Types of Analysis Some experts divide Budget Analysis into these types, which deal with different questions:

Types of AnalysisTypes of Analysis

Some experts divide Some experts divide Budget Analysis into Budget Analysis into

these types, which deal these types, which deal with different questions:with different questions:

Types of AnalysesTypes of Analyses

1.1. PolicyPolicy

2.2. RiskRisk

3.3. EfficiencyEfficiency

4.4. ManagementManagement

5.5. CostsCosts

6.6. EvaluationEvaluation

1. Policy:1. Policy:

What is the best way What is the best way to spend the available to spend the available money in the budget?money in the budget?

Who should benefit?Who should benefit?

Policy: WHOPolicy: WHO should spend the should spend the money?money?

Governments? Governments? Specific ministries? Specific ministries? Individuals? Individuals? Businesses? Businesses? NGO’s? NGO’s?

WHENWHEN should the money be should the money be spent?spent?

What is the “opportunity cost” of a policy?

What will not get done, what will we fail to

accomplish, if money is spent for

Service A instead of Benefit B or Activity C?

ExampleExample

A ministry of economy A ministry of economy spends 10% of its spends 10% of its budget to subsidize budget to subsidize the site of a new the site of a new factory employing factory employing 2000 workers by 2000 workers by cutting the same cutting the same amount from aid to amount from aid to small business that small business that would have supported would have supported 3000 jobs. 3000 jobs.

What Happened?What Happened?

The The opportunitopportunity cost was y cost was 1000 jobs.1000 jobs.

Policy: If activities are grouped by program classifications that focus on

results:

• What program or spending design will produce the best results?

2. Risk:2. Risk:

What problems could occur?What problems could occur?

Could the spending be Could the spending be delayed? Could some special delayed? Could some special factor, such as a borrowing factor, such as a borrowing requirement or need for requirement or need for intergovernmental intergovernmental cooperation, block the cooperation, block the expenditure?expenditure?

Risk AnalysisRisk Analysis

What costs might increase?What costs might increase? Are the estimates reliable? Are the estimates reliable? What impact could inflation What impact could inflation have? Could there be have? Could there be shortages of materials or shortages of materials or labor?labor?

Risk AnalysisRisk Analysis

What are the negative What are the negative political implications of this political implications of this allocation?allocation? Would the Would the Government be unable to get Government be unable to get the votes to pass it? What the votes to pass it? What interests would oppose it? interests would oppose it? What arguments would be What arguments would be used against it?used against it?

RisksRisks

Could the money be wasted Could the money be wasted on a mismanaged or failed on a mismanaged or failed activity? Does history activity? Does history indicate that these types of indicate that these types of allocations do not achieve allocations do not achieve desired results or benefits? desired results or benefits?

3. Efficiency:

Is this money being spent economically or wasted?

What is the administrative cost of delivering this benefit or service?

How much time does it take to accomplish the service or benefit and is that an appropriate amount of time for the task?

Efficiency:How does the cost of these activities compare among similar places within the country?

How does it compare to similar activities in other countries?

4. Management:4. Management:

Are the Are the organizations and organizations and people using this people using this money well money well managed?managed?

Is there adequate Is there adequate communication and communication and supervision?supervision?

Management:Management:Are a Are a reasonable reasonable number of number of people assigned people assigned to the task?to the task?

What is the ratio What is the ratio of staff to of staff to managers or managers or supervisors?supervisors?

5. Costs and Benefits:

What specific, measurable benefits will be obtained if we invest a certain amount of budget money in an activity or project?

Does the benefit justify the cost?

Unit Cost:Unit Cost:

How can we calculate How can we calculate each “output” cost in each “output” cost in total?total?

What is the salary cost What is the salary cost of a unit of service?of a unit of service?

Unit Cost Example:Unit Cost Example:1.1. A primary school teacher A primary school teacher

costs, on average, 10,000 costs, on average, 10,000 Odh per year.Odh per year.

2.2. The teacher will instruct 35 The teacher will instruct 35 children.children.

3.3. The salary cost per child is?The salary cost per child is?

10,000 10,000 35 = ? 35 = ?

Unit Cost Example:Unit Cost Example:

How many people are How many people are needed to achieve each needed to achieve each unit of service or benefit?unit of service or benefit?

Example:Example: 5 people5 people may be may be needed to keep needed to keep one busone bus in in service for service for 24 hours24 hours..

Revenue and Cost:Revenue and Cost:

Does the activity produce Does the activity produce revenue?revenue?

Should it produce more or Should it produce more or less revenue that the current less revenue that the current scheme?scheme?

How much of the cost of the How much of the cost of the service or benefit is paid for service or benefit is paid for by this revenue?by this revenue?

Expenditure forecasting:Expenditure forecasting: What amount of budget money What amount of budget money

should this activity need next year?should this activity need next year? What is the base amount from which What is the base amount from which

spending for this activity should be spending for this activity should be calculated?calculated?

What are the medium term (3-5 What are the medium term (3-5 year) costs associated with this year) costs associated with this budget item?budget item?

Expenditure forecasting:Expenditure forecasting:

What are the What are the long term long term

(more than 5 (more than 5 year)year)

costs?costs?

6. Evaluation:6. Evaluation:

What are the long term What are the long term effects of this spending?effects of this spending?

Evaluation:Evaluation:

What are the spending What are the spending trends for this activity?trends for this activity?

Evaluation:Evaluation:

Should this activity Should this activity continue to receive budget continue to receive budget funds?funds?

SummaryAnalysts and their bosses need to spend

time deciding:which questions to answer

and what types of analysis they want to do

before they start an analysis process.