Performance -Based Budgeting : Critical Success …

1 Performance -Based Budgeting : Performance -Based Budgeting : Critical Success Factors in Implementation Implementation What issues do you face ? national outcome is the ministry or department responsible for ? responsible for ? outputs are required to deliver the outcome ? are outputs defined, and costed ? are outputs defined, and costed ? do you serve the people better ? do I reduce costs ? do I reduce costs ? there outsourcing opportunities ? do I budget more accurately ? do I budget more accurately ? do I manage for better Performance ?Speaker s ProfileAndrew Lim Formally head of Asian operations for SPSS Inc., and ABC Technologies Inc 21 years in Business Intelligence software market, helping clients implement management information systems used for strategic decision making Implemented activity -Based cost management and BalancedScorecard systems for numerous clients, both US MNCs andlocal companies & public sector organisations.

2 Conduct frequent talks, training, and workshops onperformance measurement concepts, applications andimplementation issues. Evangelising the use of Performance management in the Evangelising the use of Performance management in the countries throughout Asia. BSC Projects at IDA, SSC, MCYS, IPTO (Min. of Law) and Goldcoin and Commercial Bank of Qatar, Fraser & Neave, Chong Fu, Hwa Chong Institution, Botswana Civil Service College, Tanzania Civil Service College, Min of Justice Namibia, Asia Commercial Bank Vietnam, PMO UAE, IPA Saudi Arabia, PMO Brunei. BSC Specialist, Civil Service College Asian Development Bank COP for MfDR Business Process Improvement Advisor Tanzania GovtAgenda Overview of Performance -Based Budgeting (PBB) Overview of Performance -Based Budgeting (PBB) Key Elements of PBB PBB Implementation PBB Implementation Overview of Balanced Scorecard & ABC/M Defining Outcomes & Measures Defining Outcomes & Measures Building of ABC/M Model Critical Success Factors Critical Success Factors Performance -Based Budgeting in the Public Sectorin the Public SectorWhat is Performance -Based Budgeting ?

3 Definition: Definition: Performance -Based Budgeting is the integration of Performance information into the budget formulation process to better manage for is Performance -Based Budgeting ?Forecasted resources ( , budget) are computed as a function of desired computed as a function of desired goals/outcomes, required output volumes, and activity levels ( based on volumes, and activity levels ( based on historical cost accounting data).What is Performance -Based Budgeting ? Performance -Based Budgeting uses cost accounting methods ( , full cost of outputs, Performance -Based Budgeting uses cost accounting methods ( , full cost of outputs, unit cost) to prepare budgets based on the amount of resources that identified activities amount of resources that identified activities are expected to consume, to meet the forecasted workload ( , output volume) required to achieve Performance , outcome, required to achieve Performance , outcome, and strategic is doing PBB ?))

4 FederalorCentralGovernmentagenciesandbur eaus FederalorCentralGovernmentagenciesandbur eaus Department of Work and Pensions, Department of Agriculture, Department of Labour, Foreign and Commonwealth Office, Securities Exchange commission, Taxation, Patent and Trademark registration, Customs, Vehicle registration, Trademark registration, Customs, Vehicle registration, Passport and Immigration. Defense Various entities in the Army, Navy, Air Force, Coastguard, etc. Various entities in the Army, Navy, Air Force, Coastguard, etc. State, Regional and Local administrations Local or regional governments, police forces, health authorities and universities Countries around the world Donor Agencies World Bank, ADB Key Elements of PBBSet objectives and monitor progress towards themtowards themTo set objectives and monitor progress To set objectives and monitor progress towards them with accountability cascaded down to teams and individuals.

5 Cascaded down to teams and individuals. This requires the Balanced Elements of PBBP rogramme and output costing To set priorities and make informed decisions about resource allocation. about resource allocation. Need to have a deep insight into costs. Calculate full costs and allocates these costs to programs and program outputs and outcomes. outcomes. This requires activity -Based costing (ABC/M)Business IssuesResource plans and budgets To quickly and easily formulate resource plans and budgets to achieve the desired output and budgets to achieve the desired output and outcomes. This requires a budgetingsystem that allows This requires a budgetingsystem that allows the easy integration of the operational perspective and key Performance metrics.$$$ ACTIVITY OUTPUT OUTCOMEL ogic model for PBBL ogic model for PBBMISSION & LONG RANGE GOALSMISSION & LONG RANGE GOALSINTERMEDIATE OUTCOMESOUTPUTSPROCESSESPROCESSESRESOURC ES & INPUTSL ogic model for PBBL ogic model for PBBLong range outcome(5 years)Unemployment Tangible results for the peopleMISSION & LONG RANGE GOALSINTERMEDIATE OUTCOMESU nemployment below 3%the peopleUltimately how Success is defined and measuredINTERMEDIATE OUTCOMESOUTPUTSand measuredPROCESSESRESOURCES & INPUTSRESOURCES & INPUTSL ogic model for PBBL ogic model for PBBS hort term goal(1 year) Annual goalsof MISSION & LONG RANGE GOALSINTERMEDIATE OUTCOMES(1 year) Unemployment below 4%.

6 Another 1M back to workAnnual goalsof strategies designed to achieve the end outcomeINTERMEDIATE OUTCOMESOUTPUTSPROCESSESRESOURCES & INPUTSRESOURCES & INPUTSL ogic model for PBBMISSION & LONG RANGE GOALSL ogic model for PBBGOALSINTERMEDIATE OUTCOMESOur tactics and how they are workingRetraining for million unemployedThe specific initiatives, actions(programs) we take and services we offer to implement our OUTPUTSPROCESSES million unemployedoffer to implement our strategyRESOURCES & INPUTSL ogic model for PBBMISSION & LONG RANGE Logic model for PBBMISSION & LONG RANGE GOALSINTERMEDIATE OUTCOMESINTERMEDIATE OUTCOMESOUTPUTSOur budget requirement!The resourcesand peopleneededPROCESSESRESOURCES & INPUTS requirement!peopleneededto execute the planCovering Planning and ExecutionMISSIONMISSION&LONG RANGE GOALSINTERMEDIATE OUTCOMESG oalsObjectivesResultsResultsINTERMEDIATE OUTCOMESOUTPUTSO bjectivesTargetsResultsPerformance MeasuresPLANNINGANDCOSTANALYSISB alanced Scorecard Measure PROCESSESRESOURCES & INPUTST argetsBudgetsPerformance IndicatorsBudget VariancesANDBUDGETINGANALYSISABCM easure PBB in a nutshellGoalsResultsMISSIONSTRATEGIC PLANO bjectivesTargetsResultsPerformance MeasuresGOALSOUTPUTST argetsBudgetsPerformance IndicatorsBudget VariancesPROGRAMS/PROCESSESRESOURCES & INPUTSPLANNINGANDBUDGETINGCOST ANALYSISABCB alanced Scorecard MeasuresBudgetsBudget Variances You cannot planfor performancewithout You cannot planfor performancewithout understanding the costof Performance (Frank Wood USCG)

7 Department of Industrial InspectionsDept of Industrial InspectionsMissionMission Protect our citizens in the workplace Long Term Objective (5 year)Long Term Objective (5 year)Reduce the # of days lost due to workplace accidents to less than per million days workedShort term Objective 1 Short term (annual) Objective 2 Short term Objective 1 Inspect 50% of manufacturers previously assessed as compliantShort term (annual) Objective 2 Inspect 90% of manufacturers notpreviously assessed as compliantOutputsOutputsOutputs# Inspections# Follow Up reportsResourcesOutputs# Inspections# Follow Up Steps1. Align outcome measures to Vision/Mission output measures to deliver outcome output measures to deliver outcome 3. Do ABC to determine cost per unit of output the cost per unit to determine budgets the cost per unit to determine budgets 5. Budget approval based on agreed output & outcome outcome Alignment to Vision / MissionAlignment to Vision / Mission Through the Balanced Scorecard, clear Through the Balanced Scorecard, clear alignment can be made to Vision / Mission of the organisation Balanced Scorecard components Strategy Map Strategy Map Key Performance Indicators Strategic Initiatives Ownership OwnershipMINISTRY OF JUSTICE SCORECARD takeholderPerspectiveVision: To be a model provider of accessible and timeous justice for allMission.

8 To provide quality judicial and legal servicesS1-Accessible andStakeholderPerspectivePerspectiveS1-A ccessible andTimeous Justice for AllCustomerPerspectiveC2- TimelinessC3- QualityC1- AccessibilityC4- IntegrityProcessPerspectiveP3- PublicEducationP2-StreamlineProcessesP7- CustomerCareP1- Enhance Court NetworkInternalProcessPerspectiveP4- ExpandE-ServicesP6- InternalCommunicationP5- StrengthenPartnershipsP8 KnowledgeManagement& Growth PerspectiveL4-Leverage ICTL2 CompetentL2- Competent& Motivated L1 Result OrientedL1- Result OrientedWork CultureF1- Effective Use ofFinancial ResourcesFinanceLearning& PerspectiveVersion2 31 Oct 08L4-Leverage ICTL3- Strategic Leadership& Motivated WorkforceF2- Result BasedBudgetingBalanced Scorecard KPI ListAlignment to Vision / MissionAlignment to Vision / Mission Budgets are aligned to Strategy through key processes key processes projects, programs, initiativesAlignment to BudgetsAlignment to Budgets Through Activity -Based Costing, costs of key processes, costs of key processes, costs of projects, programs, costs per unit of output, Can be computed more accurately !

9 Can be computed more accurately !Overview of ABCAB C is a sim ple conceptR esources are consum ed by activitiesR esources are consum ed by activitiesActivities are consum ed by products/services (C ost O bjects)(C ost O bjects)P roducts/ActivitiesP roducts/S ervicesR esourcesDefinition: Activity -Based CostingDefinition: Activity -Based Costing A methodology that measures the cost and Performance of activities, cost and Performance of activities, resources, and cost are assigned to Resources are assigned to activities, then activities are assigned to cost objects based on assigned to cost objects based on their use. Adapted from The CAM-I Glossary of Activity -Based Management, Edited by Norm Raffish and Peter Turney, Norm Raffish and Peter Turney, (Arlington: CAM-I, 1991.)CAM-I CrossCost Assignment ViewCost Assignment ViewResourceDriversResourceCostAssignmen tWhy things have DriversPerformanceMeasuresActivitiesAssi gnmentWhy things have DriversMeasuresActivityCostActivityDrive rsCostCostAssignmentAdapted from The CAM-I Glossary of Activity -Based Management, Edited by Norm Raffish and Peter Turney, (Arlington: CAM-I, 1991.)

10 CostObjectsBuilding an ABC ModelBuilding an ABC ModelIdentifyIdentifyIdentifyIdentifyRes ourcesIdentifyActivitiesIdentifyCost ObjectsDefineResourceDriversDraw Arrowsfrom ResourcesDefineActivityDraw Arrowsfrom ActivitiesDriversfrom Resourcesto ActivitiesActivityDriversfrom Activitiesto Cost ObjectsEnterResourceCostsEnterResourceDr iver Critical Success FactorsTo succeed with implementing PBB, four areas need attention:To succeed with implementing PBB, four areas need attention:PBB Model Design and ArchitectureImplementation and Data IntegrationApplication of the DataGetting Management and Employee Buy-InBalancing the emphasis is a project team s biggest challengeBalancing the emphasis is a project team s biggest challengePBB Critical Success FactorsModel Design and Architecture Level of complexity Level of detail Cost driversImplementation/IntegrationApplica tion of Data Cost drivers Accuracy requirements Activity definitions Process linkages Cost analysis Focus for improvements Process value analysis Target costing Scope and boundaries Pilot site choice and phasing Data interfaces Data collection approachesValidation of the data Target costing Benchmarking Budgeting Process changes Strategy changesGetting Buy-In Validation of the data Use of software Strategy changesGetting Buy-In Executive sponsorship Project champion Overcoming resistance Overcoming resistance Credibility of outputs Not