Performance Budgeting – Features, Process, Advantages, Limitations

Performance Budgeting refers to a budget in terms of functions, programmes and performance units (functions, activities and projects) reflecting the revenues and expenditures of an Organization or Government.  Performance Budgeting refers to a budget in terms of functions, programmes and performance units (functions, activities and projects) reflecting the revenues and expenditures of an Organization or Government.  

Features of Performance Budgeting 

♦ Performance Budgeting provides

  • The purpose and objectives for which funds are required
  • Costs of programs and related activities proposed to accomplish those objectives
  • The output that will be produced under each activity.

♦ Performance Budgeting implies that the budget must clearly indicate the actual achievement or output, expected by spending a particular amount on a particular activity. Hence, It is an output oriented budget that focuses more on achievement rather than means of achievements.

♦ The costs and benefits of each activity are analysed for making decisions regarding allocation of funds.

♦ It involves use of management tools such as – work measurement, bench marking and unit costing etc. to prepare a budget.

♦ This system has been designed to plan for long term.

Process of Performance Budgeting

Performance Budgeting

  • Formulation of objectives
  • Identifying various programmes and project which will accomplish these objectives
  • Evaluation & selection of programmes & projects on the basis of cost benefit analysis
  • Development of performance criteria for various programmes
  • Preparing financial plans for each program and the final annual budget
  • Assessing the performance of each programme an comparing the same with budgeted performance
  • Correcting deviations

Advantages of Performance Budgeting

  • It states clearly the purpose & objectives for which funds are needed.
  • It improves performance of units in a continuous manner
  • It brings transparency in the budget formulation process
  • It helps in decision making regarding allocation of funds
  • It acts as a tool for reviewing efficiency of programs
  • It integrates the process of planning, programming & budgeting

Limitations of Performance Budgeting 

  • It focuses on quantitative evaluation rather than qualitative evaluation.
  • It is ineffective without a proper and systematic accounting and reporting system.
  • It is difficult to quantify social benefits.
  • It is difficult to accurate estimate benefits arising out of each activity.

 

Also Read:  Zero-Based Budgeting

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