Dr David Rosalky Crawford School of Public Policy, ANU Special Topic Course on Results-based Planning, Budgeting & Evaluation Urumqi, PRC, September 2012

CHALLENGES OF BUDGET EXECUTION AND MONITORING

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WHERE HAVE WE GOT TO?

• We’ve achieved a lot – We’ve turned a development plan into policies – We’ve constructed a performance framework

mapping strategic goals into program objectives – We’ve built a medium-term framework for the

budget process, and – We’ve allocated resources using the framework

• But we can’t rest on our laurels – We’ve only just started

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BUDGETING AND IMPLEMENTATION • A common bureaucratic problem that

budget process and management of budget allocations are poorly connected

• Different players are involved and often the views of implementers do not factor into budget deliberations

• Some bureaucratic parties see the receiving of an allocation as an end in itself

• This is a recipe for poor budget implementation

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CHALLENGES

1. To plan and to execute multiple programs within budget allocations

2. To achieve, or to make progress towards achieving, government’s objectives, including goals of development plan

3. To demonstrate that resources are being spent properly, on the right things and that results are being achieved

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CHALLENGE 1: PLANNING AND EXECUTING • Programs need active management input

to design and to plan implementation • Ideally, this involves:

– Early identification of program need – Involvement of managers to design and to

cost program – Scrutiny by central agency to test

assumptions, feasibility and costing – Budget allocation to reflect reasonable costs

and to provide necessary flexibility 5

IMPEDIMENTS TO THE IDEAL • Program decisions are often made quickly in

the budget context, or on the basis of outside lobbying

• Centrally controlled budget processes may exclude line agencies from deliberations

• Central agencies generally will not have the knowledge or information available to line agencies – information asymmetry

• Detailed input-based budgets leave no room for flexible use, or timing, of resources, distorting management choices

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FINANCIAL MANAGEMENT • Budgetary and financial management reforms have

generally gone hand-in-hand • Financial management reforms have involved:

– Integration of line item inputs into an aggregate • This allows managers to use inputs flexibly • Flexibility needs to be matched with greater accountability

– Budget allocations to programs or other purpose-based budget unit

• This brings resources together for identified outputs – Accrual accounting has permitted estimation of total

costs at time of economic activity • Flexible performance-based pay arrangements

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MANAGEMENT BEHAVIOURS • Management reforms have involved high levels of

accountability for managers – Performance management

• Accountability for group performance can be pursued through future budget allocations – Usually involves a negative response or sanction for poor

performance in the sense of curtailing future resource claims

• Individual performance is sometimes rewarded through performance bonuses in remuneration – This is possible only in flexible remuneration policies and

negotiated packages • All performance-reward systems can lead to

misleading or distorted presentation of results

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CHALLENGE 2: ACHIEVING GOVERNMENT OBJECTIVES • The challenge here is the performance

framework and how it bridges the wide gap between goals of the development plan and the activities of line agencies

• Sophisticated performance systems have established program structures and budget allocations on “outcome” statements – Outcome statements have proven too high-level

and imprecise for effective scrutiny or as a basis of allocating resources

– These systems have generally failed 9

OUTCOMES AND OUTPUTS • Governments need to judge performance

against outcomes – Expressions of the intended effect of their policies – “Effectiveness” is the achievement of outcomes

• Managers need to create outputs – Concrete units of production – Outputs can be expressed in terms of measurable

units (see later slide) – Efficiency of production requires measurement of

outputs and their costs 10

LINKING OUTCOMES & OUTPUTS • Governments need confidence that programs are

moving in the direction of achieving their goals • Require a link between the program’s outputs and

desired outcomes that is credible and testable • Link depends on a set of assumptions – i.e. a

model of how the program activity leads to the desired objective

• The assumptions need to be stated explicitly and tested so that a redirection can occur if required – This normally happens at a higher level of

management or in a central agency which analyses effects of programs in the society

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EDUCATION EXAMPLE • Development plans put high emphasis on education for

various purposes – One might be to increase competitiveness

• It is assumed that encouraging more young people to have a tertiary education will increase skill levels and hence innovation increasing exports

• Two programs are funded – More class-rooms and better teacher training

• Research to measure student numbers at each level, education attainment, post-education employment in export industries etc

• Failure to achieve outcomes may result from – Inadequate transport in remote areas, or – Poor families keeping children at home to help – So other policy responses are needed

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PROGRAM REVIEW & EVALUATION • Testing whether program activity is contributing to

intended results can be very difficult – Timeframes can be long – years before results – Many extraneous influences affect results – Successful outcomes may not have resulted from

program activity, so resources may be misallocated • Properly constructed analyses are often required to

test the effectiveness of programs or to reveal the driver of success – These may be in the form of strategic policy reviews or

evaluations – Such reviews and evaluations are usually carried out by

third parties (perhaps central agencies) in consultation with program managers

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CHALLENGE 3: MONITORING, CONTROL AND REPORTING • Government activity is complex and multi-dimensional

and needs to be monitored and checked at various levels

• Monitoring may apply to: – Program implementation: to ensure that programs have

not been unduly delayed or prevented by unforeseen events

– Resources use: used properly and in accordance with budget appropriations

• No fraud or misappropriation • Resources are drawn from correct appropriations • No waste • Efficient production

– Program performance: targets are being met

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INTERNAL AND EXTERNAL MONITORING

• Much of the monitoring is performed externally to the line agency: – Central agencies may monitor implementation (strategic or

planning agency) – Central budget agency may monitor proper use of resources

and compliance with budget – External auditors may monitor the handling and accounting for

public resources, compliance with the law and program performance

• Internal monitoring is very important – Use of internal audit to monitor actions by program managers

may identify problems before they become embarrassments – Internal management committees may test that programs are

achieving intermediate outcomes (e.g. higher school enrolments in our education example) for early correction

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CONTROL – EXTERNAL • Control is an important component of

management and governance • External controls derive from laws,

regulations and rules imposed by external agencies such as parliament or central agencies – They circumscribe the operational flexibility

permitted to the organisation – In a highly centralised administration, external

controls may be very tight – In a more decentralised system, controls may be

permissive but are offset by tight accountabilities 16

CONTROL – INTERNAL • Internal controls are management-initiated

processes designed to ensure that the organisation is on course to meet its deliverables – An active process – not a response to crises – Risk assessment and mitigation

• Internal control depends on: – Clear operational goals or targets – Information available to managers about where

the organisation is at – Levers to correct any problem and to redirect the

organisation towards its goals 17

MONITORING AND MEASUREMENT • Effective performance frameworks need

information – Where are we going?

• Targets, performance measures – Where are we at?

• Results, resource usage

• Information needs to actively collected • Made available to managers and external

scrutineers on a consistent basis 18

MONITOR WHAT? - MEASUREMENT Many terms and categories used to report results • Outputs

– Products that contribute to outcomes • Deliverables

– Results of management activity • Key result areas (KRA)

– Associations of deliverables for discrete purpose • Key performance indicators (KPI)

– Specific targets – quantitative or qualitative – KPIs are a valuable management tool to challenge

management • but sometimes the drive for quantifiable targets results in

inappropriate activity, e.g. quantity over quality • “do what is measurable”

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MONITOR WHAT? - MEASUREMENT • Costs need to be measured in order to assess

efficiency and to be accountable for use of resources – Many costs are distributed across general heads of

expenditure (e.g. IT, personnel etc) – Full cost measures require accruals (e.g. personnel

liabilities) • Benchmarks

– Cost or performance measures from comparable activities to assess relative results or efficiencies

– Not necessarily targets • Targets

– Intended results for performance and/or costs – Usually “stretch” targets which push performance forward

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REPORTING • Internal reporting

– Management information for resource use and control – Program information on usage and effects – Onus on operational units – Particularly important if units are geographically dispersed – Information systems and data definitions

• What and how to measure and how to transmit data • External reporting

– To ministers, parliaments, external auditors – Ex ante: intended results usually at time of budget – Ex post: results achieved usually in annual reports – Basis for public scrutiny and examination

• Consistency – One set of books – Management information must be consistent with external reporting – Financial and performance information

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