BEYOND BUDGETING

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BEYOND BUDGETING Allen Schick
ANU / VC Research Seminar15th November 2005
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Getting the Budget Right

• Budgeting can be assessed by considering a
  fundamental question for each of its key
  objectives.
• Fiscal discipline
• Are total revenue, spending, the surplus or
  deficit, and the public debt appropriate in the
  light of current and prospective economic
  conditions, the governments taxing capacity, and
  demands for public services?
• Effective allocation
• Are the governments spending priorities
  appropriate in terms of developing society,
  financing public objectives, and carrying out the
  programs authorized in law?
• Efficient operations
• Are government entities spending money and
  managing operations in ways that provide
  high-quality, accessible public services that
  give value for money?
• Democratic accountability
• Do citizens and groups have fair opportunity to
  express budget demands and to monitor the
  expenditure of public funds?

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Each Objective is Associated with Contemporary
Budget Reforms

• Fiscal discipline
• Fiscal rules that constrain government or require
  transparent policies.
• Medium-term expenditure frameworks (MTEF) that
  allocate resources within a 3-5 year horizon.
• Fiscal sustainability reports that examine
  long-term trends and commitments.
• Effective allocation
• Outcome indicators that measure the impacts of
  policies and programs.
• Program evaluations that assess the effectiveness
  of existing or proposed programs.
• Strategic budgeting initiatives that plan
  government objectives and allocate resources.
• Efficient operations
• Output indicators that measure the goods and
  services of government.
• Devolved budgeting that gives managers broad
  operating discretion.
• Performance-based budgeting that links resources
  and results.
• Democratic accountability
• Transparent budgets that facilitate citizen
  understanding and participation.
• Class (or gender) based budgets that show the
  distribution of government resources
• Public opinion polls that show citizen budget
  preference.

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Australias Managerial Model

• Relies on skills, public ethic and commitment of
  public employees to improve performance.
• Retains traditional, government-wide Australian
  public service.
• Consolidated existing departments in a small
  number of portfolios.
• Running cost arrangements give managers
  discretion in using operating funds.
• Program budgeting and outcomes indicators orient
  managers to results.
• Forward estimates lengthen time frame of
  budgeting.
• Cabinet expenditure review committee focuses on
  policy changes.
• Accrual basis allocates costs to activities.
• Evaluation strategy aimed to provide objective
  basis for policy initiatives.
• Ministers/managers encouraged to reallocate
  within their spheres of responsibility.

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New Zealands Contractual Model

• The parties to the contract have an arms length
  relationship
• Policy advice separated from service provision
• Ministers free to purchase from any supplier
• Funds appropriated to minister (not department)
• Providers free to produce outputs as they deem
  appropriate
• Chief executives have discretion in managing
  operations and using inputs
• Contracts specify outputs to be produced
• Budgets are by output class ministers and chief
  executive negotiate output agreements
• Contracts based on cost of outputs
• Managers are charged the full cost of operations
  (accrual basis), including depreciation and use
  of capital
• Performance under contract is reviewed
• Actual outputs and costs are compared to targets

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Two Critical Deficiencies

• Budgeting is still incremental, not strategic.
• Every budget reform has been a battle against
  incrementalism.
• Budgeting still weakly ties resources to results.
• The budget has lots of information on
  performance, but this is not the basis for
  allocation.

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Beyond Budgeting

• Originated in Britain.
• Applied in a small number of firms.
• Not used in public sector because of legal
  requirements.
• Argues
• Budgeting constrains adaptation to changing
  conditions.
• Budgeting consumes vast managerial resources, but
  results in marginal change.
• Budgeting takes on an importance of its own,
  often at variance with organisational objectives.

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Budgeting Without Budgets

• Maintaining Financial Control.
• Establishing Strategic Priorities.
• Selective Reallocation.
• Managing for Performance.