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Conversation with Marc Robinson on performance budgeting

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Napodano:
Dear PFM Boarders,

Our past fire-side online conversations have been one of the most successful features on the Board (recording around ten thousand views).

The main reason is no doubt the international caliber of our interviewees. This is also the case for  our fifth fire- side conversation which gives the opportunity to members to talk to Marc Robinson. He is a former IMF Fiscal Affairs Department economist, now a successful PFM consultant. He is also an influential blogger on PFM through his blog http://blog.pfmresults.com/wordpress/  and a regular contributor to the IMF PFM blog at http://blog-pfm.imf.org/ .

One of his recent works included a collaboration with the CLEAR Initiative (http://www.theclearinitiative.org/ ) for which he developed the Manual on Performance-Based Budgeting (attached below - you need to register to download it).

If you are a registered member of the Board, you have the possibility to pose a question to Marc online. The focus of the conversation with him is 'performance budgeting – its role in the overall PFM reform and its practice in transition and development countries ’.

The time allotted for questions is  Monday 10th to Wednesday 19th September 2012. After this period the interview will be closed and remain in the archive for future reference.

Napodano:
Hi, Marc;

let me start our conversation with two questions:

Question #1
What does it take to have a performance in budget? I have seen many levels of indicators besides the output/outcome ones, are those necessary elements of a performance budget? Can an activity-based budget be considered a performance budget?  When is appropriate to talk about unit costs?

Question #2
Recently there are have been many voices against performance budgeting,  due to its perceived complexity and unwielding results in countries where there have been applied (see for instance http://blog-pfm.imf.org/pfmblog/2012/09/performance-budgeting-facing-up-to-the-hard-questions.html ). What do you reply to these critics? Would you recommend developing countries to launch budget reforms that include the introduction of a performance framework?

Glen Wright:
I think this will be a very interesting discussion.   I did look through the PB manual and find it quite useful in defining the PB approach.  Just to follow on with my main concerns about this approach which has been confusing to me.

Question # 3
First is the question of how interlinked does Program Budgeting and Performance Budgeting have to be.  It seems to me in the literature these two approaches have been treated as two separate, and maybe equal approaches.  Sometimes I am not sure whether an author is describing program budgeting or performance budgeting. This has gotten more complicated with the introduction of medium term budgeting and how program budgeting and performance budgeting fits into this approach.  I notice that in your manual you begin with description of performance budgeting and it is not until chapter 8 that you start to describe program budgeting.  This makes me think that performance budgeting is a level above program budgeting.  To my mind you need first the program budget structure before you can get to performance budgeting.  Can you clarify this relationship of performance budgeting to program budgeting and how they should be developed.

Question # 4
Second,  just based on your experience what examples of well developed performance budgeting can you identify, either on country basis or a sector level basis that would be useful to examine.

Marc Robinson:
Hi colleagues,

Thanks very much to Mauro and PFM Board for the opportunity to discuss these important topics with so many other PFM professionals.

I believe that performance budgeting has a great deal to offer, but at the same time it mustn't be seen as a magic solution to either budgeting or performance problems. Rather, it is part of a broader set of reforms, and will only work with them.

A key first point is that performance budgeting is not just about the use of performance indicators in the budget. Performance indicators, no matter how good they are, do not tell you conclusively whether programs are effective or not, nor do they conclusively demonstrate the degree of efficiency of a program or process. Performance indicators simply provide the raw data for performance analysis – starting point for program evaluation, policy analysis, benchmarking et cetera. It is entirely to be expected that those who believe that simply injecting a whole lot of performance indicators into the budget would change things radically were going to be disappointed. Without the development of better evaluation and, more generally expenditure analysis – making use of good performance indicators – it is inevitably difficult to link budgeting and performance systematically.

In short, performance budgeting is about the use of performance information in general – including evaluation and other forms of expenditure analysis  – in the budget, and not just about performance indicators.

What has made the disappointment about the budgetary use of performance indicators even greater has been the tendency in quite a few countries to include as "program" indicators a whole lot of indicators which are not very useful for budget decision-makers because they are more about internal ministry management. For budgetary purposes, it is primarily the top-level indicators – outcome and output indicators – which are really useful, not a mass of input and process indicators. It is, for example, of little use of the budget preparation to attach to programs indicators such as the number of meetings held, the number policy documents developed, the number of positions filled (or vacant) etc. Yet this is precisely what many countries have done in developing so-called performance budgeting systems.

The other key thing is that even when you've developed good performance information which really tells you something about the effectiveness and efficiency of programs, you can't assume that this information will automatically be properly used on budget preparation. You have to create the channels and routines by which this information is fed into the budget preparation process and actually used. In my view, one of the most important "missing links" here is spending review -- that is, a routine process for examining baseline expenditure as part of the budget process. It is in a spending review process that the performance information generated by performance budgeting can be most effectively used. It is good that at the present time so many countries are focusing new attention on developing spending review processes. Because in the past, budgeting has all too often just focused on the consideration of new spending proposals – under which circumstances it is hardly surprising that performance budgeting systems have not appear to have made too much impact.

Marc Robinson:
Let me also please comment on a couple of the other interesting points which have been made.

Firstly, Glenn is right in saying that there is much confusion about the relationship between program budgeting and performance budgeting. I think the best way of looking at this is to set performance budgeting as the general concept, and program budgeting as one form of performance budgeting. Performance budgeting is, generally defined, the systematic use of performance information in the budget to improve the effectiveness and efficiency. Program budgeting uses one particular approach – a budget classification based on outcomes and outputs – to make use of performance information in the budget. But there are, as I've made clear in my writings, a number of other approaches to performance budgeting.

Secondly, the question of unit costs in performance budgeting: The idea that budgeting can be based on unit costs is one of the other forms of performance budgeting I've just referred to. The idea, roughly speaking, is that you can budget by firstly identifying all the types of outputs – that is, the specific services provided to the public – which ministries deliver, and then multiplying the unit cost of each of these types of outputs by the quantity which you plan to deliver during the budget year. For example, if you want to vaccinate 140,000 people this year, and vaccinations cost $20 each, then you give the Health Ministry $2.8 million for this output.  The problem with this approach is that it only works for a (quite narrow) sub-set of the services (outputs) which government delivers to the community, and that there are many types of services which can't be budgeted for in this way because they have no stable unit cost. I like to give here the example of criminal investigations by the police – the cost of one murder investigation can differ radically from the cost of another investigation because of case complexity, and there is no stable predictable average or unit cost for murder investigations. So while unit costs budgeting is a good performance budgeting model in some specific sectors – such as public hospital funding under the so-called "diagnostic related group" funding system – it does not provide a model for performance budgeting across the whole of government. I think it is unfortunate that consultants with a poor idea of how the public sector really works have all too often peddled the idea of unit costs as the best and universally-applicable model of performance budgeting.

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