Performance budgeting is a budgeting approach that reflects the input of resources and the output of services for each department or unit of an organization (Investopedia, 2021). It is designed to motivate employees’ commitment to produce positive results (Investopedia, 2021). Performance budgets are commonly used by government bodies and agencies to show the link between taxpayer funds and the outcome of services provided (Investopedia, 2021).
Key Facts
- Performance budgets reflect the input of resources and the output of services for each department or unit of an organization.
- Performance budgets are designed to motivate employees’ commitment to produce positive results.
- Performance budgets often rely on quantifying otherwise qualitative or subjective factors so that they can be measured and accounted for.
- Performance budgets are commonly used by government bodies and agencies to show the link between taxpayer funds and the outcome of services provided.
- Performance budgets can address a wide range of outcomes, such as improvement in test scores, reduction in mortality rates, improvement in water quality, and reduction in crime rates.
- Performance budgets have advantages in the public sector, including increased accountability, communication of priorities to the public, and quantifying specific goals.
- Disadvantages of performance budgeting include potential disagreements over spending priorities, lack of unified cost standards, potential data manipulation to reach targets, and lack of flexibility once inputs/outputs have been set.
- Performance budgeting can be augmented with supplemental program and performance information to overcome some of its limitations.
- Other budgetary approaches commonly used alongside performance budgeting include line-item budgeting, program and planning budgeting, zero-based budgeting, site-based budgeting, and outcome-focused budgeting.
Key Elements of Performance Budgeting
- Resource AllocationPerformance budgets allocate resources based on specific goals agreed upon by budget committees and agency heads of services (National Center for Education Statistics, 2009).
FAQs
What is performance budgeting?
Performance budgeting is a budgeting approach that links the allocation of resources to the production of outcomes, with the goal of allocating government resources to service providers or programs that use them most effectively (Investopedia, 2021).
What are the advantages of performance budgeting?
Performance budgeting offers advantages such as increased accountability, communication of priorities to the public, and quantifying specific goals, particularly in the public sector (Investopedia, 2021).
What are the disadvantages of performance budgeting?
Performance budgeting may face challenges such as potential disagreements over spending priorities, lack of unified cost standards, potential data manipulation to reach targets, and lack of flexibility once inputs/outputs have been set (Investopedia, 2021).
How does performance budgeting differ from other budgeting approaches?
Performance budgeting differs from traditional line-item budgeting by focusing on outputs and outcomes rather than solely on inputs and expenditures (National Center for Education Statistics, 2009). It also differs from program and planning budgeting by placing less emphasis on control and evaluation and more on identifying fundamental objectives and relating program expenditures to those objectives (National Center for Education Statistics, 2009).
What are some examples of outcomes that a performance budget can address?
Performance budgets can address a wide range of outcomes, such as improvement in test scores, reduction in mortality rates, improvement in water quality, and reduction in crime rates (Investopedia, 2021).
How can performance budgeting be augmented to overcome its limitations?
Performance budgeting can be augmented with supplemental program and performance information to address its limitations, such as the lack of unified cost standards and the potential for data manipulation (National Center for Education Statistics, 2009).
What are some other budgetary approaches commonly used alongside performance budgeting?
Other budgetary approaches commonly used alongside performance budgeting include line-item budgeting, program and planning budgeting, zero-based budgeting, site-based budgeting, and outcome-focused budgeting (National Center for Education Statistics, 2009).
How does resource allocation work in performance budgeting?
In performance budgeting, resources are allocated based on specific goals agreed upon by budget committees and agency heads of services, with the aim of identifying and scoring relative performance based on goal attainment for specified outcomes (Investopedia, 2021).