Past State budgeting practices focused on detailed items of an organization’s expenses such as salaries and travel. With Performance Budgeting the emphasis is on the allocation of resources based on an organization’s goals and measured past results. Currently state Performance Budgeting is done by examining an organization’s missions, performance goals, and results in order to provide more input into the budgeting process. A realistic framework for an organization’s performance measurement is provided by the executive and legislative branches agreeing on and setting up performance goals emphasizing a range of performance measures that strive toward but did not initially demand outcomes.

Performance budgeting presents problems where some state organizations are failing to meet all of the performance budgeting criteria. State organization supervisors find meaningful performance measures difficult to develop especially when the organization’s “product” is not easily quantifiable. They feel as if they are trying to measure the immeasurable without having a clear understanding of which performance indicators can accurately inform the organization as to how it is carrying out a specific activity.

One of the reasons that many state supervisors are having trouble finding meaningful performance measures is that their state has incorrectly followed the DOD’s Performance Budgeting System. In the DOD’s system a “Program” is a specific item such as the F15 fighter airplane. Activities are the design, manufacturing, testing etc. which are actually functions that get budgeted. For the manufacturing function it is relatively easy to establish a manufacturing rate for this specific aircraft and determine if the contractor has met his manufacturing performance goal. The DOD also wants an overall performance measure for a program so that defense contractors can be compared. The development of this performance measurement is difficult and not easy to reach agreement on. Since state organizations are not competing with each other an organization doesn’t require an overall performance rating only its functions.

At the state level there may be confusion between functions and organizations that include more than one function. This confusion arose because in the past organizations as stated above were budgeted not functions. For example the Department of Elementary and Secondary Education contains two high level functions elementary education and secondary education each of which will have different performance measures. In the Department of Transportation (DOT) you have a number of functions including new highway construction, highway resurfacing, roadway cleanup, or bridge replacement. None of these functions will have the same performance measure. Trying to develop a valid performance measure for the DOT is difficult meaningless and unnecessary.

I propose the following process for Performance Budgeting based on functions with their funding formula and performance data being developed from work measurement.
1. State organizations are not directly funded each function of the organization is funded as a separate unit under the organization. An organization’s budget is the summation of the budgets for each of its functions.
2. The executive and legislative branches of the government prioritize all functions presented to the state legislature for funding. Functions that have a low priority are among the last to be considered or are not funded.
3. A function’s budget request begins with the summation of past performance reports at the state level from all the counties or districts to be used in the budget evaluation process. The performance measures at the county or district level were developed during the work measurement process.
4. Funding for a function begins by developing the function’s strategic plan, reviewing its funding formula (from work measurement), reviewing its performance reports (from work measurement) and setting its goals. These are linked with the budget process by requiring the executive and legislative branches to consult on the function’s goals and missions.
5. The executive and legislative branches reach an agreement on a function’s performance goals, which determines the level of funding. The actual budget amount is calculated using the function’s goals and funding formula. Performance measures are known from actual work in progress (determined by “work measurement”) and only the level of performance needs to be agreed upon.

This approach to Performance Budgeting is much simpler than that currently used. Once the function’s goals are agreed upon the actual budget can be immediately calculated using the funding formula developed during the work measurement implementation. The problem organization supervisors were having in the development of performance measures is also solved during the implementation of work measurement. The function’s performance measurement method has already been developed it does not need to be agreed upon only its level of performance.

Work measurement is done in either of two ways by time study data resulting from a “cost and schedule” implementation or from calculations made from “Work Improvement Teams” Process Flow Charts. Either method provides actual manpower requirements (not estimated) for any budgeted function goal with a way of measuring performance. The function’s actual manpower requirements can be calculated for the county or district from work measurement data.