“Next generation” performance budgeting requires mindset change

21 Nov 16

Performance budgeting can be a useful tool if employed well, researchers have found, although doing this is complex, time consuming and may require a change of mindset.



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The concept of linking results to resource allocation is understandably attractive to treasuries around the world. But in practice it has proven highly challenging and rarely successful, even in some of the world’s most advanced economies.

While countries like the UK ended up dropping the idea, in others, such as the Netherlands, it continues to be a work in progress. In a book launched earlier this week, researchers attempt to identify some key principles and practices for successful performance budgeting based on case studies of its implementers.

Speaking at the launch of Toward Next-Generation Performance Budgeting at the UK’s Overseas Development Institute, Donald Moynihan, co-author, outlined the “next generation” approach to performance budgeting the book advocates. Moynihan is a director and professor at the La Follete School of Public Affairs, University of Wisconsin-Madison.

“When we say ‘next generation’, we have two meanings in mind,” he explained. “One is that we’re trying to offer a new perspective on performance budgeting that is different from the past.

“But also that improvement comes from lesson learning over time, from one generation to the next, rather than grabbing an off-the-shelf model from another country that appears to be successful, but might not actually be doing quite as well as it looks.”

Moynihan outlined some key lessons from “star performers” in performance budgeting, including to look for ways to infuse performance data in other processes outside of the budget.

He and his fellow panellists, lead author Ivor Beazley, lead public sector specialist at the World Bank, and Maarten de Jong, a budget specialist at the Netherland’s ministry of finance, which has implemented performance budgeting, also highlighted some typical mistakes made.

These range from performance indicators becoming too excessive, which can increase transaction costs and result in a loss of efficiency, to confusion over what performance budgeting was meant to be for.

The authors recommended only using metrics that are important and that have high impact –  typically these have been related to public services – and warned against attempts from line ministries to ‘game’ the system.

Performance budgeting systems shouldn’t be too large or too complex, and should be equal to available capacity. Countries, especially in the developing world, need to ensure readiness, it said.

“Much of what is in the book is not technical advice,” continued Moynihan. “It’s primarily about trying to change perspectives about what the goal is for performance budgeting.

He described a common pattern seen in the researchers’ work, where a country would abandon a failing performance budgeting system only for a new team to take it up again a few years later with very little change or learning over time.

“Our argument is that this is really more about not doing things in three or four years and expecting short-term wins. This is about changing the long-term cultural beliefs of public employees to be more based around performance,” he said.

“That’s probably a 20-30 year war, rather than something that is going to be achieved within 18 months.”

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