Lima, May Prepared by Marc Robinson

Transcription

1 Lima, May 2014 Prepared by Marc Robinson 1

2 Methodology to estimate the budget of each program Estimation during the budget preparation process Not about accounting and financial reporting Which is about measuring cost after the money is spent Does budget estimation change fundamentally? Under program budgeting By contrast with traditional budgeting 2

3 Budget estimation based on inputs to be used Staff numbers and salaries Office supplies required etc. Focus is on changes in input requirements Ministries argue for larger budgets based on, e.g. Need for more staff, or other inputs Based on increased demand for services (outputs) Or increased activity (work processes) Input cost increases Only a loose link between budget estimates & results 3

4 Estimate program cost directly on basis of results? Output budgeting? Outputs = goods or services delivered to external clients Products Output deliverables of each program times output cost Know exactly what should be produced with budget funding Activity-based budgeting? Estimating budgets based on activities to be carried out Activities = types of work processes Is this a method for results-based budget estimation? Project-based budgeting? Estimates based on costs of projects to be carried out 4

5 Capital expenditure of programs Estimated on project cost basis Based on estimates of cost of each capital project 5

6 Current expenditure of programs Output-based? Output-based costing only works with a minority of outputs Complex and difficult to apply even then Use only selectively, Activity based costing Doesn t link budgets to results Because activities are work processes Input-based estimate of program budgets In practice, the main methodology used However, input requirements linked more to changes in outputs 6

7 Budgeting based on output costs 7

8 Estimates based on unit costs of outputs Cost per service (or good) delivered to external client Cost per patient treated Cost per student taught Cost per visa processed Unit cost = average cost of producing the output Ignore questions of direct and indirect costs here Funding = planned quantity of outputs x unit cost Program funding: Estimate funding of each different type of output within the program and add them together 8

9 Program Sub- Program Output 1 Output 2 Output 3 Output 4 Subprogram Output 5 Output 6 Output 7 9

10 Suppose vaccinations cost $25 [unit cost] Budgeting based on planned output quantity If 40,000 vaccinations planned Required budget = 25 x 40,000 = $1 million Budgeting which identifies output quantity which can be produced with available resources Suppose on $750,000 is available Then only 30,000 vaccinations possible Can set on output quantity target Hold ministry accountable if fewer vaccinations 10

11 In vaccination example, suppose: Actual cost is $25 per vaccination But there s significant inefficiency And efficient cost is $20 Use efficient cost for funding formula: Expect 50,000 vaccinations, not 40,000 With $1 million budget Pressure for efficiency improvement Gradualism: e.g. base formula this year on $23, next year on $22, etc 11

12 Cost per unit of output the same Issuing drivers licenses Activities for issuing every drivers license the same Cost the same Primary school students If standard curriculum, and same class sizes Cost per student per year should be same Some countries fund based on number of students However, can be complex School cost differences between small rural schools and city Need to use different unit cost measures Measuring unit cost often not easy 12

13 Services where activity per output varies greatly Depending on the client and the case Example: criminal investigations by the police Investigation activity per crime varies considerably Depending on how much evidence available No standard unit cost Example: treating accident victims in hospital Treatment activity depends on how serious the injuries Example: agricultural advice to farmers Distance of the farms, how populated the area is How much the farmer knows Heterogeneous outputs 13

14 Example: fire services Output = putting out one fire But number of fires varies greatly weather, chance etc Unit cost unpredictable Example: defense Insurance type services (contingent capacity services) Unpredictable demand for services Must be responded to immediately Spare response capacity maintained Unit cost of outputs therefore varies greatly Many services like this in government 14

15 South Africa Failure to make unit costing work Australia & New Zealand Accrual output budgeting Immigration example Routine visa processing vs. Marriage-based visa processing Works in hospitals and universities Hospital funding based on treatment prices (DRGs) University funding based on students and course types 15

16 Selective rather than general application Apply only to right types of programs Relatively standardized services Complexity involved in setting formula Argument for gradualism and selectiveness Focus on one or two major services areas Rather than immediately introducing in many areas 16

17 Budgets for programs need mainly to be estimated on input requirements Staff & other resource requirements Just as under traditional budgets Selective use of output budget for cost estimates For some types of program outputs Such as vaccinations Nevertheless, program budgeting does change things.. 17

18 Output indicators under Program Budgeting Output quantity indicators Output quality indicators Output efficiency indicators Require ministries to identify output improvements From additional funding When requesting extra funding, must indicate either Expected output improvements/demand justification Alternatively: activity or input cost justifications 18

19 Budgeting based on costs of activities to be carried out 19

20 Basis for whole government budget: Every program s proposed expenditure Justified on basis of formula Linking costs to activities undertaken Viewed as performance budget tool Superficially attractive, but flawed idea Not very results-oriented in practice Great complexity Particularly inappropriate in developing countries 20

21 Activity-based formulas not the same as outputbased formulas Activities are not the same as outputs Meetings, regulations developed, training undertaken, positions filled etc. Activity-based systems in practice also mix much funding based on asset costs E.g. n clinics built and cost $y each Heterogeneity problem still exists 21

22 Many activities are not strongly linked with outputs and outcomes E.g. funding numbers of meetings very different from funding services to public This can reduce rather than strengthen focus on real results Concern about excessive focus on internal activity and process Motivation for PB & managing-for-results 22

23 Government budget based on thousands of activities Costs of each activity have to be estimated and verified How is MoF to check estimates? Task is too big Particularly in developing countries Danger that any spending ministries enter unreliable activity costs 23

24 Budgeting based on costs of projects to be carried out 24

25 Capital project Construction of specific building, road etc Capex is budgeted for based on projects Parliament wants to know what projects are funded Accounted for by project as well Projects linked to relevant sub-program & program Recurrent projects Specific projects which have to be ring fenced E.g. donor-funded recurrent initiative Make sure funding is spent only on that project Only these should be in budget and accounts 25

26 Resources mainly allocated to specific directorates Personnel costs Many goods and services Directorates linked to specific sub-programs Keep it simple Avoid cost allocation issues Directorates often deliver multiple outputs And carry out multiple activities Don t try to budget and account for all of these Allocate most directorate expenditure directly to sub-program 26

27 Program Subprogram Sub- Program Directorate A Directorate B Project A Project B Directorate C, etc... 27

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29 Preparation of government-wide program budget Cannot be based upon output unit costs Nor on activity-based budgeting For most programs, based on estimate of inputs required Very much like traditional budgeting Output budgeting a useful tool Should be selectively applied Understand that it is demanding 29