Performance Based Budgeting


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Performance Based Budgeting

  1. 1. Financial Management Series Number 8 (Instructional Version) Performance Measurement & Performance Based Budgeting (PBB) Alan Probst Local Government Specialist Local Government Center UW-Extension
  2. 2. Part I <ul><li>Overview </li></ul>
  3. 3. Performance Budgeting <ul><li>Originated in late 1940’s </li></ul><ul><li>Congress enacted through National Security Act of 1949 for newly formed Department of Defense </li></ul><ul><li>Government Performance and Results Act (GPRA) </li></ul>
  4. 4. Performance Budgeting <ul><li>Based on the assumption that presenting performance information alongside budget amounts will improve budget decision-making by focusing funding choices on program results </li></ul>
  5. 5. Performance Based Budgeting <ul><li>Performance based budgeting cannot begin until a system of performance measurement has been instituted </li></ul><ul><li>A functional performance based budgeting system cannot be expected to produce the long-term desired results in the first year of its inception </li></ul><ul><li>Must build a Performance Based Management System </li></ul>
  6. 6. Management Tool <ul><li>Performance budgets focus on missions, goals, and objectives to explain why money is being spent and provide a way to allocate resources to achieve specific results </li></ul><ul><li>PBB is intended to be a management tool for program improvement, not a “carrot and stick” methodology used to “punish” departments for not meeting goals </li></ul>
  7. 7. Why is this Important? <ul><li>Most Federal grants now require outcome evaluations (performance measurement) in their applications </li></ul><ul><li>Bond sales require indicators of financial condition which are well presented by performance data </li></ul><ul><li>Local government revenues are becoming insufficient making effective use of resources imperative </li></ul><ul><li>Promotes the logical tie between planning and budgeting </li></ul>
  8. 8. Why is this Important? <ul><li>Both the Government Accounting Standards Board (GASB) and the Government Finance Officers Association (GFOA) are promoting performance measurement indicating it may soon become a requirement </li></ul><ul><li>Provides a way to quantify to the citizens how well their local government is doing compared to previous years and other similar communities; i.e. “how much bang they’re getting for their buck” </li></ul>
  9. 9. CAUTION! <ul><li>One of the greatest mistakes in Performance Based Budgeting is to make simplified assumptions based on unrefined results and then apply a system of rewards and punishments based on them </li></ul><ul><li>Such an approach frequently yields adverse program impacts </li></ul>
  10. 10. Unintended Consequences <ul><li>If PBB used as a reward and punishment system, how do you ensure that reducing a budget by, say 5% for poor performance, doesn’t reap a future 20% decrease in future performance? </li></ul><ul><li>How do you ensure you’ve considered all factors that may have affected the decline in performance? </li></ul>
  11. 11. Potential Flaws <ul><li>Incorrect assumptions or conclusions </li></ul><ul><li>Police: Arrests are up; we gave you more money, what’s wrong? </li></ul><ul><li>Police: Arrests are down, we gave you more money, what’s wrong? </li></ul><ul><li>Do more arrests mean better police work, more crime, less crime, better crime prevention, or less police work? </li></ul>
  12. 12. Example <ul><li>An effective Police Department deters crime, how does one measure “deterred’ crime? </li></ul><ul><li>“ Police arrests are down 5% from last year so, under Performance Based Budgeting, we should reduce the Police budget by 5% until they improve their results” </li></ul><ul><li>Such a simplistic approach fails to account for the success of crime prevention efforts and community policing, therefore, punishing good performance </li></ul>
  13. 13. Interim Solution <ul><li>Until a performance measurement system can be fully implemented, an interim solution may help set the groundwork </li></ul><ul><li>Departments heads provide a bullet narrative with annual budget requests including: </li></ul><ul><ul><li>what department accomplished last year? </li></ul></ul><ul><ul><li>what is different in this year’s budget request? </li></ul></ul><ul><ul><li>what goals has the department set for the coming year? </li></ul></ul>
  14. 14. Part II <ul><li>Performance Measurement </li></ul>
  15. 15. Performance Measurement <ul><li>The regular systematic collection, analysis, and reporting of data that tracks resources used, work produced, and whether specific outcomes were achieved by an organization </li></ul><ul><li>Note: Measurements are only meaningful to the degree that they are a basis for strategic and operational decision-making </li></ul>
  16. 16. Performance Measurement <ul><li>Performance Measurement should: </li></ul><ul><li>Be based on program goals and objectives that tie to a statement of program mission or purpose </li></ul><ul><li>Measure program outcomes </li></ul><ul><li>Provide for resource allocation comparisons over time </li></ul><ul><li>Measure efficiency and effectiveness for continuous improvement </li></ul><ul><li>Be verifiable, understandable, and timely </li></ul>
  17. 17. Performance Measurement <ul><li>Be consistent throughout the strategic plan, budget, and accounting and reporting systems over time </li></ul><ul><li>Be reported internally and externally (Federal grants do and GASB may soon require it) </li></ul><ul><li>Be monitored and used in managerial decision-making processes </li></ul>
  18. 18. Performance Measurement <ul><li>Be limited to a number and degree of complexity that can provide an efficient and meaningful way to assess the effectiveness and efficiency of key programs </li></ul><ul><li>Motivate staff at all levels to contribute toward organizational improvement </li></ul>
  19. 19. <ul><li>Principles </li></ul>
  20. 20. Principle I <ul><li>Establish broad goals to guide government decision-making </li></ul><ul><li>Basis for the development of policies, programs, and service types and levels to be provided </li></ul><ul><li>Developed after an assessment of community conditions and a review of internal operations of the government </li></ul><ul><li>(GFOA) </li></ul>
  21. 21. Principle II <ul><li>Develop approaches to achieve goals </li></ul><ul><li>A government should have specific policies, plans, programs, and management strategies to define how it will achieve its long-term goals </li></ul><ul><li>It is the policies, plans, and programs that define how the government will go about accomplishing these goals </li></ul><ul><li>(GFOA) </li></ul>
  22. 22. Principle III <ul><li>Develop a budget with approaches to achieve goals </li></ul><ul><li>Prepare and adopt a financial plan and budget that moves toward achievement of goals within the constraints of available resources </li></ul><ul><li>Provides for the preparation of a financial plan, capital improvement plan, and budget options </li></ul><ul><li>(GFOA) </li></ul>
  23. 23. Principle IV <ul><li>Evaluate performance and make adjustments </li></ul><ul><li>Program and financial performance should be continually evaluated, and adjustments made, to encourage progress toward achieving goals </li></ul><ul><li>Based on this review, the government may need to make adjustments to the budget, plans, and policies if goals are to be achieved </li></ul><ul><li>(GFOA) </li></ul>
  24. 24. Performance Indicators <ul><li>Input </li></ul><ul><li>Output </li></ul><ul><li>Efficiency </li></ul><ul><li>Service Quality </li></ul><ul><li>Outcome </li></ul><ul><li>Explanatory Data </li></ul>
  25. 25. Performance Indicators should: <ul><li>Be quantifiable and measurable </li></ul><ul><li>Be relevant, understandable, timely, consistent, comparable, and reliable </li></ul><ul><li>Constitute a family of measures </li></ul><ul><li>- input </li></ul><ul><li>- output </li></ul><ul><li>- efficiency </li></ul><ul><li>- service quality </li></ul><ul><li>- outcome </li></ul>
  26. 26. Types of Performance Indicators <ul><li>Input Indicators </li></ul><ul><li>- resources used to produce an output </li></ul><ul><li>- examples </li></ul><ul><ul><ul><ul><ul><li>costs (direct costs plus fringe benefits) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>labor hours </li></ul></ul></ul></ul></ul>
  27. 27. Types of Performance Indicators <ul><li>Output Indicators </li></ul><ul><li>- quantity of units produced </li></ul><ul><li>- typically under managerial control </li></ul><ul><li>- examples </li></ul><ul><ul><ul><ul><li>Miles of pipe visually inspected </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Clients served </li></ul></ul></ul></ul>
  28. 28. Types of Performance Indicators <ul><li>Efficiency Indicators </li></ul><ul><ul><li>- ratio of inputs used per unit of output (or outputs per input) </li></ul></ul><ul><ul><li>- examples </li></ul></ul><ul><ul><ul><ul><li>Cost per unit: cost per ton of refuse collected, cost per prisoner boarded, cost per transaction, etc. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Productivity: hours per consumer complaint, plans reviewed per reviewer, etc. </li></ul></ul></ul></ul>
  29. 29. Efficiency vs. Effectiveness <ul><li>Efficiency is related to cost effectiveness, i.e. lowest costs for a given output level </li></ul><ul><li>Effectiveness is related to if the service level meets the demands of the citizens </li></ul>
  30. 30. Types of Performance Indicators <ul><li>Service Quality Indicators </li></ul><ul><li>- how satisfied customers are </li></ul><ul><li>- how accurately a service is provided </li></ul><ul><li>- how timely a service is provided </li></ul><ul><ul><ul><ul><ul><li>Percentage of respondents satisfied with service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Frequency of repeat repairs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Average wait time </li></ul></ul></ul></ul></ul>
  31. 31. Types of Performance Indicators <ul><li>Outcome Indicators </li></ul><ul><li>- are qualitative consequences associated with a program/service </li></ul><ul><li>- focus on the ultimate “why” of providing the service </li></ul><ul><li>- examples include: </li></ul><ul><ul><ul><ul><li>Reduction in fire deaths/injuries </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Increase in job trainees who hold a job for more than six months </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Decrease in low birth-weight babies </li></ul></ul></ul></ul>
  32. 32. Four-Step Methodology* <ul><li>Step 1: Review and evaluate existing department mission and cost center goals </li></ul><ul><li>Step 2: Identify service areas </li></ul><ul><li>Step 3: Define service area objectives </li></ul><ul><li>Step 4: Identify indicators that measure progress toward objectives </li></ul><ul><li>*(Fairfax County, VA Performance Measurement System) </li></ul>
  33. 33. Step 1 Cost Center Goal Statement <ul><li>States what is to be accomplished (outcome) </li></ul><ul><li>States what is to be provided/produced (output) </li></ul><ul><li>States why cost center exists </li></ul><ul><li>Identifies customers </li></ul><ul><li>Transcends several years </li></ul><ul><li>Begins with “To and a verb” </li></ul>
  34. 34. Cost Center Goal Template & Example <ul><li>To provide/produce ( fill in service or product ) to ( fill in customer ) in order to ( statement what you intend to accomplish ). </li></ul><ul><li>Maternal and Child Health Services </li></ul><ul><li>To provide maternity, infant and child health care and/or case management to at-risk women, infants and children in order to achieve optimum health and well-being </li></ul>
  35. 35. Step 2 Identifying a Service Area <ul><li>Identify your major activities </li></ul><ul><li>Do not identify every activity; only major activities </li></ul><ul><li>- critical to success of agency’s mission </li></ul><ul><li>- consume significant portion of cost center (department) budget </li></ul><ul><li>- politically sensitive or frequently in spotlight </li></ul><ul><li>- significant customer service focus </li></ul><ul><li>Group activities that have common objectives and/or customers </li></ul>
  36. 36. Step 3 Service Area Objectives <ul><li>Support cost center goal </li></ul><ul><li>Reflect planned benefits to customers </li></ul><ul><li>Allow measurement of progress </li></ul><ul><li>Quantify portion of the cost center goal that will be accomplished within the fiscal year </li></ul><ul><li>Describe quantifiable future target (optional) </li></ul>
  37. 37. Step 3 Objective Statement Template & Example <ul><li>To improve/reduce/maintain ( accomplishment ) by ( a number or percentage ), ( from X to Y ) toward a target of ( a number ). </li></ul><ul><li>Maternal and Child Health Services </li></ul><ul><li>To improve the immunization completion rate of children served by the Health Department by 3 percentage points, from 77 percent to 80 percent, toward a target of 90 percent, which is the Healthy people year 2010 goal. </li></ul>
  38. 38. Step 4 Indicator Definitions & Examples <ul><li>Category Definition Example </li></ul><ul><li>Input Resources used to produce Cost (direct costs an output plus fringe benefits) </li></ul><ul><li> Staff hours </li></ul><ul><li>Output Quantity or number of units produced. Res. properties </li></ul><ul><li> Activity-oriented, measurable and assessed within usually managerial control. Clients served </li></ul><ul><li> Calls responded to </li></ul>
  39. 39. Step 4 Indicator Definitions & Examples <ul><li>Category Definition Example </li></ul><ul><li>Efficiency Inputs per unit of output or outputs Cost per appraisal </li></ul><ul><li>per input Appraisal per appraiser </li></ul><ul><li>Service Timeliness, accuracy and/or customer Errors per data entry </li></ul><ul><li>Quality satisfaction of the service provided operator </li></ul><ul><li> Response time </li></ul><ul><li> Percentage of </li></ul><ul><li> customers satisfied </li></ul>
  40. 40. Step 4 Indicator Definitions & Examples <ul><li>Category Definition Example </li></ul><ul><li>Outcome Qualitative consequences Job trainees associated with a program/service. who hold a </li></ul><ul><li> Focuses on the ultimate “why” of job for more </li></ul><ul><li> providing a service than 6 </li></ul><ul><li> months </li></ul><ul><li> </li></ul>
  41. 41. Input Indicators <ul><li>Resources used to produce an output </li></ul><ul><li>Cost (budgeted or actual) </li></ul><ul><li>Staff-year equivalents (SYE) </li></ul><ul><li>Full-time equivalents (FTE) </li></ul><ul><li>Direct labor hours (DLH) </li></ul>
  42. 42. Costs as an Input Indicator <ul><ul><li>Direct costs plus fringe benefits </li></ul></ul><ul><ul><li>Direct costs are those devoted to a particular service and include: </li></ul></ul><ul><ul><ul><li>Personnel services </li></ul></ul></ul><ul><ul><ul><li>Operating expenses </li></ul></ul></ul><ul><ul><ul><li>Recovered costs </li></ul></ul></ul><ul><ul><ul><li>Capital equipment </li></ul></ul></ul>
  43. 43. Output Indicators <ul><li>What was produced/provided </li></ul><ul><li>Usually end in “ed” </li></ul><ul><li>Questions to ask </li></ul><ul><ul><li>What services were delivered? </li></ul></ul><ul><ul><li>What volume was provided? </li></ul></ul><ul><ul><li>How many units of service? </li></ul></ul>
  44. 44. Examples <ul><li>Service Area Indicator </li></ul><ul><li>Fire suppression Incidents responded to </li></ul><ul><li>Human Resources Vacancies filled </li></ul><ul><li>Library New materials circulated </li></ul>
  45. 45. Efficiency Indicators <ul><li>Inputs used per unit of output </li></ul><ul><ul><li>Cost per unit where the input is money/dollars </li></ul></ul><ul><ul><li>Productivity where the input is staff hours </li></ul></ul><ul><li>Examples: </li></ul><ul><ul><li>Cost per senior lunch served </li></ul></ul><ul><ul><li>Cost per client </li></ul></ul><ul><ul><li>Investigations conducted per detective </li></ul></ul><ul><ul><li>Hours per fire inspection </li></ul></ul>
  46. 46. Efficiency Indicators <ul><li>Service Area Indicator </li></ul><ul><li>Fire Suppression Cost per incident </li></ul><ul><li>Senior-based Services Cost per client </li></ul><ul><li>Human Resources Cost per vacancy filled </li></ul><ul><li>Custodial Services Cost per square foot cleaned </li></ul>
  47. 47. Service Quality Indicators <ul><li>Measures customer satisfaction, timeliness, and/or accuracy of a service </li></ul><ul><li>Examples: </li></ul><ul><ul><ul><li>Customer surveys </li></ul></ul></ul><ul><ul><ul><li>Response logs </li></ul></ul></ul><ul><ul><ul><li>Error rates </li></ul></ul></ul>
  48. 48. Service Quality Indicators <ul><li>Service Area Indicator </li></ul><ul><li>Fire Suppression Average suppression response time </li></ul><ul><li>Senior-based Services Percent of clients satisfied with services provided </li></ul><ul><li>Human Resources Satisfaction rate with vacancy processing </li></ul><ul><li>Custodial Services Percent of customers satisfied with custodial services </li></ul>
  49. 49. Outcome Indicators <ul><li>Describe the benefit of the service to the customer </li></ul><ul><li>Describe what was changed or accomplished as a result of the service </li></ul><ul><li>Questions to ask: </li></ul><ul><ul><ul><li>How has the customer benefited? </li></ul></ul></ul><ul><ul><ul><li>Why is the customer better off? </li></ul></ul></ul><ul><ul><ul><li>What is the impact of the service? </li></ul></ul></ul>
  50. 50. Outcome Indicators <ul><li>Service Area Indicator </li></ul><ul><li>Fire Suppression Fire deaths per 10,000 population </li></ul><ul><li>Fire injuries per 10,000 population </li></ul><ul><li>Senior-based Services Percent of clients who remain in the community after one year of service or information. </li></ul><ul><li>Human Resources Average recruitment time </li></ul><ul><li>Custodial Services Percentile comparisons of cost per square foot to IFMA standards </li></ul>
  51. 51. The Logic Model <ul><li>“ Begin with the end in mind” </li></ul><ul><li>Start by asking: </li></ul><ul><ul><ul><li>What results are we seeking? </li></ul></ul></ul><ul><ul><ul><li>What are we hoping to accomplish? </li></ul></ul></ul><ul><ul><ul><li>How will we accomplish it? </li></ul></ul></ul>
  52. 52. What is the Logic Model? <ul><li>A picture of a program </li></ul><ul><li>A way to show the relationship between what we put in (inputs), what we do (outputs) and what results occur (outcomes) </li></ul><ul><li>Sequence of if/then relationships </li></ul><ul><li>Core of program planning and evaluation </li></ul>
  53. 53. Logic Model <ul><li>Inputs Outputs Outcomes </li></ul><ul><li>What we What we do Short-Term Medium-Term Long-Term </li></ul><ul><li>invest </li></ul><ul><li>Staff Workshops Awareness Behavior Conditions </li></ul><ul><li>Dollars Outreach Knowledge Decisions Environment </li></ul><ul><li>Volunteers Inspections Attitudes Policies Social </li></ul><ul><li>Materials Skills Economic </li></ul><ul><li>Equipment Civic </li></ul><ul><li>Technology </li></ul>
  54. 54. Logic Model – Fire Suppression <ul><li>Inputs Outputs Outcomes </li></ul><ul><li>What we What we do Short-Term Medium-Term Long-Term </li></ul><ul><li>invest </li></ul><ul><li>Staff Training Inspections Response Protection </li></ul><ul><li>Dollars Inspections Suppression time of lives & </li></ul><ul><li>Volunteers Emergency responses Fire property </li></ul><ul><li>Materials response Public containment (fire deaths </li></ul><ul><li>Technology education Prevalence injuries, </li></ul><ul><li> of smoke detectors </li></ul><ul><li> </li></ul>
  55. 55. Example Service Area Objective <ul><li>Teen Pregnancy Prevention </li></ul><ul><li>Acceptable Unacceptable </li></ul><ul><li>Reduce the teen pregnancy rate by 2 Increase the number of pregnancies per 1,000 population localities with comprehensive from 42 to 40 in localities with teen services from 20 to 27 </li></ul><ul><li>comprehensive teen services </li></ul>
  56. 56. Performance Management Model <ul><li>Goals General Goals of program: </li></ul><ul><ul><ul><ul><ul><li>Provide quality services to all customers </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Maintain or improve performance </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Provide economical services </li></ul></ul></ul></ul></ul><ul><li>Inputs Resources: </li></ul><ul><ul><ul><ul><ul><li>Money </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Facilities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Equipment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Supplies </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Contracted services </li></ul></ul></ul></ul></ul>
  57. 57. Performance Management Model (cont.) <ul><li>Activities Work processes: </li></ul><ul><ul><ul><ul><ul><li>Salting roads </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Making arrests </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Processing bills </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Performing inspections </li></ul></ul></ul></ul></ul><ul><li>Outputs Goods & Services produced: </li></ul><ul><ul><ul><ul><ul><li>Statistical measurements </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Miles of roads repaired </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Tons hauled or recycled </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Positions filled </li></ul></ul></ul></ul></ul>
  58. 58. Performance Management Model (cont.) <ul><li>Outcomes Results and Impacts </li></ul><ul><ul><ul><ul><ul><li>100% of customers will report being satisfied </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>95% will be error free </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>90% of services will be within +/- 2% of comparable service within the private sector </li></ul></ul></ul></ul></ul><ul><li>Performance Measurement </li></ul><ul><ul><ul><ul><ul><li>Administration of customer satisfaction surveys </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Tracking number of jobs, error rates, average per job </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Cost comparison to private sector services </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Quarterly and annual reports summarizing services provided, ouputs ad outcome achievement </li></ul></ul></ul></ul></ul>
  59. 59. Remember <ul><li>Quantify objectives </li></ul><ul><li>Associate objectives with an outcome </li></ul><ul><li>Word outcomes the same as objectives </li></ul><ul><li>Provide a complete Family of Measures </li></ul><ul><li>Avoid confusing indicators (e.g. efficiency and service quality) </li></ul><ul><li>Reference the correct baseline to target year for objective </li></ul><ul><li>Define service areas by program objective/customers rather than process function </li></ul>
  60. 60. Part III <ul><li>Benchmarking </li></ul>
  61. 61. Definition <ul><li>“ Formal benchmarking is the continuous, systematic process of measuring and assessing products, services and practices of recognized leaders in the field to determine the extent to which they might be adapted to achieve superior performance.” </li></ul><ul><li>Benchmarking & Best Practices, Treasury Board of Canada </li></ul>
  62. 62. Another Definition <ul><li>“ Benchmarking is the practice of being humble enough to admit that someone else is better at something and wise enough to try and learn how to match and even surpass them at it.” </li></ul>
  63. 63. Types of Benchmarking <ul><li>Internal – commonly one year compared to a previous year’s performance </li></ul><ul><li>External – your performance compared to another similar organization </li></ul><ul><li>Operational – your recent annual or periodic performance </li></ul><ul><li>Strategic – long term performance </li></ul>
  64. 64. Internal Operational <ul><li>Probably the most common measure at the local government level </li></ul><ul><li>Measures current performance versus an established benchmark from prior performance </li></ul><ul><li>Example: Police Dept. criminal cases closed this year versus the average over the past ten years </li></ul>
  65. 65. External Operational <ul><li>Measurements against other organization’s performance </li></ul><ul><li>Example: </li></ul><ul><ul><li>Total Structure Fires Incidents Per 10,000 Population </li></ul></ul>
  66. 66. POLICE Violent Crimes Reported Per 1,000 Population
  67. 67. Benchmarks <ul><li>Internal Benchmarks </li></ul><ul><li>- Overall spending </li></ul><ul><li>- Growth in tax base </li></ul><ul><li>- Growth in income </li></ul><ul><li>- New home starts </li></ul><ul><li>- Miles within service area </li></ul><ul><li>External Benchmarks </li></ul><ul><li>- Private sector wages </li></ul><ul><li>- Neighboring cities </li></ul><ul><li>- Similar sized counties </li></ul><ul><li>- Statewide groupings </li></ul><ul><li>- Statewide averages </li></ul>
  68. 68. Benchmark Standards <ul><li>Program dollars spent per capita </li></ul><ul><li>Spending per $1,000 property assessment </li></ul><ul><li>Percentage growth over time </li></ul><ul><li>Adjustments for inflation </li></ul><ul><li>Other specific service standards </li></ul>
  69. 69. Setting Targets <ul><li>Benchmarking </li></ul><ul><li>National standards </li></ul><ul><li>Mandates </li></ul><ul><li>Board direction </li></ul><ul><li>Past Performance </li></ul><ul><li>Internal goals </li></ul><ul><li>Citizen demands </li></ul>
  70. 70. Part IV <ul><li>Performance Based Budgeting (PBB) </li></ul>
  71. 71. Performance Based Budgeting (PBB ) <ul><li>Performance-based budgeting relies on: </li></ul><ul><li>Strategic planning </li></ul><ul><li>Operational planning </li></ul><ul><li>Performance accountability </li></ul><ul><li>A realistic performance measurement system </li></ul><ul><li>to build budgets. </li></ul>
  72. 72. <ul><li>Performance-based Budgeting (PBB) </li></ul><ul><ul><li>Performance-based budgets focus on “return on investment” —that is, what do we get for our investment of resources? </li></ul></ul><ul><ul><ul><li>Basic service level (or continuation of basic services)? </li></ul></ul></ul><ul><ul><ul><li>Increased services (more services to same recipients or expansion of same services to more recipients)? </li></ul></ul></ul><ul><ul><ul><li>Better (higher quality) services? </li></ul></ul></ul><ul><ul><ul><li>More efficient services (cost savings in service delivery)? </li></ul></ul></ul><ul><ul><ul><li>Mitigation or resolution of a problem? </li></ul></ul></ul>
  73. 73. Performance-based Budgeting (PBB) <ul><ul><li>“ PBB is budgeting for results - with an eye on the price tag” </li></ul></ul><ul><ul><li>PBB emphasizes program effectiveness and bases decision making (whether for continuation or enhancement of a program) on outcomes. </li></ul></ul><ul><ul><li>However, the costs of achieving those outcomes must be scrutinized to ensure efficient service delivery and maximize allocation of scarce resources. </li></ul></ul>
  74. 74. Goal Setting <ul><li>A SMART goal is defined as such: </li></ul><ul><li>S pecific – Is the goal clear and to the point? </li></ul><ul><li>M easurable – Can you tell if it is accomplished? </li></ul><ul><li>A ttainable – Is it a realistic goal? </li></ul><ul><li>R elevant – Is it a priority of the organization? </li></ul><ul><li>T rackable – Results are compared over time? </li></ul>
  75. 75. SMART Examples <ul><li>Yes : To respond to all fire calls within the city within 7 minutes of dispatch </li></ul><ul><li>No : To protect all property within the city to a high level of safety </li></ul><ul><li>Yes : To process all building permit requests within 48 hours of application </li></ul><ul><li>No : To process all building permit requests in the shortest time possible </li></ul>
  76. 76. Rudimentary PBB <ul><li>A rudimentary form of PBB to be implemented until a formal system can be produced could include the following in each department’s budget request: </li></ul><ul><ul><li>An explanation of the department’s overall goals </li></ul></ul><ul><ul><li>An explanation of what the department has accomplished in the past year </li></ul></ul><ul><ul><li>An explanation of what the department intends to accomplish in the coming year </li></ul></ul><ul><ul><li>An explanation as to what is different from last year in the proposed budget and why </li></ul></ul><ul><ul><li>A GASB compliant budget showing past year budget expenditures </li></ul></ul>
  77. 77. Performance-based Budgeting (PBB) <ul><li>Program Structure </li></ul><ul><li>Strategic plans, operational plans, and performance based budgets are geared to program structures </li></ul><ul><li>Funds are appropriated to departments/programs </li></ul><ul><li>A program is a grouping of activities directed toward the accomplishment of a clearly defined objective or set of objectives </li></ul><ul><li>Program structure is an orderly, logical array of programs and activities that indicates the relationship between each </li></ul>
  78. 78. TOP TEN REASONS WHY PERFORMANCE-BASED BUDGETING WON’T WORK IN MY DEPARTMENT <ul><li>It doesn’t matter what we do because we have federal/state funding. </li></ul><ul><li>9. We just reorganized and we don’t know what we’re doing yet. </li></ul><ul><li>8. Everything is just fine as it is; we’ve always done it this way. </li></ul><ul><li>7. We’re too busy getting REAL work done to bother with this. </li></ul><ul><li>6. We need more staff, more money, more time, more ( fill in the blank ) to do this. </li></ul><ul><li>5. We can’t target outcomes; they’re too specific. </li></ul><ul><li>4. We can’t measure what we do. </li></ul><ul><li>3. You’ll misinterpret any information we give you. </li></ul><ul><li>2. We can’t be accountable because we have no control over anything . </li></ul><ul><li>1. We’re different. This shouldn’t apply to us. We need an exemption. </li></ul>
  79. 79. <ul><li>OFTEN FOLLOWED BY: </li></ul><ul><li>All right, just give me a form and tell me what you want me to say. </li></ul>If I give them something , then they’ll go away. (Maybe this whole thing will just go away.) NOTE: This genie won’t go back into the lamp.
  80. 80. INSTITUTIONALIZING PERFORMANCE MEASUREMENT: <ul><li>Make performance an integral part of your management processes. </li></ul><ul><ul><li>Use metrics to understand and measure how a process works and the results it generates. </li></ul></ul><ul><ul><li>Develop an internal performance accountability process. </li></ul></ul><ul><ul><li>Integrate performance into policy and budget decision making and everyday program management. </li></ul></ul>
  81. 81. <ul><ul><ul><ul><li>POINTER: When you break down a policy, program, or process into its component parts, you use &quot;systems logic&quot; to develop a model of how it should work </li></ul></ul></ul></ul><ul><ul><li>INPUT OUTPUT & OUTCOME </li></ul></ul>PROCESS EFFICIENCY QUALITY Managers should use metrics to gauge and assess program and processes, diagnose problems, and formulate solutions. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  82. 82. Example average fire loss percent Average response time cost per response incidents responded to 0.027% fire loss 7.3 minutes $3,234 77 $249,000 To maintain fire loss at 0.02% or less of Total Property Valuation Fire Suppression Outcome   Service Quality Efficiency Output Input   Objective   Service Area
  83. 83. Example 2 Contract cost growth (%) Percent of projects completed on time Engineering design costs as a percent of total project cost Projects completed Budget/actual costs Staff Maintain construction cost growth to no more than 5 percent Capital Facilities 7% 75% 4.7% 4 $1,374,500 5% Street Reconstruction Outcome Service Quality Efficiency Output Input Objective Service Area
  84. 84. Metrics (performance indicators) measure process and product. Inputs Outputs & Outcomes Process Efficiency: Outputs Inputs Outputs or Outcomes Cost Outputs or Outcomes Time Quality: Effectiveness in meeting the expectations of customers, other stakeholders; and expectation groups . (Products) (Services) (Results) (Expenditures compared to productivity; caseload per staff member.) (Cost per item produced, service provided, or client served; cost per result achieved.) (Production or turnaround time; timeliness of results.) (Demand) (Need) (Size of Problem) (Resources) INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  85. 85. <ul><li>The volume of performance information that must be managed can be staggering. </li></ul>Watch out for the “shotgun” or “kitchen sink” approach--reporting just about every type of measurement or statistic that is already gathered or can be counted easily. This leads to a heavy emphasis on transactional data--inputs and outputs--rather than results. INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  86. 86. <ul><li>Concentrate on the development of balanced sets of performance indicators in order to provide a clear picture of performance without overwhelming users with needless detail </li></ul><ul><ul><li>Five types of performance indicators: </li></ul></ul><ul><ul><ul><ul><ul><li>Input </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Output </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Outcome </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Efficiency </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Quality </li></ul></ul></ul></ul></ul><ul><ul><li>A balanced set may include more than one of any indicator indicator type and none at all of some but must have at least one measure of outcome, efficiency, or quality </li></ul></ul>INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  87. 87. <ul><li>Present performance information at different levels in order to surface key data while maintaining the availability of support and explanatory material. </li></ul><ul><ul><ul><li>Key Performance Indicators </li></ul></ul></ul><ul><ul><ul><li>Supporting Performance Indicators </li></ul></ul></ul><ul><ul><ul><li>General Performance Information </li></ul></ul></ul><ul><ul><ul><li>Explanatory Notes </li></ul></ul></ul><ul><li>Get consensus among data users on indicator types and levels before indicators are reported. </li></ul>INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  88. 88. <ul><li>A key performance indicator is a performance indicator that is included in the Budget Supporting Documents </li></ul><ul><li>Factors in determining key level include: </li></ul><ul><ul><li>Most direct measure of outcome? </li></ul></ul><ul><ul><li>Critical success factor? </li></ul></ul><ul><ul><li>Big ticket item? </li></ul></ul><ul><ul><li>Hot button item? </li></ul></ul><ul><ul><li>History and who values? </li></ul></ul>INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  89. 89. <ul><li>General performance information (GPI) may be included in the budget. However, values for general performance indicators are reported for prior year actual only. </li></ul><ul><li>GPI may include: </li></ul><ul><ul><li>Multi-year histories or trends </li></ul></ul><ul><ul><li>External comparisons (national or regional) </li></ul></ul>INSTITUTIONALIZING PERFORMANCE MEASUREMENT:
  90. 90. MANAGING ACCURACY: <ul><li> </li></ul><ul><li>Beware of: </li></ul><ul><ul><li>High balls and low balls (unrealistically high or low performance targets) </li></ul></ul><ul><ul><li>Instant replays (reporting the same performance level over and over, regardless of circumstances) </li></ul></ul><ul><ul><li>Greased pigs (indicators for which name, definition, or method of calculation change so often that you can’t get a handle on them) </li></ul></ul>
  91. 91. Beware of: (cont.) <ul><ul><li>Orphans (indicators for which no one claims responsibility) </li></ul></ul><ul><ul><li>Statistical illiteracy (calculations that don‘t add up) </li></ul></ul><ul><ul><li>Limp excuses (meaningless explanations of performance variances) </li></ul></ul>
  92. 92. <ul><li>Get the right start by developing meaningful, valid, accurate, and reliable performance indicators </li></ul><ul><ul><li>Provide documentation for each performance indicator identified in the strategic plan. </li></ul></ul><ul><ul><li>Strategic planning guidelines include performance indicators </li></ul></ul>MANAGING ACCURACY:
  93. 93. <ul><li>Establish the link between resources and results early and maintain that link through budget development, appropriation, and budget control processes. </li></ul>INTEGRATING PERFORMANCE INTO BUDGET DECISION MAKING: <ul><li>Set performance standards linked to appropriation levels </li></ul><ul><li>Performance standards are the expected levels of performance associated with a performance indicator for a particular period and funding level. They link dollars and results </li></ul><ul><li>Performance standards are one way to demonstrate RETURN ON INVESTMENT- -what we can expect to receive for our money (easier to explain to stakeholders) </li></ul>
  94. 94. Integrating Performance into budget decision-making <ul><li>Establish the link between resources and results early and maintain that link through budget development, appropriation, and budget control processes. </li></ul><ul><ul><li>During budget development, performance indicator values associated with the funding level recommended in budget discussions are proposed performance standards </li></ul></ul><ul><ul><li>During the budget process, performance indicator values become performance standards linked to the funding amounts actually appropriated in the budget </li></ul></ul><ul><ul><li>Performance standards may be modified only through approved processes </li></ul></ul><ul><ul><li>Performance standards are monitored and tracked </li></ul></ul>
  95. 95. References <ul><li>“ Performance Based Budgeting – Putting The Pieces Together,” Carolyn S. Lane, Deputy Director, Office of Planning and Budget, Division of Administration, State of Louisiana, September 2006 </li></ul><ul><li>“ Performance Management: Using Performance Measurement for Decision Making” Recommended Practice (2002 & 2007) Government Finance Officers Association (GFOA) </li></ul><ul><li>“ Fairfax County’s Performance Measurement System” Performance Measurement Team, Dept. of Management & Budget, Fairfax County, Virginia, June 2006 </li></ul><ul><li>“ Performance Management Handbook” Eau Claire County, WI, January 2007 </li></ul><ul><li>“ Moving From Line Item to Performance Based Budgeting: Craig Maher, UW Oshkosh </li></ul>