The linking of performance with the funds that is to be received by someone is known as performance budgeting. The better you perform the better funding you will get next time round. Performance budgeting is another fancy term used for performance appraisal. Here you link your pay with your performance. In public sector performance budgeting is used to show the definite link between outcomes of services and funds provided by the people.
It becomes necessary to think logically in a planned economy in terms of budgeting in both the ways as in context of nearest link in a well-integrated system of planning programming and budgeting and also as a tool of management. For organization it provides a system of information for decision making, coordination, evaluation and control to the appropriate levels
Outcomes and outputs are more important in this form of budgeting rather than inputs. Potential future based results decide the allocation of funds and resources. Performance budgets place priority on employees' commitment to produce positive results, particularly in the public sector. It is also a useful tool for the government to evaluate itself. Performnce budgeting is the smart way to put the fears of public on rest as they are nowadays focusing more on government’s efforts.
To improve the public sector efficiency and performance as well as expenditure control is the objective of performance budgeting.
Types of performance budgeting
Broadly performance budgeting is divided in to three types:
- Presentational performance budgeting: The documents present the performance details. Its main use is just to extract information and it play no role in the activities which involves decision making. They are generally Government stamped budget documents.
- Performance informed budgeting: It is an important part of the budget decision making process, but not in terms of allocated resources and the like. It is more or less related to future performance or past performance.
- Direct performance budgeting: In this you allocate resources based on past performance. But this is limited only to a few parts of the public sector.
How is performance information used for budgeting
Many countries include tons of non-financial data in their budget documents, but this doesn’t imply that it is used to make budget decisions. But for this non-financial data to be translated to some budget decision, the performance information from the previous budget is needed.
To make a start budget should be put up in a way that will look into how and why money is allocated and does it produce desired outcomes or results. Generally this can be gauged from public surveys. For quite a lot of countries, this has meant changing the entire budget preparation process.
How is performance budgeting put into practice
Performance budgeting has various aspects.
- Top down: In developing and aiding reform central Government or ministries play the central role.
- Bottom-up: The agents of change is acted by individual civil service societies or organizations.
- Incremental changes In order to avoid lump sum benefit in one shot new reform is introduced step by step.
- Big bang approach Most of the reforms are overnight institutionalized. This increase the chances of failure.
These performance budgeting norms are creating waves in many countries and are becoming an important part of the state’s institution.