Question

Performance Budgeting has been defined as budgeting that links the funds allocated to measurable results. There are three broad types. Discuss each of the following linkages to resource allocation:

A. Presentational,

B. Performance-informed, and

C. Direct performance budgeting.

Answer 1

The word "budgeting" can be defined as the allocation and use of financial resources.

Traditional budgeting systems focused generally on allocation of resources amongst priorities and control of inputs, without examining the performance of spending or the outputs.

We can usefully distinguish three different ways in which performance information on the results of spending might be used.

1. Presentational performance budgeting:- performance information is presented in budget documents but it is not used in decision making process. The information can refer to targets, or results, or both, and is included as background information for accountability and dialogue with legislators and citizens on public policy issues
2. Performance-informed budgeting:- performance information is taken into account in the decision making process but does not necessarily determine the amount of resources allocated. The performance information is important in the budget decision-making process, but does not determine the amount of resources allocated and does not have a predefined weight in the decisions
3. direct performance budgeting - resources are allocated on the basis of results achieved. This form of performance budgeting is used only in specific sectors in a limited number of OECD countries. For example, the number of students who graduate with a Master’s degree will determine the following year’s funding for the university running the programme.

In principle, performance budgeting should be fully integrated into the resource allocation process and become part of the management culture of an organization. However, it is important to bear in mind that there is no one size fits all model of performance budgeting.