Guide teaches performance-based budgeting by example

A new guide by an independent management consultant walks agencies through concrete examples of how they can do a better job of connecting their budgets to both daily activities and broader performance goals.

The guide, released last week by consultant John Mercer, demonstrates a technique called "cascade performance budgeting," which allows agencies to keep better track of how their budget relates to programs' strategic objectives and the day-to-day work involved in working toward these objectives.

Connecting budgets and performance is one of five goals outlined in President Bush's management agenda and is also an integral requirement of the 1993 Government Results and Performance Act. Mercer, who helped develop GPRA and has 20 years of experience working on budget issues, said that while some agencies have started doing a better job of linking budgets and performance at a broad level, they are having trouble translating the technique to day-to-day tasks.

Mercer's guide takes a hypothetical "Toxic Storage Safety" program and shows how an agency could follow four steps to connecting program performance and budget. According to Mercer, managers overseeing any type of federal program could apply the steps, though some details may differ depending on factors such as whether the program is implemented at a central agency office or whether field offices are involved.

To use Mercer's "cascade" budgeting approach, agencies must first realign their budgets so that they are structured in a manner comparable to their strategic plans, creating a clear link between dollars and desired performance results. For instance, one of the hypothetical goals of the Toxic Storage Safety program is to reduce spills and leaks of hazardous substances by 5 percent in one year. Mercer's hypothetical fiscal 2005 budget for the program lists this goal and allots $34 million toward reaching it.

Agencies have already started doing a good job of this, Mercer said. In addition, they have received a lot of guidance from the Office of Management and Budget in this area. Mercer's guide takes the existing OMB recommendations into account.

Once agencies have aligned program budgets with goals, they must then present their budgets to congressional appropriators in this manner. They should provide lawmakers with detailed breakdowns of how they will spend money to achieve specific results and use informational tables to illustrate the connections, Mercer suggests. At this stage, agencies' "annual performance plan and the budget justification will become an integrated document organized by strategic plan goals," according to Mercer's guide.

Next, managers should take time to identify the daily activities necessary to work toward desired program outcomes. For instance, a more detailed goal of Mercer's hypothetical Toxic Storage Safety program is to issue 4,100 licenses for storing hazardous chemicals. In Mercer's model program budget, he identifies three daily tasks needed to reach that goal.

As a final step, managers should determine how much money is needed to achieve each of the desired daily outcomes, according to Mercer. They should refer back to these charts throughout the year, and not just when it comes time to prepare budget requests, he said.

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