Here are some additional resources on objective-based budgeting: - Government Performance and Results Act (GPRA) Modernization Act of 2010, which updated requirements for federal agencies to link budgets to goals and performance measures. - International Budget Partnership's guide to results-based budgeting for developing countries. - OECD's Accrual Budgeting and Accounting: Worldwide Practices and Transition Pathways report on accrual-based budgeting approaches. - GAO reports evaluating the implementation and effectiveness of performance budgeting at the federal level in the U.S. Let me know if any of these would be useful to explore further!

1. Objective-Based
Budgets
Lisa Glickstein, PhD
Andover Public Schools

2. Googlisms!
 Budgeting is…
 …”a vehicle for making
performance management
operational in the public sector.”
 …”a framework that streamlines
resource allocation decisions.”
 …connecting evaluation,
management and costs.

3. Presentation Overview
 Background
 Definitions & Models
 Benefits
 Creating an Objective-Based
Budget
 Process
 Accounting
 Best Practices

4. Background
…say what now?!

5. A Brief History…
 International Monetary Fund:
Program Budgeting (1980’s)
 Government Performance & Results
Act (1993): Federal agencies must
report on performance (GPRA)
measures annually
 Federal Performance Progress
Report (SF-PPR) adopted in 2008

6. General Budget Benefits
 Help to eliminate debt & adjust
expenses to needs & circumstances
 Keep you informed as you compare
plans with performance & allocate
funds to close gaps
 Improve financial communication
among stakeholders
 Allow you to take advantage of
opportunities
 Help to achieve definite objectives

7. Measures of success
 Effectiveness:  Efficiency:
extent to which delivery of
programs services at the
achieve lowest possible
intended & cost, without
other outcomes sacrificing
quality

8. Definitions:
 Program – initiative designed to
change a condition or situation
 Indicator – a change in characteristic
of an individual, social structure or
environment as a result of the
program, eliminating external factors
 Performance measure – instrument
or assessment tool used to measure
an indicator
 Impact – amount of progress
towards meeting objectives as a
result of the program

9. Definitions part 2:
 Objective – a measurable desired
change
 Activity – discrete action item in your
program plan
 Output – a group of activities that
together are capable of producing a
desired outcome
 Inputs – the people & things (with
costs) needed to do activities &
produce outputs
 Outcome – a qualitative or
quantitative result of an output
(measured during evaluation)

10. Logic Model Framework
 Begin with Objectives (Goals)
 Develop Performance Measures &
Indicators
 Link Inputs, Activities & Outputs (if-
then relationships)
 Collect data on PM&I
 Evaluation
 Connect Performance (Outputs &
Outcomes) back to Objectives
(Impact)

11. Evaluation: Indicators in the context of
design & implementation, program
relevance, efficiency, effectiveness,
impact & sustainability
 Purpose in budgeting:
 Identify programs or activities that are
not cost-effective & cannot be made so
& should be cut
 Identify savings that can improve
efficiency
 Make judgments about the likely impact
of external factors on PMI
 Enable useful judgments about
effectiveness when outcome measures
are lacking

12. Old Line-Item Budget
 Personnel
 Contractual
 Travel
 Equipment
 Supplies
 Other

13. Line-Item Budgets:
Weaknesses
 Lack information for resource
allocation decisions
 “[a] short-term perspective encourages
incremental decisions, where the next
budget is built on the previous one with
only incremental adjustments”
 Requires top-down management to
approve spending changes
 Weak accountability for results
(focus on line items)
 Lack transparency

14. Alternate Budget Classifications
Type Levels Examples
Functional Function Agriculture, forestry, fishing
Main program & hunting
Agriculture
Organizational Department/agency Department of Agriculture
Office Office of Extension Services
Objective or Program Cooperative Extension
Program-based Activity Farm management
Capital project education
Construction of stores
Input/accounting Category Goods & Services
(line item) Item Utilities
Sub-Item Electricity

15. Objective-Based Budgets
 Connect costs to outputs &
outcomes
 How much did it cost to achieve
outcomes (& objectives)?
 How much per unit of change?
 How much per unit of service?
 Compare relative cost (including all
activities) of competing activities
based on impact
 Linked to funding formulas,
incentives or penalties in some
models

16. Objective-Based Budgeting:
Benefits
 Improved prioritization of
expenditures
 Improved service effectiveness
&/or efficiency
 Greater freedom in allocating
resources…
 …in exchange for greater
accountability for results

17. Objective-Based Models
Type Description Prioritization Effectiveness
& Efficiency
Program Simple Primary benefit Indirect only
Expenditure by
objectives
Zero-Based Cost/impact Primary benefit Secondary
Ranking system
for cuts/growth
Performance- Penalties for Secondary Primary; risk of
Linked failure to meet performance
performance distortion &
targets cheating
Formula- Sector-specific Secondary Primary; risk of
Funding Failure to meet chronic
cost objectives is underfunding
penalized
Performance Growth targeted Secondary Primary; risk of
Incentives to areas meeting overfunding
performance
targets

18. Creating an Objective-
Based Budget
Critical Questions

19. Program-Budget Process
 Forecast revenue, expenditures,
deficit or surplus, & debt
 Adopt strategic plan policies &
priorities
 Top-down budget for department &
program allocations using the
forecast & plans
 Assess prior year & projected
outcomes for activities & outputs
 Create a bottom-up program budget
within the allocation

20. Simplified Process
(grant or single program)
 Forecast total amount of grant &
institutional resources (match)
 Adopt objectives (logic model or
strategic plan)
 Allocate funds per objective
 Assess prior & projected outputs &
outcomes
 Create the budget for each objective
based on activities & outputs

21. Creating a Zero-Based Budget
 Identify activities for each
objective (include alternatives)
 Calculate costs of inputs for
each activity
 Predict outputs, cost per unit
output, & expected outcomes
 Select activities & outputs by
relating impact to cost, budget

22. New Objective-Based Budget
 Admin Costs  Objective 3
 Objective 1  Output 31
 Output 11
 Activity 311
 Activity 111
 Activity 312
 Output 12  Indirect Costs
 Activity 121
 Activity 122
 Objective 2
 Output 21
 Activity 211
 Output 22
 Activity 221

23. Barriers to change
 Accounting software
 Supporting administrative or indirect
costs (not linked to an outcome)
 Apportioning a single direct cost
across objectives (or sub-programs)
 Conforming programs to
organizational boundaries
 Performance distortion (failure in
non-measured areas) & cheating, if
linked to incentives or penalties

24. Accounting Software
 Assign PO a tag by activity or output
and record separately (Excel)
 Add extensions to current accounting
cost center for activities, outputs &
outcomes
 Create programs as a group of cost
centers (alternative approaches or
linked activities) that are functionally
linked to outputs & outcomes

25. Organizational boundaries
 Split interdepartmental programs into
sub-programs managed by each
department
 Give ownership to one program
partner (fiscal agent model)
 Ownership includes responsibility for
fiscal record-keeping, data collection,
personnel management, spending
decisions & results

26. Handling Direct & Indirect
Costs
 Direct costs can  Indirect costs
be entirely are shared
allocated to a across an entire
single program program or
or sub-program, even multiple
objective, or programs and
even a single are impossible
output or activity to allocate fairly
with some effort & accurately
 ALLOCATE  SEPARATE

27. Tracking Tools
 Activity Logs
 Track PO
Grant Activity Log – Project Director
Date Hours Activity Performance Measure
3/3/09 2 Volunteer Training Build Capacity for Client
Support
Expense Activity Log
Date Invoice Activity & Vendor Performance Measure
Amount
3/3/09 $ 800 Volunteer Training Build Capacity for Client
(YMCA) Support

28. Time & Effort (Direct Cost)
 TE Tools
 TaskCoach
 ToDoList
 ProjectTimer
 TimeTool
 TimeGT
 Xpenser(app)
 TimeRecording (app)

29. Best Practices
“Make it work!”

30. Create a Solid Program
 Each program or sub-program has
one owner who reports on outputs
&/or outcomes & is not accountable
solely for spending according to
budget
 Expenditures that serve the same
purpose should be placed in the
same program, even if operated by
different departments or partners
(create sub-programs if needed)
 Check that activities match program
outputs (don’t just match similar
activities)

31. Select Strong Indicators
 Relevant to users (comprehensive
summary measures)
 Representative (less likely to be
influenced by external factors)
 Cost effective
 Comparable within sector
 Minimize perverse effects
 May be quantitative, qualitative or
efficiency (cost per unit)

32. Take Care with Outputs
 Standardized outputs can be linked tightly
& predictably with funding for formulas,
targets & incentives
 Heterogeneous outputs are of limited utility
in funding decisions because of variability
 Quality-based outputs only lend
themselves to incentive funding but can
help reduce perverse effects
 Outcomes are unpredictable due to
external factors which makes them less
useful for incentives or targets
 Assign outcomes (impact) to higher level
organizational structures or entities and
outputs to lowest levels

33. Presentation
 Leave out inputs (useful for
managers, not for anyone else)
 Present a small number of the
best & most relevant indicators
 Use summary measures
(combine PMI)
 Perform cost-benefit analysis,
especially among alternative
approaches

34. Measure Twice…
 Data collection system – robust
instruments & process
 Data processing & analysis is
timely & accurate
 Validate indicators for errors,
manipulation, & methodological
deficiencies

35. …Cut Once!
 Evaluation must be timely & include
periodic spending review - linking does
nothing by itself to improve effectiveness or
efficiency
 Allocate direct costs as accurately as is
cost-effective
 IF you can estimate a cost per unit service
you can plan future budgets based on
cost/unit and number of projected units of
service (formula funding)…
 …OR recalculate inputs (with cost
changes) for desired outputs & account for
changes in planned activities annually
 Track line items for post-hoc analysis of
high or low-performing activity/outputs or
programs

36. Further Reading & Resources
 From Line-Item to Program
Budgeting: Global Lessons and
the Korean Case (John Kim, Ed)
 Performance Budgeting (Marc
Robinson)
 A Basic Model of Performance-
Based Budgeting (Marc
Robinson and Duncan Last)