Article 24. Establishing a Funding Formula for Performance Budgeting.
The Funding Formula is the key connection between either of the two efficiency approaches “Work Improvement Teams (WIT)” or “Cost and Schedule” and the Performance Budgeting system. While current state Performance Budgeting systems do a fairly good job in budgeting expenditures for high level “activities” (I prefer the term “Functions“) efficiencies at the process level are not measured. With the two approaches stated above each function is broken down in to the “one best set“ of processes determined either by a WIT or by a time study analyst and a man-hour cost is assigned to each process. Additional expenditures are added to each process such as mileage and purchased supplies. All of the above is represented on a detailed flow chart with man hour costs, mileage and expenses being keyed to each process. If a process were to be eliminated all of the costs associated with it would also be eliminated. The funding formula is created from this data providing a solid base for the Performance Budgeting system. For more information see Article 12. “Which Approach to use in State Government “Cost and Schedule” or “Work Improvement Teams“?
If in the Department of Transportation (DOT) for example a funding formula is created for the function “highway resurfacing”. When the function is costed out the man-hours for 32 employees and mileage expenses including capital depreciation expended by each process produces 50 miles of resurfaced roadway per year. When all the man-hour costs and expenses are totaled from each of the function’s processes you have simply to divide this number by 50 to get cost per mile. If 65 miles were to be budgeted for next year simply multiply 65 x the cost per mile to arrive at the new Budget. Because in this example there is a high dependence on Schedules and slippage in schedules results in a significant loss both in man hours and other expenditures the Cost and Schedule approach is recommended. This approach provides for daily management of the function’s schedules. If there is any slippage management can take immediate corrective action to bring the function back onto schedule.
In this example to implement the Funding Formulas for the Performance Budgeting system you could use the time study data from the implementation of a single DOT district to create Cost and Scheduling implementations and funding formulas for all of the state’s DOT districts. This eliminates the cost of time studying duplicate functions in each of the DOT districts and establishes a daily performance reporting system for all the functions in all of the DOT districts. The legislature will be able to review and compare the performance data for each function in each DOT district providing a significant enhancement to the State’s Performance Budgeting system.
In the WIT approach the funding formula is created as stated above from the data collected in the development of the process flow chart. This method does not provide for daily productivity monitoring but does provide budget performance data to the Performance Budgeting system.
