Malaysia has adopted performance budgeting as a system to improve budget planning and financial management. The implementation of performance budgeting is expected to make the government more transparent and accountable to its citizens. Public budgeting is about choices among ends and means. Although public budgeting shares many features with private sector budgeting, it does require the application of different criteria from those used in the private sector organisations. The implementation of performance budgeting also requires that the government becomes more transparent and accountable to its citizens on how allocated resources were used to achieve planned policy objectives. Promoting efficiency and effectiveness in the utilisation of public resources is therefore the primary goal of performance budgeting.
Both developed and developing countries have experimented with the implementation of performance budgeting, but they have met with little success or complete failure. Among many factors perceived to have contributed to little success or failure in implementing performance budgeting include: stiff resistance to reform, lack of specialised expertise, lack of performance information systems to capture performance information, administrative complexities, lack of investment in managerial, accounting and information systems, the absence of institutional incentives to promote gains in economic efficiency, pervasive corruption, hastily conceived reform with unrealistic expectations.
Critical Conditions for Successful Implementation of Performance Budgeting
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Motivation To Make A Change
Consensus among participants on the need for reform is critical to successful implementation. Public officials need to identify their motives for using performance measurement and performance budgeting. Their motives may come from external demands for service quality and accountability, as well as from internal demands for efficiency and effectiveness. It is also essential to identify the producers and consumers of information and to provide an appropriate incentive strategy for the use of performance based information. Furthermore, decision makers must understand that ultimately performance-based information may be most helpful for management improvement, rather than for budgetary matters. Political will is critical to the implementation of results-based accountability. Even a less sophisticated system can achieve a great deal in the presence of political will, whereas a more sophisticated system will achieve very little if the political will to use it is not present.
Importance of Legislative Support
Strong and consistent political support from the legislature is critical for performance budgeting initiatives. To pursue internal rationality and efficiency criteria without regard to the political environment jeopardizes the prospects of the endeavour. Legislative understanding and involvement are critical but were often neglected in previous initiatives such as PPBS, MBO, and ZBB, partly because those reforms were seen mainly as administrationsâ€™ internal management initiatives. Lack of legislative support is an important reason for the failure of those reforms.
Budgeting reform inevitably affects all branches of government, it cannot operate on a path toward technical refinement or analytical sophistication independently of the political environment. The role of legislators in budgeting often focuses on balancing budgets and controlling public spending. Hence, they show interest in control-oriented budget formats, such as line-item budgeting, in which they can manipulate and monitor budget revenues and expenses item by item. Legislators may resist performance measurement, fearing a shift of power to the executive branch. The political effect of performance budgeting reform demonstrates that implementation of this initiative needs the support of political stakeholders.
As part of the effort to promote enthusiasm and acceptance from the legislature, a government needs to involve legislators in establishing performance goals, developing performance indicators, monitoring the performance process, and evaluating performance results. The reform is unlikely to succeed if the executive and legislative branches have conflicting objectives and conflicting understandings of why the reform is necessary. Clearly, development of such an open system is costly; however, without it, performance budgeting reform risks losing momentum and being abandoned.
Support and Engagement From Citizen
Performance reforms should provide direct benefits to government stakeholders in exchange for their support. Without at least some degree of public involvement, performance budgeting risks becoming an internal bureaucratic exercise detached from what the citizenry views as important. Citizensâ€™ involvement also ensures credibility and improves the meaningfulness of the data that are collected, assessed, and reported.
Minimum Administrative Capacity and Bottom-Up Approach
Always on Time
Marked to Standard
Mandating the implementation of performance measurement and budgeting across the board when politically popular may not be administratively feasible. It is important that the political leaders and policy entrepreneurs who advocate implementation of the reform allow time for agencies to learn and build their capacities. Rather than imposing a system for all programs to follow, the reform should respect institutional differences among agencies and help them to develop approaches suitable for their own situations and contexts, approaches that can provide them with useful information for reviewing the effect of what they are doing and identifying how this information can help them in their planning and budgeting. Institutional capacities building in personnel, information systems, accounting standards, and funding potential are highly associated with the use of performance measurement in budgeting.
If the civil servants lack the capacity to implement performance budgeting, the political enforcement and managerial commitment alone will not make any change. Most of the work of developing and maintaining a performance budgeting system is done by the budget staffs in the executive and legislative branches. In the absence of adequate training, managers and staff members are unlikely to be able to understand the potential value of a results-oriented approach or be able to provide for effective implementation. When a performance budgeting system is attempted, a series of important questions will face. It is not feasible to plan an evaluation of a programâ€™s effect without sufficient resources and appropriately trained personnel. Personnel training can make a difference, not only by changing attitudes but also by preparing competent staff members. Transforming an organizational culture by building performance consciousness into daily functions is a difficult undertaking. The experience of many different jurisdictions likes Denmark, Norway, and the United States is that training, guidance, and availability of technical assistance are required over a period of time.
Government agencies frequently do not have data systems that can readily generate the performance information needed. Many state agencies have collected program data in mainframe systems that cannot easily respond to information needs. Coupled with data quality needs, certain electronic systems must be in place for maintaining and tracking performance.
The absence of an appropriate accounting system may undermine performance budgeting reforms. The foundation for performance measurement is activity-based costing of all direct and indirect costs to a program to provide a more accurate picture of the expense of achieving a specific objective. Accurate cost data are critical to analysis that seeks to determine the return on investment in government programs.
Financial Costs of The Reform
Sufficient financial resources for data collection, initial training, and ongoing system maintenance are critical for the implementation of performance budgeting. Performance budgeting information systems, which entail data collection and validation, analysis, and reporting, may be costly to develop and maintain.