PERFORMANCE BUDGETING:
Meaning: A system of presentation of expenditure in terms of functions, programmes,
performance units, reflecting primarily, the output and its cost.
-A manual for Programme and Performance Budgeting (1965) of the U.N. Department
of Economic and Social Affairs has described the concept in the words “Performance
Budgeting involves the development of more refined management tools, such as unit costs,
work measurement and performance standards. Performance budgeting is an all-inclusive
concept embodying programme formulation as well as measurement of the performance of
work in the accomplishment of programme objectives.’’
Concepts of performance budgeting:
It represents a management approach to budgeting.
It involves the classification of transaction in a meaningful way in financial and
physical terms and in doing so it establishes an apt relationship between inputs and
outputs.
Its primary concept is with the objectives which the governments sought to achieve.
It gives specific details of the work to be performed or service to be rendered.
The estimated cost of that work or service is presented realistically as far as possible.
It enables the assessment of performance in relation to the costs incurred,
Objectives:
- According to the Working Group on Performance Budgeting of the First Administrative
Reforms Commission (1967) , the purpose of Performance Budgeting are;
To co-relate the physical and financial aspects of every programme or activity.
To improve budget formulation, review and decision making at all levels of
management in the government machinery.
To facilitate better appreciation and review by the legislature.
To make possible more effective performance audit.
To measure progress towards long-term objectives as envisaged in the plan; and
To bring budget and development plan closely together through a common language.
Pre-requisites for Introduction of Performance Budgeting:
The objectives of the organisation should be clear, leaving no room for ambiguity.
The activities of the organisation should be capable of being quantitatively measured.
The output should have homogeneity to the extent possible.
The programmes should not be much susceptible to severe ups and downs.
High achievement motivation level should be present in the organisations.
Steps in Performance budgeting:
To identify and analyse work of organisation into functions, sub functions,
programmes, sub programmes, activities, sub activities in results.
To lay down targets of each scheme, function, programs.
To set performance norms or standards for each activity or task.
To identify specific indicators regarding each task.
To design monitoring and evaluation system or performance recording and reporting
system.
To calculate cost of all inputs, resources to achieve targets in terms of benefits.
Thus the performance budgeting tries to define physical and financial aspects of each
program and activity and thereby establishes relationship between output and inputs.
PREPARATION OF BUDGET UNDER PERFROMANCE BUDGETING:
Allocation of resources:
Submit requirements as per programme classification.
Indicate its past activities, their costs, activities to be taken up during next year
expected, pattern of assignment of responsibilities or time phased plan for expenditure
and work.
Budget execution:
Initiate action for implementation after getting grants.
Monitor activities and regulate flow of expenditure.
Prepare time phased reports showing expenditure and work and keep a record.
Appraisal and evaluation:
Evaluate each programme in the light of results obtained and expenditure incurred.
Advantages of Performance Budgeting:
It facilitates management control and makes legislative review more insightful.
It makes easier for the administrators to obtain support of the public for their activities
by increasing their understanding level.
It fixes the responsibility more precisely and increases the result-based accountability
of administrators for performance of the programmes.
It increases transparency in administration by providing information about major
government activities and their achievements.
Critical Evaluation of Performance Budgeting:
Performance budgeting is a rational technique of budgeting which may be highly
beneficial for organisation, if applied thoughtfully.
The application of technique faces difficulties in real life as practical conditions
involve too many unpredictable vagaries.
An element of uncertainty is always there which can prove to be a crippling factor and
hamper results.
Cost benefit analysis is not always accurate and exact as many intangible and
indefinite costs and utilities exist.
All outcomes or end-products cannot be identified and quantified.
Work or performance units, and suitable norms and yardsticks are not always easy to
develop.
Summing up:
Performance budgeting technique has developed due to the shortcomings of
conventional budgeting approach.
It is seen as a progressive and rational approach to budgeting which may help to
improve the performance of government agencies.
Though it has noble intention and involves rigorous ways of preparing and executing
budget but in reality the practical considerations come in the way of its proper
application and, thus, limiting its feasibility.
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