United States General Accounting Office

GAO Report to Congressional Committees

March 1997 PERFORMANCE

BUDGETING

Past Initiatives Offer

Insights for GPRA

Implementation

GAO/AIMD-97-46

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-275095 

March 27, 1997

The Honorable Fred Thompson

Chairman

The Honorable John Glenn

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Dan Burton

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform and Oversight

House of Representatives

Since 1950, the federal government has attempted several governmentwide

initiatives designed to better align spending decisions with expected

performance—what is often commonly referred to as “performance

budgeting.”1

 Consensus exists that all of these efforts, whether launched

by the legislative or executive branch, failed to shift the focus of the

federal budget process from its longstanding concentration on the items of

government spending to the results of its programs.

In 1993, the Congress enacted the Government Performance and Results

Act (GPRA) to improve the effectiveness, efficiency, and accountability of

federal programs by having agencies focus their management practices on

program results. Through better information on the effectiveness of

federal programs and spending, GPRA seeks to help federal managers

improve program performance; it also seeks to make performance

information available for congressional policy-making, spending decisions,

and program oversight. With regard to spending decisions, GPRA aims for a

closer and clearer linkage between resources and results. In this sense

GPRA can be seen as the most recent event in a now almost 50-year cycle of

federal government efforts to improve public sector performance and to

link resource allocations to performance expectations.

GPRA mandates that GAO review the implementation of the Act’s many

requirements and comment on the prospects for compliance by federal

1

In this report, we use the term “performance budgeting” to refer generally to the process of linking

expected results to budget levels, but not to any particular approach. As discussed in the body of this

report, both the concept and techniques of performance budgeting have evolved considerably since

1950.

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agencies as governmentwide implementation begins in 1997. This report is

one component of GAO’s response to that statutory mandate.2

 Specifically,

this report compares and contrasts the key design elements and

approaches of GPRA with those of past initiatives which also sought to link

resources with results, a concept generally termed performance

budgeting.3

 A principal hypothesis of our work was that understanding

past initiatives can aid the Congress in anticipating future implementation

challenges for GPRA.

In addition to an extensive literature review of past initiatives and GPRA,

we convened panels of agency officials and legislative staff involved in

GPRA implementation, as well as academic and other experts familiar with

GPRA and some of the prior initiatives. Panelists were asked to comment on

a set of challenges we identified for GPRA implementation from our review.

Throughout this report, we refer to these panelists by their affiliation with

a particular branch of government or as “experts” due to their background

in budgeting and public administration. Although not necessarily complete

or generalizable, the views expressed by the panelists cover a broad range

of perspectives reflecting multiple congressional committee jurisdictions

and a wide range of executive departments and agencies. Lastly, we

discussed this report with senior officials from the Office of Management

and Budget (OMB). They proposed several technical adjustments, which we

have incorporated as appropriate.

Results in Brief In its overall structure, focus, and approach, GPRA incorporates critical

lessons learned from previous efforts. Nevertheless, many of the same

issues encountered in previous initiatives remain and will likely pose

significant challenges if GPRA is to achieve its aim of better linking resource

decisions to performance levels.

• Where past efforts failed to link executive branch performance planning

and measurement with congressional resource allocation processes, GPRA

requires explicit consultation between the executive and legislative

branches on agency strategic plans. Past initiatives’ experiences suggest

that efforts to link resources with results must begin in the planning phase

2

For additional discussion of GPRA implementation issues, see Executive Guide: Effectively

Implementing the Government Performance and Results Act (GAO/GGD-96-118, June 1996); Managing

for Results: Achieving GPRA’s Objectives Requires Strong Congressional Role (GAO/T-GGD-96-79,

Mar. 6, 1996); GPRA Performance Reports (GAO/GGD-96-66R, Feb. 14, 1996); and Managing for

Results: Status of the Government Performance and Results Act (GAO/T-GGD/AIMD-95-193, June 27,

1995).

3

As discussed in the body of this report, GPRA requires performance budgeting pilots that present the

anticipated levels of outputs and outcomes that would result from varying spending levels.

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with some fundamental understanding about program goals. The challenge

for those implementing GPRA will be to ensure that consultations are

substantive and address the sometimes conflicting and competing goals of

federal programs and the differing expectations of participants.

• Where past initiatives devised unique performance information formats

often unconnected to the structures used in congressional budget

presentations, GPRA requires agencies to plan and measure performance

using the “program activities” listed in their budget submissions.4

However, program activity structures vary throughout the federal

government, and the extent to which current structures can support both

GPRA performance planning needs and congressional budget

decision-making is also likely to vary.

• Where past initiatives were generally unprepared for the difficulties

associated with measuring the outcomes of federal programs and often

retreated to simple output or workload measures, GPRA states a preference

for outcome measurement while recognizing the need to develop a range

of measures, including output and nonquantitative measures.5

 Focusing on

outcomes shifts the definition of accountability from the traditional focus

on inputs, processes, and projects to a perspective centered on the results

of federal programs. However, the difficulties associated with selecting

appropriate measures and establishing relationships between activities

and results will continue to make it difficult in many cases to judge

whether changes in funding levels will affect the outcomes of federal

programs.

Our discussions with selected legislative staff and agency officials

revealed fundamental differences in perspective and expectations that are

often a necessary consequence of our system of separated powers. For

example, legislative staff concentrated on their oversight role and stressed

near-term program performance, consistency over time in information

presentations, and accountability. Conversely, executive agency officials

stressed long-term goals, adaptability to changing needs, and flexibility in

execution. Past initiatives often foundered because no mechanism existed

to reconcile or even to address these legitimate but at times competing

views. GPRA, through required consultations and formal, public documents,

is intended to encourage an explicit and periodic exchange of views

4

The term “program activity” refers to the listings of projects and activities in the Appendix portion of

the Budget of the United States Government. Program activity structures are intended to provide a

meaningful representation of the operations financed by a specific budget account.

5

GPRA defines outcome measures as an assessment of the results of a program activity compared to

its intended purpose. Output measures, conversely, refer to the tabulation, calculation, or recording of

activity or effort, such as checks processed or students enrolled.

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between the branches; nevertheless the inherent challenges posed by our

system of checks and balances will inevitably and appropriately remain.

GPRA differs from prior initiatives in two important respects. First, past

performance budgeting initiatives were typically implemented

governmentwide within a single annual budget cycle. GPRA, in contrast,

defines a multiyear and iterative governmentwide implementation process

that incorporates pilot tests and formal evaluations of key concepts. In this

manner, GPRA increases the potential for integration of planning,

budgeting, and performance measurement while guarding against the

unreasonably high expectations that plagued earlier initiatives. Second,

GPRA will face an operating environment unknown to its predecessors:

persistent efforts to constrain spending. This restrictive budgetary climate

can create an imperative for linking performance information to resource

decisions but will likely intensify existing differences in expectations

between executive and legislative branches.

Past initiatives demonstrate that performance budgeting is an evolving

concept that cannot be viewed in simple mechanistic terms. The process

of budgeting is inherently an exercise in political choice—allocating

scarce resources among competing needs and priorities—in which

performance information can be one, but not the only, factor underlying

decisions. GPRA is based on the premise that budget decisions should be

more clearly informed by expectations about program performance.

Ultimately this goal of linking resources with results implies both risks and

rewards. The risk lies in expecting too much too soon—for example, that

discrete outcomes can be associated with specific resource commitments,

or that performance information can quickly provide solutions to today’s

budgetary pressures. But rewards exist as well. GPRA holds the potential to

more explicitly infuse performance information into budgetary

deliberations, thereby changing the terms of the debate from simple inputs

to expected and actual results.

Federal Initiatives

Have Taken Varying

Approaches to

Performance

Budgeting

At the federal level, interest in performance budgeting has led to

numerous initiatives since World War II, including four that were

governmentwide in scope: (1) reforms flowing from the first Hoover

Commission in its efforts to downsize the post-World War II government,

(2) Planning-Programming-Budgeting-System (PPBS) begun in 1965 by

President Johnson, (3) Management by Objectives (MBO) initiated in 1973

by President Nixon, and (4) Zero-Base Budgeting (ZBB) initiated in 1977 by

President Carter. Each of these efforts established unique procedures for

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linking resources with results. The following discussion briefly

summarizes and relates each of these initiatives; appendixes II through V

provide additional background information.

First championed in 1949 by the Hoover Commission, a federal

“performance budget” was intended to shift the focus away from the

inputs of government to its functions, activities, costs, and

accomplishments. Rather than emphasizing items of expenditure—for

example, salaries, rent, and supplies—a performance budget was to

describe the expected outputs resulting from a specific function or

activity—for example, weapons, training, insurance claims, construction

projects, or research activities. Consistent with the Commission’s

recommendations, the Congress enacted the Budget and Accounting

Procedures Act of 1950 (BAPA), which, among other things, required the

President to present in his budget submission to the Congress the

“functions and activities” of the government, ultimately institutionalized as

a new budget presentation: “obligations by activities.” These presentations

were intended to describe the major programs, projects, or activities

associated with each federal budget request—in a sense, the “performance

budget” of a government which at that time was primarily involved in

directly providing specific goods and services.6

 Workload and unit cost

information began to appear in the President’s Budget, associated with the

“obligations by activities” presentations, providing a means of publicly

reporting the outputs of federal spending.

The Planning-Programming-Budgeting-System (PPBS), mandated

governmentwide by President Johnson in 1965, assumed that different

levels and types of performance could be arrayed, quantified and analyzed

to make the best budgetary decisions. In essence, PPBS introduced a

decision-making framework to the executive branch budget formulation

process by presenting and analyzing choices among long-term policy

objectives and alternative ways of achieving them. Multiyear planning was

to be based on an agency’s “program structure,” which was to provide a

coherent statement of a national need, an agency’s directive to fill that

need, and the activities planned to meet it. Performance was generally

defined as agency outputs, with an agency’s program structure linking

6

The Hoover Commission’s recommendation for a performance budget was first made a statutory

requirement applicable to the Department of Defense through the National Security Act Amendments

of 1949. President Truman’s fiscal year 1951 budget, released in January of 1950, was subsequently

hailed as the “first performance budget,” as it applied the Commission’s concepts governmentwide.

However, BAPA, which was enacted in the fall of 1950 and effectively institutionalized the President’s

1951 budget presentation, did not contain the phrase “performance budget.” During final debate, some

members argued that the term was redundant with the phrase “functions and activities” and could be

restrictive of future budget presentations.

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outputs to long-term objectives. Systems analysis and other sophisticated

analytical tools were an intrinsic part of PPBS, with measurement seen as

an essential means to better understand federal outputs, benefits, and

costs.

Management by Objectives, which was primarily a federal management

improvement initiative, ultimately sought to link agencies’ stated

objectives to their budget requests. Initiated by President Nixon in 1973,

MBO put in place a process to hold agency managers responsible for

achieving agreed-upon outputs and outcomes. Agency heads would be

accountable for achieving presidential objectives of national importance;

managers within an agency would be held accountable for objectives set

jointly by supervisors and subordinates. Performance was primarily

defined as agency outputs and processes, but efforts were also made to

define performance as the results of federal spending—what would today

be called “outcomes.”

Zero-Base Budgeting (ZBB) was an executive branch budget formulation

process introduced into the federal government in 1977 by President

Carter. Its main focus was on optimizing accomplishments available at

alternative budgetary levels. Under ZBB agencies were expected to set

priorities based on the program results that could be achieved at

alternative spending levels, one of which was to be below current funding.

In developing budget proposals, these alternatives were to be ranked

against each other sequentially from the lowest level organizations up

through the department and without reference to a past budgetary base. In

concept, ZBB sought a clear and precise link between budgetary resources

and program results.

The Legacy of Past

Initiatives: The Evolution

of Performance Budgeting

Past initiatives, although generally perceived as having fallen far short of

stated goals, contributed to the evolution of performance-based

measurement and budgeting in the federal government. Many concepts

first introduced by these initiatives became absorbed in the federal

government and persisted long after their origins in PPBS, MBO, or ZBB had

been forgotten.

• Hoover Commission reforms ultimately led to permanent changes in the

President’s budget presentations and a greater inclusion of performance

information in the narrative summaries associated with each budget

account. The “obligations by activities” presentations established in

response to the Commission’s performance budgeting recommendations

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continue today, although they are now referred to as “obligations by

program activity” or, more informally, “program activities.”

• PPBS and MBO fostered exploration of difficult performance measurement

issues, ultimately demonstrating the inherent limitations of analysis in a

political environment and the often complex and uncertain relationship

between federal activities, outputs, and outcomes.

• ZBB illustrated the usefulness of defining and presenting alternative

funding levels and expanded participation of program managers in the

budget process.

When viewed collectively the past initiatives suggest two common themes.

First, any effort to link plans and budgets—that is, to link the

responsibility of the executive to define strategies and approaches with

the legislative “power of the purse”—must explicitly involve both branches

of our government. PPBS and ZBB faltered in large part because they

intentionally attempted to develop performance plans and measures in

isolation from congressional oversight and resource allocation processes.

Since goals, objectives, and activities were not jointly discussed and

agreed upon, there was no consensus on what performance should be,

how to measure it, or how to integrate performance information with

resource decisions.

Second, the concept of performance budgeting has and will likely continue

to evolve. Past initiatives illustrate a progression from the

straight-forward, efficiency notion implicit in the Hoover Commission

recommendations, through the increasingly complex and mechanistic

processes of PPBS and ZBB. Budgeting is the process of making choices, and

all of these initiatives sought to improve the rationality of budget choices

by focusing on the results of activities—however those results might be

defined. This history suggests that no single definition of performance

budgeting encompasses the range of past and present needs and interests

of federal decisionmakers. One commentator has summarized this reality

as follows.

“To a student of politics and of legislative bodies, it [performance budgeting] means . . . a

presentation and review of budget requests in such a manner as to emphasize issues and

make possible more effective choices. To a top administrator, it . . . also [means] greater

flexibility and discretion in his operations, plus better control and accountability with

regard to his subordinates. Down the line of an agency, it may mean a single source for

funds, an enlargement of authority, flexibility, and responsibility in the use of funds. . . . To

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the accountant, it means accrual accounting, cost accounting, segregation of capital from

operating accounts, working capital funds, and many other techniques.”7

In other words, the multiplicity of definitions reflects the differences in the

roles various participants play in the budget process. And, given the

complexity and enormity of the federal budget process, performance

budgeting at the federal level will need to encompass a variety of

perspectives in its efforts to link resources with results.8

The Future of Performance

Budgeting: The

Government Performance

and Results Act

As the current federal initiative seeking to link resources to results, GPRA

seeks to involve all participants, directly ties plans and measures to budget

presentations, and centers attention on outcome performance

measurement. GPRA requires all federal agencies to set strategic goals in

consultation with the Congress and key stakeholders; develop plans for

program activities; measure performance; and annually report to the

President and the Congress on the degree to which goals were met.

Appendix VI contains additional information on GPRA’s purposes and

requirements.

GPRA can be seen as melding the best features of its predecessors. Its

required connection to budget presentations harkens back to BAPA; its

interest in performance measurement and cross-agency comparisons

reflects PPBS; and its concern with outcomes and outputs emulates MBO. In

performance budgeting terms, GPRA avoids the mechanistic approaches of

previous efforts, notably PPBS and ZBB. The Senate committee report on

GPRA9 emphasized that although “this Act contains no provision authorizing

or implementing a performance budget,” it was imperative that the

“Congress develop a clear understanding of what it is getting in the way of

results from each dollar spent.” Recognizing that “it is unclear how best to

present [performance] information and what the results will be,” GPRA

requires pilot projects to develop alternative forms of performance

budgets.

7

Frederick C. Mosher, Program Budgeting: Theory and Practice with Particular Reference to the U.S.

Department of the Army (New York: American Book-Stratford Press, 1954), pp. 80-81.

8

This observation is not limited to the federal government. See Performance Budgeting: State

Experiences and Implications for the Federal Government (GAO/AFMD-93-41, February 17, 1993);

Using Performance Measures in the Federal Budget Process, prepared by the Congressional Budget

Office, July 1993; Joint Staff Report: Performance Budgeting, prepared by the Joint Budget Committee

and Office of State Planning and Budgeting, State of Colorado, September 20, 1995; and Budgeting for

Results: Perspectives on Public Expenditure Management, prepared by the Organisation for Economic

Co-operation and Development, 1995.

9

S. Rep. No. 103-58 (1993).

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As one observer has noted, “there is no magic bullet that will replace

budget judgement and budget policies with science.”10 Past initiatives

demonstrate that any link between performance information and resource

allocation decisions is unlikely to be straightforward. The implicit

presumptions of PPBS and ZBB—that systematic analysis of options could

substitute for political judgment—ultimately proved unsustainable. GPRA

recognizes that decisionmakers, rather than budget systems, must provide

judgments needed within a public sector context. That is, in a political

process, performance information can be one, but not the only factor in

budgetary choice; performance information can change the terms of

debate, but not necessarily the ultimate decision.

Finally, GPRA should be seen as part of a series of critical managerial and

financial reform efforts currently underway in the federal government that

share common goals of better management and accountability for results.

For example, the Chief Financial Officers Act and efforts by the Federal

Accounting Standards Advisory Board seek to increase public confidence

in government through improved financial reporting. These efforts will,

among other things, help achieve improved cost accounting and reliability

of data, essential steps in accurately matching resources to program

performance.

Key Design Elements

of GPRA Incorporate

Lessons From the

Past, but

Implementation

Challenges Remain

In its structure, focus, and approach, GPRA incorporates important lessons

from past federal performance budgeting initiatives. For example,

• by requiring consultation between the executive and legislative branches

on overall agency goals and missions, GPRA addresses past failures to link

planning and goal setting processes with the congressional budget

process;

• by requiring use of program activities in agency budget requests as the

basis for performance planning and measurement, GPRA enhances

prospects for effective links with the budget; and

• by emphasizing a range of performance measures that strive toward but do

not initially demand outcomes, GPRA provides a realistic framework for the

expectations and capabilities of performance measurement in the federal

environment.

Nevertheless, many of the challenges which confronted earlier efforts

remain unresolved and will likely affect early GPRA implementation efforts.

Agency officials, legislative staff, and other experts we met with

10John Mikesell, Fiscal Administration, 4th ed. (Belmont, CA: Wadsworth, 1995), p. 190.

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recognized these continuing concerns and emphasized the need to adjust

expectations as new approaches and capabilities are developed and tried.

GPRA Emphasizes Formal

Strategic Planning

Incorporating Stakeholder

Consultation

Where most past initiatives did not link performance information

developed within the executive branch with congressional processes, GPRA

provides that agencies must consult with cognizant congressional

committees, and other stakeholders, as strategic planning efforts progress.

This requirement is GPRA’s most fundamental change and perhaps its most

significant challenge, because any effort to link resources and results must

encompass some fundamental understanding of the goals of a particular

program. However, discussions between agencies and the Congress on

strategic planning are likely to underscore the competing and conflicting

goals of many federal programs as well as the sometimes different

expectations among the various stakeholders in the legislative and

executive branches. In addition, the federal government’s increasing

reliance on third parties—principally, state and local governments and

contractors—further complicates efforts to reach consensus on program

goals. And, significantly, executive branch officials and legislative staff we

spoke with seemed to approach strategic planning consultations with very

different expectations.

For the most part, past initiatives defined planning processes as internal

agency activities, with limited external visibility and virtually no external

involvement. Not surprisingly, where initiatives were in practice confined

within the executive branch, legislative oversight and budget

decision-making were ultimately unaffected; the Congress resorted to

traditional information sources, which agencies quickly reemphasized. For

example, in PPBS, executive agencies did not provide the Congress with

information on alternative program choices or even on the basis for

decisions to pursue a particular program course, often despite requests

from the Congress.11 During MBO, presidential objectives approved by the

administration were made public, but congressional involvement in

determining these objectives was not sought. Although some ZBB decision

packages were made available to the Congress, differences in format and

11In a congressional hearing discussing the availability of PPBS information for the Congress, the

Bureau of the Budget (BOB), the predecessor to OMB, took the position that information used to

develop the budget was internal to the executive branch. However, BOB stated that budget requests

and legislative justifications should incorporate evaluation data and cost estimates that arose from

PPBS analysis.

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the voluminous amount of paperwork limited congressional interest and

discouraged use.12

GPRA’s premise of joint legislative and executive involvement in strategic

planning is new. GPRA requires a formal document based in part on

consultations with the Congress and other interested stakeholders. The

Senate report on GPRA indicates that strategic plans are to be the basic

foundation for a recurring process of goal-setting and performance

measurement tied to the agency’s program activities and that goals must

be clear and precise in order to maintain a consistent direction. The

Senate report on GPRA recognizes that shifts in political philosophy may

alter priorities and means of achieving objectives but assumes that

legislatively determined missions and goals would remain largely

unchanged from year to year. GPRA strategic planning was viewed as

fundamentally different from previous efforts, requiring that agency

missions and goals be connected to day-to-day operations.

Past governmentwide initiatives suggest that achieving GPRA’s strategic

planning consultation goals will be difficult, particularly given the changes

in emphasis and approach established by GPRA. For example, reaching a

reasonable level of consensus on clear and precise strategic goals will

almost certainly encounter political hurdles. Competing and/or ambiguous

goals in many federal programs are often a by-product of the process of

consensus building; strategic planning which is seen as merely rekindling

old conflicts may not be well-received within the political process.

Furthermore, the federal government’s continued and, in recent years

expanded, reliance on state and local governments and other third parties

to deliver federally funded services—some of the stakeholders that would

likely be part of the consultation process—adds extra complications to the

prospect of reaching consensus. For example, applying PPBS to programs

requiring participation by federal, state, and local governments was seen

as a major implementation problem.

Discussions with legislative and executive branch staff confirmed the

above concerns and also suggested that these officials may be approaching

strategic planning from fundamentally differing perspectives. Agency

officials viewed strategic plans as a potentially useful means to a dialogue

with congressional committees but were skeptical that consensus on

strategic goals could be reached, especially given the often conflicting

views among an agency’s multiple congressional stakeholders. Some noted

12Some ZBB pilots were congressionally directed prior to governmentwide implementation, but results

were similar to the Carter initiative: congressional use was hindered by large volumes of information

in unfamiliar formats.

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that achieving consensus may result in rhetorical rather than substantive

plans and doubted the capacity of such plans to inform congressional

decision-making. Legislative staff characterized some of the early strategic

plans as lacking in substance and requisite detail. One staff member

expressed concern that agency strategic plans would be used to present

political agendas and justifications for the status quo, rather than real

assessments of need and value provided by specific program activities.

Another legislative staff suggested that the broader focus of the strategic

planning process could hinder traditional congressional oversight and

control processes.

Some experts we contacted suggested that the expectations for strategic

planning must be lowered, particularly for the initial attempts at

congressional consultation. Specifically, they urged agencies and the

Congress to seek a “reasonable degree” of consensus on draft strategic

plans and allow several iterations to refine plans and demarcate lines of

conflict and agreement. In the opinion of these experts, establishing an

ongoing dialogue between the branches will be more important than

seeking immediate consensus.

GPRA Performance

Planning and Measurement

Requires Direct Linkage

With the Budget

Where past initiatives tended to devise unique structures to capture

performance information that ultimately proved difficult to link to

congressional budget presentations, GPRA requires agencies to plan and

measure performance using the same structures which form the basis for

the agency’s budget request: program activities. This critical design

element of GPRA aims at assuring a simple, straightforward link among

plans, budgets, and performance information and the related

congressional oversight and resource allocation processes. However, the

suitability of agencies’ current program activity structures for GPRA

purposes is likely to vary widely and require modification or the use of

crosswalks. Discussions with agency officials and legislative staff suggest

that both are well aware of potential challenges in implementing this GPRA

requirement but, again, tend to view the need for and benefits of

adjustments to program activity structures from very different

perspectives.

As discussed previously, the “program structures” (PPBS) and “decision

units” (ZBB) of earlier performance budgeting initiatives were not intended,

at least initially, to explicitly connect to either an agency’s organizational

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structure or congressional budget justifications.13 Attempts to crosswalk

PPBS program structures to budget presentations proved unduly

cumbersome, and subsequent efforts to align these structures with the

federal budget were ultimately unsuccessful. Similarly, under ZBB,

crosswalks were needed between decision units and budget structures,

and decision unit consolidations obscured the analysis of alternative

spending levels and performance that was ZBB’s presumed hallmark.

Congressional interest in both initiatives quickly waned as plans and

performance information could not be directly linked to familiar oversight

and budget structures. In the end, structural incompatibilities meant that

resources were not linked to the new results information.

GPRA’s required use of program activities appearing in the President’s

Budget as the basis for performance planning and measurement is

intended to establish the direct budgetary link absent in earlier initiatives.

But this goal is dependent on the capacity of the current program activity

structures to meet GPRA’s needs. That is, where the success of earlier

initiatives hinged on the extent that unique planning structures could link

to congressional processes, current program activities structures useful to

congressional resource allocation processes must prove their suitability

for planning and measurement purposes. Subject to clearance by OMB14

and generally resulting from negotiations between agencies and

appropriations subcommittees, program activity structures differ from

agency to agency and, within an agency, from budget account to budget

account. Program activities, like budget accounts, may represent

programmatic, process, organizational, or other orientations15 and,

similarly, their suitability for GPRA planning and measurement purposes

will also vary. For example, during ZBB, some agencies used their program

activities as the basis for consolidated decision units; one agency that did

so found that the process orientation of its program activities (e.g.,

regulatory development) rendered ZBB rankings meaningless.

Under GPRA, when program activity structures present challenges to

performance planning and measurement objectives, agencies have

options. GPRA allows agencies to consolidate, aggregate, or disaggregate

13In fact, under PPBS, budget presentations were ultimately expected to conform to the new program

structures. PPBS guidance noted that over time it “may be necessary and desirable for the program by

activity portion . . . to be brought into line with the program structure developed.”

14OMB Circular A-11, “Preparation and Submission of Budget Estimates,” requires that an agency’s

program activities must be useful for the analysis and evaluation of budget estimates, be related to the

administrative operations of the agency, and have accounting support.

15For a discussion of this point, see Budget Account Structure: A Descriptive Overview

(GAO/AIMD-95-179, September 18, 1995).

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program activity structures for performance planning purposes, where

needed. This approach would of course require subsequent crosswalks,

but presumably not as burdensome as those of prior initiatives. Agencies

may also attempt to renegotiate program activities with their

appropriations subcommittees and OMB. Program activities, however, serve

specific functions and may prove resistant to frequent or substantial

change. For example, program activities (1) provide a relatively consistent

structure for OMB and the Congress, allowing comparison of current

spending to estimates of future needs, and (2) often form the basic unit of

congressional oversight for determining reprogramming thresholds.16

Agency officials we spoke with confirmed the varying suitability of their

program activity structures for GPRA purposes. One agency successfully

worked through the performance planning process using its existing

program activities; another agency found it necessary to devise a separate

planning structure and then link back to program activities using a

crosswalk. This second agency had a program activity structure that

reflected its organizational units—a structure useful for traditional

accountability purposes but less useful for outcome planning. Still other

agencies separated performance planning from program activity

structures, believing it necessary to first establish appropriate program

goals, objectives, and measures before considering the link to the budget.

These agencies planned to rely on GPRA’s provision to aggregate,

disaggregate, or consolidate program activities.

Our discussions with agency officials and legislative staff highlighted a

potential tension on the use of program activities as a basis for agencies’

performance planning and measurement. Some agency officials saw

program activity structures as secondary to strategic planning; thus, where

current program activity structures proved unsuitable for planning

purposes, these officials viewed change in the program activity structure

as inevitable and appropriate. Legislative staff generally viewed these

structures as fundamental to congressional oversight of agency activities;

thus, change was viewed with apprehension and concern. Legislative staff

were generally comfortable with existing structures and questioned

whether changes would frustrate congressional oversight. Agency officials

generally saw a need to be flexible in using program activities as a

planning mechanism, and considered it likely and desirable to change

16Reprogramming is the shifting of funds within an appropriation to purposes different from those

contemplated at the time the appropriation was requested and provided. Several appropriations

subcommittees use program activity structures to establish reprogramming thresholds. If an agency

needs to shift funds from one activity to another above the defined threshold, it is expected to notify

the subcommittee.

Page 14 GAO/AIMD-97-46 Performance Budgeting
B-275095 

program activity structures to better align with GPRA goals and objectives;

however, they noted that changes could prove difficult and

time-consuming to negotiate with the Congress. In addition, agency

officials were not convinced that changes to program activities would

necessarily achieve GPRA’s purposes, particularly when competing or

unclear goals existed or when agency goals and objectives were likely to

change over time.

The experts we met with generally agreed that the program activity

requirement of GPRA would likely constitute a significant implementation

challenge. One expert expressed the tension between legislative and

executive branch officials as a difference in the purpose and role of the

program activity structure. Congressional interests emphasize oversight

and control, thus necessitating detail and continuity in the structure.

Agencies, however, use program activities for managerial purposes, thus

seeking less detail in favor of more flexibility. Another expert noted that

GPRA does not define how to aggregate, disaggregate, or consolidate

program activity structures.

GPRA Performance

Reporting Emphasizes

Outcomes

GPRA performance reporting allows agencies to use a range of performance

measures but contains a specific emphasis on outcomes—the actual

results of a program activity compared to its intended purpose. Past

initiatives struggled with a variety of approaches, ultimately finding it

more practical to measure agency processes and outputs than outcomes.

Agency officials implementing GPRA affirmed the value of outcome

measurement and were also exploring alternative approaches due to the

inherent challenge of outcome measurement in a federal environment

marked by entitlement programs and other programs performed by

nonfederal actors. Legislative staff questioned the validity and usefulness

of outcome data in decision-making and perceived a potential for loss of

needed detail. Taken together, the views of executive and legislative

officials suggest GPRA will be challenged to identify performance measures

that are both outcome-based and useful for traditional accountability

purposes.17

Past initiatives struggled with performance reporting. Taken together,

their experiences reflect a slow refinement of the objectives and

awareness of the difficulties of performance measurement within the

17For a discussion of related issues within foreign and state governments, see Managing for Results:

Experiences Abroad Suggest Insights for Federal Management Reforms (GAO/GGD-95-120, May 2,

1995) and Managing for Results: State Experiences Provide Insights for Federal Management Reforms

(GAO/GGD-95-22, Dec. 21, 1994).

Page 15 GAO/AIMD-97-46 Performance Budgeting
B-275095 

federal government. Efforts spurred by the Hoover Commission centered

on identifying the activities to be performed and their costs, most

commonly described as unit cost and workload analysis. Under PPBS, the

purposes and uses of analysis were expanded to include a decision-making

component; hence, not only were outputs and their costs analyzed, but

PPBS expected that such analysis could define the most urgent national

goals and determine the most effective and efficient means of reaching

these goals. But agencies which attempted to gather this

performance-oriented data found the process to be far more difficult than

expected, and officials reported that several years would be required to

develop the information and collection systems envisioned by PPBS.

Agency officials reporting on their experiences under PPBS also noted

situations where it was difficult to relate programs to a stated outcome or

to separate out other influences that might affect ultimate outcomes. For

example, the Upward Bound program was designed to increase skills and

motivation for low-income high school children. However, PPBS officials

had no way to isolate the program’s effect from other environmental

influences which might also have contributed to the success or failure of

different program participants.

While subsequent initiatives reduced their expectations regarding the use

of performance measurement and analysis, they continued to encounter

similar difficulties. Under MBO, in contrast to PPBS experiences, presidential

objectives and related agency programs were to be determined, and then

followed by discussion of appropriate measures. This approach recognized

that some presidential objectives, such as achieving cooperation with

other countries or successfully negotiating international economic

treaties, did not lend themselves to scientific analysis. ZBB decision

packages were expected to include the outputs or accomplishments

expected from a program. However, these performance measures were

very quickly overwhelmed by the need to present decision packages

within budget deadlines. ZBB allowed the use of proxy measures of

performance and even indicated that decision packages were expected to

be ranked with or without the benefit of performance information. In fact,

a subsequent analysis of ZBB efforts found that fewer than half of the

decision packages examined had quantifiable accomplishments, workload,

or unit cost information.

While acknowledging the inherent difficulties of performance

measurement, GPRA requires that agencies establish performance

indicators to be used in measuring the relevant outputs and outcomes of

each program activity. The Senate report on GPRA indicates that sponsors

Page 16 GAO/AIMD-97-46 Performance Budgeting
B-275095 

understood the importance of measurement to any performance-based

initiative and that outcomes are the most desirable performance indicator.

However, GPRA also accepts that measurable outcomes may not always be

possible—that causal links between federal efforts and desired outcomes

may never be established—and encourages that a range of related

indicators, such as quantity, quality, timeliness, and cost be developed and

used to approximate outcomes.

Executive officials we spoke with were strongly supportive of

performance measurement, including outcome measurement, but raised

concerns about the use of this information, particularly as a vehicle for

congressional oversight. These officials saw value in defining outcomes for

planning purposes and were also testing various approaches, including

identifying intermediate performance measurements,18 using multiple

measures to reflect different stakeholders’ interest, and applying

nonquantitative measures, due to the difficulties inherent in outcome

measurement.

But executive officials were concerned that in today’s federal

environment, full or ultimate program outcome was typically not under the

control of a single federal agency, complicating responsibility

determinations and resulting resource allocation decisions. In some cases,

outcomes can only be achieved over many years; in other cases, federal

activities are but one, and often a small, component of total public and

private sector interventions in a given program area; and in still other

cases, intended results cut across the activities of several agencies. In each

of these cases, any individual agency outcome measurement is often

incomplete and therefore of limited value to budgetary decisions.

Moreover, the increasing role of state and local governments as well as of

other third parties as the delivery agents for federally financed activities

means that in achieving many federal outcomes, the efforts of nonfederal

actors—and their objectives and concerns—were critical factors in

performance measurement. Lastly, the predominance of entitlement

spending, in which federal actions are typically a function of statutory

eligibility determinations, further clouds the ability to hold agencies

accountable for outcomes by shifting attention from broad goals (e.g.,

assuring a certain standard of living) to specific processes (e.g., ensuring

correct and timely payments to individuals).

18Intermediate outcomes are outcomes that occur between outputs (delivery of products or services)

and the achievement of the ultimate purposes of a program (reducing pollution and improving health,

for example). Intermediate outcomes might include client satisfaction, actions taken by other levels of

government, or actions by those in the private sector.

Page 17 GAO/AIMD-97-46 Performance Budgeting
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Legislative staff also expressed concerns regarding the use of outcome

measurement for oversight purposes, but principally in terms of the

completeness, validity, and reliability of the data for decision-making. In

particular, legislative staff were reluctant to have outcome information

substitute for the more detailed information they customarily receive,

indicating that such a substitution could lead to less, rather than better

informed legislative decision-making. One official described an agency’s

strategic plan as outcome-based, but with little discussion of the activities

planned to meet the established agency goals; others expressed frustration

that an agency’s goals defined in its GPRA plans can be very different from

those negotiated in congressional oversight and resource allocation

processes. Finally, legislative staff also expressed strong interest in

congressional involvement in measurement questions. Although

concerned about the added burden for congressional staff, legislative staff

felt that the Congress should take an active interest in what is measured

and how it is measured. GPRA performance information, augmented by

audited financial data, was seen as most useful for the Congress, but the

staff emphasized that the quality of this information would need to be

greatly improved.

Experts we spoke with encouraged agencies to identify a range of

measures and indicated that this approach is particularly useful for

programs with multiple or conflicting goals. Nonquantitative measures

were also cited as important for activities such as research and

development, and one expert urged the use of multiyear measures where

goals could not be realistically achieved in a single year.19 One expert

cautioned against agencies identifying outcomes too quickly, indicating

that such a practice risked rhetoric over measurement and would not be

useful in holding agencies to a level of performance. Similarly social

indicators—poverty rates or mortality statistics—should only be used

where it is evident that federal actions have the capacity to affect the

indicator.

19See, for example, Managing for Results: Key Steps and Challenges in Implementing GPRA in Science

Agencies (GAO/T-GGD/RCED-96-214, July 10, 1996).

Page 18 GAO/AIMD-97-46 Performance Budgeting
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GPRA Defines a

Phased, Iterative

Implementation

Process That

Enhances Prospects

of Integration With the

Budget

Unlike past initiatives, GPRA’s implementation design enhances prospects

for a fuller integration of performance information with budgeting. As

noted above past initiatives were generally attempted within a single

annual budget cycle and tended to lack processes for addressing

implementation problems. In contrast GPRA posits a multiyear, iterative

implementation process, built around periodic publicly available products,

that will allow agencies and the Congress the opportunity to refine

performance planning, measurement, and reporting, and to modify, as

needed, current budget processes and presentations.

Past initiatives tended to take an “instant implementation” approach that

limited their capacity to address challenges as they arose. At their outset,

these initiatives generally gave agencies little time for complex

implementation tasks. For example, PPBS gave agencies 10 weeks to

develop requisite program structures—a task which the Department of

Defense, the originator of PPBS, took 10 years to accomplish. ZBB similarly

imposed numerous changes to executive branch budget formulation

processes within a single budget cycle, with guidance agencies believed

was inadequate on key requirements. Given this abbreviated

implementation process and the fact that cost estimates and decision

packages developed under these initiatives were not routinely made

available to the Congress, it is not surprising that congressional budget

decision-making was unaffected.

In contrast, GPRA defines a 7-year implementation time frame, from initial

pilots to first governmentwide performance reports, and incorporates

feedback mechanisms such as required evaluations of key concepts before

governmentwide implementation.20 Once key requirements have been

phased in, successive iterations of agencies’ strategic plans, performance

plans, and performance reports will allow opportunities for needed

refinements. In addition, GPRA’s products, which will be part of the public

record, are to be made available routinely to the Congress in time to allow

for the information to be integrated with congressional budget and

oversight processes. For example, the Senate report on GPRA states that its

plans and reports can give the Congress the ability to identify where

planned resources do not appear adequate to achieve intended results and

then to make realignments as appropriate.

GPRA’s implementation approach also provides for 2-year pilot projects of

alternative performance budget approaches in at least five agencies.

20OMB called for changes in the quality and quantity of performance information in agency budget

submissions earlier than required by GPRA. For further discussion, see Office of Management and

Budget: Changes Resulting from the OMB 2000 Reorganization (GAO/GGD/AIMD-96-50, Dec. 29, 1995).

Page 19 GAO/AIMD-97-46 Performance Budgeting
B-275095 

During the second year of these pilots (fiscal year 1999),

performance-based budget presentations for each of the designated

agencies are to be included in the President’s Budget submission to the

Congress. The pilots’ aim is to test possible approaches and develop

capabilities toward realizing the potential of performance budgeting, and

to present varying levels of performance, including outcome-related

performance, resulting from different budgeted amounts. GPRA also

requires OMB to evaluate the results of the pilots by March 31, 2001, and

assess whether legislation requiring performance budgets should be

proposed.

The Senate report on GPRA said that the performance budgeting pilots are

to begin “only after agencies had sufficient experience in preparing

strategic and performance plans, and several years of collecting

performance data.” In this context, and recognizing the importance of

concentrating on governmentwide GPRA implementation in 1998, OMB

indicates that these pilots will be delayed for at least a year. As envisioned

under GPRA, performance budgeting will require the ability to calculate the

effects on performance of marginal changes in cost and funding.

According to OMB, very few agencies currently have this capability, and the

delay will give time for its development.

GPRA Will Face

Unique Conflicts

Arising From

Budgetary Pressures

In one critical dimension, GPRA will face an environment unknown to

previous performance budgeting initiatives: sustained, real declines in

discretionary spending.21 Past efforts faced budget-related tensions, but

nothing comparable to that which will likely form the initial operating

environment for GPRA. Both implementation challenges and opportunities

will likely arise from different expectations regarding the appropriate role

for GPRA within this period of declining resources. To executive officials

we spoke with, performance information was seen as essential to justify

and improve current program performance; to legislative staff,

performance information was expected to prove valuable as a government

downsizing tool.

As GPRA is implemented governmentwide, total discretionary spending is

projected to decline in real terms, continuing the pattern of the last 6

years. This constitutes a unique implementation environment when

compared to past initiatives. Hoover Commission recommendations were

implemented as the federal government shifted from a wartime

21Real discretionary spending refers to outlays that are controlled through annual appropriations and

adjusted for inflation. The President’s fiscal year 1998 budget projects a decline in real discretionary

spending from 1998 through 2002.

Page 20 GAO/AIMD-97-46 Performance Budgeting
B-275095 

bureaucracy; PPBS faced the competing spending tensions of the Vietnam

war and an ambitious social agenda; ZBB was instituted as federal deficits

reached then post-war highs and the economy experienced unusually high

inflation. While all of these concerns affected consideration and passage of

the budget, federal spending during each of these initiatives generally

continued to experience real increases, particularly for discretionary

spending.

Budgetary constraints will likely raise implementation issues for both

agencies and the Congress. Experts we spoke with noted that in

implementing GPRA all participants will need to build capacity to develop

and use performance information. For agencies, this will mean acquiring

necessary resources and skilled personnel, and developing the

management leadership needed to sustain a performance-based

organization. Similarly, the Congress will need to expand its capacity to

actively participate in strategic planning, effectively communicate

results-based expectations, and manage its use of performance

information provided by agencies. Generally, executive officials did not

see resource availability as a significant concern; they tended to view GPRA

as the “right thing to do” and believed that needed resources would be

found. However, they were concerned about the potential burden of

expanded performance measurement requirements, noting that GPRA’s

requirements could be especially onerous if, as some expected, they were

layered on top of existing information requirements.

In our discussions with executive officials and legislative staff, both

agreed that declining budgets provided new incentives to use performance

information as a key input to decision-making, but each had differing

expectations as to how this should be done. In effect, each had differing

views on what constituted appropriate and effective “use.” Executive

officials believed that GPRA can be used to more effectively present

budgetary requirements in performance-based terms, for example to the

Congress. In addition, they noted that GPRA can be useful within the

executive branch to identify ways to streamline operations and to make

necessary budget reductions; its principal value was internal and

management oriented, stemming from its ability to clarify missions and

performance expectations. However, they also noted that current

budgetary pressures and apprehension about use of GPRA information

could increase levels of defensiveness among agency staff.

Legislative officials agreed that GPRA should aid in presenting budgetary

requirements in performance-based terms. They saw GPRA as encouraging

Page 21 GAO/AIMD-97-46 Performance Budgeting
B-275095 

both agencies and the Congress to revisit current functions and activities

in relation to their articulated mission and to identify poorly performing or

overlapping program activities. Legislative staff added that, given the

difficult budget choices facing the nation, terminating programs based on

GPRA performance information was a far more defensible practice than

instituting across-the-board reductions in all spending—all too often the

only other alternative. These staff expressed concern that as agencies and

the Congress search for ways to reduce federal spending, conflicts over

agency missions and program goals are more likely to surface, leading to

agency “repackaging” of information to obscure poor performance. And

they questioned whether agencies could provide valid and accurate

performance data.

Other experts saw potential for use of GPRA in the budget process but

expressed caution. These experts noted that the GPRA process can allow

agencies and the Congress to renegotiate program goals, thus forcing rigor

into federal budgeting and management processes. One expert emphasized

that agencies would need to see GPRA information used in decision-making

if they were to continue to invest in the initiative. However, if GPRA’s

exclusive result is to terminate programs, the initiative could suffer a loss

of support within the executive branch. Experts also stated that GPRA

information would also need to be used outside of the budget process.

Observations While GPRA has incorporated critical lessons from the past, the Congress

and the executive branch will face certain challenges in their efforts to

connect resources to results in the federal government. These challenges

cannot be addressed by either the executive or legislative branch alone; all

those involved in the resource allocation process must play a part. In

particular, efforts to implement GPRA must address the following issues:

• The Congress and the executive branch will need to explore what can be

expected of a performance budgeting system. GPRA can inform the budget

process and change the nature of its dialogue by more routinely

introducing performance information into decision-making. But, GPRA

cannot be expected to eliminate conflict inherent in the political process

of resource allocation, and final decisions will appropriately take into

account many factors, including performance.

• The Congress and the executive branch must acknowledge that it takes

time to develop goals, outcomes, and measures that are valid and

acceptable to a range of stakeholders. All participants must take full

advantage of the iterative planning and reporting processes defined by

Page 22 GAO/AIMD-97-46 Performance Budgeting
B-275095 

GPRA. Immediate expectations regarding budgetary impact and the ease of

performance measurement must be tempered with long-term involvement

and commitment to achieving GPRA’s purposes.

• The Congress and the executive branch must recognize the difficulties

associated with devising a system that integrates performance and budget

information. GPRA provides for such integration through the program

activity structure of the federal budget. Both the budget and GPRA

processes must be better aligned, requiring adjustments and

accommodations. In some cases, agencies may need to develop effective

crosswalks between strategic plans and the budget; in other cases,

agencies and the Congress may decide to change the program activity

structure in the budget. Improved financial reporting and auditing as

required by the Chief Financial Officers Act will further strengthen the

cost basis and reliability of data underlying the link between performance

information and the budget.

Over the longer term, GPRA can become a powerful tool for the hard

budgetary choices that the Congress and the administration will face in the

coming years. In addition to improving attention on the performance of

individual program activities, GPRA can be used to address one of the more

intractable problems of the federal government—that of duplicative

programs that cut across federal missions and agencies. The Congress and

the administration could use GPRA as the vehicle to devise a framework

that compares and integrates decisions that affect related programs. In

this manner, GPRA’s focus on governmentwide performance can offer an

important alternative to across-the-board reductions and better inform

choices among competing budgetary claims.

We are sending copies of this report to the Chairmen and Ranking

Minority Members of the Senate Committee on the Budget; House

Committee on the Budget; Senate Committee on Appropriations; House

Committee on Appropriations; Subcommittee on Government

Management, Information and Technology, House Committee on

Government Reform and Oversight; the Director of the Office of

Management and Budget; and other interested parties. We will also make

copies available to others on request.

Page 23 GAO/AIMD-97-46 Performance Budgeting
B-275095 

The major contributors to this letter were Michael J. Curro, Carolyn L.

Yocom, and Linda F. Baker. If you have any questions, I can be reached at

(202) 512-9573.

Paul L. Posner

Director, Budget Issues

Page 24 GAO/AIMD-97-46 Performance Budgeting
Page 25 GAO/AIMD-97-46 Performance Budgeting
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

28

Appendix II 

The First Hoover

Commission

30

Appendix III 

PlanningProgrammingBudgetingSystem (PPBS)

35

Appendix IV 

Management by

Objectives (MBO)

42

Appendix V 

Zero-Base Budgeting

(ZBB)

46

Appendix VI 

Overview of the

Government

Performance and

Results Act

52

Page 26 GAO/AIMD-97-46 Performance Budgeting
Contents

Abbreviations

BAPA Budget and Accounting Procedures Act

BOB Bureau of the Budget

DOD Department of Defense

GDP gross domestic product

GPRA Government Performance and Results Act

MBO Management by Objectives

NAPA National Academy of Public Administration

OMB Office of Management and Budget

PFP Program and Financial Plan

PM Program Memoranda

PPBS Planning-Programming-Budgeting-System

ZBB Zero-Base Budgeting

Page 27 GAO/AIMD-97-46 Performance Budgeting
Appendix I 

Objectives, Scope, and Methodology

The specific objective of our work was to compare and contrast the key

design elements and approaches of GPRA with those of similar past

initiatives in order to identify potential challenges for GPRA

implementation. To identify past federal performance budgeting

initiatives, we used the following criteria: (1) the initiative occurred after

World War II, (2) the initiative was implemented governmentwide, and

(3) the initiative asserted (either initially or ultimately) a relationship

between performance information and the federal budget process. Based

upon these criteria, we identified four prior federal initiatives: federal

performance budgeting initiatives derived from the first Hoover

Commission; the Planning-Programming-Budgeting-System (PPBS);

Management by Objectives (MBO); and Zero-Base Budgeting (ZBB). Our

work did not address performance budgeting initiatives that were limited

to a few programs or agencies, nor did we address initiatives that were

planned but never fully implemented. For example, this approach

excluded the end-results budgeting efforts in the Forest Service during the

1980s and President Ford’s Presidential Management Initiatives.

To collect information on GPRA and on the four prior federal initiatives, we

used a qualitative research design. In making our review of each prior

initiative, we conducted extensive literature searches, including pertinent

legislative histories, hearings, and committee prints. For GPRA, we

collected information on its legislative history as well as other relevant

information including OMB guidances, selected pilot performance plans and

reports, and available reviews of GPRA implementation efforts to date. We

compiled information on the context, implementation approach, and

results of each of the prior initiatives. To compare and contrast these

analysis results with GPRA, we summarized our findings for each initiative,

then compiled a set of observations relevant to GPRA design and

implementation. From this work we identified a set of potential challenges

for GPRA implementation as well as relevant observations based on past

initiatives.

To compare the results of our analysis with GPRA implementation

experiences to date, we contacted selected individuals in the executive

and legislative branches and other experts from outside government. We

selected these individuals based on their knowledge, experience, and

interest in GPRA. We asked them to review the identified challenges and

observations and participate in one of three panels: (1) an executive panel

of individuals with direct responsibility for implementing GPRA and

representing agencies covering a range of functions and program types

(e.g., regulatory, direct service provision, grant administration, research

Page 28 GAO/AIMD-97-46 Performance Budgeting
Appendix I 

Objectives, Scope, and Methodology

and development); (2) a legislative panel composed of staff from

authorizing, budget, and appropriations committees in the House of

Representatives; and (3) a panel of individuals from the National Academy

of Public Administration (NAPA), academia, and former government

officials with expertise in GPRA or prior performance budgeting initiatives.

We asked the panelists to review our observations and indicate the extent

to which the challenges we identified held true for the programs and/or

budgets under their purview or within their experience. We also asked

panelists to discuss what approaches had been used or might be

considered to mitigate these concerns. To assure maximum candor,

individuals were informed that there would be no attribution of their

comments to them or their organizations.

We conducted our work in Washington, D.C., between October 1996 and

March 1997. We requested comments on a draft of this product from the

Director of OMB. On March 3, 1997, we met with designated OMB officials

and discussed and incorporated changes based upon their comments.

Page 29 GAO/AIMD-97-46 Performance Budgeting
Appendix II 

The First Hoover Commission

Context After World War II, America was left with a wartime organizational

bureaucracy and a huge national debt that exceeded the gross domestic

product (GDP). Reorganization planning evolved as a systematic means of

reducing federal spending while allaying concerns that such reductions

would cause a return to the depression of the 1930’s. The President and

the Congress explored various reorganization efforts, the most effective

and well known being the Commission on the Organization of the

Executive Branch, more commonly referred to as the first Hoover

Commission, established by law in 1947.

The Declaration of Policy in the act creating the first Hoover Commission

(61 Stat. 246, July 7, 1947) focused on promoting economy, efficiency and

improved services in the executive branch of government. The

Commission was charged with the structural reorganization of

departments and agencies and the President’s managerial authorities; it

published 19 reports with over 270 recommendations in the Spring of 1949.

With estimates of the number of implemented recommendations being as

high as 196, the first Hoover Commission is considered to have been highly

successful.

One recommendation deemed successfully implemented was that for

performance budgeting, which the Commission defined as follows:

“Under performance budgeting, attention is centered on the function or activity—on the

accomplishment of the purpose—instead of on lists of employees or authorizations of

purchases . . . . this method of budgeting concentrates congressional action and executive

direction on the scope and magnitude of the different Federal activities. It places both

accomplishment and cost in a clear light before the Congress and the public.”

Performance budgets as prescribed by the Hoover Commission were to

provide more comprehensive and intelligible information to the President,

the Congress, and the public. And, the Commission recommended that

attention should shift away from government inputs—items of expense,

lists of federal employees—to government outputs—its accomplishments,

activities, and their related costs.

Implementation

Approaches

Both the executive and legislative branches of government made efforts to

implement a performance budget. In the executive branch, initial work on

a performance budget began in 1949 when the Bureau of the Budget (BOB)

Page 30 GAO/AIMD-97-46 Performance Budgeting
Appendix II 

The First Hoover Commission

began preparation for the 1951 budget.1 BOB issued a statement to the

Congress about the unique nature of the 1951 budget presentation, and

pledging its support for a performance-type budget suggested by the

Hoover Commission and others:

“While the 1951 budget may be described as the first performance budget, it will be far

from perfect, and we hope that we can improve it immeasurably in later years.”

The 1951 budget submission was a distinct change from prior Presidential

budgets. One of the more significant changes made was in the “obligations

by activities” section of the budget. This section provided (1) listings of the

programs or activities imbedded within a budget account, (2) separated

operating and capital expenses, and (3) established breakouts for grants,

and other fixed charges as well. Prior to the 1951 budget, less than

45 percent of all budget accounts contained obligation by activity

subdivisions; after the 1951 budget, all accounts did. The 1951 budget also

included narrative statements on program and performance for each

account. Narrative statements varied in their approach, some presenting

workload and unit cost information and others simply describing activities

within the budget account. Finally, the 1951 budget replaced detailed lists

of civilian positions and salaries that accompanied each account with

summary information on employment levels.

Most executive agencies charged with implementation had high

expectations for performance budgets as a means of better defining,

presenting, and executing the budget. Performance budgets were expected

to align programs and activities in a uniform manner and assist managers

in making trade-offs between—and within—particular programs. Agencies

also viewed performance budgets as correcting budgeting and accounting

weaknesses and improving the administration and oversight of programs.

And, some agencies saw the submission of budgets on a program and

functional basis as a simplification of the federal budget.

However, some agencies did provide more cautionary statements

regarding the implementation of performance budgeting. In particular,

agencies expressed concern regarding whether—or how—to define

different functions and activities consistently. Agencies also noted that the

requirements for performance budgeting were adding to rather than

substituting for their current budget and reporting requirements. Agency

1

The executive branch acted on Hoover Commission recommendations to change the President’s

budget prior to legislative enactment of the Budget and Accounting Procedures Act of 1950. In fact, the

executive branch argued that congressional action was not necessary, since the budget presentation

was already being changed.

Page 31 GAO/AIMD-97-46 Performance Budgeting
Appendix II 

The First Hoover Commission

comments regarding the requirements for performance budgeting were

mixed, with some expressing concern that requirements were too rigid

and others stating that requirements were very generally and broadly

defined.

Congressional efforts to enact performance budgeting requirements were

contained in two laws. The first was the National Security Act

Amendments of 1949 (63 Stat. 578, August 10, 1949) which set

performance budgeting requirements for the newly created Department of

Defense (DOD) specifically patterned after the Hoover Commission’s

recommendation for a performance budget. That act added Title IV, the

“Promotion of Economy and Efficiency Through Establishment of

Uniform Budgetary and Fiscal Procedures and Organizations,” to the

National Security Act of 1947 and statutorily mandated the implementation

of a performance budget similar in form to the President’s fiscal year 1951

budget. New Section 403, “Performance Budget,” stated:

“The budget estimates of the Department of Defense shall be prepared, presented, and

justified, where practicable . . . so as to account for, and report, the cost of performance of

readily identifiable functional programs and activities, with segregation of operating and

capital programs. . . .”

And, as far as practicable, the Defense budget estimates and authorized

programs were to be presented in a comparable form and follow a uniform

pattern. The use of a performance budget was expected to correct

weaknesses in budget formulation and presentation as well as improving

the administration and management of authorized programs. And, BOB

expected that a uniform pattern of accounts would allow comparisons

across the services that were currently difficult to obtain.

A second law, the Budget and Accounting Procedures Act of 1950 (BAPA, 64

Stat. 832, September 12, 1950), ultimately provided a less prescriptive

definition of performance budgeting for governmentwide application.

Early versions of this bill had contained detailed definitions of

performance budgeting very similar to that of Title IV legislation. However,

during congressional deliberations, the specific language for performance

budgeting was removed from the bill. The conference report notes that the

term performance budget was considered surplusage—words in a statute

which add nothing to the force and legal effect of the statute—and might

result in an interpretation more restrictive than intended by the Congress.

BOB also supported BAPA’s less prescriptive language, arguing that (1) the

executive branch was already implementing performance budgeting and

Page 32 GAO/AIMD-97-46 Performance Budgeting
Appendix II 

The First Hoover Commission

(2) specific performance budgeting language would appear too rigid and

make it difficult to proceed with future budgeting improvements. Thus, the

final enacted version of BAPA did not contain the term “performance

budgeting.” Instead, the final language stated in part:

“The Budget shall set forth in such form and detail as the President may determine—(a)

functions and activities of the Government;”

Results The Congress considered that the Hoover Commission recommendation

for performance budgeting was instituted on a governmentwide basis with

the passage of BAPA. The second Hoover Commission, established on

July 10, 1953 (67 Stat. 184), noted that performance budgeting was first

used generally in the budget for fiscal year 1951. Reflecting on the

implementation of performance budgeting, the second Commission

observed that many programs did not have adequate cost information and

suggested that budget activities and organization patterns be made

consistent and accounts established to reflect this pattern; and, that

budget classifications, organization, and accounting structures should be

synchronized.

DOD performance budgeting efforts in the 1950’s did work towards a

consistent presentation of budget accounts that led to the current budget

structure of DOD. Comptrollers were established in DOD and the Services

with the aim of enhancing the development of adequate budget

preparation and review. Each Service was required to develop similar

systems which allowed for some general comparisons between the

services and standard classifications of cost categories were developed.2

Although it did not specifically mention performance budgeting, BAPA is

generally credited with advancing several important changes to federal

budget practices. The statute institutionalized efforts to report

sub-account level information to the Congress through the obligations by

activity sections, now termed program activities.3

 A greater amount of

performance information was placed into the President’s budget, primarily

output based work-load and unit cost information. BAPA also required

2

While DOD budgets continue to reflect the performance budgeting requirements developed, the term

performance budget was repealed when the National Security Act Amendments and other statutes

were codified in 1962. The legislative history of this codification (P.L. 87-651, September 7, 1962) notes

that its passage was not intended to make any substantive change to the law, but to bring up to date

Title 10 of the U.S. Code.

3

In fact, GPRA requires that annual performance plans cover each program activity set forth in the

budget of an agency.

Page 33 GAO/AIMD-97-46 Performance Budgeting
Appendix II 

The First Hoover Commission

additional coordination between agencies, created management devices

such as working capital funds, delineated responsibilities for budgeting

and accounting between the executive and legislative branches, and

emphasized the need for a close relationship between accounting,

management, and programming activities.

Despite the successes cited, concerns remained that the budget did not

adequately link programs with their costs. The report of the second

Hoover Commission summarized these concerns as follows:

“The installation of performance budgeting in the Federal agencies has met with varying

degrees of success. . . . performance budgeting has encountered practical difficulties

greater than originally contemplated and in some cases created congressional

dissatisfaction with respect to program classification and accounting support.”

In 1954, Arthur Smithies, noted chronicler and analyst of the budget,

clarified this issue by distinguishing between a performance budget and a

program budget.

“Congressmen themselves are dissatisfied with the present form of the budget. They feel

they have lost something by the performance budget and have not gained much . . . . Unless

the performance budget can evolve into a true program budget, the Congress may decide to

revert to the old system and console itself with the fiction that it has no programmatic

responsibilities . . . . While the preparation of a meaningful program budget is a task of

immense difficulty, and may never be wholly successful, there can be little doubt that

further progress without direction is both feasible and desirable.”

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

Context In January of 1965, President Johnson described the nation’s economic

performance as “a creditable record of achievement.” From 1961 to 1964

the economy had been growing in real terms at an average annual rate of

over 5 percent. Average annual inflation was just over 1 percent during

this period, while unemployment was roughly constant at 5 percent. There

was some concern about annual federal deficits, which in 1962 reached

$7 billion, or 1.3 percent of GDP.

A Planning-Programming-Budgeting-System (PPBS) was seen as a means of

building upon the Nation’s economic strength by modernizing the

management tools used in the federal government. Proponents of PPBS

believed that efficiencies and improvements in government operations

could be achieved through a common approach for (a) establishing long

range planning objectives, (b) analyzing the costs and benefits of

alternative programs which would meet these objectives, and 

(c) translating programs into budget and legislative proposals and

long-term projections. President Johnson considered PPBS a technique for

controlling federal programs and budgets, rather than “having them

control us.”

Furthermore, an earlier introduction of a PPBS-type system in DOD in 1961

was deemed a significant improvement over previous budget practices.

Prior to PPBS, the DOD system was highly decentralized and resource

formulation and allocation processes across the services were duplicative,

inequitable, and limited to consideration of a single budget year. Initially

termed a “program package-program element” system, DOD’s PPBS activities

provided a means of evaluating and deciding among major alternative

methods of accomplishing military missions. Planning horizons were also

extended with the development of a 5-year defense plan.

On August 25, 1965, President Johnson announced his intention to

introduce PPBS on a governmentwide basis, asserting that three major

objectives would be achieved:

“(1) It will help us find new ways to do jobs faster, to do jobs better, and to do jobs less

expensively. (2) It will insure a much sounder judgment through more accurate

information, pinpointing those things that we ought to do more, spotlighting those things

that we ought to do less. (3) It will make our decision-making process as up-to-date, I think,

as our space-exploring program.”

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

Implementation

Approaches

There were distinct differences between DOD approaches and the

subsequent governmentwide implementation of PPBS. DOD implementation

involved several hundred analysts and over 10 years of contractor-assisted

development efforts. DOD introduced three key phases of activity for

implementing PPBS: (1) reviewing requirements, (2) formulating and

reviewing programs, extended several years into the future, and

(3) developing annual budget estimates. The first two phases were

continual, year-round efforts that resulted in a 5-year program plan for the

entire defense establishment. In phase three, the budget year requirements

established in the 5-year program plan are separated out into an annual

budget request.

In contrast to this phased approach used at DOD, governmentwide

implementation of PPBS was expected to be accomplished in less than 6

months. On October 12, 1965, less than 2 months after the formal

announcement of PPBS, the Bureau of the Budget (BOB) issued Bulletin 66-3

which provided agency guidance and instructions for implementing PPBS.

Overall, 22 executive departments and establishments were mandated and

17 smaller agencies were encouraged to implement PPBS. Bulletin 66-3 gave

agencies 10 days to designate an official responsible for their PPBS system

and to report their choice to BOB. Within the next 20 days, agencies were to

make tentative decisions on their broad program categories. Agency

instructions, procedures, or regulations regarding PPBS implementation

were to be forwarded to BOB within the next 2 months. A final Program

Structure, approved by the director of the agency, was expected by

February 1, 1966.

Program Structures were the basic foundation of the PPBS system,

designed to provide a coherent statement of a national need, an agency’s

authority to fill that need, and the activities planned to meet that need. BOB

expected agencies to categorize all operations and activities in output

oriented terms reflecting each agency’s objectives. Three subdivisions of

activities were available within the Program Structure: (1) program

categories, defined as activities with similar broad missions, (2) program

subcategories, defined as subdivisions of narrower objectives, and

(3) program elements, defined as the specific products (e.g., goods and

services) contributing to agency objectives. For example, if education is a

sample Program Structure, a program category might be secondary

education; subcategories might include college preparatory and vocational

activities; and program elements might include facilities, books, and

teachers.

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

Three documents were expected to provide data on Program Structures:

Program and Financial Plans (PFP), Program Memoranda (PM) and Special

Studies. The PFP were similar to the DOD 5-year plan, containing multiyear

descriptions of program objectives and accomplishments in quantitative

nonfinancial terms related to the universe of need. PM were expected to

describe agency program categories, summarize PFP data, and delineate

recommended programs. Agencies were to illustrate how they would

achieve national needs, showing costs and effectiveness of alternative

objectives, program types, and levels of operation. Furthermore, PM should

include any assumptions and uncertainties on the cost and criteria used to

support agency recommendations and estimates. Special Studies were

expected to vary greatly in scope and were carried out in response to

agency top management or BOB inquiries, or at the initiative of analytic

staff.

Contrary to expected time frames, PPBS implementation proceeded

slowly—even after several years of effort. In November of 1966, President

Johnson issued a memorandum to Cabinet members and agency heads

stating that too many agencies had been slow in establishing PPBS and that

PPBS had not been used to make top management decisions. The President

urged personal participation of agency heads and instructed the Director

of BOB to review and report on agency progress in implementing PPBS.

Nevertheless, fully 2 years into implementation, agency directors and

former BOB officials testified that implementation was proceeding more

slowly than hoped. Some agencies characterized their efforts as in the

beginning stages or as requiring several more years before achieving

notable results. Others reported that new information systems had to be

developed or devised in order to track data on a program or mission basis.

As originally designed, PPBS information systems were not expected to

correlate to the Presidents’ budget submission to the Congress. Instead,

agency operating budgets—used to allocate resources and control

day-to-day operations—were expected to conform gradually with PFP.

Hence, BOB did not expect changes to the President’s budget or to the

internal submission of annual budget requests to BOB. Bulletin No. 66-3, the

first guidance on implementing PPBS, specifically noted:

“The introduction of the Planning, Programming, and Budgeting system will not, by itself,

require any changes in the form in which budget appropriation requests are sent to

Congress. Further, this Bulletin is not to be interpreted to set forth changes in the format of

annual budget submissions to the Budget Bureau.”

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

However, to affect resource allocation decisions made within the

executive branch, PPBS reports were timed to occur with the BOB budget

preparation schedule. PM and Special Studies were expected to be used

during the BOB spring review of the budget, when agencies and BOB would

develop initial estimates of budgetary need and PFP was expected to be

used during the fall as agencies developed annual budget requests for BOB.

The result was two tracks of budget information: one which addressed the

new PPBS requirements and one which addressed the existing BOB

requirements for submitting the President’s budget to the Congress.

This separation between Program Structures and the President’s budget

created an implementation burden that later BOB bulletins tried to address,

primarily by devising a more concrete link between PPBS and the budget. In

July 1967, a second BOB bulletin (No. 68-2) directed agencies to provide a

crosswalk—or a reconciliation—between their PPBS and appropriations

structures. The crosswalk was to be sufficient to ensure that the budget

submission was consistent with the intent of the program decisions. In

1968, the Congress requested and received an accompanying commentary

to BOB’s third bulletin (No. 68-9); the commentary noted that the

then-current “two-track system” of program and appropriation structures

was confusing and causing an undue burden. Agencies were asked to

consider changing their PPBS program structures so as to avoid crosswalks

and integrate PPBS and appropriations structures.

Subsequent BOB guidances made procedural changes to the PPBS system,

primarily limiting the scope and magnitude of reporting requirements for

agencies and increasing staff hiring and training. Although originally

allowed to include unlimited program proposals without regard to agency

budget levels, the PFP requirements became limited to budgeted activities.

Noting that many PM lacked analysis of major alternatives, policy

decisions, or strategies directed towards specific outputs, BOB dramatically

reduced its requests for major policy issues presented in PM documents.

Further, BOB provided agencies extra preparation time for PM, and pledged

assistance with the analysis and review of major policy issues. Lastly,

during the first two years of implementation, almost 900 PPBS-specific

positions were created, of which almost 400 were filled through new hires.

Four years into implementation, over 4,500 staff had attended PPBS training

sessions.

Results While DOD continues to use PPBS procedures today, the governmentwide

initiative begun with such great promise in 1966 was formally discontinued

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

in 1971 with remarkably little comment. Some observers and participants

faulted the implementation process, contrasting DOD’s 10 years of

preparation with a significantly shorter governmentwide implementation

period. A former agency official charged that PPBS was implemented

indiscriminately, with agencies lacking the capability to perform PPBS

activities, and BOB lacking the competence to guide them. Others said PPBS

failed to garner the necessary support it needed because it affected the

balance of power between the executive and legislative branches.

PPBS participants and observers cited many problems developing measures

and analysis techniques, as well as incorporating results into

decision-making practices. Congressional hearings reviewed executive

approaches to estimating, measuring, and valuing benefits, ultimately

recommending the use of standard interest rates and discount policies. A

GAO report cited several obstacles to relating output measures to program

benefits; for example the report noted that the increased use of grants

meant that program outputs could not be obtained due to a “rather loose

and intermittent” federal control over grantees’ program performance.1

Some members of Congress questioned the broader purposes and

accomplishments of PPBS as a decision-making tool, particularly in light of

the impact of assumptions on analysis results; they further noted that their

lack of access to PPBS documents placed them at a disadvantage in

considering resource allocation questions. Some agencies cautioned that

PPBS analysis could not substitute for inherently political decisions such as

the allocation of resources among different priorities (e.g., health v.

education); others asserted that decisions for certain federal

functions—such as foreign affairs—could not be relegated to systems

analysis. Other observers found PPBS unrealistic because it attempted to

improve decision-making without recognizing the differing goals and

interests of the decisionmakers.

Over 3 years into PPBS implementation, the Joint Economic Committee of

the Congress published a compendium of papers on the analysis and

evaluation of public expenditures in PPBS.

2

 In this compendium, an

Assistant Director for Program Evaluation at BOB noted that expectations

for PPBS needed to be constrained by certain realities of the federal

environment, namely

1

Survey of Progress in Implementing the Planning-Programming-Budgeting System in Executive

Agencies (B-115398, July 29, 1969).

2

The Analysis and Evaluation of Public Expenditures: the PPB system, a compendium of papers

submitted to the Subcommittee on Economy in Government of the Joint Economic Committee,

Congress of the United States, U.S. Government Printing Office, Washington: 1969.

Page 39 GAO/AIMD-97-46 Performance Budgeting
Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

• Governments operate with limited resources, and the demand for these

resources always exceeds the available supply.

• Past resource commitments place heavy constraints on current budgets,

providing limited control over resource allocation.

• Workable program measurement techniques are difficult to achieve,

particularly given the complexity and size of the federal government.

• Implementation of new ideas can be slowed by the size of government, the

inherent uncertainties of its tasks, and the high degree of coordination

needed.

• Often there are political and moral claims made on the federal government

which do not necessarily reflect an interest in cost effectiveness or

efficiency.

• The resource allocation process in government is not well linked to

planning, as these activities serve different needs and respond to different

time frames.

• Once a budget is established, there is minimal accountability for

performance.3

Although it failed as a governmentwide performance budgeting initiative,

PPBS is credited with instituting improvements in federal program

management. PPBS allowed agencies to reappraise their mission and

functions; accumulate better information on inputs, outputs, and their

relationship to objectives; and increase top official interest over planning,

budgeting, and performance. Furthermore, decisionmakers increased the

use of systems analysis, recognizing its value as a means of better

understanding outputs, benefits, and costs. Finally, PPBS left a

long-standing legacy of increases in the amount and quality of program

evaluation in the federal government.

Despite the immense implementation difficulties—a truncated start-up,

significant increases in paperwork, problems measuring program benefits

and costs, and complex crosswalks to link program and budget

structures—few individuals argued against the goals of PPBS. Some argued

for its continuation, asserting that the goals and purposes of PPBS were

critical to improving government operations. At a congressional hearing in

1970, one former HEW official summarized this view in the following

manner.

“. . . Rekindle the spluttering flame of PPB[S] . . . . In my judgment PPB[S] is absolutely

right in concept. It requires more sustained support from the Congress, the White House,

3

“The Status and Next Steps for Planning, Programming, and Budgeting,” by Jack W. Carlson, Assistant

Director for Program Evaluation, BOB.

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Appendix III 

Planning-Programming-Budgeting-System

(PPBS)

and the BOB. It requires patience. Its message and value is care in considering what the

Government has done and might do. New initials will be needed but the job must be done.”4

4

Statement of William Gorham, formerly Assistant Secretary for Program Coordination at HEW, in a

hearing before the Subcommittee on Economy in Government of the Joint Economic Committee,

Congress of the United States, 91st Congress, Second Session, June 2, 1970.

Page 41 GAO/AIMD-97-46 Performance Budgeting
Appendix IV 

Management by Objectives (MBO)

Context During the 1960’s a bipartisan consensus developed that federal

management needed improvement. A study requested by President

Johnson in 1966 and carried out by the Heineman Task Force criticized the

federal government’s management of the new Great Society programs. The

Task Force recommended strengthening the management responsibilities

of the then-Bureau of the Budget (BOB). In 1970 President Nixon proposed

changing BOB into a new Office of Management and Budget (OMB), with the

new agency expected to give greater attention to federal management

issues.

To gain greater administrative control over major executive branch

departments and agencies, President Nixon proposed a new

governmentwide initiative: Management by Objectives (MBO). MBO was a

popular management technique used in the private sector and had also

been implemented at the Department of Health, Education, and Welfare

during the President’s first term. MBO was intended to centralize

goal-setting decisions while at the same time allowing managers to choose

how to achieve the goals. It focused on tracking progress toward goals

previously agreed upon between a supervisor and subordinate.

Implementation

Approaches

President Nixon formally initiated MBO in an April 18, 1973, memorandum

to 21 agencies, which included the 11 cabinet departments and constituted

about 95 percent of the budget and federal employees. President Nixon

stated: “I am now asking each department and agency head to seek a

sharper focus on the results which the various activities under his or her

direction are aimed at achieving. . . . This conscious emphasis on setting

goals and then achieving results will substantially enhance federal

program performance.” A follow-up memo to the MBO department heads

from the Director of OMB further explained that the new initiative aimed at

better communication, faster identification of problems, and greater

accountability of managers to supervisors. Ultimately, the OMB Director

stated, MBO would lay the groundwork for the President to decentralize

more responsibility to the agencies.

In his April 1973 letter, the President asked each agency to propose the 10

or 15 most important objectives—referred to as “presidential

objectives”—to be accomplished in the coming year; the goal was to

identify 100 presidential objectives. Different agencies were given different

deadlines, varying between 2 and 8 weeks, to submit proposals.

Subsequently, agencies were told that their search for objectives need not

be limited to their proposals to the President. Agencies were encouraged

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Appendix IV 

Management by Objectives (MBO)

to identify additional objectives, to track progress towards achieving them,

and to use MBO in all aspects of their operations.

OMB was to play a key role in implementing MBO. As part of MBO

implementation, a new position within OMB was created: the “management

associate.” Thirty management associates with varying backgrounds, some

with government experience and some without, were hired. Their

responsibilities would include providing day-to-day assistance to the

departments in preparing objectives, tracking progress, working closely

with OMB budget examiners, and providing technical assistance to agency

staff and OMB top management to help implement the initiative. In addition,

staff were specially selected to implement MBO at the agencies and were

generally located between the Office of the Secretary and program

managers.

OMB statements emphasized that the initiative was to be conducted with a

minimum of paperwork. Face-to-face meetings were to be held roughly

every 2 months between top OMB and agency staff. The meetings were to

focus on agency progress in achieving objectives, problems requiring top

management attention, and any changes to objectives. Some existing OMB

requirements were eliminated as a way of encouraging agency acceptance

of the new initiative.

OMB gave agencies some guidelines on their proposals for presidential

objectives. In proposing presidential objectives, agencies were to consider

the importance to the President’s agenda, measurability, and the ability to

achieve the objective without additional resources and within 1 year.

Agencies were to identify objectives on their own—that is, without

intervention by OMB—and were asked to develop action plans with specific

milestones for accomplishing objectives. All objectives were to be linked

to the organizational units that would be held accountable for achieving

them. If circumstances warranted, objectives could be changed during the

year. OMB would review agencies’ proposed presidential objectives as well

as track progress toward achieving them. In its first year, no explicit

connection of MBO to the budget process was attempted.

MBO fell far short of expectations during its first year. Although 20 of the 21

MBO agencies had identified presidential objectives and 18 had progress

tracking systems in place by the end of the first year, many other

important implementation steps were not achieved. For example,

management conferences were held, although not as often as originally

planned with 4 to 6 months passing between conferences for some

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Appendix IV 

Management by Objectives (MBO)

agencies. Despite OMB’s intention to address this problem, scheduled

meetings continued to be canceled frequently. And, as MBO reviews were

increasingly done at the staff level, rather than at the OMB and agency head

level, MBO paperwork increased. At OMB, tensions initially developed

between the new management associates and OMB’s budget examiners; this

eased to some extent as the management associates found that monitoring

agency objectives was not a full-time task, especially given the associates’

lack of control over agency actions. Increasingly the management

associates became involved in non-MBO tasks such as doing special studies.

Most importantly, presidential involvement in MBO also faltered during

1974, affecting agency implementation and acceptance of MBO.

In the second year of MBO, an attempt was made to re-emphasize MBO by

linking objectives with agency budget submissions. In a February 1974

meeting, OMB informed agency heads that their 1976 budget requests were

to be based on their presidential and agency (secretarial) objectives. OMB

hoped that this would increase the permanence of MBO and encourage

more explicit statements of the purposes for which money was to be

spent. In June 1974, OMB asked the 21 MBO agencies to identify selected

objectives in the letters transmitting their budget requests to OMB; these

objectives were to be discussed in depth in the budget justifications.

Agencies were told to “be prepared to provide” outlay estimates and

“preliminary” schedules of milestones upon request, but were not required

to include action plans. In August 1974, President Nixon resigned and,

shortly after taking office, President Ford endorsed agencies’ proposed

1975 Presidential objectives. These were the last presidential objectives

requested under MBO.

Results Although certainly affected by President Nixon’s resignation, the MBO

initiative suffered from its initial separation from existing budget

formulation processes and from problems in identifying and measuring

objectives. Efforts in the second year to tie the MBO initiative to the

budget’s priority setting processes were quickly overwhelmed by its early

demise. The President’s request that agencies focus on results and express

those results in measurable terms did not make the practice of

performance measurement any easier. For various reasons agencies found

this difficult to do. Not surprisingly, as initially submitted to OMB, agencies’

objectives were often vaguely worded (e.g., “the abolition of crime in

society” or “to make the U. S. Merchant Marine the most competitive in the

world”) and not easily measurable. In addition, agency objectives often

dealt with matters not achievable within a single year (such as finding a

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Appendix IV 

Management by Objectives (MBO)

cure for cancer) or were beyond the control of agency managers (such as

improving water quality), making accountability problematic.

Despite these issues and its brief life as a formal initiative, proponents

believe that MBO had positive results in both the short and long term. For

the administration that proposed it, the MBO initiative enhanced its ability

to explain the President’s agenda to the public—for example, the emphasis

on transferring more federal power to cities and states. Some OMB staff and

agency officials found MBO valuable as an internal agency management

process, helping to clarify goals and associated activities. To some extent,

the basic concepts of MBO—negotiating goals and holding subordinates

accountable for achieving them—have survived in federal management

practices. In addition, the potential of MBO as a tool for articulating

presidential agendas and linking them with the budget was later confirmed

by a similar initiative under President Bush; this initiative included

publishing presidentially approved objectives, the resources needed to

achieve them, and relevant accomplishments in the President’s Budget.

And issues raised during MBO concerning the difficulties inherent in

identifying and measuring federal outcomes would remain for later

initiatives to address.

Page 45 GAO/AIMD-97-46 Performance Budgeting
Appendix V 

Zero-Base Budgeting (ZBB)

Context In the mid 1970s, the annual deficit was a matter of public debate. By 1977

the annual deficit had been above $50 billion for 2 years, reaching a

post-World War II high of $73.8 billion for fiscal 1976. A general sense

existed that federal spending was out of control, with much of it no longer

subject to annual appropriations but driven by permanent entitlement

programs and multiyear budgetary authority.

During 1976, the Congress and Candidate Jimmy Carter had responded to

the new budget situation. Beginning in the spring the Congress held

hearings on proposals for so-called “sunset” legislation that would have

required periodic zero-base reviews of all federal programs by their

congressional authorizing committees. Sunset proposals, however, did not

become law. While campaigning for the presidency, Jimmy Carter

promised to balance the budget within his first term and to reform the

federal budgeting system, which he characterized as “inefficient, chaotic,

and virtually uncontrollable by either the President or the Congress.” To

these ends he had promised to introduce zero-base budgeting (ZBB), which

he had used as Governor of Georgia and which also had been discussed in

sunset hearings. In fall 1976, congressional appropriations committees

asked selected independent agencies to pilot test the applicability of ZBB

concepts to legislative decision-making.

Used in private industry as well as in some state and local governments,

ZBB in theory required expenditure proposals to compete for funding on an

equal—starting from “zero”—basis. ZBB prepares a detailed identification

and evaluation of all activities together with alternatives, and spending

necessary to achieve desired plans and goals. Where federal budgeting in

recent years had made incremental changes to an accepted base of past

spending, ZBB in contrast sought to look below the base, evaluating the

efficiency and effectiveness of current operations and comparing the

needs of one program against the needs of other programs that might be of

higher priority. ZBB also looked to a greater involvement of program

managers in budgeting as a way to identify new efficiencies and to

incorporate better analysis into budget decision-making.

Implementation

Approaches

On February 14, 1977, shortly after his inauguration, President Carter

issued a memorandum to the heads of executive departments and agencies

mandating use of zero-base budgeting for all fiscal year 1979 agency

budget requests. The memorandum mandated that a new ZBB budget

process would replace—not simply accompany or link to—the existing

executive branch budget formulation process for all budget proposals in

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Appendix V 

Zero-Base Budgeting (ZBB)

the immediately upcoming budget cycle. Consistent with an emphasis in

ZBB theory on a close link between planning with budgeting, federal

planning and budgeting under ZBB were to be done at the same time, in a

single process. In contrast to its implementation of PPBS and MBO, OMB did

not add or create a special staff for ZBB. Federal managers and budgeteers

were expected to implement the new initiative. ZBB would not affect

budget materials provided to congressional appropriations or authorizing

committees, nor would it change the form of the President’s Budget.

Formal implementation steps were taken within 2 months of the

memorandum. On March 21, 1977, OMB sent agencies draft ZBB guidelines

for comment, issuing final guidance on April 19 as Bulletin 77-9. In effect,

agencies were given a lead time of about 6 months before final budget

submissions were due to OMB. Agencies were to set up their own ZBB

systems using the steps outlined in the Bulletin as a framework. Among

other new requirements, agencies were asked to identify the “decision

units” for which budget requests would be made. A decision unit was to be

• “at an organizational or program level at which the manager makes major

decisions on the amount of spending and the scope, direction, or quality of

work to be performed.”

• “not so low in the structure as to result in excessive paperwork and review

. . . [nor] so high as to mask important considerations and prevent

meaningful review of the work being performed.”

• “normally . . . included within a single account, be classified in only one

budget subfunction, and to the extent possible, reflect existing program

and organizational structures that have accounting support.”

In all cases, the guidance stated, the identification of the decision units

was to be determined by the information needs of top management.

Budget requests for each decision unit were to be prepared by their

managers, who would (1) identify alternative approaches to achieving the

unit’s objectives, (2) identify several alternative funding levels, including a

“minimum” level normally below current funding, (3) prepare “decision

packages” according to a prescribed format for each unit, including budget

and performance information, and (4) rank the decision packages against

each other in a series of steps, beginning with program managers and

proceeding up the hierarchy. The results of the ZBB process would be

agency budget justifications and rankings, with the latter required to be

submitted to OMB but not to the Congress. With OMB’s approval, agencies

could consolidate decision units as a means to minimize paperwork and

the review burden on top management.

Page 47 GAO/AIMD-97-46 Performance Budgeting
Appendix V 

Zero-Base Budgeting (ZBB)

The guidance also required agencies to set objectives and performance

indicators at the beginning of their ZBB process. Top and program

managers were to set objectives as “explicit statements of intended

output, clearly related to the basic need for which the program or

organization exists.” Concurrently they were to identify the key indicators

to be used in measuring performance and results. These should be

“measures of effectiveness, efficiency, and workload for each decision

unit. These measures can often be obtained from existing evaluation and

workload measurement systems.” Indirect or proxy indicators could be

used if these systems did not exist or were under development. A “lack of

precise identification and quantification of such objectives,” however,

would “not preclude the development and implementation of zero-base

budgeting procedures.”

Despite considerable variation in how agencies implemented ZBB, some

patterns can be discerned. Some agencies tended to associate their

decision units with their account structure or, within their account

structure, with their program activities. Some agencies did not identify

minimums below current funding, and many identified minimums as an

arbitrary percentage of current funding, generally between 75 and

90 percent. Agencies also made use of the option to consolidate decision

units and often set initial decision units at high organizational levels (e.g.,

the division level or higher). Lastly, one study of several agencies found

that fewer than half the decision packages examined had quantifiable

accomplishments, workload, or unit cost information.

The next year, in May 5, 1978, OMB issued Circular A-115, which revised

some aspects of the ZBB process. Addressing problems with objectives and

performance information, OMB now urged agencies to use the results of

their performance evaluations in analyzing alternative methods of

accomplishing objectives and in analyzing anticipated accomplishments

identified with each level of performance. The circular also strengthened

language dealing with the objective-setting requirement. The guidance on

selecting decision units, preparing rankings, and consolidation was

clarified. A requirement to train staff before they participated in the ZBB

process was also added. In other respects, however, ZBB requirements

were unchanged. For example, no provision was made for a separate

planning phase, and the requirement to prepare decision packages for all

budget requests, including those for mandatory programs, remained.

The budget that resulted from agencies’ and OMB’s first year of ZBB efforts

disappointed some observers. Few significant budgetary actions were

Page 48 GAO/AIMD-97-46 Performance Budgeting
Appendix V 

Zero-Base Budgeting (ZBB)

identified as resulting from ZBB, and some questioned the utility of the

many hours spent by program managers, budgeteers, and top managers on

ZBB. In the following year, agency budget justifications to OMB continued to

be prepared using ZBB, but agency budget justifications to the Congress

continued to be prepared as in the past, largely without reference to

agencies’ ZBB information.

As the Carter presidency proceeded, less and less attention was devoted in

the Budget Message to the role and claimed achievements of ZBB. On

August 7, 1981, in the first year of the succeeding administration, OMB

rescinded circular A-115 requiring agencies to have ZBB systems. Some ZBB

requirements, however, survived beyond the formal life of the initiative.

Requirements for agencies to identify “decision units” and prepare

consolidated rankings remained until May 1986. A requirement to identify

three funding levels lasted even longer, remaining until 1994, as did an OMB

option to request that the agency present a “consolidated” ranking of

“program elements and related funding levels.”

Results In one sense, ZBB was successfully implemented: all agencies submitted

the required paperwork on time. By the end of ZBB’s first budget year,

agencies had prepared about 25,000 internal decision packages and

submitted about 10,000 of these to OMB. But in essential ways federal ZBB

had not been an exercise in zero-basing a budget. The widespread use of

arbitrarily chosen percentages to identify alternative funding levels, rather

than analysis based on program knowledge and performance information,

precluded genuine zero-basing, as did consolidation and selection of initial

decision units at high levels in the organization.

From the beginning, paperwork burden for federal managers constituted a

significant implementation problem. One study estimated that paperwork

increased, on average, 229 percent in ZBB’s first year. In addition to the ZBB

packages, agencies had to prepare separate budget materials, often using

different categories, for OMB, appropriations, and authorizing committees.

Preparing crosswalks between these added to agency burden.

Agencies believed that inadequate time had been allowed to implement the

new initiative. The requirement to compress planning and budgeting

functions within the timeframes of the budget cycle had proven especially

difficult, affecting program managers’ ability to identify alternative

approaches to accomplishing agency objectives. Some agency officials

also believed that the performance information needed for ZBB analysis

Page 49 GAO/AIMD-97-46 Performance Budgeting
Appendix V 

Zero-Base Budgeting (ZBB)

was lacking. Available information concerned processes and activities, not

how well these processes and activities performed. Agencies also

questioned the need to prepare and rank decision packages for programs

whose spending levels were outside their control. For example, the

Department of Health, Education, and Welfare did not identify minimum

levels for social security and other programs where it believed spending

was uncontrollable; Treasury stated it saw little use in ranking decision

packages for interest on the debt since the interest would have to be paid

in any case. Paperwork and other burden and technical difficulties were

compounded by agency perceptions that OMB had not used the results of

agencies’ ZBB efforts in its budget decision-making.

In Congress, the results of the congressionally requested ZBB pilots, made

public in June 1977 cast doubts on ZBB’s suitability as a potential tool for

congressional decision-making. One major thrust of the pilots had been to

see whether ZBB rankings—comparing priorities of “decision packages”

against one another—could be used by appropriators to identify the

impact of budget cuts. The results of the pilots were not encouraging. In

one pilot, the agency had failed to set minimums below current funding for

over one-third of its decision units and refused to rank its decision

packages because the process-oriented program activity structure of the

agency’s budget was too interdependent to permit meaningful ranking.

The lack of cost accounting information needed to identify alternative

funding levels was also cited as a technical problem. Finally, the level of

burden and paperwork was a problem for both for agencies and

appropriators. In one typical case, 362 pages were needed for an agency’s

ZBB-based budget justification versus 72 pages for its non-ZBB justification.

The results of the congressional pilots were largely consistent with later

agency experiences. No mechanism existed, however, to incorporate

lessons learned from the congressional pilots into executive branch ZBB

implementation. By the time OMB sent agencies a survey in October 11,

1977, seeking their views on implementation problems and proposed

solutions, the gaps between ZBB’s initial promise and its first year results

were becoming apparent.

Despite implementation problems and the relatively short time span in

which all its elements were required, federal ZBB has been credited with

some positive results. Some participants in the budget process as well as

other observers attributed certain program efficiencies, arising from the

consideration of alternatives, to ZBB. Interestingly, ZBB established within

Page 50 GAO/AIMD-97-46 Performance Budgeting
Appendix V 

Zero-Base Budgeting (ZBB)

federal budgeting a requirement to present alternative levels of funding

linked to alternative results—a requirement that lasted until 1994.

Page 51 GAO/AIMD-97-46 Performance Budgeting
Appendix VI 

Overview of the Government Performance

and Results Act

GPRA seeks to promote greater public confidence in the institutions of

government through a better reporting and accounting for the outcomes of

federal programs. As stated in the act, the goals of GPRA are to

“(1) improve the confidence of the American people in the capability of the Federal

Government, by systematically holding Federal agencies accountable for achieving

program results;

(2) initiate program performance reform with a series of pilot projects in setting program

goals, measuring program performance against those goals, and reporting publicly on their

progress;

(3) improve Federal program effectiveness and public accountability by promoting a new

focus on results, service quality, and customer satisfaction;

(4) help Federal managers improve service delivery, by requiring that they plan for meeting

program objectives and by providing them with information about program results and

service quality;

(5) improve congressional decisionmaking by providing more objective information on

achieving statutory objectives, and on the relative effectiveness and efficiency of Federal

programs and spending; and

(6) improve internal management of the Federal Government.”1

From these broad purposes, a system of interrelated plans and reports

provides the basis for linking federal resources and results, with

requirements and new concepts piloted before governmentwide

application.

Strategic Plans GPRA requires each agency to develop strategic plans covering a period of

at least 5 years. Agencies’ strategic plans must include the agency’s

mission statement; identify long-term general goals, including

outcome-related goals and objectives; and describe how the agency

intends to achieve these goals through its activities and through its human,

capital, information, and other resources. Under GPRA, agency strategic

plans are the starting point for agencies to set annual program goals and to

measure program performance in achieving those goals. To this end,

strategic plans are to include a description of how long-term general goals

will be related to annual performance goals as well as a description of the

program evaluations used in establishing goals. As part of the strategic

1

P.L. 103-62, sec. 2.

Page 52 GAO/AIMD-97-46 Performance Budgeting
Appendix VI 

Overview of the Government Performance

and Results Act

planning process, agencies are required to consult with the Congress as

well as solicit the views of other stakeholders. Agencies’ first strategic

plans are to be submitted to the Director of OMB and the Congress by the

end of fiscal year 1997. Strategic plans must be updated at least every 3

years.

Annual Performance

Plans

GPRA also requires each agency to prepare an annual performance plan that

includes the performance indicators that will be used to measure “the

relevant outputs, service levels, and outcomes of each program activity” in

an agency’s budget. The annual performance plan is to provide the direct

link between strategic goals outlined in the agency’s strategic plan and

what managers and employees do day-to-day. When an agency believes it

is not possible to express a measurable goal for a program activity, the

agency may ask OMB’s authorization to use a nonquantifiable goal. In

addition, GPRA allows agencies to aggregate, disaggregate, or consolidate

program activities for purposes of performance planning. These plans are

also to be used by OMB to develop an overall federal performance plan for

the federal budget, which is to be submitted each year to the Congress

with the President’s budget. The first annual performance plans are to be

submitted to OMB in the fall of 1997, with the first overall federal

performance plan due for fiscal year 1999.

Annual Performance

Reports

Ultimately, GPRA will require that each agency prepare an annual report on

program performance for the previous fiscal year. In each report, agencies

are to review and discuss performance compared with the performance

goals established in annual performance plans. When a goal is not met,

agencies are to explain the reasons the goal was not met; plans and

schedules for meeting the goal; and, if the goal was impractical or not

feasible, the reasons for that and the actions recommended. Actions

needed to accomplish a goal could include legislative, regulatory, or other

actions or, when the agency found a goal to be impractical or infeasible, a

discussion of whether the goal ought to be modified. The report is also to

include the summary findings of program evaluations completed during

the fiscal year covered by the report. Agencies’ first performance reports

for fiscal year 1999 are due to the President and the Congress no later than

March 31, 2000.2

2

For fiscal years 2000 and 2001, agencies’ reports are to include performance data beginning with fiscal

year 1999. For each subsequent year, agencies are to include performance data for the year covered by

the report and 3 prior years.

Page 53 GAO/AIMD-97-46 Performance Budgeting
Appendix VI 

Overview of the Government Performance

and Results Act

Managerial Flexibility In crafting GPRA, the Congress also recognized that managerial

accountability for results is linked to managers having sufficient flexibility,

discretion, and authority to accomplish desired results. GPRA authorizes

agencies to apply for managerial flexibility waivers in their annual

performance plans beginning with fiscal year 1999. The authority of

agencies to request waivers of administrative procedural requirements and

controls is intended to provide federal managers with more flexibility to

structure agency systems to better support program goals. The

nonstatutory requirements that OMB can waive under GPRA generally

involve the allocation and use of resources, such as restrictions on shifting

funds among items within a budget account. Agencies must report in their

annual performance reports on the use and effectiveness of any GPRA

managerial flexibility waivers that they receive.

Implementation

Approach: Phasing-in

and Piloting of

Requirements

GPRA calls for phased implementation, as described above, beginning with

selected pilot projects in performance goals and managerial flexibility in

fiscal years 1994 through 1996. These pilots are expected to develop

experience with GPRA processes and concepts before implementation

begins governmentwide in 1997. As of March 1997, 68 pilot projects for

performance planning and performance reporting were under way in 28

agencies. OMB also is required to select at least five agencies from among

the initial pilot agencies to pilot managerial accountability and flexibility

for fiscal years 1995 and 1996; however, OMB did not do so. GAO is required

to report on governmentwide readiness for implementation by June 1,

1997; OMB is required to report on the costs, benefits, and usefulness of the

performance planning and measurement pilots by May 1, 1997, identifying

any recommended changes in GPRA requirements.

GPRA also requires OMB to select at least five agencies, at least three of

which have had experience developing performance plans during the

initial GPRA pilot phase, to test performance budgeting for fiscal years 1998

and 1999. Performance budgets to be prepared by the pilot agencies are

intended to provide the Congress with information on the direct

relationship between proposed program spending and expected program

results and the anticipated effects of varying spending levels on results.

OMB is required to report on these pilots by March 31, 2001. OMB’s report is

to assess the feasibility of performance budgeting, recommend whether

legislation requiring performance budgets should be proposed, and

identify any other recommended changes to GPRA requirements.

(935220) Page 54 GAO/AIMD-97-46 Performance Budgeting
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