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

2.2 On performance budgeting 
Output budgeting is part of a broader movement commonly referred to as Programme Budgeting or 
Planning-Programming-Budgeting Systems. Performance budgeting has long been advocated by 
the UN for third world countries to link budgets with development goals. In 1958, the United 
Nations published A Manual for Economic and Functional Classification of Government 
Transactions (United Nations, 1958) which, according to Thimmaiah (1984) recognised that fiscal 

---

7
policy was designed to achieve multiple objectives. Thus different functional elements were 
analysed with a view to designing a ‘policy mix’ to achieve those multiple objectives.
In 1965, the United Nations issued a further publication, A Manual for Programme and 
Performance Budgeting which advocated performance budgeting “consisting of interrelated
elements of programme structures, a system of accounts and financial management in line with the 
classification and measurement of efficiency” (Premchand, 1983, pp 344-5). 
Performance budgeting was defined by the United Nations in 1965 as presenting “the purposes and 
objectives for which funds are requested, the costs of the programs proposed for achieving those 
objectives and quantitative data measuring the accomplishment and work performed under each 
programme.” (United Nations, 1965). Dean with Pugh define performance budgeting as
•
“Programming, or the subdivision of the government budget for information purposes into 
programmes and activities representing identifiable units with similar aims and/or operations 
•
Identifying the operational aims of each programme and activity for the budget year 
•
Budgeting and accounting so that the separate costs and revenues of each programme are shown 
•
Measuring the outputs and performance of activities so that these can be related to their cost, and 
to operational aims 
•
Using the resultant data to establish standards and norms so that costs and performance can be 
evaluated and government resources used more efficiently” (Dean with Pugh, 1989, p 4). 
Performance budgeting is the first three of these steps: 
In evaluating the impact of performance budgeting in the United States, Dean with Pugh distinguish 
between two groups of writers: a priori theorists who were largely in favour of the adoption and 
extension of performance budgeting and the relatively few empiricists who have tried to evaluate 
the system in practice. Taking the works of the latter, published around 1960, they report mixed 
findings but several points of agreement. In particular they identify performance measurement 
problems. These revolve around the validity and accuracy of performance data, often with data 
focusing on the quantity of work performed. Findings about information overload were echoed by 
Schick’s 1971 obituary to the system, reporting that performance data was excessive. 
Implementation in the US led to the dissemination by the United Nations in 1965 of a methodology 
that was “overwhelmingly a product of US influence” (Dean with Pugh, 1989). This had some 
added experience from the Philippines but took no account of the experience of sixteen developing 
countries that had been reported to UN workshops. The UN set a number of preconditions for 
implementation in developing countries: 
•
Sound budgetary operation; 
•
Financial discipline; 
•
Sound system of budget formulation and execution; 
•
Efficient method of recording and reporting financial and physical data; 
•
Close co-ordination between the central budget agency and other government agencies. 
Dean with Pugh point out that there is no reported case of a country performing so badly on these 
criteria that the introduction of performance budgeting was postponed. Thus the manual was long 
on assertion, and the superiority of US practice, and short on evidence of performance budgeting as 
a working system. US academics Caiden and Wildavsky concluded that “[i]t is frustrating to watch 
experts from the Philippines and America recommend practices to Ceylon and Nepal that have 
never been successfully carried out in the own countries” (cited in Dean with Pugh, 1989, p 15). 

---

8
Thimmaiah reported on implementation problems, finding that the India statistical bureau, whilst 
overstaffed, lacked trained staff with the necessary experience and skills to undertake the 
classification and develop performance indicators. This, combined with further factors including 
bureaucratic resistance, corrupt public servants motivated by private gain and legislative 
indifference, “contributed to the perpetuation of such fruitless exercises” (Thimmaiah, 1984, p 49).
The result was that performance budgets were “prepared in the spirit of routine documentation 
rather than administrative pioneering” (Toye cited in Thimmaiah, 1984, p 50). Documents were 
descriptive, lacking in analysis of progress or performance and this was compounded by many of 
the outputs being intermediate goods rather than outcomes. Thimmaiah concludes that India was 
the victim of having such a traditional budget that was “very difficult to change” (1984, p 55). 
Dean with Pugh report the implementation of a system which was not ‘tried, tested and proven’ in 
US before it was exported to developing countries which had major skills and resource deficits. In 
such contexts, the country’s priorities need to be set. For example, if basic data gathering systems 
are not in place, these need to be seen to prior to the implementation of more sophisticated systems.
They argue that the minimum period for judging success is at least ten years, to enable an 
assessment of whether a bedded-in system can provide information which is reliable, objective and 
timely enough to enable users to make decisions. They conclude that these conditions were not 
permitted, though performance budgeting in some cases has led to useful initiatives. It enabled the 
link between budgeting and auditing to be reinforced with a performance approach to audit. Also, it 
permitted a change in management attitudes to financial management, better performance 
measurement and a more informed budget dialogue.