Performance based budgeting

A performance budgeting as procedures and mechanisms that are intended to strengthen the link between funding provided to public sector entities with outcomes and/or output of the entity through the use of formal performance information in resource allocation decision-making. The sense that not much different, which is a system of budgeting, which serves the aims and objectives for what funds are needed, the cost of the proposed program and related activities to achieve those goals, as well as the output produced or the services provided on each program.

In the meantime, performance-based budgeting aims to improve the efficiency and effectiveness of public expenditures with public sector organizations funding relate to the results achieved with the use of performance information systematically. The performance budget to use the mission statement, goals and objectives to explain why the money is issued.

Overview

Determination of mission, goals and objectives this is a way to allocate resources to achieve certain goals based on program goals and measurable results. Performance budgeting is distinguished from the traditional approach because it focuses on the results of the expenditure is made, rather than the amount of money spent.

From an understanding of the sense-it can be concluded that the performance-based budgeting (performance-based budgeting) is a systematic approach in the preparation of the budget which relate the expenditure carried out the Organization of the sector the public with his performance by using performance information. Performance budgeting allocate resources on a program, not a purely organizational unit, and put the output measurement as an indicator of the performance of the organization. Association costs by the organizations is an integral part of the output in a file or document to the budget.

In line with the understanding and the goal, the fundamental requirements in the implementation of performance-based budgeting simple shapes (performance-based budgeting), are:

• Information on the objectives and results of organization spending in the form of performance indicators and evaluation of the program is simple, and
• The process of drafting the budget designed to facilitate the use of such information.

The design of performance-based budgeting is based on the idea that incorporate performance measures in the budget will facilitate the monitoring of the program to see how well the Organization has achieved the promised outcomes and desirable.

The four (4) characteristics of performance-based budgeting. 

First, performance-based budgeting set a goal or set of goals that will be associated with or used to allocate spending money. Second, performance-based budgeting provides information and data on the performance and results that have been achieved so lets do a comparison between actual progress with planned. Third, in the preparation of the budget adjustment program undertaken to cover against any differences occur between performance targets and actual performance. Fourth, performance-based budgeting gave opportunities for doing performance evaluation of ad hoc or regular basis to be used for decision making.

Declared budgeting performance-based (performance-based budgeting) can only be successful if each work unit that does the expenditure budget (spending agency) is required to:

• Explicitly define the outcomes that his Ministry was given to the community, and
• Provides key performance indicators to measure the effectiveness and efficiency of his Ministry to the Finance Minister and a key political decision-makers during the process of preparation of the budget.

In addition to the requirement of the existence of performance indicators and the process of preparing the budget to facilitate the use of the indicator performance, the other requirements in the implementation of performance-based budgeting is the classification expenditure based on the program (program budget) and greater flexibility for managers or officials in implementing the budget.

The Program Budget

Program budget the budget expenditure by type classifies the Ministry and purpose, not based on the type of input (salaries, materials, travel and so on) as on the traditional line-item budgeting. The program budget process the preparation of the budget should be based on the program (program based) i.e. work units must submit and present the budget in the form of a program supported by cost and performance information.

The contrary to the line-item budgeting, performance budgeting implemented a lump sum allocation for programs not a classification line item detail (detailed line items classification). Suggests that output budgeting model assumes that managers or implements will use the budget resources that they have with their best to reach the target with the reason that they will be asked not responsible for the implementation of the budget in accordance with items of expenditure committed (line items), but rather upon the quantity and quality of the promised results from resources allocated for them in the budget.

Implementation of the budget program

The implementation of the budget requires the presence of input flexibility where officials implementing the budgets should be given greater flexibility to choose shopping-Shopping does to produce services in the most efficient manner. This can be done by reducing the number of restrictions that must be followed in budget spending based on the economic classification (line item) on traditional budgeting. Compared with traditional line-item budgeting, performance budgeting justify to do fiscal resource use are more flexible and increase accountability towards results.

Declared budgeting performance enhancing managerial flexibility by giving managers a Department or program appropriations lump sum fixed (fixed lump sum allocation) that can be used for a variety of needs for achieving results already approved in the grant of services. The public Manager is enjoying the increased managerial discretion but are required to take responsibility for what they have achieved in the performance of the grant of services.

However, both of these requirements has not been accommodated by the laws and regulations in India, especially for the preparation of the budget of the Organization. The structure of the budget was used in the preparation of budgets are still using the line-item budgeting structure in which the budget is drawn up according to the classification of expenditures up to expenditure object details. This implies a strict control against the input that resulted in a lack of flexibility for managers (budget) in using the budget. Thus, the provisions on spending of the budget provided for in the existing legislation regulations have not been supportive of the budget spending flexibility by users as budget officials who had authority in the exercise of spending budget.

Outline Performance-based Budgeting

As has been outlined above, performance-based budgeting is a systematic approach in the preparation of the budget which relate expenditures public sector organizations with performance It generates with the use of performance information. Thus, in a performance-based budgeting (performance-based budgeting) performance information is the media or means in hooking the expenditure would do public sector organizations with its performance. The specified performance information expressed in the form of performance indicators and targets its achievements. Therefore, one important element in the performance-based budgeting (performance-based budgeting) is the setting of the size or performance indicators.

Performance indicators are quantitative and qualitative measure that describes the level of achievement of a goal or goals that have been set. The performance indicators output holds the key role in the provision regarding the accountability of the Organization and a good decision making regarding resource allocation, planning and better management practice. Stating in public sector performance indicators should help the user reports in understanding the inputs, outputs, outcomes and policy with regard to a given period. Performance indicators used in each activity includes:

Input Indicators (Input)

Input (input) is everything that is needed to carry out an activity to generate output or providing services. These indicators can be in the form of funding, human resources, means, information, and so on.

Output Indicators (Output)

The output (Output) is a product or output directly from an activity/activities that are implemented. Output indicators can become a foundation to assess the progress of an activity in the target performance is associated with the activity goals well-defined and measurable. Therefore, output indicators should conform to the basic tasks and functions of the concerned organizational unit. Output indicators (output) used to monitor how much of the product to be produced or provided.

The Results (Outcomes)

The results (Outcomes) describe the tangible results from the output (output) of an activity and reflects the functioning of the output. Indicator results (outcomes) is a measure of the performance of the program in meeting the goal. Achievement of the target can be determined in one fiscal year, some of the fiscal year, or period. The target itself is poured in the functions/fields such as security, governance, health, or the improvement of education. Indicator results (outcomes) are used to determine how far the goal of every function of Organization that reached from the output of an activity (product or service) has fulfilled the wishes of the intended community.

Benefits

Benefits (Benefits) is something that is associated with the ultimate goal of the implementation activities.

Impact

Impact (Impact) is the influence that brought about both positive and negative towards each level indicators based on assumptions that have been set.

The quality of a performance indicator can be seen from the fulfillment of the conditions that must be met by an indicator of good performance. The terms are:

1. Specific, clear, and there is no possibility of error interpretations.
2. Can be measured objectively either quantitative or qualitative nature, i.e. two or more measuring performance indicators have the same conclusion.
3. Relevant, namely the performance indicators should deal with aspects of the relevant objective.
4. Can be achieved, it is important and should be useful to indicate success.
5. Must be sufficiently flexible and sensitive to changes/adjustments to the implementation and the results of the implementation of the activities
6. Effective, i.e. data/information relating to the respective performance indicators can be collected, processed, and analyzed and costs available.

The first step is to be done in implementing the performance budgeting is a defining performance (performance). In order to measure the performance of the Organization should clearly articulate the basis the goals in performance measurement. Performance cannot be measured before the goals stated in the desired outcomes that can be measured (measurable desired results) that is expressed in the form of outputs or outcomes.

Characteristics

The characteristics that must be owned by the output of the goods or services provided to individuals or organizations outside the establishments in question, can be clearly identified, contributed to the achievement of outcomes planned, are in control (controllable) agencies concerned, as well as the basis for comparison of performance between periods or with the actual performance of other agencies.

Whereas, the characteristics which must be owned by the learning outcomes is a target and must reflect the priorities of the Organization, marked by the impact on the community, explaining strategy agencies, identify the target group by Obviously, it can be achieved within a certain period, can be monitored and assessed its accomplishments, exposing the relationship causal with output, as well as to have a clear definition and description making it easy is reported.

Meanwhile, related to the quality of performance indicators, the performance indicators used and the been reported instances of should:

• Correlative: The selected set of indicators, a number of agencies should be associated with the activities and functions of the main agencies concerned.
• Controllable: To analyze the extent to which the achievement of performance driven by efforts made agencies, preferably used performance information related to the factors that are within the control of the establishments concerned.
• Comprehensible: In order to be useful, readers of the report should be able to understand indicators being reported that starts with making sure that the relevant measurement unit used for each performance indicator.
• Timely: To maximize its use, the indicator used is associated with the current situation.
• Consistent; Consistency between the main dimension of time is quality in reporting performance.
• Constrained: The indicators used should preferably be restricted to things that give a clear and accurate picture concerning the operation of establishments.