Performance-based budgeting for North Carolina public transportation systems : final report - Page 28 |
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Performance-Based Budgeting for North Carolina Transit Systems Institute for Transportation Research and Education, Public Transportation Group 20 to determine the true cost of programs and activities. However, many agencies do not have well-developed cost accounting systems. Similarly, PBB may require a change in the accounting, budgeting and financial reporting structures so that they are appropriately aligned with the structure used for PBB. This also provides managers with relevant information so that actual performance can be monitored throughout the year. As stated by Paul Posner of the General Accounting Office: “Successful performance budgeting is predicated on aligning performance goals with key management activities. The closer the linkage between an agency’s performance goals, its budget presentation, and its net cost statement, the greater the reinforcement of performance management throughout the agency and the greater the reliability of budgetary and financial data associated with performance plans. Clearer and closer association between expected performance and budgetary requests can more explicitly inform budget discussions and shift the focus from inputs to expected results.” (Posner, p. i) Another challenge is that an important ingredient of PBB is accountability. However, many managers would rather not be held accountable or have their performance constantly monitored. Such resistance is a key obstacle that must be understood and overcome. One way to do this is to make it clear that PBB is not about blame or punishment. Instead, it is about organizational learning and improvement. It should be seen as a way for managers to become better managers. Another way to overcome resistance is to provide incentives for using PBB. For example, in the Davidson and Catawba County examples described above, departments that participated in PBB were given more flexibility in regard to how they could use their budgeted funds, including the ability to carry over “saved” funds to the next fiscal year. (If saved funds were to be forfeited, the motivation to cut costs could be considerably diminished.) Misconceptions It is important to avoid any misconceptions as to what PBB may be. PBB is not a new budget format that takes the place of a line item budget. Rather, PBB incorporates a discussion of performance into typical line item expenditures, and better informs the budget decision-making process. Merely inserting performance measures into budget documents does not constitute PBB. While PBB incorporates performance measures into the budget development and Second, a good accounting system will include not just the direct cost of a program or service, but also the appropriate indirect costs that should be allocated to it. (Sometimes this is referred to as “fully-allocated costs.”) As one example, this can be important when calculating certain efficiency or effectiveness measures such as cost per vehicle mile, or cost per passenger trip. Third, if an organization is using benchmarking with peer organizations as a component of performance measurement, it is important that the costs of the programs or services that are being compared within the peer group include the same kinds of cost components so that the comparison is as “apples to apples” as possible.
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Title | Performance-based budgeting for North Carolina public transportation systems : final report - Page 28 |
Full Text | Performance-Based Budgeting for North Carolina Transit Systems Institute for Transportation Research and Education, Public Transportation Group 20 to determine the true cost of programs and activities. However, many agencies do not have well-developed cost accounting systems. Similarly, PBB may require a change in the accounting, budgeting and financial reporting structures so that they are appropriately aligned with the structure used for PBB. This also provides managers with relevant information so that actual performance can be monitored throughout the year. As stated by Paul Posner of the General Accounting Office: “Successful performance budgeting is predicated on aligning performance goals with key management activities. The closer the linkage between an agency’s performance goals, its budget presentation, and its net cost statement, the greater the reinforcement of performance management throughout the agency and the greater the reliability of budgetary and financial data associated with performance plans. Clearer and closer association between expected performance and budgetary requests can more explicitly inform budget discussions and shift the focus from inputs to expected results.” (Posner, p. i) Another challenge is that an important ingredient of PBB is accountability. However, many managers would rather not be held accountable or have their performance constantly monitored. Such resistance is a key obstacle that must be understood and overcome. One way to do this is to make it clear that PBB is not about blame or punishment. Instead, it is about organizational learning and improvement. It should be seen as a way for managers to become better managers. Another way to overcome resistance is to provide incentives for using PBB. For example, in the Davidson and Catawba County examples described above, departments that participated in PBB were given more flexibility in regard to how they could use their budgeted funds, including the ability to carry over “saved” funds to the next fiscal year. (If saved funds were to be forfeited, the motivation to cut costs could be considerably diminished.) Misconceptions It is important to avoid any misconceptions as to what PBB may be. PBB is not a new budget format that takes the place of a line item budget. Rather, PBB incorporates a discussion of performance into typical line item expenditures, and better informs the budget decision-making process. Merely inserting performance measures into budget documents does not constitute PBB. While PBB incorporates performance measures into the budget development and Second, a good accounting system will include not just the direct cost of a program or service, but also the appropriate indirect costs that should be allocated to it. (Sometimes this is referred to as “fully-allocated costs.”) As one example, this can be important when calculating certain efficiency or effectiveness measures such as cost per vehicle mile, or cost per passenger trip. Third, if an organization is using benchmarking with peer organizations as a component of performance measurement, it is important that the costs of the programs or services that are being compared within the peer group include the same kinds of cost components so that the comparison is as “apples to apples” as possible. |