Budgeting for results

Yellow Pad
Mario M. Galang

Posted on August 25, 2014

SECRETARY FLORENCIO “Butch” Abad of the Department of Budget and Management (DBM) announced last week “that datasets on the proposed P2.606-trillion national budget for 2015 are now available in open format.” I take “open” to mean “accessible” -- or, easily obtained and easily understood by the public. The move is no doubt a good one toward enhanced transparency and accountability in budgeting.

This is the latest among the initiatives undertaken by the DBM to reform the budget process. A more drastic one was initiated for the current year’s budget by way of a budgeting approach that veers away from the age-old line item-based budgeting to one that is results-based or performance-based. This remains evident in the proposed 2015 budget.

In the traditional line item budgets, agency funds are fenced into a number of expenditure items, such as activities, salaries, supplies, equipment, and the like -- but you are not told for what purpose. You see the items in detail, but not their place in the whole scheme of things. No targets are set and there are no promises of results. The focus is on input.

Accountability means being able to account for how and where funds were spent in line with the budget and applicable rules, which also defines performance. Control is the avowed purpose, hence rigid rules drive the system.

Performance-informed budgeting (PIB) is what the DBM calls the approach it has chosen to adopt. Previous budgets show “a mass of numbers and line items without a clear story on where the funds are going.” The performance-informed budget, by contrast, shows the link between funds for programs and their projected results and outcomes.

Under the new scheme, accountability for results is the norm: it focuses on holding agencies responsible for delivering agreed results (outputs and outcomes) that have been conceived to improve ultimately the quality of life of Filipinos.

Putting this budget reform in place forms part of related initiatives under an overall scheme known as “managing for results,” This presupposes the existence of the results chain you want to achieve; the indicators of good and bad performance; performance incentive scheme; the tracking scheme you intend to follow; and such other concerns. The whole process relies on information to run: Is there an information system in place?

These matters have been attended to through guideline documents and issuances from the executive and other agencies. On March 1 last year, the DBM issued National Budget Memorandum 117, officially adopting the PIB starting this year.

The PIB marries the budget system to performance measures. In performance management, the measures are agreed indicators of success or failure in your activity. These are better appreciated in the context of a performance plan. I rehash below the pertinent portion of a piece I wrote for this column several years back, titled “Measure for Measures”:

“Performance planning is really an exercise in making assumptions, said or unsaid. In the results-based management approach, for example, you agree on the ultimate ‘Strategic Objective’ (Late Outcome in logic modeling), resting on your assumption that this has the most favorable impact on, say, the community.

“Next, you assume a set of ‘Intermediate Results’ (or Mid Outcome) in place, on the belief that these are your best steps to reaching your strategic objective. You get to them, in turn, through a lower layer of ‘Early Results’, the lowest in your hierarchy. This [results chain] completes your ‘Results Framework.’

“Closer to the ground, you assume a bigger set of tangible outputs as stepping stone to your early results. Then, finally, for each of the outputs, you list down the tasks or activities you assume you need to do to produce them.

“In a word, you’re assuming a simple cause-and-effect relationship among your chosen results, outputs and activities: “If this...then this.” But you are not assuming you’re in a vacuum, so you also assume that certain critical conditions are obtaining for all your assumptions to hold.

“The scheme establishes accountability by making units and people responsible for meeting assigned targets (measures). Targets are numerical proxies for otherwise abstract objectives, results or outcomes. For setting them, you aim to make performance countable, therefore measurable. The mantra is, ‘If you can’t measure it, you can’t manage it.’”

The budget puts the plan into operation and gets its “sense of purpose” in the plan. If you look at the budget for this year and the proposed budget for 2015, you will see a radical change of face. The PIB budget “no longer contain(s) an excessively detailed line item document, but a budget that presents performance information aligned to planned resources.”

Crucial to the new approach is information. That is, clear, open, reliable, timely and up-to-date information about the results of funded programs, their wins and loses, to help decision-makers and the citizens know which programs do well, which do not, and what measures need to be taken to make them work well.

Systematic information about program results -- particularly on their quality, quantity, timeliness and cost -- may come useful in “sensing” corruption and, therefore, in keeping it in check with less need for rigid rules.

PIB requires ideally a greater degree of managerial freedom (flexibility and discretion) for the executive and agencies, which are held accountable for results. It is likely in the course of tracking performance that the need arises to reallocate resources, presupposing ample room for the executive to move around. Defining savings in a rigid and suffocating way defeats the PIB purpose: it is anti-progress.

The PIB has mounted a struggle against an antiquated budgeting scheme, and it deserves our support. The choice reduces itself into the radical or the reactionary.

Mario M. Galang is a senior fellow of Action for Economic Reforms and a development and governance specialist.