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PM2 Connections
performance measurement
& management
Budgeting for Outcomes
Improving on a Best Practice
By Michael J. Mucha
In October 2012, the
GFOA and the City of
Baltimore hosted BFO
2.0, a forum designed
for experienced
budgeting for outcomes
practitioners to discuss
their experiences,
lessons learned, and
success stories.
O
ver the past 10 years, many
governments have turned to
budgeting for outcomes as a
way to create sustainable budgets that
fund programs and services aligned
with their communities’ long-term needs,
regardless of the revenues available. BFO
is a performance budgeting process that
is based on identifying priorities that
reflect the results that citizens want, and
then developing strategies and funding programs and services aimed at
accomplishing those priorities. Proposed
programs and services are prioritized
and ranked and funded within each
major, high-level priority, based on their
prospects for achieving desired results.
All governments that use BFO implement essentially the same core elements,
but each organization implements slight
(or in some cases significant) variations in the standard format, and these
variations have led to different process
outcomes. The GFOA and the City of
Baltimore, Maryland, recently assembled
a group of practitioners to discuss their
experiences with BFO.
CONSIDERING IMPROVEMENTS
In October 2012, the GFOA and the
City of Baltimore hosted BFO 2.0, a
forum designed for experienced BFO
practitioners to discuss their experiences, lessons learned, and implementation stories. The goal of the event was
to discuss strategies and ideas for building upon the basic BFO process, since a
clear trend in the GFOA’s BFO research
is that governments make improve-
ments with each successive BFO cycle,
based on they have learned from experience. Approximately 45 people attended the event, representing organizations
from across the United States that are
known for their BFO processes, including the City of Fort Collins, Colorado;
the City of Redmond, Washington; and
Mesa County, Colorado. Below are
some of the improvements participants
saw as key to “future versions” of BFO,
to get the most out of the process and to
encourage other governments to use it.
Merging BFO with Overall
Performance Management Efforts.
Budgeting for outcomes is a part of
a larger performance management
approach. To use it effectively as a
tool that encourages overall accountability, efficiency, and improvement,
organizations need to use other tools
such as performance measurement,
process improvement, and program
evaluation. For example, to decide the
degree to which a stated priority has
been achieved, organizations need performance measures to evaluate results,
both at the program level and the community level. Process improvement strategies such as Lean can also help make
sure individual programs are working as
efficiently as possible and that they are
focusing on appropriate outcomes.
Developing Effective Leadership
to Support BFO. Executive vision
and leadership are critical. When leaders understand the process, organizations get the most out of it, using BFO
December 2012 | Government Finance Review 45
for tough discussions that are based on
evidence about what programs and services are most effective and appropriate.
The results of the BFO process — efficiency, transparency, innovation — are
achieved more by the focus on BFO by
leadership than through use of the BFO
process alone. For example, organizations with leaders who stressed collaboration and creativity were more likely to
experience collaboration and creativity
than those that didn’t. In addition, organizations with leaders who supported the
process were more likely to achieve the
expected benefits of the BFO process.
The challenge is in communicating the
value of BFO to new leaders and to leaders in organizations that have not already
experienced the value of this approach.
BFO does not replace the need for making difficult decisions or reduce the role
of decision makers; it provides a structure and better information for informing
those decisions.
Reducing the Administrative Burden of BFO. Budgeting for outcomes is
often a time-consuming process. Many
organizations have realized significant
benefits from their efforts, but there is no
denying that it can be a large initial time
investment. Reducing this time commitment will be important in convincing
more governments to adopt BFO. Forum
participants identified potential methods
of reducing time commitments, such as
not going through a full BFO process
every year, identifying templates, and
tools to speed implementation and making sure instructions and procedures
are clear and well understood so teams
and departments can work quickly and
on task.
Finding Technologies to Support
the Process. For many organizations,
BFO remains a process that is managed
46 Government Finance Review | December 2012
outside of the main financial system.
There are very few (if any) commercially available budget systems that support the full budgeting for outcomes
process, although many systems provide
the capability for producing program
budgets. As a result, many organizations
rely on Microsoft Excel, or they’ve had
to develop custom budget applications
to help manage the process. Both of
these approaches have limitations; Excel
makes collaboration among departments
difficult and custom-built applications
cannot be transferred from one organization to another. What is needed is a technology solution that supports all phases
of the process and is integrated with the
main financial system.
Implementing a True BFO Approach.
Many organizations have modified
their budgeting for outcomes approach
by removing organizational units or
types of expenditures, such as capital
items, from the process. However, BFO
requires all programs and services to
be aligned with priorities, and preferably, all sources of funding; narrowing
the scope of the effort may not lead
to the most effective use of funding,
thus lessening the impact on priorities.
Governments need to consider all their
programs and services to truly reprioritize spending, ensure that the budget
completely supports community preferences, and certify that it has purchased
the programs and services that lead to
best results.
Considering Service Levels. In the
basic BFO approach, organizations balance their budgets through an approach
in which programs that are ranked
“above the line” are funded, while
those “below the line” are not. This all
or nothing approach does not necessarily consider service-level alternatives or
take into account how different levels
of funding might provide different levels of efficiency in outcomes. In reality, governments often do take these
factors into account, but do so outside
of the BFO process. In determining the
optimal mix of services to accomplish
desired goals, organizations should
consider different service levels as part
of the BFO request so results teams
can analyze impact of funding level on
outcomes within an offer or program.
For example, the most effective use
of resources might not be implementing all of program A at the expense of
program B; it might be better to reduce
funding for program A slightly so that
both A and B can be funded at reduced
levels. This makes it important that
participants understand the relationship between promised outcomes and
levels of funding, in addition to the
relative value of programs in achieving
priority results.
NEXT STEPS
Answers to these issues and critiques
of the BFO process will be discovered
as more and more governments adopt
this best practice and find ways to innovate. In the next few months, the GFOA
will release a research report that highlights the major findings from this forum,
along with the GFOA’s research into
budgeting for outcomes over the past
year. Anyone who is interested in joining these discussions is encouraged to
visit the BFO Network site at www.
bfonetwork.org. To register for access
to the BFO Network, please visit http://
bfonetwork.org/?xgi=3jm4h8qP7rKE6Z y
MICHAEL J. MUCHA is a senior manager
in the GFOA’s Research and Consulting
Center in Chicago, Illinois
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