Program budgeting - How to set up a program structure in a ministry?

[Napodano]

Sometimes fellow pratitioners like to make their life complicated when introducing a program structure in their budget system.

Initially a program structure could be a simple reclassification of budget economic items by program, i.e. policy priorities at ministry level. Initially forget  the performance framework, introducing complex indicators of performance.

How to identify the right program structure within a Ministry?

Well, it would be good to have a debate on this. Any insight from other boarders?

My take is the following: The right structure of programs is a combination of:

• policy priorities in a ministry (e.g. basic education) and
• sectoral functions based on the organisation chart of ministries (e.g. if there are two separate departments for  Higher education and Science Development in a ministry those could represent two separate programs).

Inspiration for a sector program structure fo some ministries could be obtained by consulting the UN Classification of the Functions of Government (COFOG). It has to be taken wih a pinch of salt, though. http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4

[STONE]

What is a good programme structure?  That is a hard question to answer.  When developing programme budgeting in Albania the government certainly started out from a COFOG based approach.  Over time it refined the approach to determining that programmes should be within ministries (not across ministries as was done in the early - and much criticised -days of programme budgeting in the USA.  It then addressed the question of defining a programme and came up with an approach that define a programme as a meaningful and manageable group of activities intended to deliver one or more policy objectives.  Manageable of course is relatively easy to consider  - but what about meaningful?  In Albania, the approach used is to take a direction from Government policy statements. I did a presentation on this issue for a CABRI (Collaborative African Budget Reform Initiative) training programme for Senior Budget Officials  - I need to check out the archive!  More soon...

[petagny]

Can there ever be an ideal programme structure? All programme structures tend to be hybrids resulting from (sometimes messy) compromises. The eventual form of the program structure may depend on the intended use(s). This is the conclusion of an insightful discussion on pages 44-61 of this World Bank publication:

http://www1.worldbank.org/publicsector/pe/bookprogrambudget.pdf

The discussion begins with an interesting quote from an early pioneer of programme budgeting, David Novick, and an accompanying comment:

‘ “The word program,” he cautioned, “can be used by different people…to mean an administrative organization, the performance of a specific function, a combination of activities, a combination of functions, or any endless number of activities, organizations and functions.” In other words, a program is whatever is labelled a program, and a program budget is any budget so designated. Obviously, if there are multiple ways of defining a program budget, no particular approach has a special claim to legitimacy.’

Four applications of programme budgeting are identified, each with somewhat different implications for the design of a programme structure:

1) An instrument of policy analysis
2) A means of improving managerial performance
3) A mechanism for allocating and managing costs
4) A planning process

The programme structure that emerges for a particular country is seen as depending on which of these four dimensions is being emphasised: there is not necessarily a 'right' answer and countries have the opportunity to design a program structure 'that fits into their organisation and political culture'. All the same, there are probably some pitfalls to be avoided and maybe it's more profitable to focus on these than to be too rigid about programme structure design. One principle I would propose is to always keep in mind the absorptive capacities of the decision-makers and legislators who will use the resulting budgetary information. It's all too easy to let the conceptual logic of a system dominate the practical realities of implementation. The World Bank gives the example of Hawaii's 15 volume, 8,000 page budget documents of the 1970s, but we've probably all come across similar, but probably less extreme, examples. In these instances, some simple back-of-the-envelope calculations at the outset or a pilot exercise might have revealed the impracticality of designs with a superficial logical appeal.

Incidentally, New Zealand's output-based model is discussed by the World Bank as a variant of programme budgeting. While not directly transferable to countries with weaker administrative capacities, the New Zealand approach nevertheless has some interesting dimensions that aim to overcome some of the pitfalls of more traditional variants of programme budgeting. A subject for another post?

[Martin Johnson]

Jack Diamond writes well on this. I have found his work helpful when thinking about applying lessons from the past to present situations. In his paper 'From Program to Performance Budgeting: the Challenge for Emerging Market Economies' (IMF Working Paper (WP/03/169), June 2003), he notes that program budgeting concepts pre-date WW2 and outlines some of the key landmarks since, summarised as follows:

1949    Hoover Commission report on the organisation of the executive branch of (US) government – promoted programme and performance ideas

1950    Budget and Accounting Procedures Act (US) required agency heads to support budget requests with information on performance and programme costs

1961    Planning, programming and budgeting systems (PPBS) adopted initially by US Department of Defence and rolled out other agencies, states and local governments, and some countries

1965    Publication of UN Manual of Program and Performance Budgeting – almost 50 countries attempting some form of programme and performance budgeting

1970s onwards    Various programme budget related methodologies introduced (multi-year budgeting; budget classifications by mission, function, programme; development of performance indicators; etc)

1990s –    Emergence of ‘output’ and ‘new performance’ budgeting (sometime called ‘New Public Management’) focusing on results and the use of performance information. Led by reforms in Australia and New Zealand and followed by UK and later by a number of other European countries and US. Including the introduction of contractual arrangements and the movement towards accruals accounting in the most advanced cases.

Lessons from these are helpful in trying to understand what is likely to make sense and be helpful now. I advised an Assistant Minister in Serbia on applying lessons there (though the momentum for taking this forward stalled when she became ill and had to go on sick leave). I will dig out some of the key lessons that I thought made sense for Serbia as most of them have general application ......

[russcraig7]

One aspect that must not be lost sight of in this process of defining programs is the human dimension. By this I mean that senior policy makers in the line ministry should be able to recognise and own the programs, rather than have them 'provided' by the MoF or the consultants.

I know it is easy to to use COFOG or the organisational structure of the ministry to set out a collection of programs [what is the collective noun for a set of programs? Perhaps a proliferation of programs ]. An approach I have found useful is to start with a visioning exercise that addresses the vision, mission and goals of the ministry and use the goals to determine the programs. As long as you include a management/administration goal most elements in the organisation align with the goals. If they don't there is a strong case for questioning their existence.

Using goal based programs does have the drawback that there may then be no person responsible for the program obvious in the organisational structure. I remember conducting such an exercise in Albania in education. When I asked who was responsible for the first program 'to improve Primary Education' the senior staff explained that they used to have someone in charge of this but the World Bank restructured the ministry and this responsibility got shared to planning, finance etc etc. However it is relatively easy I have found to get the PS or someone to appoint program coordinators or leaders, especially when they have been involved in determining the goals on which the programs were based.

[John Short]

A "panic" of programmes or a "denial" given your experience Russ!

[harnett]

A programme of programmes?

[harnett]

So then, let's get practical.  For various reasons the Ministry of Foreign Affairs in Albania has been struggling along for the past 5 years with a programme structure not compatible to its management structure, with resultant chaos in MTBP submissions.  The present GS would like to change this situation and has asked for suggestions regarding his programme structure.

UN COFOG suggests: 
Administration of external affairs and services
- operation of the ministry of external affairs and diplomatic and consular missions stationed abroad or at offices of international organizations; operation or support of information and cultural services for distribution beyond national boundaries; operation or support of libraries, reading rooms and reference services located abroad;
- regular subscriptions and special contributions to meet general operating expenses of international organizations.

Excludes: economic aid to developing countries and countries in transition (01.2.1); economic aid missions accredited to foreign governments (01.2.1); contributions to aid programmes administered by international or regional organizations (01.2.2); military units stationed abroad (02.1.0); military aid to foreign countries (02.3.0); general foreign economic and commercial affairs (04.1.1); tourism affairs and services (04.7.3).

[John Short]

Subscriptions are included in MoF programme "Execution of Various Payments" which includes "Complying with the obligations that arise from the agreements with international financial institutions".  So that leaves the first COFOG for them!

[harnett]

Yes but each ministry has its own responsibilities - MOF only pays for MOF-related international organisations.

[Martin Johnson]

It is clear from the literature, practical experience and the posts on this PFMboard that, whilst there are several decades worth of experience to draw on, there is no standardised way of developing a programme classification.

Establishing a programme dimension to the classification structure, of course, is just one stage of a much wider PEM reform process. In most cases, the underlying objective of is to move the focus of budgeting away from inputs to one which emphasises outputs and outcomes in relation to the achievement of policy objectives. As a result, many countries engage in the ‘definition of programmes’ in one way or another and develop sector strategies and strategic planning techniques to ensure the achievement of sector policies.

The process for defining programmes, however, is not common to all countries. Some countries even choose not to present their ‘programmes’ in the classification system. Rather, the ‘programme’ activities, funding requirements and associated managerial responsibilities and accountabilities are defined, for example, through instruments such as Sector Wide Approaches (SWAps) and are subsequently funded through line item, administrative and (sometimes) functional classifications of the budget system.

[Henry Higgins]

Ask 'why' you want to define programs first?  Is this actually going to improve service delivery?  And if the program structure does not align easily with the organisational structure, is it feasible or even desirable to change structures - some programs, e.g. primary health, may well be better delivered by a different cost centre (organisational) structure.  Then, most importantly, does the relevant government or ministry have the strategic planning and strategic management capacity to actually implement (deliver) a program across several cost centres??  Who will be the program manager and will s/he have the capacity to get all cost centre managers to agree to joint delivery of a program, sharing a program budget, and making adjustments and virements over the course of the budget cycle as service delivery performance is monitored and adjusted.  The communication costs and meeting costs are significant, raising many small political issues along the way.  Think carefully before moving formally to a program structure.

[Napodano]

Who will be the program manager and will s/he have the capacity to get all cost centre managers to agree to joint delivery of a program, sharing a program budget, and making adjustments and virements over the course of the budget cycle as service delivery performance is monitored and adjusted.  The communication costs and meeting costs are significant, raising many small political issues along the way.  Think carefully before moving formally to a program structure.

Henry,

you hit the nail right on the head! Having a performance framework without managing it, is like have an empyt shell. For the ones interested on performance management, download the PowerPoint presentation I attached under the 'Albanian country PFM Board'

[harnett]

Henry

Thanks for the tips.  In fact it looks like the issue will be finessed by only having one programme!  It would be far too difficult to separate out any programme from the present management structure (8 Departments).  So favourite move is an Admin Programme together with a "Foreign Affairs" programme.  There is also an option to create another programme purely for asset management (embassy buildings / homes etc.).  I'm also advising that a further breakdown to make for the future may be to try and separate consular (visas etc) and diplomatic services as it would be conducive to good management to look at the value for money of consular services which is a possibility (as opposed to looking at the value for money of "diplomacy").

The only snag now is to work out who should head the programme!

[Napodano]

the PFM Board Video Session 05 is on the Do's and Don'ts when defining a program structure in budget.
The session is available http://www.youtube.com/user/napodano?feature=mhee#p/c/51C9BA2BAB0F6227/3/Ghjg6ZPwUd4

The session argues that the process is not complex as believed in some quarters, provided that managers avoid bureacratic trappings.

[harnett]

Nice Presentation Mauro.

Was thinking that it would advantageous to include a section on moving from a departmental structure to a programme structure within a ministry.  This management change is often the greatest obstacle to Programme Budgeting.  Often it is not best to move to an ideal programme structure within a ministry as the management change would not be accepted.  In this case I don't see any reason for a number of sub-programmes, for example. 

In fact, I don't see why sub-programmes should be advised against.  Often the roads programme would logically be split into sub-programmes (e.g. A, B, and C roads).  The question then is where the management of funds should lie e.g. MOF determines sub-programme ceilings, or Head of Roads determines sub-programme ceilings wihtin the roads ceiling.