Following observations of French and English case studies made possible by our introductory article The basics of impact based budgeting, we try to finally present some challenges and recommendations considering impact based budgeting.
What are the challenges?
Implementing a performance-based model, regardless of the scale chosen for this new strategy, public managers face undeniable issues and adverse effects mainly due to:
Indicators design: The danger lies in failing to cover every aspect of the outputs in terms of quantity, quality and efficiency thus skewing the reasoning (see above the five criteria for proper performance indicators)
Evaluation reliability: Administrations still face challenges to accurately measure the results of their programs. Defining operational indicators may be a challenge as public policies provide mostly services and no goods. The proliferation of measures (e.g. see the diversity of policies implemented to improve road safety) and the disruptions caused by exogenous factors (e.g. see the influence of environmental factors on health policies) make it even more difficult to give reliable evaluations. Operationally restricted, evaluation methods rely mainly on qualitative data, which needs to be defined precisely to reduce potential disturbances.
Performance information clarity: Decision-makers must be able to take ownership of the figures in limited times requiring to select the relevant indicators and selected evaluations
Resistance to change: Performance management has to cope with change management issues (from the basic fear of losing credits to the insidious fear of losing autonomy)
What BE recommends for its clients in the public sector:
Elaborate budget with clear and aligned objectives:
- Define clear and achievable objectives; financial objectives should be aligned with operational objectives
- Define objectives taking into account citizens’ expectations
- Involve key stakeholders, and not only financial departments, to elaborate a public budget
Implement budget considering three main rules:
- As already developed in our article “Switching on the time bomb effect”, implementing a budget need to be adapted to the local context and lessons learned from past.
- Elaborate a clear planning and reporting rules: define clear dashboard and indicators to monitor the implementation of the budget but also to better prepare future budgets
- Secure data through the development of reliable, simple and relevant information systems
Review objectives, impacts and budgets regularly:
- An impact-based budget evolves continually
- Do not neglect the importance of independent evaluation and assessments to monitor and re-align your operational and financial objectives
Eventually, we also believe that this approach concerns all kinds of public entities from local governments to the European Union:
- Local and national governments will have to continue their efforts to improve their budgeting approach due to the economic Maastricht constraints, the social and financial constraints i.e. the scissor effect with ever more citizen expectations and ever less resources available.
- At the European Union level, the European Commission itself has already engaged in impact-based budgeting to cope with budget reductions. For now, it has been done at a relatively slow pace (decrease of 1% per year for the general budget and HR budget). However, one of the consequences of the Brexit being the loss of the UK contribution to the EU budget, the EU will certainly have to implement more ambitious impact-based budgeting approaches.
Authors:
Edouard Chambalu, Analyst
Laetitia Chatain, Senior Consultante
François Lanquetot, Associé