Q26. How do we budget under PPBS?

Under the traditional line item budgeting system, we estimate in detail the various expenditure requirements required for the coming fiscal year. Such an estimate is independent of the objectives that we want to achieve or the outputs – goods and services - that we want to deliver.

Under PPBS, budgeting takes place either in the context of a budget ceiling or in the context of planned outputs.

Budgeting under a budget constraint

Where a budget ceiling is provided to a ministry by the central budget authority – usually the Ministry of Finance – that ministry will have to carry out strategic planning. The strategic planning is carried out among the various program managers who will:

o compete among themselves to determine the relative priorities of their programs; and

o discuss the relative workload and outputs of the various programs.

Based on the priorities and the expected workload and outputs of the various programs decided by the strategic planning exercise, the overall budget ceiling of the ministry will be sub-divided across the programs.

Program managers will conduct a similar exercise among the activity managers to sub-divide the various activities within a program.

Based on this sub-allocation, an activity manager will have to determine what will be the level of his performance that he can reasonably achieve. He will have to propose performance targets for the performance indicators in his program statement (the budget document under PPBS that matches resources and planned performance).

No budget ceiling

Even where the Ministry of Finance does no bind ministries to a budget ceiling, a ministry can still go ahead with the strategic planning exercise among the program managers to determine the relative priorities for the coming fiscal year. Where there is no budget ceiling, an activity manager will have to forecast what will be the demand for his services in the coming budget year and what services he must deliver to meet the demand.

Based on a costing of the expected services to be delivered he prepares a budget. For operational planning and control, that budget would have to be detailed in terms of expenditure line items - similar to the format that exists in the traditional line item budgeting system.

Ministry of Planning

15^th October 2003