Performance Budgeting refers to a budget in terms of functions, programmes and performance units (functions, activities and projects) reflecting the revenues and expenditures of an Organization or Government. Performance Budgeting refers to a budget in terms of functions, programmes and performance units (functions, activities and projects) reflecting the revenues and expenditures of an Organization or Government.
Features of Performance Budgeting
♦ Performance Budgeting provides
The purpose and objectives for which funds are required
Costs of programs and related activities proposed to accomplish those objectives
The output that will be produced under each activity.
♦ Performance Budgeting implies that the budget must clearly indicate the actual achievement or output, expected by spending a particular amount on a particular activity. Hence, It is an output oriented budget that focuses more on achievement rather than means of achievements.
♦ The costs and benefits of each activity are analysed for making decisions regarding allocation of funds.
♦ It involves use of management tools such as – work measurement, bench marking and unit costing etc. to prepare a budget.
♦ This system has been designed to plan for long term.
Process of Performance Budgeting
Formulation of objectives
Identifying various programmes and project which will accomplish these objectives
Evaluation & selection of programmes & projects on the basis of cost benefit analysis
Development of performance criteria for various programmes
Preparing financial plans for each program and the final annual budget
Assessing the performance of each programme an comparing the same with budgeted performance
Advantages of Performance Budgeting
It states clearly the purpose & objectives for which funds are needed.
It improves performance of units in a continuous manner
It brings transparency in the budget formulation process
It helps in decision making regarding allocation of funds
It acts as a tool for reviewing efficiency of programs
It integrates the process of planning, programming & budgeting
Limitations of Performance Budgeting
It focuses on quantitative evaluation rather than qualitative evaluation.
It is ineffective without a proper and systematic accounting and reporting system.
It is difficult to quantify social benefits.
It is difficult to accurate estimate benefits arising out of each activity.
Also Read: Zero-Based Budgeting