Results-oriented Budget Practice in oecd countries odi working Papers 209

Chapter 6: Budgeting and Performance 
This chapter examines the performance measurement aspects of results oriented budgeting.
Building on the earlier section on PPBS, it begins by looking at the move from traditional line item 
budgeting to performance budgeting. Whilst many public service organisations have developed 
sophisticated performance measurement systems, the link between financial resources and results is, 
of course, not uniformly made. It also considers the flexibility that budget holder have to make 
adjustments. The Glossary of Selected Terms (see Annex 1) cites key terms as defined by OECD 
member states. An examination of these terms shows that the methodologies used by these states 
are fundamentally more alike than they are different. 
6.1 From line item budgets to performance budgets 
McGill (2001) offers one of the few assessments of the process of transformation from traditional 
budgeting to performance budgeting, as opposed a snapshot description of current practice in a 
given country. In the earlier section on PPBS, four of his principles that need to be satisfied for a 
successful transformation to performance budgeting were set out. These principles, arising from an 
analysis of the US experience, demanded that there should be: 
•
output-based budgeting; 
•
a strategic context to condition the resource allocation process; 
•
public annual reporting in terms of outcomes and outputs; and 
•
resource allocation should be tested against future plans, tempered by recent performance. 
Based on his analysis of the application of performance budgeting in other developed countries, 
McGill offers four further principles: 
•
“Performance budgeting includes both a strategic framework (however defined) and the 
mechanics of resource allocation in relation to performance. PB is therefore conceptually 
redundant without a strategic context to condition the process.
•
The strategic context for PB is being satisfied increasingly through public annual reporting; 
embracing both a declaration of the strategic intention and the outcome of performance. Here 
performance is considered in terms of outcomes (wider societal impact) and outputs 
(organisationally specific). The ideal for PB is to trace the causal connection between outputs 
and impact.
•
PB assumes that future budget allocations will be influenced by performance-informed decisions 
(which presupposes a targeted strategic framework from which to make such decisions). More 
rigorously, performance based allocations will be dependent on specific performance tests. In 
either case, it is suggested that the real test is of resource allocation against future intention 
(plan); the intention being conditioned by recent performance. 
•
PB requires four basic performance tests to exist; inputs, outputs, efficiency tests and impact 
assessment. The eternal challenge seems to be at what level a programme (the basic unit of 
performance analysis) exists. Is it organisationally situated (an agency)? Is it defined in the 
context of the plan, (after which it is apportioned to those parts of the agency contributing to the 
programme)?” (McGill, 2001, pp 380-81). 

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He proceeds to analyse the experience of Tanzania and Andhra Pradesh in implementing 
performance budgeting, set against his eight principles, and concludes that there are four basic 
technical preconditions for performance budgeting: 
•
“there could be a three-year strategic framework leading to annual targets (ideally, in a publicly 
available annual report format); 
•
input analysis for each target is the foundation for budgeting; 
•
a structured coding system reinforces both the sequenced ranking of and the tracing of 
expenditure, to targets; and 
•
performance is reviewed for progress (mid year), output performance (annually) and impact 
assessment (every third year), resulting in a new strategic framework” (McGill, 2001, p 388-89).