Planning Programming Budgeting System: Background
The traditional budgeting system (i.e. the Line-Item and Incremental) has been unsuitable and ineffective in the effective utilization of limited governmental resources as well as in the context of planning. There are some shortcomings or weaknesses of the traditional budgeting system as follows:
- emphasize on the objectives of control and accountability rather than allocation of limited resources on programmes and projects;
- provides information on the objects of expenditures, not the objectives of expenditure;
- does not help in analyzing and assessment of the impact of budget on the economy;
- emphasize on the incremental approach without due consideration of the necessity;
- emphasize on the financial performance rather than the physical;
- does not relate the current expenditure with the future budgetary repercussions
Success of planning needs improvements in budgeting system including others. John Beyer emphasizes that improvements in economic planning need, at first, a budgetary innovation to translate the plan decisions into reality. Similarly Caiden and Wildvasky have stated that planning is not worth much attention until the annual budget is made more meaningful.
History and Concept of Planning Programming Budgeting System (PPBS)
An innovation in the budgeting system is the planning programming budgeting system (PPBS). It is equally called the Performance and Programming Budgeting System as well as the Planning Programming Budgeting System. The Performance Budget was the outcome of the recommendation of the First Hoover Commission, 1949 in the USA. The Performance Budget is defined as;
“A performance budget is one which presents the purposes and objectives for which funds are requested, the costs of programmes proposed for achieving these objectives, and quantitative data measuring the accomplishments and work performance under each programme.” - Jesse Burkhead.
Performance budget is mainly to evaluate the work performance of government expenditures. Later, the term ‘programme’ was coined with the performance budgeting in 1957 as per the recommendation of the Second Hoover Commission. The Programme budget emphasizes on the need for budgetary management in the light of long term objectives.
PPBS was first introduced in the Defense Department in the USA in 1961 by Robert McNamara, and in all departments in 1965 until 1975. This system of budgeting is in practice in the form of Programme Budget in most of the countries mainly in case of development budget (introduced in Nepal since 2026 B.S.
Stages of Planning Programming Budgeting System (PPBS)
- Specification of Objectives - The objectives of the programmes are to be specified in consistence with the long term goals in quantitative terms as far as possible.
- Systemic Analysis - The possible alternative projects to achieve the programme objectives are analyzed in a systematic way with the use of cost-benefit and cost-effectiveness analysis.
- Functional Classification - The budget is classified on a functional basis like functions, programmes, projects and activities.
- Organization - Budget formulation addresses the organizational structure, managerial and administrative procedures of the programs/ projects/ activities.
- Evaluation - The mechanism for evaluation of performance on the basis of financial and physical performances to monitor, and take corrective actions, if necessary.
Advantages of Planning Programming Budgeting System (PPBS)
- It integrates the process of program/ project formulation, budget allocation and evaluation in a systematic way.
- It helps in the choice of programs/ projects, allocation of resources on them and performance evaluation for the executive and legislature.
- It integrates the decision makings regarding the choice of program/ projects to achieve the intended objectives.
- It attempts to promote maximum social advantage with the prudent (wise-full) use of scarce resources.
- It incorporates the future budgetary repercussion (may be 3,5,10 years) as per the nature and size of the projects.
Limitations of Planning Programming Budgeting System (PPBS)
This system of budgeting has not been effective in practice, even in the USA, and so in most of the countries. The reasons are pointed out as follows:
- For appropriation and control purposes, expenditures are continued to be classified in the traditional line-item approach. Various objectives budgetary policy makes budgeting complex and confusing.
- The problem arises in its application in case of multiple objectives of a program/ project that involves different agencies.
- It is difficult to acquire necessary information regarding performance evaluation and cost estimation in an uniform way in all governmental activities.
- It emphasizes on physical and financial performance, not on qualitative performance.
- It intends to centralize the budgetary decision makings.
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