An introduction to Programme Budgeting in UK

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An introduction to Programme Budgeting in UK

• Grayson Clarke
• Bannock Consulting

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Seminar Aim Content

• Aim Common understanding of role of strategic
  planning and programme budgeting
• Review linkages between programme budgeting, the
  annual financial cycle and performance management
  

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1. Strategic Planning and its links to
Performance

• Why the need for Strategic Planning
• The links between organisation and sector plans,
  and medium and long term plans
• Terminology
• Overview of UK practice

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Why Strategic Plans?

• Set Government priorities
• Medium term (3-5 years)
• Raise economic welfare towards national goals
• Cut across organizational boundaries
• Clarify departmental and individual
  accountability linking directly to budget
  requirements
• Basis for measurement of continuous improvement
  in standards
• Basis for Annual Operational Plans

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What happens without planning

• Developing priorities not identified
• Issues not on political radar missed
• Unstable Year on Year Budgets
• Projects discontinued or not finished
• Poor operational planning
• Concentration on Funding now at expense of future

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Links to Long Term Plans

• Long term plans set out major development
  objectives / needs for sectors not deliverable
  in medium term horizon (eg in UK NHS 10 yr plan)
• Important in agreeing common political vision and
  long-term objectives
• Financing Projections indicative
• Medium term plans pick up and make concrete
  requirements of long-term plans

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Strategic Plans

• Plan Aims (outcomes / impact) Objectives
  (outputs) Activities / Programme inputs
  framework (with indicators and targets)
• Link to Budgets
• Plan expenditure particularly capital projects
  better
• Need to monitor performance by including
  indicators and targets

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Performance Terminology Key Words

• Input
• Output
• Outcome
• Economy
• Efficiency
• Effectiveness

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Planning Terminology Key Words

• Mission Statement
• Objectives
• Strategic
• Tactical
• Indicator
• Target
• Key Results Areas

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Strategic Planning

• Review organizations mandate
• Formulate Results Areas Objectives
• Identify Problems Policy Priorities
• Determine Resources Required
• Agree Review Performance Indicators

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Hierarchy of Objectives (and UK Equivalent)

• Mission Statement (Public Service Agreement
  PSA)
• Strategic Objectives What / Outcome (PSA)
• Key Results Areas How / Output (Service
  Delivery Agreements SDA)

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Financial Outputs of Planning Process

• Periodic Detailed Spending Reviews (contained in
  Analysis of Resources paper in UK)
• Ministry Budget Limits for Medium Term period
  (Departmental Expenditure Limits)
• Capital Investment Programme (Departmental
  Investment Strategy)

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2. Introducing Programme Budgeting

• The meaning of Programme Budgeting
• The relationship to MTEF Performance Management
• How to go about introducing a Programme Budgeting
  System

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What is Programme Budgeting ?

• History
• Originated in 1960s as PPBS
• Focussed on developing cross organisational
  holistic programmes
• Designed around outcomes and related activities
  rather than individual service delivery units
  (cost centre approach)
• Struggled to make impact against traditional
  boundaries and developing DEVOLVED budget-holder
  concept

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Why is Programme Budgeting back in vogue ?

• Revival in 1990s
• Much more closely linked to emerging performance
  management agenda and less to detailed
  cost-benefit study
• Understanding that difficult social agendas
  needed long-term multi-agency approach
• Importance of re-prioritising resources within
  strategic planning framework

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Getting Programme Budgeting Right - Issues

• Developing multi-agency co-operation, with lead
  agencies
• Agreeing the pooling of resources
• Identifying financial implications for other
  ministries/agencies
• Defining the programme boundaries
• Allowing for interaction between national
  priorities and local choice/ implementation

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MTEF Programme Budgeting

• MTEF provides overall financial summary for
  medium term of government policies and priorities
• MTEF priorities need to show clear association
  between government spend (including external
  finance) policy outcomes
• Strong External Pressure on Governments to adopt
  MTEF IMF/World Bank /EU

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Programme Budgeting in Transitional Countries

• Budgets annually determined
• Budgets allocated on cost centre basis, economic
  classification basis
• Incorporation of longer-term Accession and other
  reform issues but only on annual must / needs
  basis
• Limited use of KPIs
• KPIs on short term basis not driven by overriding
  strategy
• No pressure to begin reprioritising for future
  cost pressures

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How Do we adopt Programme Budgeting ?

• Suggestions
• Adopt four year (1 3) budget profiles
• Split up Ministry budget on Programme / SO basis
  and then vertically align with relevant agencies
• Appoint Programme Managers within Ministries
• Develop KPIS for Ministry Programmes
• Examine and implement simple changes in Chart of
  accounts/ financial reports

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Adopting Programme Budgeting

• Adapting Pre-Accession Programme for MTEF
• Develop basis for forward costing of reform
• Allocate budget costs to Ministries / Agencies
• Integrate with Ministry baselines to identify
  likely forward cost and savings from existing
  programmes
• Produce overall MTEF forward forecasts

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Developing Programme Budgeting

• Developing Strategic Objectives and Programme
  Budgets together
• Recasting Budgets on SO/Programme basis
• Breaking up Ministry budgets into programmes
• Aligning Ministry, Agency and centrally financed
  local government expenditures into programmes
• Setting some straightforward KPIs and targets for
  SOs/Programmes

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Developing Programmes

• Relate to Strategic Objectives
• Programme existing expenditure based on
  categorisation (eg for schools, higher education)
  set policy targets
• Understand limitations of accounting systems
• For new programmes, do not try at outset, to
  identify all possible costs as part of programme
• For cross-cutting programmes identify lead
  agencies and allocate budgets

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Adjusting Accounting Systems

• Review current classification of accounts in each
  Ministrys systems
• Identify spare digits in current reporting
  initially only one digit may be required
• Train staff to add correct digit to coding of
  invoices / receipts
• Reconfigure reports to report on basis of
  programme digit
• Manual consolidation for agencies using different
  financial IT systems

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Programme Budgeting Donts

• Confuse programme budgeting with resource (or
  accruals) budgeting
• Confuse programme budgeting with zero based
  budgeting
• Consider that programme budgeting is incompatible
  with cost centre / budget management
• They can operate on different levels
• Consider that programme budgeting prevents local
  flexibility that is dependent on method of
  funding
• Have large numbers of KPIs

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KPIs Key Factors

• Relevant
• Quantifiable
• Robust
• Cost Effective
• Significant

Output
Outcome
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More KPIs

• Health
• Average age at death
• Death Rates
• Infant Mortality, Underweight births
• Births to young mothers 3 18
• Reducing Crime ?
• Education ?
• Housing ?

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3. Programme Budget Content and Format

• Analysis of Resources (UK)
• Overall Summary Baselines by Objectives
  changes
• Baseline Pressures
• Modernising Baseline Priorities
• New Departmental Priorities
• Admin / Programme Efficiencies

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Baseline Pressures Modernisation

• Higher than general inflation (eg 3 year pay
  deals)
• Known liabilities (Manifesto / Govt Programme
  commitments)
• Contingent liabilities (War with Iraq)
• Revised cost of existing approved government
  policies (e.g on class sizes / Pupil Teacher
  Ratios)

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Admin Programme Efficiencies (ie Savings)

• Recurrent
• Staff number reductions (involving initial
  investment in IT)
• Contracting out
• Running cost economies (eg in allowances, fuel
  consumption, e-procurement)
• Capital
• Reduced Replacement
• Asset Disposals
• But some initial investment may be required !

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New Priorities

• New Programmes
• Expansion / Consolidation of Existing Programmes
• Externally driven Requirements (eg EU, IMF)

Need to cross-reference against strategic
objectives
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Programme Budgeting and Cross-cutting issues

• Many of issues Government has to tackle are not
  responsibility of just one Department
• But tackling X-cutting issues is notoriously
  difficult
• There are solutions but all rely on firm
  co-ordination from the centre (MoF, State
  Chancellery)

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How to handle cross-cutting issues in programme
budgets

• Departments can set joint objectives (eg on
  employment, criminal justice, inward investment)
• Departments can also be held jointly-accountable
  for achieving targets
• Centre (Chancellery, MoF) can commission special
  cross-cutting reviews with results feeding into
  allocation and target setting process

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Integration of cross-cutting issues into
accounting / budget systems

• Key issue is to identify objectives, activities
  and indicators to feed into each Departments
  programmes
• Each Department should then account for its own
  outputs, activities and targets separately
• Each Department will also request resources to
  deliver outputs

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Not Joined Up Policy A UK Example Bed
Blocking

• Key issue
• Elderly patients being discharged from hospital
  (NHS) care need nursing, not Medical care
• In 1980s patients going into private nursing (but
  not LA) homes could claim social security benefit
• Explosion growth in private nursing homes but LA
  homes declined (some LAs transferred provision to
  charitable trusts

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Bed Blocking contd

• 1993 introduction of community care
• Social Security benefit withdrawn
• LAs had budget responsibility to purchase care
  from own and private homes on equal basis
• Prices for care held down

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Bed Blocking - Contd

• 1997 New Government
• New standards for all care homes
• Many closed because no longer viable with current
  prices ? 50,000 beds lost
• NHS cannot discharge because not enough nursing
  home places

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Bed Blocking Contd

• 2002 Govt gives extra money (200 M) to LAs to
  purchase care
• But does not increase prices enough to encourage
  extra supply
• New Act fining LAS 120 per day if NHS cannot
  discharge within 3 working days
• Government funds fines for 3 year period to give
  LAs time to adjust
• STILL NOT JOINED UP POLICY