Week10 : Budgetary Process
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1. Budgeting faces increasing uncertainty due to factors like changing revenue sources and increasing expenditure demands. This environment promotes dysfunctional budgeting tactics that compound uncertainty. 2. Traditional budgeting had defects like not maximizing societal returns and being a political outcome. Budget reforms aim to rationalize outcomes but often undermine this by political and bureaucratic behavior. Reforms of techniques and processes alone are not enough and must consider the political climate. 3. Successful budget reforms clearly explain aims beyond new techniques or processes. They must acknowledge the political rationale and inertia of existing budget methods. Reforms may be instituted formally but old practices often continue, so substance is not changed.
Week10 : Budgetary Process
- 1. Community College of City UniversityCommunity College of City University DSS 10004 Introduction to Social and PublicDSS 10004 Introduction to Social and Public AdministrationAdministration Presentation 6 : Budgetary Process Wildavsky : Rescuing Policy Analysis from PPBS Caiden : Public Budgeting amidst Uncertainty and Instability Name : IP Pak Wing (52223186) CHAN Wai Cheong (52224693) LAU Tak Fung (52223278)
- 3. Content: 1.General objectives of using policy analysis 2.The definition and background of PPBS 3.Four requisites of PPBS 4.The flow of PPBS 5.Why PPBS is a bad model a. Inertia b. Personnel 6.PPBS is an ideal which no one can do well. 7.Internal loopholes of PPBS a. Pattern of event b. Program structure 8.Groham Testimony 9.Rescue of policy analysis 10.Common Practice of PPBS Worldwide
- 4. 1.General objective of using policy analysis1.General objective of using policy analysis Main objectives: 1. Give relevant information to guide the agency 2. Pursuit policy recommendations 3. Seek knowledge and opportunities for coping with an uncertain future 4. Control and supervise the productivity and efficiency
- 5. 5. Ensure the outcome of the program should match the objective 6. Raise arguments which may create better alternatives 1.General objective of using policy analysis1.General objective of using policy analysis However, policy analysis is only an ART FORM. There is no precise rules of how to do it.
- 6. Time : Originated from U.S.A. in 1960s when Cold War started Founder : Robert S. McNamara & Charles J. Hitch Reason: They thought the budget of defense in buying and upgrading weapons was blurred. Therefore a transparent budget agenda was needed. 2.The definition and background of PPBS2.The definition and background of PPBS Robert S. McNamara
- 7. Planning set objectives Programming list the concrete policies and items Budgeting: cost expected Primary Objective: link the objectives (long term) with the annual financial budget and prioritize these programs Planning Programming Budgeting System, PPBS ( 計劃項目預算系統 ) 2.The definition and background of PPBS2.The definition and background of PPBS
- 8. 3. Four requisites of PPBS3. Four requisites of PPBS 1.Insight of special social problems 2.Common terminology is well established 3.The top leadership understands policy analysis and make use of it 4.Existence of planning and planners Feature of PPBS 1.Long term budget 2.Very discrete and rigid category on which items belong to only one agency
- 9. 4.The flow of PPBS4.The flow of PPBS
- 10. 5.Why PPBS is a bad model? a. Inertia 5.Why PPBS is a bad model? a. Inertia People always have inertia. There are the vested groups who will bring huge resistance to the new change.
- 11. Remedies : 1.Appropriation ( 回饋 ) Replace old rewards with larger new one to the vested groups. 2.Rapid organization growth Increase the organizational size means many new people who is not tied to the old ways can be hired and the speedy promotion turns to be the advantage of the new change which can convince the original members. 5.Why PPBS is a bad model? a. Inertia 5.Why PPBS is a bad model? a. Inertia
- 12. 3.The introduction of the new policy to the top management of the organization only. 4.Emphasize the environmental change which is beyond the control of an organization. So the adoption of the new policy is a must. 5.Why PPBS is a bad model? a. Inertia 5.Why PPBS is a bad model? a. Inertia
- 13. However, even using these remedies, there are some problems which cannot be critically solved. 1.Existence of experienced personnel 2..Lack of quality (not experienced) personnel leads little knowledge on how to perform PPBS. 5.Why PPBS is a bad model? b. Personnel 5.Why PPBS is a bad model? b. Personnel
- 14. There are even more problems when applying PPBS to domestic agencies In domestic agencies: 1.Goals are not easily specified 2.The budget does not devote to foreign policy (inertia resistance is very great) i.e. less autonomy from the environment 3.The cost of individual agencies does not rise to billions of dollars unlike the Defense Department, less allowance on large margin of error. 5.Why PPBS is a bad model? b. Personnel 5.Why PPBS is a bad model? b. Personnel
- 15. 6.PPBS is ideal which no one can do well.6.PPBS is ideal which no one can do well. The main problem of PPBS comes from the political difficulties, which if being eliminated, PPBS can perform very well. “No one knows how to do PPBS.” 1.Generally introduced only, no particular case, no operational term 2.No formula to do policy budgeting(it is an art only)
- 16. 7. Internal loopholes of PPBS a. Pattern of Events 7. Internal loopholes of PPBS a. Pattern of Events The instructions come down from the Bureau of Budget. The program budget has to be done by agencies. BUT Agencies personnel actually do not know how to do program budgeting. Therefore, vast amount of inchoate information and irrelevant data are submitted.
- 17. 1.Time is wasted for the Bureau of Budget to understand the irrelevant items 2.Head of the agencies cannot comprehend the bulky materials 3. Large data input but little output 7. Internal loopholes of PPBS a. Pattern of Events 7. Internal loopholes of PPBS a. Pattern of Events
- 18. 4.Cynicism( 犬儒主義 ) : reluctant to trust anything and anyone. Cynicism reigns supreme because the agency personnel do not know budgeting while the Bureau of Budget is reluctant to interfere with the agency operation. 5.Copying will occur. Same policy analysis will be applied to other policies. 7. Internal loopholes of PPBS a. Pattern of Events 7. Internal loopholes of PPBS a. Pattern of Events
- 19. 7. Internal loopholes of PPBS b. Program Structure 7. Internal loopholes of PPBS b. Program Structure PPBS requires a complete and complicated list of organizational objectives and program data. 1.The structure becomes a sham( 滑稽戲 )made up of useless data and vague categorization. 2.Personnel tends to hide things rather to clarify. 3.Almost no analysis is done but data input only. 4..PPBS emphasizes on long-term effect which is unpredictable.
- 20. Program structure is a part of budget 1.Budget is taken as statement of current policy ( 作為 當前政策的聲明 ) 2.Being neither program nor budget. Result: PPBS harms the objective of policy analysis make better policy in the future instead of collect data in the past 7. Internal loopholes of PPBS b. Program Structure 7. Internal loopholes of PPBS b. Program Structure
- 21. William Gorham (Assistant Secretary in Department of Health, Education and Welfare. An outstanding practitioner of program budgeting) Critics 1.PPBS is too general, neither clear for national goals nor used to trade-off policy 2.The outcome of policy on health and education is hard to be calculated. We cannot make value judgment though analysis. 8. Gorham Testimony( 見證 )8. Gorham Testimony( 見證 ) The left one is Gorham
- 22. So, as the outcome is too difficult to be measured, the goal settled has to be more clearly operational and widely acceptable. Example: Education Expected objectives: 1.Our kids have to go to schools (Consensus) 2.Kids are capable in different aspects (Diversification) 8. Gorham Testimony( 見證 )8. Gorham Testimony( 見證 )
- 23. Two diverse objectives… The objective should be concretized Educational Attainment (years of school to complete therefore measuring the quality easier) (more clearly operational and widely acceptable.) 8. Gorham Testimony( 見證 )8. Gorham Testimony( 見證 )
- 24. Result: Fuzzy objectives Concrete objectives the more concrete objectives, the less controversial, easier to get agreed with the objectives Finalized objective becomes the percentage of children going to schools (very concrete) 8. Gorham Testimony( 見證 )8. Gorham Testimony( 見證 )
- 25. Critics 3.PPBS has to go through rigmarole ( 無意義 的繁瑣手續 ) in order to accomplish a few discrete studies. Example: disease control programs 4.Program structure is useless. Even if the budget is set, the actual budget will do it in the old ways and policy analysis will do it outside the program structure. 8. Gorham Testimony( 見證 )8. Gorham Testimony( 見證 )
- 26. 9. Rescue of policy analysis9. Rescue of policy analysis PPBS discredits policy analysis. They should be separated increase the intellectual context at the expense Increase the demand for policy analysis a. Top management want it steady support b. Meet the needs of high level officials Example: President of United States & Policy- oriented executives c. Congressional Demand Enable Congressman to ask good questions and to evaluate answers
- 27. Increase supply of policy analysis a. Disengaging policy analysis from PPBS b. Improve the training of policy people in various areas of policy (Education at earlier period) c. Locate analysts in an organizational context They can gain prestige and report directly to the agency head 9. Rescue of policy analysis9. Rescue of policy analysis
- 28. 1.PPBS would clearly categorize which agency should execute the program. This limitation discourages programs coordinated by two or more agencies. (Example: Biotechnology program by Department of Energy and Department of Agriculture) General Critics on PPBSGeneral Critics on PPBS
- 29. 2.PPBS intensifies competitions among agencies for resources as severe limitation are imposed. 3.PPBS would evaluate if the outcome of the program meets the objective and thus determine whether the agency should survive or not. However, the survival of an agency should take other factors into account such as political factor and public expectation. General Critics on PPBSGeneral Critics on PPBS
- 30. 4.Since PPBS requires lots of related information which needs numerous manpower and material resources. It violates the original objective of using PPBS which is to save cost. There is a saying of “Paper Producing Budgeting System” which means lots of paperwork have to be done. General Critics on PPBSGeneral Critics on PPBS
- 31. (a)It emphasizes on long-term effects. (b) It achieves effective use of budgeted resources and anticipated performance. (c) The technique ensures rational decision- making and forces those seeking budgetary allocations to consider alternatives. (d) It leads to rapid economic development. because of the outcome-evaluation based feature Advantages of using PPBSAdvantages of using PPBS
- 32. 10. Common practice of PPBS worldwide10. Common practice of PPBS worldwide Here are the example of common practice of PPBS U.K. : Modification from PPBS to a more market and economic oriented form of budgeting Why modify? PPBS has the structural problems and This modification can let the budget adhere to change dynamics of budgeting in the new global scenario. Bulgaria: Modification form of PPBS Bosnia-Herzegovina: ( 波斯尼亞和黑塞哥維那 ) Adopting PPBS without modification
- 33. New Zealand: Modification of PPBS budgeting to an output-intensive budgeting in early 1990s. Features: Items brought to accounting in financial statements are the outcome earned or incurred rather than received and paid. i.e. Not focus on cash input, instead of what the department will receive after doing this item Result: The use of money will be blurred but more flexible. Also, the expenditure not in a cash form is good for the government which are under stagflation problem( 停滯性 通貨膨脹 ) or running short of money. 10. Common practice of PPBS worldwide10. Common practice of PPBS worldwide
- 36. Content 1.Fast changing environment 2.The quest for budget reform a. Four ideas about budget a1. An array of budget reforms that cover all above interests b. Process Subordinates Substance c. Reform Are Not Cumulative d. Reform Are Not Universal 3. Coping with Uncertainty and Instability Six areas of uncertainty and suggestions for their alleviation
- 37. Uncertainties are multiplying Revenue : growing resistance on tax 1.equity of taxation 2.fear of public sector reaches the limit 3.mistrust of public bureaucracy 4.inflation 5.tax evasion and underground economy Expenditure: increase demands for public goods and services 1.aging population 2.poverty 3.advanced technology 4.safety measures 5.environmental protection Public resources are finite and public needs infinite Fast changing environment
- 38. Revenue uncertainties promote multiple budgets and dysfunctional tactics compound uncertainty for everybody else Complicate intergovernmental system Interdependent responsibilities and finance Budgets at all levels reflect a complex maze To discipline the uncontrollable budgets, they devise new and increasingly sophisticated method ie. working on three future budgets at once. Financial manager realize that the budget is uncontrollable but remedies may actually aggravate it further.
- 39. Although traditional budgeting was acceptable, it suffered several defects.
- 40. Budget management ----- crucial element in carrying out public interests. The budget outcome of competition for political power. The structure and process of budgeting must concern different interest groups (attempt to influence governmental policy). Budget is a major weapon for controlling governments.
- 41. Mobilization of resources for public use and employment Consolidation and control of available resources -- Prevent seepage( 滲流 ) & monitor their locations at all times Allocation of resources among competing demands Scientific evaluation (public expenditures & projects)
- 42. Prompt and economic disbursement( 支付 ) Improvement of skillful and proficient financial management Institutionalization( 制度化 ) of honest, open & carefully accounting practices Establishment of an independent audit( 獨立 審計 ) agency
- 44. Aim: the maximization of societal return from public expenditures. Budget reform has often been conceived as the rationalization( 理性化 ) of budget outcomes.
- 45. Budgets reflection of politics. Budgets are put together by political and bureaucratic actors. Reforms of techniques & processes, will be undermined by the rationale of politics and bureaucratic behavior. Budgets reforms might be regarded as illegitimate( 非法的 )in some measures.
- 46. Successful budget reform explain its aims over & beyond incorporation of techniques and processes. Must heed( 注意 ) the political climate & consider inertia( 慣性 ) & rationale( 基本 理由 ) of existing budget methods.
- 47. Reforms are formally instituted but the old ways continue to practice. Alterations in the formal processes miss the original aim of budget reform a change in budget allocations. PPB and ZBB intermediate steps only
- 48. Through PPB and ZBB, it is hoped to incorporate certain values into budgetary decision making. Inconsistency
- 49. New reform builds on earlier ones. Reform resembles a path marked with regular signposts. Budget institutions trust, probity( 誠實 ) & a spirit of public service & guardianship of the public purse( 資 財 ).
- 50. Not constant. Change popular morality, perception of public role, institutional reactions to external pressures and a host of other imprecise and poorly understood factors Budget processes a set of fixed techniques. Constant monitoring and re-evaluation are needed.
- 51. Reform fails because of faulty implementation. Budgets disappear because earmarked funds and special authorities are set up to gain and hold revenues. Cash flow management in the form of repetitive budgeting replaces the steady budgeted flow of funds. Successful budgeting techniques seem to depend as much on the environment as on their own internal perfections.
- 52. Failures of reform disillusion, cynicism and exhaustion. Realization mechanical changes More realistic agenda for public budgeting and aid adaptation to uncertainty and instability
- 53. Six areas of uncertainty and suggestions for their alleviation
- 54. 1) Uncertainties arising from novelty. 2) Uncertainties arising from an annual perspective. 3) Uncertainties arising from problems in forecasting. 4) Uncertainties arising from centralization and bureaucratic controls. 5) Uncertainties arising from size and complexity. 6) Uncertainties arising from erosion of accountability.
- 55. Feeling We are coping with unique and unprecedented problems. Future Beneficial from previous experience Other budget systems’ information is bitty( 零碎的 ). Jurisdictions lack of systematic studies
- 56. Constructing systems a priori & imposing in blanket fashion irrespective of circumstances. Cities, countries, states & government corporation learn from each other Provide insights into relationship between changes in formal structures & budgeting behavior & outcomes between environmental changes and budget processes Valuable lessons of analysis can be obtained from comparing private and public practices.
- 57. Annual budgeting a static framework to control a continuous and dynamic flow of activity uncertainty Annual accounting and review is too short. Setting up entitlements, multi-year authorizations and permanent appropriations.
- 58. These practices would form another uncertainty “uncontrollable” budget. Adopt a differential time spans for program review according to need more realistic greater concentration on fewer areas, different kinds of scrutiny over the life of a program, and better monitoring of program progress and effectiveness.
- 59. In a fast changing environment and high inflation, it is difficult to estimate costs and revenues. Unrealistic over-allocations under spending & large balances Irregular disbursements & frequent adjustments serious inefficiencies in use of public funds Implementation phase & Serious consideration
- 60. Federal agencies donor role State government donors / recipients Financial interdependence uncertainties In response to these uncertainties increase bureaucratic control Accounting techniques and computerized operations greater decentralization
- 61. Explosive growth in size and complexity of government budget uncertainty Size and complexity obfuscate To boost program staff participating in the budget process. Design procedures maximum clarity and precision
- 62. Difficulty in ensuring public money is spent wisely and efficiently Decrease public confidence in government Establish indicators of performance Measures for ensuring accountability New incentives for good performance Examination for contracting, disbursements and auditing Finding new resources of revenues and reconstructing taxation to avoid underground economy Uncertainties arising from erosion of accountability
- 63. Discussion 1.Apart from inertia and personnel, what other factors of an organization would impact on the effectiveness of PPBS? 2.Do you agree that reform are always cumulative(new reforms build on earlier ones)?