Results-Oriented Budget Practices in Federal Agencies
Published: 2001-08-01T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: GAO analyzed federal government budget practices in order to produce a framework for agency budget practices that can guide an agency toward incorporating performance information into the budget process. GAO also reviewed challenges to implementing results-oriented budget practices that were identified by a panel of agency budget officials.

section_title: Letter
paragraphs: 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.” To obtain additional  copies see ordering information at the end of this publication.
Please address any comments or questions, by December 31, 2001, to  views@gao.gov or to Denise Fantone, Assistant Director, Strategic Issues,  at (202) 512-4997 or at the following address: U.S. General Accounting  Office, 441 G Street, NW, Room 4062, Washington, DC 20548.
Paul L. Posner Managing Director, Federal Budget Strategic Issues 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. 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.
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.
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  performance—what is commonly referred to as “performance budgeting.”  GAO studied performance budgeting initiatives, such as Zero-Base  Budgeting, Management by Objectives, and Planning-Programming- Budgeting-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.
The purpose of this draft is to supplement the well-established legal and  regulatory structure for federal budgeting 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. 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.
subsections: section_title: Scope and Methodology
paragraphs: 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 adapted  the information to describe how performance information could be used  for budget formulation and implementation in federal agencies. 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. 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.
section_title: Framework for Results-Oriented Budget Practices in Federal Agencies
paragraphs: 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.
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  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. 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.
section_title: Results-Oriented Budget Practices and Panel Discussion
paragraphs: 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.
subsections: section_title: Theme 1: Performance Informs Budget Formulation and Implementation
paragraphs: 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, existing performance  issues, and resource constraints.
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 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 management’s 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 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 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;   allocates funding in a timely manner; routinely monitors performance, spending, and budgetary resources and adjusts allocations as necessary to maximize performance against goals;   uses input from program officials on how changes in funding allocations will affect performance; 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.
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.
section_title: Theme 2: Produces Reliable Estimates of Costs and Resources
paragraphs: 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 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.
Theme 2 :  Produces Reliable Estimates of Costs and Resources   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; considers the short- and long-term funding implications of its program or policy decisions.
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.
section_title: Theme 3: Can Relate Performance, Budget, Spending, and Workforce Information
paragraphs: 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.
Theme 3 :  Can Relate Performance, Budget, Spending, and  can relate its budget structure to its goals; can relate budget, workforce, accounting, and performance information; can account for both the direct and indirect costs of its programs and associated 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  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.
section_title: Theme 4: Continuously Seeks Improvement
paragraphs: 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   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.
section_title: Panel Discussion of Challenges to Implementation
paragraphs: 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 decision-making.  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.
section_title: Next Steps
paragraphs: The next phase of our work will look at how agencies have found  innovative ways to address these challenges and implement results- oriented 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.
section_title: Results-Oriented Agency Budget Practices
paragraphs: Theme 1:  Performance Informs Budget Formulation and ImplementationFor 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.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.
Related guidance: OMB Circular A-11, Secs. 51, 220.
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.
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  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.
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.
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.
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.
subsections: section_title: 2.a. Bases its budget estimates on reasonable assumptions about factors affecting program costs or budgetary resources.
paragraphs: 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.
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-than-planned  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 resources 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.
Theme 3:  Can Relate Performance, Budget, Spending, and Workforce Information 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.
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.
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 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.
section_title: Challenges to Implementing Results-Oriented Agency Budget Practices
paragraphs: 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.
subsections: section_title: Linking Planning and Budgeting Processes
paragraphs: 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.
section_title: Using Performance Information to Request and Allocate Resources
paragraphs: 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  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.
section_title: Reallocating Funds to Address Performance Issues
paragraphs: 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.
section_title: Relating Budget, Spending, Workforce, and Performance Information
paragraphs: 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  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.
section_title: Examining and Improving Effectiveness and Efficiency of Operations
paragraphs: 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.
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section_title: Public Affairs