Request for Views

United States General Accounting Office

GAO

August 2001 RESULTS-ORIENTED

BUDGET PRACTICES

IN FEDERAL

AGENCIES

GAO-01-1084SP
Page 1 GAO-01-1084SP Results-Oriented Budget Practices

August 2001

HEADS OF DEPARTMENTS AND AGENCIES

This Request for Views on “Results-Oriented Agency Budget Practices” is

our initial attempt to describe a framework for agency budget practices

that can help guide an agency toward incorporating performance

information into the budget process. Also included in this publication are

challenges to implementing results-oriented budget practices that were

identified by a panel of agency budget officials who reviewed the

practices.

OMB Circular A-11 guidance for fiscal year 2003 budget formulation

instructs certain agencies to develop performance-based budgets for

selected programs. Although connections between specific performance

and funding levels can be difficult to make, efforts to infuse performance

information into budget deliberations has the potential to change the

terms of debate from simple inputs to outputs and outcomes.

We are seeking comments on the framework to further refine it and better

understand the challenges to implementation. The next phase of this work

will involve identifying and sharing examples of agencies that have found

innovative ways to implement these or related practices. We believe that

sharing agency experiences can provide benchmarks for other agencies to

use or adapt to their environment. With that in mind, we are also seeking

examples of agencies that have implemented results-oriented budget

practices and that can serve as a guide to others.

This Request for Views is located on the Internet on GAO’s Home Page

(http://www.gao.gov) under “Other Publications.” Additional copies can be

obtained from the U.S. General Accounting Office, Room 1100, 700 4th

United States General Accounting Office

Washington, DC 20548
Appendix I: Results-Oriented Agency Budget

Practices

Page 2 GAO-01-1084SP Results-Oriented Budget Practices

Street, NW, Washington, DC 20548, or by calling (202) 512-6200 or TDD

(202) 512-2537. Please send comments by December 31, 2001, to

views@gao.gov or to Denise Fantone, Assistant Director, Strategic Issues,

at the U.S. General Accounting Office, 441 G Street, NW, Room 4062,

Washington, DC 20548.

Paul L. Posner

Managing Director

Strategic Issues
Appendix I: Results-Oriented Agency Budget

Practices

Page 3 GAO-01-1084SP Results-Oriented Budget Practices

In the 1990s the Congress laid out a statutory and management framework

that provides the foundation for strengthening government performance

and accountability. The Government Performance and Results Act

(GPRA), a major component of this framework, required agencies to

establish missions, goals, and performance measures as well as clearer

linkages between resources and results.1

 We recognize that, while many

agencies have made significant progress in implementing GPRA, much

remains to be done to better integrate and infuse performance information

in management decision-making, including budgeting. This was made

evident in a recent GAO survey in which we found that fewer than 50

percent of federal managers surveyed said they used performance

information to a great or very great extent to set program priorities or

allocate resources.2

To expand the use of performance information in budgeting, this year the

President proposed a major initiative that involves:

• an emphasis on fully integrating budget and performance information;

• calculating the full cost of programs and activities; and

• increasing the quality, usefulness, and amount of performance information

in the President’s Budget.

As part of this initiative, OMB’s spring planning guidance to Cabinet

departments and selected major independent agencies included a list of

outcomes and related outputs and required the departments and agencies

to provide integrated budget and performance information for the listed

outcomes and outputs in their fiscal year 2003 performance plans.3

Efforts to more clearly link resources to results in federal agencies are not

new, and we have had the opportunity to learn from previous efforts.

Since 1950, the federal government has attempted several governmentwide

initiatives designed to better align spending decisions with expected

 1

 Other significant legislation includes the CFO Act and related legislation, which created a

structure for more businesslike management and reporting of the government’s finances,

and the Clinger-Cohen and Paperwork Reduction Acts, which required agencies to take an

orderly, planned approach to their information technology needs.

2 Managing for Results: Federal Managers’ Views on Key Management Issues Vary

Widely Across Agencies (GAO-01-592, May 25, 2001).

3

 Office of Management and Budget, Circular No. A-11, “Preparing and Submitting Budget

Estimates” (July 17, 2001).
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Practices

Page 4 GAO-01-1084SP Results-Oriented Budget Practices

performance—what is commonly referred to as “performance budgeting.”

GAO studied performance budgeting initiatives, such as Zero-Base

Budgeting, Management by Objectives, and Planning-ProgrammingBudgeting-System, and found that performance budgeting should not be

viewed in simplistic terms—that is, resource allocation cannot be

mechanically linked to results. We concluded that the promise of any

performance budgeting initiative lies in its potential to infuse performance

information more explicitly into budgetary deliberations, thereby changing

the terms of debate from simple inputs to outputs and outcomes.4

The purpose of this draft is to supplement the well-established legal and

regulatory structure for federal budgeting5

 by presenting an initial

framework that describes the practices an agency could use to link

performance information to the budget process—what we are calling

“results-oriented” agency budget practices.6

 Results-oriented agency

budget practices are the activities, processes, and capacities that can help

an agency to incorporate performance information into its internal budget

deliberations and requests for funding and to identify opportunities to

make better use of available resources to accomplish agency goals.

The next phase of our work in this area is to showcase successful

applications of these practices. Therefore, we will be identifying agencies

that have shown innovation in implementing one or more of these

practices to share with the budget community.

We developed an initial set of results-oriented agency budget practices by

reviewing literature on performance management and budgeting and

speaking to budget experts. Although some of the literature we reviewed

focused on executive branch departments and agencies, much of it

focused on the congressional budget process or on the budget processes

of state and local governments and other countries. Where applicable, we

 4 Performance Budgeting: Past Efforts Offer Insights for GPRA Implementation

(GAO/AIMD-97-46, March 27, 1997).

5

 Title 31 of the United States Code provides the legal foundation for the federal budget

process in the executive branch. OMB issues guidance to agencies to ensure compliance

with these budget laws and to obtain the information it needs to formulate the President’s

Budget.

6

 In this draft, “agency” refers to a major subordinate organization within a department

(usually identified as a bureau in the President’s Budget) and nondepartmental

independent agencies.

Scope and

Methodology
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Practices

Page 5 GAO-01-1084SP Results-Oriented Budget Practices

adapted the information to describe how performance information could

be used for budget formulation and implementation in federal agencies.7

We also drew on GAO reviews and other studies of agency budgeting. To

supplement the literature we spoke to budget experts inside and outside of

GAO about results-oriented agency budget practices.

To test our initial findings from the literature and budget experts, we

conducted a case study of budget formulation and implementation

practices at the Small Business Administration.8

 The case study helped us

to refine the practices and begin to understand how the practices fit

together as a framework.

Finally, to obtain an operational perspective on the framework, we invited

input from a panel of senior agency budget officials who commented on

the importance of the practices for achieving agency goals and the

challenges to implementing those practices. The panel consisted of seven

senior budget officials from a judgmentally selected sample of federal

agencies. The panelists represented one commission, two independent

agencies, and four agencies from three departments. For the panel

discussion, we provided the panelists with a questionnaire and asked them

to rate each practice in terms of how important it is to an agency in

achieving the agency’s goals and note if they thought the practice was

difficult to carry out. We focused the panel discussion on areas where

there was greater disagreement about the importance of a practice for

helping to achieve agency goals or where the panelists believed a practice

was difficult to carry out. We revised the framework to reflect the

panelists’ operational perspective and described the practices in greater

detail.

 7

 Budget formulation is the process of developing an agency’s budget request for inclusion

in the President’s Budget and its supporting justifications for the Congress. Budget

implementation is the process of developing operating plans for the upcoming fiscal year;

implementing the plans by allocating, obligating, monitoring, and reallocating budgetary

resources; and reporting on the resulting obligations and outlays.

8

 We conducted the case study as part of a larger review of performance and accountability

at the agency. See Major Management Challenges and Program Risks: Small Business

Administration (GAO-01-260, January 2001).
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The framework is organized into four themes that emphasize different

dimensions of results-oriented agency budget practices. The first theme

focuses on the budget process and asserts that performance should inform

agency decisions during budget formulation and implementation. Themes

2 and 3 focus on an agency’s capacity to produce reliable budget estimates

and to relate performance, budget, spending, and workforce information

in a credible and useful manner. Theme 4 focuses on agency effectiveness

and efficiency by emphasizing that an agency should continuously improve

its programs and operations and seek approaches to maximize limited

resources. Figure 1 depicts the framework for results-oriented agency

budget practices.

Figure 1: Framework for Results-Oriented Agency Budget Practices

For each theme we lay out a series of agency practices—consisting of

activities, processes, and capacities—that are intended to describe how an

agency could better inform its budget decision-making and find ways to

make better use of available resources to accomplish agency goals.

We view the practices as desirable dimensions of budgeting that could be

implemented in many different ways by agencies. The characteristics and

Framework for

Results-Oriented

Budget Practices in

Federal Agencies

Can relate 

performance, 

budget, spending, 

and workforce

information 

Theme 3

Produces reliable 

estimates of 

costs and resources

Theme 2

Improved

ability to 

manage for 

results

Continuously seeks

improvement

Theme 4

Performance

informs

budget formulation 

and implementation

Theme 1
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Practices

Page 7 GAO-01-1084SP Results-Oriented Budget Practices

circumstances that make organizations different from one another must be

recognized when considering the applicability of the practices.

In appendix I, we provide a more detailed description of the practices.

Where relevant we have also noted specific laws, regulations, or other

guidance that relate to the practice and apply to federal agencies

generally.

The framework does not reflect every aspect of the budget process. For

example, there are other aspects of budget law and guidance, such as

those related to fund control and accountability, that we treat as givens.

Similarly, we assume that agencies will comply with appropriations and

other laws and guidance and respond to OMB and department directions

in formulating and implementing their budgets.

The practices do not include those aspects of the budget process that are

the primary responsibility of the department, such as coordinating the

preparation of budget requests within the department.9

 The framework is

oriented toward agency rather than department budget practices because

there is a closer connection between performance and the day-to-day

management of resources at the agency level. However, since agency

budgets are the building blocks of departmental budgets, some aspects of

the framework may also apply at the department level.

Finally, the framework is an attempt to describe the contribution that the

budget function can make to an agency’s capacity to manage for results. It

is not intended to be a comprehensive treatment of all the management

functions that contribute to agency results. Clearly, the budget function

should work in concert with program management and other management

functions, such as human capital management, accounting, procurement,

and information technology management to achieve agency goals.

 9

 Formulation of an agency’s budget request is an iterative process in which requested

resources are subject to external scrutiny and change as the agency’s request is first

weighed against other department programs and priorities and the department’s request is

weighed against other executive branch priorities.
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Overall the panel reacted positively to our efforts to develop a framework

and generally agreed that the practices were important for achieving

agency goals. In this section we list and briefly describe the practices for

each of the themes. The panel also identified practices that were more

difficult to implement and discussed the various challenges to

implementation, which we summarize at the end of this section. The

challenges are significant. Our subsequent work will focus on the progress

agencies are making toward overcoming these challenges to better

manage for results.

Results-Oriented

Budget Practices and

Panel Discussion
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Practices

Page 9 GAO-01-1084SP Results-Oriented Budget Practices

The first theme focuses on the budget process and asserts that

performance should inform agency resource decisions during budget

formulation and implementation. Infusing performance information into

budgetary deliberations may improve the agency’s ability to manage for

results by increasing the likelihood that resource allocation decisions will

reflect performance concerns. For example, performance information

should be used to support claims for resources, to evaluate those claims,

and to make decisions on tradeoffs between competing needs.

For both budget formulation and implementation, Theme 1 practices

emphasize communication and feedback between agency management

and its program and other offices about the resources needed to achieve

agency performance goals and objectives. During budget formulation,

agency management should provide context in the form of general

guidance to program managers on proposed agency goals,10 existing

performance issues, and resource constraints.

 10 Hereafter, “program managers” refers to officials responsible for program areas as well

as support services.

Theme 1: Performance

Informs Budget

Formulation and

Implementation
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Theme 1: Performance Informs Budget Formulation and Implementation

For budget formulation, agency management:

 provides general guidance to program officials on agency goals, performance issues, and

resource constraints;

 requests input from program officials on the relative priority of new and existing programs and

proposed changes to funding levels based on a review of changes in costs, performance

issues, and other relevant factors;

 uses the input on relative priorities, changes in costs, performance issues, and other factors to

weigh competing needs and decide funding levels for existing and new programs;

communicates managementís decisions to program officials; and provides an opportunity to

appeal the decisions;

 coordinates with other entities to achieve common goals and avoid duplication;

 justifies its budget request both within the agency and externally (e.g., with the department, the

Congress, OMB) in terms of how requested funds will contribute to the accomplishment of

agency goals; and

informs its staff of departmental, OMB, and congressional actions on the budget request and

obtains feedback from program officials on the implications of those actions for agency goals.

For budget implementation, agency management:

 provides guidance to program officials on changes in agency goals, performance issues, and

resource constraints;

 requests updated information from program officials on the relative priority of new and existing

programs and proposed changes to funding levels based on a review of changes in costs,

performance issues, and other relevant factors;

 uses the input on relative priorities, changes in costs, performance issues, and other factors to

weigh competing needs and decide existing and new program funding levels; communicates its

decisions about funding allocations; and provides an opportunity to appeal the decisions;
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Because program managers are in a position to understand the

performance implications of different funding levels, management should

obtain their input on desired funding levels based, in part, on how the

funding addresses current and potential performance gaps and the relative

priorities of their activities. Agency management should then use this

information to evaluate competing needs and to determine funding levels

to request and provide program managers an opportunity to appeal its

decisions.

In formulating the budget request, agency management should also seek

input from outside the agency on issues affecting the agency’s

performance. For example, the agency should coordinate with other

entities with similar or complementary goals. The agency should justify its

budget request in terms of how requested funding levels contribute to

achieving agency goals and should inform staff of budgetary actions so

that agency management can elicit feedback on performance issues.

Similarly, when requesting postappropriations budget changes, the agency

should communicate the results to program managers and determine the

implications, if any, for achieving agency goals.

During budget implementation an agency needs to reconcile appropriated

funds and congressional priorities with its earlier budget request and

current operating needs. For example, agency management should update

its guidance on program goals, performance issues, or resource

constraints to reflect significant changes since the formulation of the

budget. An agency may need to revisit the priorities established during

budget formulation to make informed decisions about how to allocate

funding that may be more or less than requested. Similar to formulation,

agency management should then use this information to evaluate

competing needs and determine final program funding levels.

To help managers meet their goals, after appropriations are enacted, the

agency should allocate in a timely manner funds needed for program

operations. To keep performance on track, the agency should routinely

monitor performance, spending, and available resources and make

adjustments as needed after obtaining input from program managers on

the performance implications.

In contrast to Theme 1, which is keyed to the annual budget cycle, the

next two themes address an agency’s capacity to produce quality

information for decisionmakers during the budget process. An agency’s

costs and budgetary resources will change from year to year based on a

Theme 2: Produces

Reliable Estimates of

Costs and Resources
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Theme 2: Produces Reliable Estimates of Costs and Resources

Agency management:

 bases its budget estimates on reasonable assumptions about factors

affecting program costs or budgetary resources;

 looks back to assess the accuracy of previous estimates and, if

necessary, makes appropriate adjustments to its estimating methods;

 considers how its policy, program, and funding decisions may affect

spending or budgetary resources for other programs within the agency;

and

 considers the short- and long-term funding implications of its program or

policy decisions.

variety of factors. Often, agencies must grapple with the challenge of

achieving performance goals with flat or declining budgetary resources

and increasing costs. Theme 2 practices focus on providing

decisionmakers with reliable estimates of program costs and budgetary

resources to build credible requests for the resources an agency needs to

achieve its goals.

The practices in this theme are premised on the notion that agencies that

base their budget estimates on the most up-to-date and reasonable

assumptions will be better equipped to make tradeoffs between covering

cost increases and meeting other programmatic needs. Those that ignore

persistent differences between estimated and actual costs or budgetary

resources will face greater uncertainty and have less time to plan for

potential funding imbalances. Furthermore, agencies that make an effort

to identify how funding decisions that affect one area of spending or

budgetary resources might also affect other areas will have more

information with which to address unanticipated funding or performance

issues that may arise. In addition, decisionmakers need good cost

estimates to assess the affordability and desirability of policy and program

options that may have long-term cost implications.
Appendix I: Results-Oriented Agency Budget

Practices

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Theme 3: Can Relate Performance, Budget, Spending, and Workforce

Information

Agency management:

 can relate its budget structure to its goals;

 can relate budget, workforce, accounting, and performance information;

and

 can account for both the direct and indirect costs of its programs and

associated goals.

Theme 3 practices address an agency’s capacity to relate performance,

budget, spending, and workforce information. This capacity can facilitate

the implementation of Theme 1 practices that involve incorporating

performance information into budget decisions, such as requesting

program manager input on program performance and funding needs or

monitoring program performance and spending and making adjustments

to address performance gaps.

Results-oriented budgeting implies that an agency has the capacity to

relate its budget to its goals. At a minimum, GPRA requires an agency’s

performance plan to cover each program activity in the President’s budget

request for that agency. To meet this requirement and to make progress

toward the goal of integrating agency performance plans and budget

requests, OMB guidance states that agencies should display, by GPRA

program activity, the funding being applied to achieve the performance

goals and indicators for that activity. OMB may also request agencies to

provide a crosswalk between performance goals and the specific budget

accounts funding those goals.

OMB encourages agencies to consider changes to their budget account

structure that would lead to more thematic or functional presentations of

both budget and performance information. An alternative to altering the

budget structure is to use cost accounting concepts to capture how

appropriated funds are spent according to agency goals. For example, an

Theme 3: Can Relate

Performance, Budget,

Spending, and Workforce

Information
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Practices

Page 14 GAO-01-1084SP Results-Oriented Budget Practices

agency could define its goals as cost objects and distribute the agency’s

direct and indirect administrative and program costs against those cost

objects through such methods as direct time charging or other valid cost

allocation methods.

An extension of an agency’s capacity to relate its budget structure to its

goals is the capacity to relate and use budget, accounting, workforce, and

performance information to formulate and implement the budget. The

ability to relate accounting to budget information is fundamental to

maintaining control of and accountability for appropriated funds. The

capacity to relate performance to budget and accounting information

entails establishing a predictable and verifiable relationship between

programs, goals, performance indicators, budgets, and spending and being

able to report this information in an integrated manner for use by

management. Furthermore, information on the agency’s workforce, such

as the number of new hires and separations and salary and benefit levels,

is critical to estimating and managing the cost of the workforce.

Theme 4 practices suggest that agency management should not assume the

status quo in the approach it takes to achieving the agency’s goals from

one budget cycle to the next. The budget process can provide an

opportunity for the agency to review evaluations of its programs and

operating methods to help improve results.

One method agency management should use to identify opportunities to

improve performance is to analyze the full costs of its programs, defined in

context, including unit costs where appropriate. For example, when

combined with effectiveness measures, unit cost measures can help

managers see tradeoffs between competing needs by highlighting the

relative costs and benefits produced by different operating units.

Agency management should also identify potential alternative sources of

funding, if appropriate. For instance, agencies that provide direct services

either to segments of the public or to other agencies could consider

proposing legislation that would give them authority to charge fees to pay

for those services.

Finally, agency management should use information about program

effectiveness and efficiency, such as program evaluations or

benchmarking studies, to challenge existing operating procedures and

methods of program delivery and to identify alternatives that may

accomplish agency goals more efficiently and effectively.

Theme 4: Continuously

Seeks Improvement
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Theme 4: Continuously Seeks Improvement

Agency management:

 uses information on program effectiveness, such as program evaluations,

to determine if programs are producing desired results with resources

provided and identifies alternative approaches that could accomplish

agency goals more effectively and efficiently.

 analyzes the direct, indirect, and, if possible, unit costs of activities to

identify opportunities to improve effectiveness and efficiency; and

 considers the performance and implications of alternative budgetary

resources.

A key challenge cited by the panel of senior agency budget officials was

the difficulty of incorporating agency goals into budgetary decisions given

the tight time constraints of the annual budget cycle. The panelists also

cited challenges to using performance information for budget decisionmaking. For example, performance information may not be timely or may

not be relevant to new initiatives or goals being proposed. In addition, the

panelists spoke of the difficulty of relating performance, budget, spending,

and workforce information because goal and performance information

does not mesh well with agency budget and accounting information and

information systems that could help relate this information are not always

available. A detailed list of challenges cited by the panelists appears in

appendix II.

The next phase of our work will look at how agencies have found

innovative ways to address these challenges and implement resultsoriented agency budget practices. By sharing examples from these

agencies, other agencies may adapt and apply elements of those practices

that, ultimately, may improve their ability to manage for results.

Panel Discussion of

Challenges to

Implementation

Next Steps
Appendix I: Results-Oriented Agency Budget

Practices Appendix I: Results-Oriented

Agency Budget Practices

Page 16 GAO-01-1084SP Results-Oriented Budget Practices

Theme 1: Performance Informs Budget Formulation and Implementation1

Practices2 Description

For budget formulation, agency management:

1.a. Provides general guidance to program officials

on agency goals, performance issues, and

resource constraints.

The agency issues to program managers written guidance on budget formulation

(sometimes called a “spring planning call” or “budget call”) that sets the reporting

requirements and funding targets for program-level budget formulation activities.

The guidance contains the major factors program managers need to consider as

they prepare their requests for resources. Major factors should include the

agency’s goals for the formulation year, performance issues, and funding targets

that will constrain program proposals for increased spending.

1.b. Requests input from program officials on the

relative priority of new and existing programs and

proposed changes to funding levels based on a

review of changed costs, performance issues, and

other relevant factors.

The input should provide information on requested funding levels for each

activity. It should also indicate the relative priority of the activities for

accomplishing agency goals so that lower-priority activities can be weighed

against other on-going or new funding proposals. Estimates should reflect:

• Annualization of personnel costs: The annual cost of existing staff,

including the annualized cost of staff hired during the current fiscal year.

• Annualization of other recurring costs: Of funding provided for the current

year, the annual cost of recurring items, such as rent or ongoing contractual

services, in the budget formulation year.

• Reductions for one-time costs: Of funding provided for the current year—

the amount of reductions for items that were one time or time limited in nature,

such as new office equipment, higher than normal travel costs, or terminated

or completed contracts.

• Reasonable assumptions: See practice 2.a.

• Performance issues: How actual performance has compared to goals. The

input should describe the reasons for performance that exceeded or fell short

of goals and whether and how additional budgetary resources might influence

performance against proposed goals.

• Statutory or other relevant changes: Estimates of costs to implement new

legislation or guidance contained in appropriations committee reports.

Related Guidance: OMB Circular A-11, Sec. 30.

 1

 In general, the themes and practices are supported in law, such as sections of titles 5, 31,

and 44 of the United States Code.They are also supported by Standards for Internal

Control in the Federal Government (GAO/AIMD-00-21.3.1, Nov. 1999); and Office of

Management and Budget circulars A-11 “Preparing and Submitting Budget Estimates” (July

17, 2001), A-34 “Instruction on Budget Execution” (November 3, 2000), A-123 “Management

Accountability and Control” (June 21, 1995), and A-127 “Financial Management Systems”

(July 23, 1993). Specific guidance is noted following the practices.

2

 For all practices, we assume that agencies will comply with appropriations and other laws

and guidance and respond to OMB and department directions in formulating and

implementing their budgets.

Appendix I: Results-Oriented Agency Budget

Practices
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Practices

Page 17 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

1.c. Uses the input on relative priorities, changing

costs, performance, and other factors to weigh

competing needs and decide funding levels for

existing and new programs; communicates

management’s decisions to program officials; and

provides an opportunity to appeal the decisions.

The agency collects program managers’ input on priorities and proposed funding

levels and uses the input to make judgments about the funding levels to be

requested in submissions to the department (if applicable), OMB, and the

Congress. Ideally, an agency might rank the competing needs based on their

relative contributions to achieving goals. Note that formulation of an agency’s

budget request is an iterative process in which requested resources are subject

to external scrutiny and change as the agency’s request is first weighed against

other department programs and priorities and the department’s request is

weighed against other executive branch priorities. Therefore, input obtained from

program officials is considered a first step and many other levels of review and

decision-making occur before final decisions are made.

After collecting and considering program input and making decisions based on

the input, the agency communicates in writing its decisions about the funding

levels being requested for each program. The agency then allows program

officials to provide feedback about the impact of funding increases or reductions

on the performance of their programs and to appeal management’s decisions.

1.d. Coordinates with other entities to achieve

common goals and avoid duplication.

As part of its planning processes, an agency should consider the environment in

which it operates, identify other key players that contribute to accomplishing the

agency’s mission and goals, and satisfy itself that the agency is not duplicating

the efforts of others or missing opportunities to improve performance through

cooperation. In formulating its budget request, the agency should incorporate the

results of this analysis by allocating resources to areas where performance can

be improved through cooperation with other entities and away from activities that

duplicate the efforts of others.

1.e. Justifies its budget request both within the

agency and externally (e.g., with the department,

the Congress, OMB) in terms of how requested

funds will contribute to the accomplishment of

agency goals.

The agency prepares budget justification documents, both for internal and

external review, that demonstrate how the agency’s funding requests relate to

the accomplishment of its goals. The justification documents should demonstrate

how the agency’s funding request would help the agency accomplish the goals in

its annual performance plan. The goals in the annual performance plan and the

agency’s budget justification should be consistent. The agency should also be

prepared to discuss the performance implications of funding levels that differ

from the request.

GPRA requires an agency’s performance plan to cover each program activity in

the President’s budget request for that agency. To meet this requirement, an

agency’s performance plan should demonstrate how all of its budgetary

resources by program activity are associated with the goals in its annual

performance plan. However, an agency’s budget account and program activity

structure does not always neatly crosswalk to the goals in its annual

performance plan. Therefore, GPRA gives agencies the flexibility to consolidate,

aggregate, or disaggregate program activities, so long as no major function or

operation of the agency is omitted or minimized.3

Related guidance: OMB Circular A-11, Secs. 51, 220.

 3

 For a more detailed discussion and examples see Performance Budgeting: Initial

Experiences Under the Results Act in Linking Plans With Budgets

(GAO/AIMD/GGD-99-67, April 12, 1999).
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Page 18 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

1.f. Informs its staff of departmental, OMB, and

congressional actions on the budget request and

obtains feedback from program officials on the

implications of those actions for agency goals.

The agency should continuously monitor departmental, OMB, and congressional

actions on the budget request and communicate those actions to staff. For

example, agencies can provide timely information by e-mail or through an

internal Web site. The agency should also seek input from program officials on

the implications of those actions for accomplishing the goals in the agency’s

performance plan. For example, to begin contingency planning as soon as

possible, an agency might wish to seek input from program officials on actions

on the budget request that have significant resource implications, such as those

that will require the implementation of a new program or significant staff

reductions.

For budget implementation, agency

management:

1.g. Provides guidance to program officials on

changes in agency goals, performance issues, and

resource constraints.

Between the time an agency formulates its budget request and the time it

implements its budget, many operating assumptions may have changed. For

example, there may be legislative changes to programs, new performance

issues, or changes in cost assumptions, such as those for rent or health

insurance. As the agency prepares to implement its budget, it should issue

written guidance to program officials on known or anticipated changes in the

agency’s goals, performance issues, and resource constraints since formulation.

For example, if anticipated resources are less than requested to achieve the

goals in the annual performance plan, the agency should highlight the potential

performance gap and begin to address the issue as part of the performance

management and budgeting process. Similarly, updated performance

information could provide information on where performance is leading or

lagging and be useful in planning resource allocation.

1.h. Requests updated information from program

officials on the relative priority of new and existing

programs and proposed changes to funding levels

based on a review of changed costs, performance

issues, and other relevant factors.

The agency issues written guidance to program managers requesting their input

on their funding needs. The agency could set funding targets that impose a

reasonable limit on what programs can request. By seeking input from program

managers the agency does not assume that all programs will automatically be

funded at a maintenance level. The input should provide information on

requested funding levels for each activity. It should also indicate the relative

priority of the activities for accomplishing agency goals so that lower-priority

activities can be weighed against other on-going or new funding proposals.

Although we list virtually the same factors here as for formulation (see practice

1.b) the emphasis should be on significant changes in the factors that may affect

priority for funding. Estimates should reflect:

• Annualization of personnel costs: The annual cost of existing staff,

including the annualized cost of staff hired during the current fiscal year.

• Annualization of other recurring costs: Of funding provided for the current

year—the annual cost of recurring items, such as rent or ongoing contractual

services, in the budget formulation year.

• Reductions for one-time costs: Of funding provided for the current year—

the amount of reductions for items that were one time or time limited in nature,

such as new office equipment, higher than normal travel costs, or terminated

or completed contracts.

• Reasonable assumptions: See practice 2.a.

• Changes in performance issues: How program performance compared to

goals for the most recent year available. The input should describe the

reasons for performance that exceeded or fell short of goals, and whether and

how additional budgetary resources might influence performance against

proposed goals.

• Statutory or other relevant changes: Estimates of costs to implement new
Appendix I: Results-Oriented Agency Budget

Practices

Page 19 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

legislation or guidance contained in appropriations committee reports.

1.i. Uses the input on performance, goals, and

other factors to weigh competing needs and decide

existing and new program funding levels;

communicates its decisions about funding

allocations; and provides an opportunity to appeal

the decisions.

Because many changes in operating conditions and resource constraints can

occur between budget formulation and implementation, an agency will generally

need to rethink its priorities and reweigh competing needs to determine the level

of funding to be allocated to each program area. Therefore, the agency should

consider program managers’ input on proposed funding levels needed to

maintain current services and address new program needs and should use the

input to make judgments about the funding levels to be allocated.

Prior to making final allocations, the agency communicates in writing its

decisions about the funding levels being allocated to each program. The

agency’s budget process allows program officials to provide feedback about the

impact of funding increases or reductions and to appeal management’s

decisions.

1.j. Allocates funding in a timely manner. To maximize performance, after appropriations are signed into law, the agency

should allocate in a timely manner funds needed for program operations.

Advance planning, by enabling an agency to make final funding decisions quickly

once funds have been appropriated, is the key to success in this area.

• Preparing preliminary operating plans based on appropriations actions:

As far in advance of the new fiscal year as practical the agency should ask

program officials to prepare preliminary operating plans based on preliminary

decisions about funding allocations for the upcoming fiscal year. Because final

funding outcomes are uncertain at this point, the agency should base its plans

on the most likely budget outcome and reserve a portion of the funding to

make final adjustments.

• Adjusting the plans when final appropriations actions take place: After

funds have been appropriated, warranted, and apportioned, the agency

should quickly determine final funding allocations based on information from

the preliminary operating plans.

• Allocating appropriated funds as soon as possible thereafter: The

agency should be prepared to quickly inform program officials of final funding

decisions and enter the funding allocations into the agency’s financial

management system.

• Finalize operating plans to be used for monitoring purposes: Program

officials submit final operating plans based on the final allocations.

1.k. Routinely monitors performance, spending,

and budgetary resources and adjusts allocations as

necessary to maximize performance against goals.

The agency has processes in place to collect, analyze, reconcile, and report

periodically during the fiscal year information on performance, spending, and

budgetary resources against plans so that management has credible, up-to-date

information for monitoring and decision-making. Such monitoring should form the

basis for decisions that address performance gaps by looking for root causes

and, if necessary, adjusting funding allocations to rectify performance problems.

In addition, the agency should maximize available resources by tracking the

availability of unobligated balances and monitoring the status of obligations so

funds can be deobligated when they are no longer needed for a given

transaction. There should also be some indication that program managers are

reconciling accounting transactions on at least a monthly basis.

Related guidance: OMB Circular A-34, Secs. 30, 80.
Appendix I: Results-Oriented Agency Budget

Practices

Page 20 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

1.l. Uses input from program officials on how

changes in funding allocations will affect

performance.

The agency makes decisions about changes in funding allocations based in part

on input from program officials on how the changes will affect performance. For

example, the agency should evaluate requests for mid-year increases in funding

in terms of their contribution to the agency’s performance. Similarly, decisions to

reduce a funding allocation midyear to address other funding priorities should

use information on how the reduction will affect program performance and, if

appropriate, revise performance targets to reflect reduced funding.

1.m. Coordinates program requests for

postappropriations budget changes, requests input

from program officials on the implications of those

changes for agency goals, and communicates the

results.

During the fiscal year, an agency may seek supplemental appropriations. If the

agency decides or is required to go forward with a request, a number of steps

need to be taken. OMB’s Circular A-11 provides guidance on the materials that

must be submitted. The agency obtains input from program officials about the

effect of proposed budget changes on achieving agency goals and

communicates this information in its request for funding changes. As decisions

are made, the agency communicates the information to program officials.

Related guidance: OMB Circular A-11, Sec. 110.

Theme 2: Produces Reliable Estimates of Costs and Resources

Practices Description

Agency management:

2.a. Bases its budget estimates on reasonable

assumptions about factors affecting program costs

or budgetary resources.

OMB Circular A-11 provides agencies with guidance on certain basic

assumptions about costs to be used in preparing budget requests. For example,

while agencies may consider the effects of inflation on their costs, budget

requests must stay within the budget planning guidance levels provided by

OMB. Regardless of these requirements, however, an agency’s costs and

budgetary resources change from year to year based on a variety of factors, and

agencies must grapple with the challenge of achieving performance goals while

finding funding for programs with increasing costs or declining resources.

Agencies that base their budget estimates on the most up-to-date and

appropriate assumptions will be better equipped to make tradeoffs between

covering these cost increases and other programmatic needs. An agency should

thoroughly explore the factors that are most likely to affect program costs and

budgetary resources, such as inflation, personnel costs, and program demand.

An agency that provides direct services should be concerned about estimating

the demand for that service and should use appropriate assumptions about

demographic and economic changes.

Related guidance: OMB Circular A-11, Secs. 30, 32.
Appendix I: Results-Oriented Agency Budget

Practices

Page 21 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

Agency management:

2.b. Looks back to assess the accuracy of previous

estimates and, if necessary, makes appropriate

adjustments to its estimating methods.

Agencies employ a variety of models and other estimating techniques to

forecast costs and budgetary resources for budget formulation and

implementation. Agencies should be concerned about the accuracy of these

models and techniques because inaccurate forecasts can result in higher-thanplanned program costs or funding shortages that can affect the agency’s ability

to achieve performance goals. To improve the accuracy of its cost or resource

forecast, the agency should periodically examine its estimating methods and, if

necessary, make changes. For example, persistent variations between planned

and actual spending or budgetary resource should be assessed.

The agency should also review information from audited financial statements not

covered in traditional budget presentations. For example, an agency should

consider factoring in the cost of addressing significant accrued liabilities, such

as the cost of accrued, unfunded annual leave for eligible retirees.

Related guidance: OMB Circular A-34, Sec. 30.

2.c. Considers how its policy, program, and funding

decisions may affect spending or budgetary

resources for other programs within the agency.

The agency should not view individual funding, program, or policy decisions in

isolation because they can have ramifications for estimates of the performance,

costs, or budgetary resources of other agency programs. For example,

technology investments may create savings in a variety of programs.

2.d. Considers the short- and long-term funding

implications of its program and policy decisions.

When assessing the affordability and desirability of policy and program options,

the agency should consider the long-term cost implications of these options

while determining how much funding to request in the short term. According to

OMB Circular A-11, agency budget requests for acquisition of capital assets

must propose full funding to cover the full costs of the project or a useful

segment of the project.

Failure to provide decisionmakers with adequate information about long-term

cost implications may lead to decisions that are based upon incomplete or

misleading information, potentially increasing costs or creating inefficiencies.

Related guidance: OMB Circular A-11, Sec. 31.4.
Appendix I: Results-Oriented Agency Budget

Practices

Page 22 GAO-01-1084SP Results-Oriented Budget Practices

Theme 3: Can Relate Performance, Budget, Spending, and Workforce Information

Practices Description

The Agency:

3.a. Can relate its budget structure to its goals. GPRA requires an agency’s performance plan to cover each program activity in

the President’s budget request for that agency. To meet this requirement, an

agency should have a credible method of relating obligations to goals. However,

an agency’s budget account and program activity structure do not always neatly

crosswalk to the goals in its annual performance plan. To demonstrate the

relationship between budget program activities and goals, an agency may have

to consolidate, aggregate, or disaggregate program activities.4

There are several approaches available that provide credible methods for

relating obligations to goals. For example, an agency could define its goals as

cost objects and accumulate obligations against those cost objects through such

methods as direct time charging or other valid cost allocation methods.

Related guidance: OMB Circular A-11, Secs. 71, 220; OMB Circular A-123.

3.b. Can relate budget, workforce, accounting, and

performance information.

For budget formulation and implementation, the agency can relate budget,

workforce, accounting, and performance information to support decision-making.

For example:

• Budget reports may show information on program obligations or outlays and

their associated goals or performance measures.

• Accounting information can be rolled up to support budget information. The

agency’s accounting system data on spending ties directly to actual budget

spending and can be used during budget formulation or implementation.

• Data from the agency’s standard general ledger can be crosswalked to the

agency’s SF-133 Report on Budget Execution and Budgetary Resources and

the actual year column of the Program and Financing Schedule in the

President’s Budget.

• Financial and performance systems use uniform terminology and coding and

avoid duplicating data entry and the use of supplementary systems. The

agency’s budget information systems are linked to performance information

so that reports do not require multiple data entry and agency management

can readily view information on obligations, outlays, and budgetary resources

related to performance. For example, staffing reports link fiscal and

performance data.

Related guidance: OMB circulars A-11, Sec. 220; A-34, Sec. 50; and A-127,

Sec. 7. Treasury Financial Manual Standard General Ledger Supplement.

 4

 For a more detailed discussion and examples see Performance Budgeting: Initial

Experiences Under the Results Act in Linking Plans With Budgets

(GAO/AIMD/GGD-99-67, April 12, 1999).
Appendix I: Results-Oriented Agency Budget

Practices

Page 23 GAO-01-1084SP Results-Oriented Budget Practices

Practices Description

The Agency:

3.c. Can account for both the direct and indirect

costs of its programs and associated goals.

The agency has an information system that breaks out spending information into

both direct (e.g., program staff, benefits, rent, contracts, or grants) and indirect

costs (e.g., overhead services such as accounting or human resources staff or

agencywide information technology systems) for the agency’s programs and

associated goals.

Related guidance: Statement of Federal Financial Accounting Standards No. 4,

“Managerial Cost Accounting Concepts and Standards for the Federal

Government,” July 31, 1995.

Theme 4: Continuously Seeks Improvement

Practices Description

Agency management:

4.a. Uses information on program effectiveness,

such as program evaluations, to determine if

programs are producing desired results with

resources provided and identifies alternative

approaches that could accomplish agency goals

more effectively and efficiently.

GPRA calls for agencies to describe the program evaluations used to establish

or revise general goals and objectives and to provide a schedule of future

program evaluations. In addition to agency-sponsored evaluations, external

assessments by auditors, academics, industry, clients, public interest groups,

and others can provide information on the relative effectiveness and efficiency of

agency programs. Program evaluations provide agency management an

important tool for informing decisions about the tradeoffs between new and

existing programs when formulating or implementing the agency’s budget.

Furthermore, agency management should seek to improve agency performance

and reduce costs by exploring alternative approaches to accomplishing agency

goals. To determine whether alternative approaches to the agency’s work

provide greater value, the agency could, for example: network with other

agencies or their budget offices, benchmark state-of-the-art practices in

organizations with similar missions or service delivery mechanisms, and track

reforms that could bring about efficiencies if implemented.

Related guidance: OMB Circular A-11, Sec. 210.

4.b. Analyzes the direct, indirect, and, if possible,

unit costs of activities to identify opportunities to

improve effectiveness and efficiency.

The agency tracks the direct, indirect, and, if possible, unit costs of its activities

and uses this information to compare the cost of its activities to appropriate

benchmarks and to bring about improvements in efficiency over time. Agency

management uses this analysis to inform decision-making during budget

formulation and implementation.

Related guidance: OMB Circular A-11, Sec. 30.

4.c. Considers the performance and implications of

alternative budgetary resources.

The agency explores alternative budgetary resources to accomplish agency

goals more effectively and efficiently. For example, agencies that provide direct

services either to segments of the public or to other agencies could consider

proposing legislation that would give them authority to charge fees (offsetting

collections) to pay for the services.
Appendix I: Results-Oriented Agency Budget

Practices Appendix II: Challenges to

Implementing Results-Oriented Agency

Budget Practices

Page 24 GAO-01-1084SP Results-Oriented Budget Practices

We asked the panel of senior agency budget officials to identify practices

that would be difficult to implement and to discuss some of the challenges

to implementation. The panelists cited general challenges to linking the

planning and budgeting processes as well as specific challenges to using

performance information in the budget process; reallocating funds to

address performance issues; relating budget, performance, and other

information; and examining and improving current operations. The

following describes the challenges discussed by the panel.

• Budgeting and planning have different time horizons: The budget

process focuses on obtaining funding for the upcoming fiscal year. In

contrast, strategic planning has a long-term horizon and establishes goals

that can take multiple years to accomplish.

• Time pressures can drive budgeting: Without top management

commitment to results, the budget process, given its tight time constraints,

may proceed on its own track and may not result in budget decisions

aligned with strategic goals.

• Budget environment is not always flexible: Agencies operate in an

environment where allocations may be restricted by amount or activity so

as to limit flexibility in shifting resources to achieve results.

• Budgets are not usually structured around goals: Performance

information does not mesh well with most agency budget and accounting

structures because budgets usually are structured around organizations,

functions, or programs instead of goals and objectives.

• Changing budget structures is costly and may inhibit tracking costs

from year to year: Adopting a budget structure that is keyed to agency

goals implies that the budget structure would need to change over time to

reflect changing goals. However, the structure of an agency’s budget needs

to remain relatively stable to track costs consistently from one year to the

next and to avoid ad hoc agency reporting or costly changes to financial

systems.

• Input from program officials can be inhibited: In an agency where

management is accustomed to making decisions in a top-down manner,

decisions may not reflect input from program officials or other staff

offices and may instead reflect management priorities unrelated to

program performance goals.

• Expectation gaps may be created: Obtaining input from program

managers on their funding priorities related to performance may create

Appendix II: Challenges to Implementing

Results-Oriented Agency Budget Practices

Linking Planning and

Budgeting Processes

Using Performance

Information to

Request and Allocate

Resources
Appendix I: Results-Oriented Agency Budget

Practices Appendix II: Challenges to

Implementing Results-Oriented Agency

Budget Practices

Page 25 GAO-01-1084SP Results-Oriented Budget Practices

expectation gaps because an agency must weigh the input and make

tradeoffs that reflect agencywide, rather than program-level, priorities.

• Performance information may not be relevant to new initiatives:

Changes in top management’s priorities or agency goals can reduce the

relevance of prior performance information for budget decisions.

• Performance information may not be timely: For example, an agency

formulating its budget for fiscal year 2003 must submit its request to OMB

by September 2001. As of that date, the last full year of performance

information is fiscal year 2000—three years behind.

• Lack of outcome information: The lack of good information on the

relationship between funding and outcomes makes it difficult to assess

whether funds are allocated or reallocated effectively—in turn making it

difficult to determine whether changes in funding allocations will make a

difference in performance.

• Reprogramming restrictions: Some agencies have reprogramming

restrictions that may inhibit aligning resources to goals.

• Cultural resistance to reallocations: There may be a cultural

resistance to reallocating program funds to address performance issues

elsewhere in the agency.

• Ad hoc approaches often used: The agencies represented at the panel

generally have not chosen to integrate performance information with

budget and spending data, and when they have, they have used ad hoc

approaches.

• Crosswalks of limited use: Some found that building crosswalks

between budget accounts and agency goals was of limited use to the

agency and appropriators because funding decisions were keyed to the

functions or organizations in the budget instead of agency goals.

• Planning and budget functions not integrated: Agencies that have not

integrated their planning and budget functions may have difficulty aligning

budget and planning information and providing integrated guidance to

program managers or other staff offices on performance and budgeting

issues.

• Information systems not always available: For example, budget

officials are accustomed to producing timely and useful information on

spending against plans, but performance information reports are more

sporadic and not easily linked to spending information.

• Cost of information systems may be prohibitive: The expense of

developing and implementing new information systems might be

Reallocating Funds to

Address Performance

Issues

Relating Budget,

Spending, Workforce,

and Performance

Information
Appendix I: Results-Oriented Agency Budget

Practices Appendix II: Challenges to

Implementing Results-Oriented Agency

Budget Practices

Page 26 GAO-01-1084SP Results-Oriented Budget Practices

prohibitive because funding for information technology initiatives is

difficult to obtain.

• Indirect costs are difficult to attribute to goals: It can be difficult to

attribute indirect costs, such as information technology or rent, to agency

goals.

• Quality of agency estimates not always basis for decision-making: It

may not be useful to try to perfect spending estimates, particularly for

budget formulation, because the department or OMB can reduce funding

regardless of the quality of the estimates.

• Agencies may lack capacity for program evaluations: Agencies may

lack the capacity and resources to perform their own program evaluations

because such evaluations can be costly and time consuming and agencies

lack staff to do them.

• Alternative revenue sources may be unavailable: The availability of

alternative revenue sources may be limited for some agencies because

they are restricted by statute from charging fees and have difficulty

persuading the Congress to adopt user fees.

• Difficult to evaluate programs implemented by third parties:

Agencies, such as regulatory agencies, that rely in part on third parties to

accomplish their goals may have more difficulty evaluating the

effectiveness of funds spent because the agency has limited control over

the actions of the third parties.

(450051)

Examining and

Improving

Effectiveness and

Efficiency of

Operations
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