Performance-based budgeting: 5 key insights

Government organizations need to get the most out of a tight budget—but figuring out the best way to allocate resources isn’t always easy. 

Maximizing your organization’s operational potential starts with an optimized budget that’s tailored to your organization’s goals and initiatives.  

In our latest Lightening Keynote webinar, Euna Solution’s Charlie Francis, Senior Consultant, recently sat down with GovLoop to discuss why government organizations should transition to performance-based budgeting to achieve an optimized budget and maximize its potential.  

Here are 5 major takeaways from their conversation that will help you understand the benefits of a performance-based budget. 

1. Performance-based budgeting provides significant value that traditional budgeting simply can’t. 

While traditional line-item budgeting is solely based on incremental changes that show how money is being spent, performance-based budgeting focuses on achieving results and outcomes, in addition to showing the value of each dollar spent through measurable goals.  

“A performance-based budget gives your organization an opportunity to marry citizen engagement with strategic planning, to budgeting for operational results,” says Charlie. “This leads to financial savings and improved performance.”   

2. Count on performance-based budgeting to help your organization make the right decisions.

Implementing performance-based budgeting provides your organization with the right data and evidence needed to make informed decisions that wouldn’t be accessible under traditional budgeting.  

As former finance director working with elected officials, Charlie notes how important it was having the right data for them to make the best decisions possible, and the success they achieved once Charlie implemented a comprehensive performance-based budget.   

“They had something behind them to support their decisions,” says Charlie. “They were now making informed decisions supported with data and evidence.”  

3. Performance-based budgeting provides accountability and transparency.

Making informed decisions is important—but being able to explain your reasoning behind those decisions is what builds public trust and understanding.  

Speaking on the main advantages of implementing performance-based budgeting, Charlie says: 

“It assists elected officials and their constituents with all the background information they need on the purpose of the governmental programs and the results they achieve.” 

Charlie also notes that performance-based budgeting helps explain previous funding decisions, aids in estimating and justifying potential consequences of previous funding decisions, and leads to a deeper public understanding of department activities.  

4. Implementing performance-based budgeting has its challenges.

Organizations looking to benefit from performance-based budgeting may need to brace for a few roadblocks. 

Charlie references 3 main challenges organizations might face when implementing performance-based budgeting: 

• Staff, elected officials, and residents might have a difference in opinion for what’s most important for your government to work on. 
• The number of performance indicators available can distract and overwhelm elected officials and the public. 

• Deciding on the proper use of incentives and disincentives to improve departmental performance. 

5. How to successfully implement performance-based budgeting.

So, with this abundance of knowledge, how can your organization successfully adopt performance-based budgeting? 

Charlie outlines his 4-step process: 

Step 1: Set goals and objectives 

Evaluate each department to determine performance objectives for your organizations budgeting period and clearly communicate them throughout your organization.  

Step 2: Identify and track KPIs 

KPIs (key performance indicators) are integral to implementing performance-based budgeting because they track your organization’s operational effectiveness. Ensuring your departments have a detailed understanding of the KPIs will determine how effective they are.  

Step 3: Adopt a balanced score card 

The scorecard is a performance management tool that combines your organization’s performance objectives with finance metrics to provide a balanced view of your KPIs’ performance. The scorecard aligns department work with your KPIs to provide insight and direction on how the KPIs can be achieved.  

Step 4: Acquire software that facilitates performance-based budgeting 

Having the right performance-based budgeting software— like Euna Budget, powered by Questica — improves collaboration, increases efficiency, and allows your organization to make the most informed decisions, while keeping all budgeting information and data in one easily accessible location for all departments.  

Ready to elevate your organization’s budgeting potential? Schedule a demo with a member of our Solutions team today.  

Interested in the full webinar (featuring Charlie Francis’s fantastic bowtie)? Access the recording here.