Performance-Based Budgeting (official name Activity-BasedBudgeting in Estonia), is an integral part of the State Reform, which aims toachieve more effective and efficient implementation of public functions, higherquality of public services, reduction of general government expenditure andstaff costs, and more flexible and less bureaucratic management of thegovernment sector.
More effective governance requires the ability to use the available resources as optimally as possible, which often means the implementation of strategicgoals beyond the boundaries of ministries and organizations.
The objectives of development and financial decisions must be carefully considered in order to ensure the quality and availability of public services. It is unlikely that the Government will be able to allocate additional resources for the provision of public services in the near future, therefore the Government is faced with the task of improving efficiency. In order to increase the efficiency of service provision it is necessary to measure its cost, which in turn requires linking the resources with the activities and better monitoringand evaluation of the outputs and results of the activities.
In developing strategic and financialmanagement, the emphasis is on improving cooperation between government areas,increasing the transparency of budget planning of how the public money is spentand what it is used for.
The more frequent use of performanceand financial information as an input into decision making requires a significantquality improvement of performance information and restructuring it in a waythat allows it to be used in conjunction with financial information.
Performance measurement means the useof various performance metrics throughout the management chain, from planningto evaluation of the final results. Moving from an input-based system to anoutput or performance-based approach requires organizing and systematizingperformance-based information in order to reduce the complexity of itscollection and use.
The challenges that triggered the change
á Cooperation between ministries and also inside of the ministries, wasfragmented.
á Planning and budgeting were not linked. Strategic management and financialmanagement are two separate processes, as separate worlds. Budget processconcentrated mainly planning costs and investments. Strategic documentation wasnot revised after budget decisions.
á Too much concentration in inputs in budget planning. Most budget discussions were about inputs and financial information. Not about the needs and outcomes or purposes. Thus the reporting was cost-oriented and less about changes or impacts.
á Not enough performance evaluation and monitoring. Activity reporting of implementation plans were not used as input for budgeting process. Mostly financial monitoring was implemented.
á Large number of planning documents and they were not directly connected to the budget. For example in one line-ministry there were 15 strategic documents that enlisted 469 goals and 442 indicators, whereas the goals were not hierarchically connected. Prioritization of the goals was not possible and performance reporting was performed only for some of the documents. The budget of all of the documents together was several times bigger than the actual resources planned for this line-ministry in state budget.
á A raising number of people responsible for strategic planning or working out planning documents.
á Doubled activities, documents, functions, IT systems inside line-ministries and between ministries. Several ministries were performing activities with same target groups fulfilling different goals. For example NEET youth Ð the same activities were performed for employment, education and security purposes by 3 different line-ministries.
á Extra pressure on budget costs Ð (decrease of foreign funding within coming years, demographic changes, development needs of digitalization and investments) Ð brought up the need for performance reporting and efficiency gain in using public resources to make better budget decisions.
