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
- 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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