outputs & account for changes in planned activities annuallychanges in planned activities annually
Track line items for post-hoc analysis of Track line items for post-hoc analysis of high or low-performing activity/outputs or high or low-performing activity/outputs or programsprograms
Further Reading & ResourcesFurther Reading & Resources
From Line-Item to Program From Line-Item to Program Budgeting: Global Lessons and Budgeting: Global Lessons and the Korean Case (John Kim, Ed)the Korean Case (John Kim, Ed)
Performance Budgeting (Marc Performance Budgeting (Marc Robinson)Robinson)
A Basic Model of Performance-A Basic Model of Performance-Based Budgeting (Marc Based Budgeting (Marc Robinson and Duncan Last)Robinson and Duncan Last)
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