Performance-based budgeting procedures

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Performance-based Budgeting (PBB) is a decision making tool for legislators to explicitly link funding decisions to performance measures and outcomes, rather than baseline outlays from prior periods. PBB requires a detailed development of the activities, outputs and intended outcomes of the program or agency along with metrics accurately capturing these. The most important component of the PBB procedure is to integrate this performance information into the budgeting process and create clear connections between outcomes and funding decisions to incentivize agencies. Many US state and local governments have adopted PBB procedures but at varying levels and extents. It is commonly used by US state governments to fund higher education institutions.



Legislators in a particular state government come to consensus and adopt the performance-based budgeting approach, usually by adopting appropriate legislation. It is rare that they will adopt this approach for all agencies and funding decisions. They, more likely, will select specific agencies and programs that are best suited for this budgeting procedure. This agency will need to develop and present the activities they undertake, and the intended outcomes of the program. The legislators, the agency head and other stakeholders will then collectively decide upon appropriate performance metrics that capture the intended outcomes and these will be linked to funding. This allows the legislators to learn about the program and their results and allows for more informed decision making. At the start of the year, the agency will collect baseline data and will continue to gather and process data pertaining to performance metrics. On the basis of the agency’s performance on the metrics, funding levels will be decided.


Tradeoffs of implementing this policy may include:

  1. Overload of information for legislators to consider
  2. Increased burden of data collection for agencies
  3. Potential negative impact on agency performance due to perverse incentives stemming from inappropriate performance metrics
  4. Unreliable and insufficient data negatively affecting budgeting decisions
  5. Disconnect and discontent between legislators and agency staff due to their difference in opinions on the goals and functions of the agency
Compatibility Assessment

If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Is sufficient information available about the intended goals and results of government expenditures?
  2. Do relevant agencies have sufficient resources to collect and manage performance data?
  3. Does the existing budget process have the potential to incorporate this performance information in a way that would enhance decision making?
  4. Can a system be established to verify the validity of the data and metrics provided?
  5. Does a sufficient number of legislators value evidence-based budgeting as a decision-making tool over the traditional political process?
  6. Do conditions exist for a productive collaboration between budgetary decision makers (e.g., executives, legislators, etc.) and agencies that will ensure the selection and use of meaningful and appropriate performance metrics?
  7. Are the Tradeoffs listed above unlikely to be an issue in the jurisdiction in context?

The following questions should be considered when determining how to implement this policy:

  1. Which agencies and programs should be a part of performance-based budgeting procedures?
  2. How many performance indicators should be selected per agency/program?
  3. Should the indicators be selected by agency staff, legislators or in collaboration between the two?
  4. How integrated should the performance information be in the budgeting process?
  5. How, if at all, should performance data be monitored and verified to ensure accuracy?
  6. How often shall data be collected to measure the extent of success on the selected metrics?
  7. What shall the approach be towards programs/agencies that are performing poorly as per the indicators, but serve an important function in the opinions of the legislators?


  • Has adoption of: Common. [1] A large majority of US state governments have adopted performance based budgeting procedures. However, the extent to which resources are allocated purely on performance indicators is limited.





  • A Basic Model of Performance-Based Budgeting Robinson, Marc, and Mr Duncan Last. A Basic Model of Performance-Based Budgeting. International Monetary Fund, 2009. Provides a basic outline of the PBB model and considerations that need to be made.
  • Performance-based budgeting: beyond rhetoric Moynihan, Donald P. "Performance-based budgeting: beyond rhetoric." (2003). This policy brief from the World Bank touches upon the experience of the US with PBB and lessons that can be learned.


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