PERFORMANCE BUDGETING

Performance Budgeting is a system under which the physical

aspect of every programme or activity is correlated with the
financial aspect of the budget.
Purpose of Performance Budgeting
1.To improve budget formulation, review and decision-making at
all levels of operation.
2.To facilitate better appreciation and review by the cabinet and
legislature.
3. To enable better performance audit.
4. To facilitate progress in terms of plans.
5. To bring annual budgets and plans together through a common
yardstick of measurement and a common language.
 STATUTORY ANNUAL BUDGETING SYSTEM
1.High past data orientation; More like a projection based on
percentage increase,
2.Justification for grants supported by administrative reports and
explanatory memorandum. Financial part remains segregated from
justifications.
3. Control based on annual or near annual review.
4. Control based on spending, not on performance or target
achievement.

Performance Budgeting in India

Estimates Committee
Administrative Reforms Commission
Planning Commission
 Types of Budget
Focus of Control
Commercial
sector ROI profit

Actual expenditure ≤ Budget expenditure

Actual physical ≥ Budgeted output
output.
S.T. budget limits on expenditure.
Budgeting
Actual output ≥ Budget Output
Actual Output Budget Input

Appropriation Budgets
Non-
commercial Programme Budgets
Sector
Performance Budgets
 Methods of Expenditure Classification
Object wise -Salary To ensure that a specific
classification -TA predetermined segment of
-Investigations expenditure is committed
-Grants to development work.
-Projects
Functional - General Services To monitor and review the
Classification - Social & Community services overall pattern of
expenditure.
- Economic Services
- Un-allocable
Economic -Current A/C of Govt. Administrative To monitor the impact on
Classification -Current A/C of departmental capital formation, transfer
undertaking etc.; useful for fiscal
-Capital A/c of governmental decisions.
administration/departmental
undertaking
-Changes in financial assets

-Changes in financial liabilities

-Reconciliation between govt.

administration/undertakings.
Functions Programmes Activities To measures activities at
Programme –
Activity Projects micro level in relations to
Classification facilities.
Object-wise Activity-wise
classification classification

Salary Activity S
Investigation Programme Activity
Activity
C
Activity H
Travel & others Budget outlay Programme Activity E
expenses Activity
Activity
M
Programme Activity E
Works Activity
S
Grants etc.
 FUNCTIONS, PROGRAMMES, ACTIVITIES

TERM MEANING EDUCATIO HEALTH AGRICULTURE

N
Function A major category Education Public Agricultural
of distinct public Health Development
service
Programm A part of a Elementary Control Development of
e function having Education of commercial
and end object communi crops
and identifiable cable
with a major diseases
organization
A segment of Elementary Malaria Cotton
Activity
programme with Teachers’ Eradicati Development
homogeneous Training on
type of work,
normally
identifiable with
a lower operating
level in
organization.
 MEASUREMENT OF PHYSICAL PERFORMANCE

Direct Measure
Absolute
Output Intermediate
workload measure

Measures Symptoms
Indirect measure
Complementing
results
Unit cost approach
Relative
Output
Ratios
 STEPS IN PERFORMANCE BUDGETING

1. Evolving meaningful classification structure in terms of

programmes, projects and activities under each function.
2. Entrust these programmes, projects and activities to
organizational units and sub-units.
3. Develop precise objectives for these programmes, projects
and activities for the organization as well as for its sub-
units.
4. Establish suitable work units for measurement of the
workdone, and also norms, standards and performance
indicators, and
5. Realign the accounting systems, management information
system, and reporting system to match the requirements of
the Performance Budgeting System.
 Difficulties in implementing Performance
Budgeting System

1. Common cost allocation among different programmes and

activities may be difficult, eg., in multipurpose river valley
projects.
2. Cost in some subhands may related to more than one activity;
e.g. Remote sensing.
3. Some activities and projects overlap in scope, such as,
education for handicapped.
4. Accountability is diluted when activity falling within the
jurisdiction of one department, is carried out by another
department e.g., minor irrigation.
5. Multiplicity of functions, activities and programmes.
Public Sector Activities for which Performance
Budgeting can be effectively used.

3.Advertising & Publicity

4.Research & Development
5.Projects
6.Rural and community services
7.Survey, Investigation etc.
8.Personnel function
 Difference Between MOU’s & Performance Budgeting
MOU’s Performance Budgeting
1. In the nature of a contract 1. No such contract; only an intra-
between Ministry & PSU. organizational mechanism for greater
efficiency.
2. Related to overall 2. More concerned with detailed
performance. performance, subsequently integrated
into overall performance.

3. Thrust: Autonomy for PSU and 3. Thrust: Output in relation to

division of responsibility between resource.
PSU and Ministry.
4. Assumption: Result 4. Assumption: Result maximization if
maximization if specific input – output relationship is
objectives and targets are sets. adequately understood.

5. Involves performance 5. Review is of rudimentary and of

evaluation and incentives. subjective nature; no incentive.

6. Application possible to any 6. Applicable priority to situations,

situation – commercial or non- where projects, as a yard stick of
Similarities Between MOU’s & Performance
Budgeting

1. Both are result oriented.

2. Both involved quantification as far as possible.