Performance Budgeting – Features, Process, Advantages, Limitations

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

  1. The purpose and objectives for which funds are required

  2. Costs of programs and related activities proposed to accomplish those objectives

  3. 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

Performance Budgeting
  1. Formulation of objectives

  2. Identifying various programmes and project which will accomplish these objectives

  3. Evaluation & selection of programmes & projects on the basis of cost benefit analysis

  4. Development of performance criteria for various programmes

  5. Preparing financial plans for each program and the final annual budget

  6. Assessing the performance of each programme an comparing the same with budgeted performance

  7. Correcting deviations

Advantages of Performance Budgeting

  1. It states clearly the purpose & objectives for which funds are needed.

  2. It improves performance of units in a continuous manner

  3. It brings transparency in the budget formulation process

  4. It helps in decision making regarding allocation of funds

  5. It acts as a tool for reviewing efficiency of programs

  6. It integrates the process of planning, programming & budgeting

Limitations of Performance Budgeting 

  1. It focuses on quantitative evaluation rather than qualitative evaluation.

  2. It is ineffective without a proper and systematic accounting and reporting system.

  3. It is difficult to quantify social benefits.

  4. It is difficult to accurate estimate benefits arising out of each activity.

Also Read: Zero-Based Budgeting

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