Introduction to Program Budgeting

Katherine Barraclough

Consultant, World Bank

Fiscal Management Reform Workshop, Istanbul, Turkey, June 6-8, 2005

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Outline

1. What is program budgeting and what is it good for?

2. Program budgeting in Korea: a case study of the Ministry of Environment

3. Some general considerations for successful implementation

What is program budgeting What is program budgeting and what is it good for?and what is it good for?

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Defining Program Budgeting

Resource allocation based on priorities Allocating budgetary resources according to

government policy objectives and prioritiesFocus on organizational objectivesFocus on outputs/outcomes

Allocate expenditure by program Assess results based on objectives Applicable for cost-benefit analysis

“Programs are groupings of government activities in relation to specific government objectives”

(IMF Manual for Fiscal Transparency)

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Key Elements of Program Budgeting

Sets programs as the basis for budget appropriations

Focus shifts from line items to programs Basis for facilitating a cost allocation system Prompts line ministries to define objectives

and match activities and resources to achieving them

Usually tied to their legal mandate Tool for granting greater autonomy and

responsibility In line with transparency and accountability

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Benefits of Program Budgeting

Basis for supporting enhanced fiscal discipline Facilitates decision-making for resource allocation Organizes budget around government policy

priorities Acts as a mechanism for focusing on operational

efficiency and performance Enhances transparency and is user friendly for

legislature and general public Enhances control and accountability for the CBO Affords greater autonomy and flexibility to spending

agencies

Program Budgeting in Program Budgeting in KoreaKorea

A Case Study of the Ministry of A Case Study of the Ministry of EnvironmentEnvironment

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MoE’s Organizational StructureMoE’s Organizational Structure

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General Principles (1)

Align the budget classification with that of the NFMP

Integrate a mid-term perspective into the annual budget

Keep programs within the organizational structure

Clarify lines of accountability and program management

Combine all activities according to program objectives

Regardless of revenue source

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General Principles (2)

Determine appropriate scope and number of programs

Reflect ministry’s role and areas of responsibility

Limit the number of activities Keep at a level that allows for in-depth, policy

oriented analysis

Simplify the object groupings Facilitate discretion and limit excessive input

details that impede focus on outputs/outcomes

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New Budget Structure (1)

Reduces classification levels from 8 5 Places ministerial classification outside the

structure But all groupings from sub-function down will be

organized within ministerial units

Provides the basis for resource allocation decision-making

Links the budget structure to performance management

New Budget Structure (2)

Structure Example

Function Environmental Protection

Sub-

function Air

Program Air Quality of the Capital Area

Activity Natural Gas Bus

Object Personnel Expense

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Strategic Objective

Mid/long – term Target

Performance Objective

Indicators

Resource Allocation

Strategic Priority

Mission Function

Sub-function

Program

(AccountFund)

Activity

Object

Conceptual Framework

Suggested New Structure

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Features of the New Structure

1 function, 5 sub-functions, 16 programs1 function, 5 sub-functions, 16 programs each sub-function has 2-5 programseach sub-function has 2-5 programs

Offices and bureaus have separate Offices and bureaus have separate programsprograms for clear lines of accountability and discretionfor clear lines of accountability and discretion

Programs include all revenue sourcesPrograms include all revenue sources number of activities per program at no more number of activities per program at no more

than about 10than about 10 Environmental Administration is a separate Environmental Administration is a separate

programprogram due to costing difficulty of expensesdue to costing difficulty of expenses

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Sub-function

Program

1. Environmental Policy

1.1 Environmental Administration

1.2 Basic Environmental Protection

1.3 Chemical & Hazardous Material Mgt.

1.4 International Cooperation

Promoting environmental policies for sustainable development

Currently 116 activities

Sub-function (1)

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Increase the amount and quality of safe water, and improve water quality in waterways and rivers

Currently 137 activities

Sub-function

Program

2. Water

2.1 Water Supply

2.2 Soil & Underground Water

2.3 Sewage.

2.4 Industrial Waterwaste

2.5 Water Quality of the 4 Major Rivers

Sub-function (2)Sub-function (2)

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Sub-function

Program

3. Air

3.1 Air Conservation

3.2 Air Quality of the Capital Area

3.3 Everyday Pollution

Provide clean and clear air quality

Currently 24 activities

Sub-function (3)

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Preserve and restore the natural environment for a clean environment and improved quality of life

Currently 23 activities

Sub-function

Program

4. Natural Environment

4.1 Ecosystem

4.2 National Parks

Sub-function (4)

2020

Safe and hygienic waste management and the promotion of recycling and reducing waste in society

Currently 19 activities

Sub-function

Program

5. Waste

5.1 Waste Management

5.2 Recycling

Sub-function (5)

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Implementation Issues for Korea

Co-operation between the CBO and spending Co-operation between the CBO and spending agenciesagencies

Consensus and commitment at high levelConsensus and commitment at high level At executive and legislative level and among key At executive and legislative level and among key

stakeholdersstakeholders Detailed reform blueprintDetailed reform blueprint

Clarify PB in context of broader PEM reformsClarify PB in context of broader PEM reforms Piecemeal approachPiecemeal approach

Gradual but steadyGradual but steady Development of a policy- and performance-oriented Development of a policy- and performance-oriented

institutional cultureinstitutional culture Identify need for reforms in institutional cultureIdentify need for reforms in institutional culture

Ensure spending agencies design their own Ensure spending agencies design their own program budget with cooperation from CBOprogram budget with cooperation from CBO

Considerations for Considerations for Successful ImplementationSuccessful Implementation

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Development Process Changing form Changing form andand behaviourbehaviour

Thinking differently about planning, managing and budgetThinking differently about planning, managing and budget Effective PB cannot be developed centrallyEffective PB cannot be developed centrally

Sense of ownership on the part of line ministries Sense of ownership on the part of line ministries Line ministry staff must undertake the workLine ministry staff must undertake the work

Creating ownership and changing organisational cultureCreating ownership and changing organisational culture Be cautious of other countries examplesBe cautious of other countries examples

Unique laws and institutions, policies and objectivesUnique laws and institutions, policies and objectives Establish stability in classification structureEstablish stability in classification structure

Continuity and consistencyContinuity and consistency Generates demand for information and resources Generates demand for information and resources

Creates need for additional or new data collection, IT and Creates need for additional or new data collection, IT and data collection systemsdata collection systems

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Design Process

Programs need to be within ministriesPrograms need to be within ministries Clearer linking of activities, funds, and objectives for Clearer linking of activities, funds, and objectives for

increased managerial accountabilityincreased managerial accountability A program classification doesn’t obviate the need A program classification doesn’t obviate the need

for other classificationsfor other classifications Classifications are added to meet new demands for new Classifications are added to meet new demands for new

information and new roles for the budget processinformation and new roles for the budget process Full costs need to be allocated to programsFull costs need to be allocated to programs

Incomplete cost information impedes management and Incomplete cost information impedes management and budget decision-makingbudget decision-making

Program concept should integrate recurrent and Program concept should integrate recurrent and capital budgetscapital budgets

Account for all inputs leading to outputs or outcomes Account for all inputs leading to outputs or outcomes

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Reform Management (1)

Don’t undertake as a budget cutting measureDon’t undertake as a budget cutting measure prompts resistance from line ministriesprompts resistance from line ministries

Annual budget ceilings can help motivate Annual budget ceilings can help motivate ministriesministries impetus to rationalise and relate activities to impetus to rationalise and relate activities to

objectivesobjectives

Provide ample support to ministriesProvide ample support to ministries tools for developing program structure and to tools for developing program structure and to

review spending prioritiesreview spending priorities ““Logframe” – logical frameworkLogframe” – logical framework Logic Model - Program Logic ModelLogic Model - Program Logic Model

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Reform Management (2)

Program budget implementation will be an Program budget implementation will be an iterative process over several yearsiterative process over several years Trend lines or multiple data points allowing for Trend lines or multiple data points allowing for

questions of efficiency and effectivenessquestions of efficiency and effectiveness Selling program budgetingSelling program budgeting

Matching expectations to reality of what can be Matching expectations to reality of what can be achieved in the time givenachieved in the time given

High-level commitment over timeHigh-level commitment over time Utilisation of program structure by the central Utilisation of program structure by the central

budget authority for decision-makingbudget authority for decision-making