What Is a Performance Budget?

A performance budget is a results-oriented method of budgeting that revolves around desired outcomes. The♏ goals and objectives of the project are at the center of the budget, which reflects the input of resources and the output of services for each unit of an ꦰorganization.

The budget identifies and scores relative performa🐼nce based on goal attainment for specified outcomes. Performance budgets often rely on quantifying otherwise qualitative or subjective factors so that they can be measured and accounted for.

This type of budget is commonly used by government bodies and agencies to show the link between taxpayer funds and the outcome of services provid💎ed by federal, state, or local governments.

Understanding a Performance Budget

The decision process for perfo💖rmance budgets focuඣses on outputs—or outcomes—of services. In other words, the allocation of funds and resources is based on specific goals agreed upon by budget committees and agency heads of services.

A few exampl🐼es of outcomes thaܫt a performance budget could address include:

• Improvement in average test scores of a school district
• Decreases in mortality or morbidity rates of a health program
• Improvement of water quality of a county's drinking supply
• Non-violent crime reduction in a city
• Reduction in road pothole complaints

All of these would have numerical targets attached to them. A performance budget would be developed accordingly to identify those target numbers. The budget would develop a method of evaluating performance.

Advantages and Disadvantages of a🍸 Per💝formance Budget

The advantages in the public sector are an increase in accountability of the local authorities to the taxpayers, communication to the public about priorities, and quantifying particular goals. Taxpayers want to know where and how their money is being spent and to what ൲end.

Similarly, 澳洲幸运5官方开奖结果体彩网:nonprofit organizations draw up performance budgets to link 澳洲幸运5官方开奖结果体彩网:inputs and outputs for their missions. Donors to these organizations also want to know what kind of return society is getting from their donations.

Some disadvantages of a performance෴ budget include:

• The potential for disagreement on the spending priorities, especially when there are multiple agencies or stakeholders
• A lack of unified cost standards across multiple agencies
• The potential for a department to manipulate data in order to reach a target, which could lead to a need to spend funds on an independent party to verify results
• A lack of flexibility once the inputs (resources) and outputs (outcomes) have been set

One prominent disadvantage of performance budgets is that by assigning target scores or numbers that an organization uses as its 澳洲幸运5官方开奖结果体彩网:benchmark for achievement, the numbers can be gamed or become the s🌼ole focus of one's task. For instance, teachers looking to earn a certain score may only focus on the factors that comprise that score and overlook or ignore other factors that may be important to teach🌱ing.

The Bottom Line

A performance budget, or performance-based budgeting, is a budget that is designed with outcomes in mind. Its operation depends on motivating workers to achieve those outcomes. These outcomes are measured and reported. Each outcome must be carefully tailored to the organization or agency's mission.