Financial Management Series Number 7 (Introductory version) Performance Measurement & Performance Based Budgeting (PBB) Alan Probst Local Government Specialist.

Financial Management SeriesFinancial Management SeriesNumber 7Number 7

(Introductory version)(Introductory version)

Performance Measurement Performance Measurement & Performance Based & Performance Based

Budgeting (PBB)Budgeting (PBB)

Financial Management SeriesFinancial Management SeriesNumber 7Number 7

(Introductory version)(Introductory version)

Performance Measurement Performance Measurement & Performance Based & Performance Based

Budgeting (PBB)Budgeting (PBB)Alan ProbstAlan ProbstLocal Government SpecialistLocal Government SpecialistLocal Government CenterLocal Government CenterUW-ExtensionUW-Extension

Performance BudgetingPerformance BudgetingPerformance BudgetingPerformance Budgeting

Based on the assumption that presenting Based on the assumption that presenting performance information alongside performance information alongside budget amounts will improve budget budget amounts will improve budget decision-making by focusing funding decision-making by focusing funding choices on program resultschoices on program results

Performance BudgetingPerformance BudgetingPerformance BudgetingPerformance Budgeting

Performance based budgeting Performance based budgeting cannotcannot begin begin until a system of until a system of performance measurementperformance measurement has been institutedhas been instituted

A functional performance based budgeting A functional performance based budgeting system cannot be expected to produce the system cannot be expected to produce the long-term desired results in the first year of long-term desired results in the first year of its inceptionits inception

Must build a Performance Based Must build a Performance Based Management SystemManagement System

Management ToolManagement ToolManagement ToolManagement Tool

Performance budgets focus on missions, Performance budgets focus on missions, goals, and objectives to explain why money goals, and objectives to explain why money is being spent and provide a way to allocate is being spent and provide a way to allocate resources to achieve specific resultsresources to achieve specific results

Performance budgeting is intended to be a Performance budgeting is intended to be a management tool for program improvement, management tool for program improvement, not a “carrot and stick” methodology used to not a “carrot and stick” methodology used to “punish” departments for not meeting goals“punish” departments for not meeting goals

Why is this Important?Why is this Important?Why is this Important?Why is this Important?

Most Federal grants now require outcome Most Federal grants now require outcome evaluations (performance measurement) in their evaluations (performance measurement) in their applicationsapplications

Bond sales require indicators of financial condition Bond sales require indicators of financial condition which is well presented by performance datawhich is well presented by performance data

Local government revenues are becoming Local government revenues are becoming insufficient making effective use of resources insufficient making effective use of resources imperativeimperative

Promotes the logical tie between planning and Promotes the logical tie between planning and budgetingbudgeting

Why is this Important?Why is this Important?Why is this Important?Why is this Important? Both the Government Accounting Standards Both the Government Accounting Standards

Board (GASB) and the Government Finance Board (GASB) and the Government Finance Officers Association (GFOA) are promoting Officers Association (GFOA) are promoting performance measurement indicating it may performance measurement indicating it may soon become a requirementsoon become a requirement

Provides a way to quantify to the citizens Provides a way to quantify to the citizens how well their local government is doing how well their local government is doing compared to previous years and other compared to previous years and other similar communities; i.e. “how much bang similar communities; i.e. “how much bang they’re getting for their buck”they’re getting for their buck”

Performance MeasurementPerformance MeasurementPerformance MeasurementPerformance Measurement

Performance Measurement should:Performance Measurement should:

Be based on program goals and objectives that tie to Be based on program goals and objectives that tie to a statement of program mission or purposea statement of program mission or purpose

Measure program outcomesMeasure program outcomes Provide for resource allocation comparisons over Provide for resource allocation comparisons over

timetime Measure efficiency and effectiveness for continuous Measure efficiency and effectiveness for continuous

improvementimprovement Be verifiable, understandable, and timelyBe verifiable, understandable, and timely

Performance IndicatorsPerformance IndicatorsPerformance IndicatorsPerformance Indicators

InputInput OutputOutput EfficiencyEfficiency Service QualityService Quality OutcomeOutcome Explanatory DataExplanatory Data

The Logic ModelThe Logic ModelThe Logic ModelThe Logic Model

““Begin with the end in mind”Begin with the end in mind”

Start by asking:Start by asking:What results are we seeking?What results are we seeking?What are we hoping to What are we hoping to

accomplish?accomplish?How will we accomplish it?How will we accomplish it?

What is the Logic Model?What is the Logic Model?What is the Logic Model?What is the Logic Model?

A picture of a programA picture of a program A way to show the relationship between A way to show the relationship between

what we put in (what we put in (inputsinputs), what we do ), what we do ((outputsoutputs) and what results occur ) and what results occur ((outcomesoutcomes))

Sequence of if/then relationshipsSequence of if/then relationships Core of program planning and Core of program planning and

evaluationevaluation

Logic ModelLogic ModelLogic ModelLogic Model

InputsInputs OutputsOutputs OutcomesOutcomes What we What we What we do Short-Term Medium-Term Long-TermWhat we do Short-Term Medium-Term Long-Term

investinvest

StaffStaff Workshops Awareness BehaviorWorkshops Awareness Behavior Conditions Conditions

DollarsDollars Outreach Knowledge DecisionsOutreach Knowledge Decisions Environment Environment

VolunteersVolunteers Inspections AttitudesInspections Attitudes Policies Policies Social Social

MaterialsMaterials Skills Skills Economic Economic

EquipmentEquipment Civic Civic

Technology Technology

Logic Model – Fire SuppressionLogic Model – Fire SuppressionLogic Model – Fire SuppressionLogic Model – Fire Suppression

InputsInputs OutputsOutputs OutcomesOutcomes What we What we What we do Short-Term Medium-Term Long-TermWhat we do Short-Term Medium-Term Long-Term

investinvest

StaffStaff Training Training Inspections Response Inspections Response Protection Protection DollarsDollars Inspections Suppression timeInspections Suppression time of lives & of lives &VolunteersVolunteers Emergency responses FireEmergency responses Fire property propertyMaterialsMaterials response Publicresponse Public containment (fire deaths containment (fire deathsTechnology Technology education Prevalence education Prevalence injuries, injuries, of smokeof smoke

detectors detectors

BenchmarkingBenchmarkingBenchmarkingBenchmarking

““Formal benchmarking is the continuous, Formal benchmarking is the continuous, systematic process of measuring and systematic process of measuring and assessing products, services and assessing products, services and practices of recognized leaders in the practices of recognized leaders in the field to determine the extent to which field to determine the extent to which they might be adapted to achieve they might be adapted to achieve superior performance.”superior performance.”

Benchmarking & Best Practices, Treasury Board of CanadaBenchmarking & Best Practices, Treasury Board of Canada

Types of BenchmarkingTypes of BenchmarkingTypes of BenchmarkingTypes of Benchmarking

InternalInternal – commonly one year – commonly one year compared to a previous year’s compared to a previous year’s performance performance

ExternalExternal – your performance compared – your performance compared to another similar organizationto another similar organization

OperationalOperational – your recent annual or – your recent annual or periodic performanceperiodic performance

StrategicStrategic – long term performance – long term performance

BenchmarksBenchmarksBenchmarksBenchmarks Internal BenchmarksInternal Benchmarks

- Overall spending- Overall spending

- Growth in tax base- Growth in tax base

- Growth in income- Growth in income

- New home starts- New home starts

- Miles within service - Miles within service areaarea

External BenchmarksExternal Benchmarks

- Private sector wages- Private sector wages

- Neighboring cities- Neighboring cities

- Similar sized counties- Similar sized counties

- Statewide groupings- Statewide groupings

- Statewide averages- Statewide averages

Performance BudgetingPerformance Budgeting

Performance budgeting relies on:

1. Strategic planning2. Operational planning3. Performance accountability4. A realistic performance measurement system

to build budgets.

Performance BudgetingPerformance BudgetingPerformance budgets focus on Performance budgets focus on “return on investment”“return on investment”——that is, what do we get for our investment of resources?that is, what do we get for our investment of resources?

Basic service level (or continuation of basic Basic service level (or continuation of basic services)?services)?

Increased services (more services to same recipients Increased services (more services to same recipients or expansion of same services to more recipients)?or expansion of same services to more recipients)?

Better (higher quality) services?Better (higher quality) services?

More efficient services (cost savings in service More efficient services (cost savings in service delivery)?delivery)?

Mitigation or resolution of a problem?Mitigation or resolution of a problem?

ExampleExampleExampleExample

Service Area Objective Input Output EfficiencyService Quality Outcome

Street Reconstruction 5% $1,374,500 4 4.7% 75% 7%

Capital Facilities

Maintain construction

cost growth to no more than 5

percent

Budget/actual costs

StaffProjects completed

Engineering design costs as a percent

of total project cost

Percent of projects

completed on time

Contract cost

growth (%)

Establish the link between resources and Establish the link between resources and results early and maintain that link through results early and maintain that link through budget development, appropriation, and budget development, appropriation, and budget control processes.budget control processes.

INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:

INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING:

Set performance standards linked to appropriation levels

• Performance standards are the expected levels of performance associated with a performance indicator for a particular period and funding level. They link dollars and results

• Performance standards are one way to demonstrate RETURN ON INVESTMENT--what we can expect to receive for our money (easier to explain to stakeholders)

Integrating Performance into budget Integrating Performance into budget decision-makingdecision-making

Integrating Performance into budget Integrating Performance into budget decision-makingdecision-making

Establish the link between resources and results early and maintain that link through budget development, appropriation, and budget control processes

Use performance data to help make program Use performance data to help make program decisions in budget developmentdecisions in budget development

Rudimentary Performance Rudimentary Performance BudgetingBudgeting

Rudimentary Performance Rudimentary Performance BudgetingBudgeting

A rudimentary form of Performance Budgeting can be A rudimentary form of Performance Budgeting can be implemented until a formal system can be produced implemented until a formal system can be produced by including the following in each department’s by including the following in each department’s budget request:budget request: An explanation of the department’s overall goalsAn explanation of the department’s overall goals An explanation of what the department has accomplished in An explanation of what the department has accomplished in

the past yearthe past year An explanation of what the department intends to An explanation of what the department intends to

accomplish in the coming yearaccomplish in the coming year An explanation as to what is different from last year in the An explanation as to what is different from last year in the

proposed budget and whyproposed budget and why A GASB compliant budget showing past year budget A GASB compliant budget showing past year budget

expenditures expenditures

ReferencesReferencesReferencesReferences““Performance Based Budgeting – Putting The Pieces Together,” Carolyn S. Lane, Deputy Performance Based Budgeting – Putting The Pieces Together,” Carolyn S. Lane, Deputy

Director, Office of Planning and Budget, Division of Administration, State of Louisiana, Director, Office of Planning and Budget, Division of Administration, State of Louisiana, September 2006September 2006

““Performance Management: Using Performance Measurement for Decision Making” Performance Management: Using Performance Measurement for Decision Making” Recommended Practice (2002 & 2007) Government Finance Officers Association (GFOA)Recommended Practice (2002 & 2007) Government Finance Officers Association (GFOA)

““Fairfax County’s Performance Measurement System” Performance Measurement Team, Dept. Fairfax County’s Performance Measurement System” Performance Measurement Team, Dept. of Management & Budget, Fairfax County, Virginia, June 2006of Management & Budget, Fairfax County, Virginia, June 2006

““Performance Management Handbook” Eau Claire County, WI, January 2007Performance Management Handbook” Eau Claire County, WI, January 2007

““Moving From Line Item to Performance Based Budgeting: Craig Maher, UW OshkoshMoving From Line Item to Performance Based Budgeting: Craig Maher, UW Oshkosh

““Performance Measurement: Getting Results” 2Performance Measurement: Getting Results” 2ndnd Edition, Harry P. Hatry, The Urban Institute Edition, Harry P. Hatry, The Urban Institute Press, 2006Press, 2006

““How Effective Are Your Community Services?” 3How Effective Are Your Community Services?” 3rdrd Edition, Hatry, Fisk, Hall, Schaenman,& Edition, Hatry, Fisk, Hall, Schaenman,& Snyder, ICMA and the Urban Institute, 2006Snyder, ICMA and the Urban Institute, 2006