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close this bookHealth Economics for Developing Countries: A Survival Kit (London School of Hygiene and Tropical Medicine, 1998, 134 p.)
View the document(introduction...)
View the documentPublication Series - Health Policy Unit
View the documentAcknowledgements
View the documentPreface
View the documentChapter 1: Health Economics and its Contribution to Health Planning
View the documentChapter 2: Economic Development and Health
View the documentChapter 3: Financing Economic and Health Development
View the documentChapter 4: Health Care: the State versus the Market
View the documentChapter 5: Demand, Supply and the Price System
View the documentChapter 6: Concepts of Economic Efficiency
View the documentChapter 7: Inputs, Resources and Costs
View the documentChapter 8: Outputs, Health and Health Indicators
View the documentChapter 9: The Techniques of Economic Evaluation
View the documentChapter 10: National Accounts and the Health Sector
View the documentChapter 11: Health Sector Finance and Expenditure
View the documentChapter 12: Sources of Finance for the Health Sector
View the documentChapter 13: Budgetary Procedures: Budgetary Reform and Programme Budgeting
View the documentChapter 14: Approaches to Financial Planning: Resource Allocation Planning and the Financial Master Plan
View the documentSelected Bibliography
View the documentGlossary
View the documentBack Cover

Chapter 13: Budgetary Procedures: Budgetary Reform and Programme Budgeting

1. Reform of Government Budgeting Procedures

There is a long history of attempts to improve traditional government budgeting procedures. For some years, there has been concern that government budgetary procedures neither serve management efficiency nor provide the information necessary for policy making and planning. The main criticisms of budgetary procedures concern both the actual procedures and the budget structure.

Criticisms of procedures include:

- it is difficult to formulate budgets that will help to achieve a government's objectives because these objectives are often not clearly specified

- the budgeting system is often ignored by planners, although budgets have a crucial influence on existing and future resource allocation patterns

- budgeting is often a completely separate activity from planning: for instance there may be no procedures to ensure that the recurrent costs of new capital developments can be afforded, or that the recurrent budget is increased when new buildings are completed

- budgeting has basically been established as a form of expenditure control and for accounting purposes, not in support of planning activities

- budgets tend to change from year to year on an incremental basis, with changes based on past budgets or, more appropriately, past expenditure; they favour existing facilities and respond to current patterns of utilization, rather than pushing ahead in new directions and ensuring that resource allocation reflects planning priorities

- incremental budgeting brings a little bit more or a little bit less each year regardless of the efficiency or effectiveness of expenditure

- expenditure records are often unavailable for use in budgeting, because accounting systems are themselves inadequate

- shortfalls in the anticipated budget generally result in indiscriminate cuts which do not protect priority budget areas (e.g. a 5% cut across all budget items)

- where budgets are based on development expenditure and its recurrent requirements, planning and budgeting are more integrated but budgets are biased in favour of new facilities rather than supporting primary health care and existing services

- budgeting is often a very centralized procedure (e.g. budgets are planned centrally and central permission is required to reallocate budget items) and so there is little scope for budgetary initiatives or for making lower level managers feel responsibility for the management of budgets; flexibility is reduced as systems grow and the required paperwork becomes uncontrollable.

These problems are reflected and exacerbated by budget structures:

- even if objectives are specified, it is often impossible to associate them with the use of resources because traditional budgets are structured by 'object account' or 'budget code' such as salaries and drugs, and it is difficult to tell what health objectives this expenditure is serving (e.g. primary health care or tertiary level care)

- centralized procedures are reflected in centralized structures, in which individual facilities (even hospitals) may not themselves be 'cost centres' with their own budgets

- expenditure records are often only available by 'sub-vote' (e.g. administration, medical services, preventive services) rather than by 'cost centre' (e.g. hospitals, health centres), and are not helpful for future budgeting activities.

For these and other reasons there have been many proposals for the reform of government budgeting procedures. Of particular interest is programme budgeting.

2. What is Programme Budgeting?

It is difficult to define programme budgeting because:

- programme budgeting means different things to different people: two countries may say they have a programme budgeting system, but the two systems may be very different

- programme budgeting has a number of different names (performance budgeting, output budgeting, PPBS - planning, programming, budgeting system). To some people these all mean the same thing; to others they are different.

The essential feature of programme budgeting is that it focuses on the general character and relative importance of the work to be done, or upon the service to be provided, rather than upon the things to be acquired such as manpower, supplies. These latter items are only the means to an end. Some authors equate programme and performance budgeting. Others distinguish them in the following way:

- programme budgeting is concerned primarily with 'programmes' or the accomplishment of objectives specified in terms of health outputs

- performance budgeting is concerned primarily with 'performance' or accomplishments specified in terms of physical outputs and unit costs.

The basic elements of programme budgeting are:

- classifying expenditures by output-oriented programmes
- using this as a framework for planning and monitoring progress towards objectives
- (possibly) re-structuring budgets.

3. The History of Programme Budgeting

Experiments with programme budgeting began in the 1950s and 1960s. The most publicized experiment was with PPBS in the federal government of the United States, but because of problems the experiment was terminated in 1971. However, the system has since been exported all over the world. It has been adapted and diversified, and does have some approaches that Ministries of Health may find useful.

Nonetheless, the history of programme budgeting provides lessons that are important to keep in mind, particularly that changes in procedures do not necessarily produce changes in behaviour; and that new procedures (like programme budgeting) can easily generate large quantities of information that are then ignored by decision-makers.

4. The Main Issues in Programme Budgeting

Where does programme budgeting fit in? programme budgeting is not a planning procedure or a budgeting procedure hut rather provides a framework that links planning and budgeting (see Figure 20).

Programme structures: a programme is a group of activities with an objective in common. For instance, one objective might be to improve the health of children and a child health programme could be defined. Under this programme heading, sub-objectives could be specified such as reducing the infant mortality rate; or improving child nutritional status. In theory, a hierarchy of objectives and sub-objectives can be established for programmes, although in practice this can quickly become unnecessarily elaborate.

What programmes should there be within a programme budget for 'health'? A useful guide is that:

- where decisions are primarily a matter of political or moral judgement, the activities to be compared should be in different programmes (e.g. improvement of child care facilities versus psychiatric services)

- where the decision is a technical one of how best to achieve a particular objective, the activities to be compared should be in the same programme (e.g. improvement of curative or preventive services for children).

Figure 20: A Map of Planning Activities

A programme structure can be based on one or more of the following classification systems. Those higher up the list are more closely related to health objectives; those lower down the list are more feasible given existing information systems.

- target groups (e.g. lower income groups, the unemployed)
- client groups (e.g. physically disabled, mentally ill)
- health service function (e.g. prevention, cure)
- types of activity (e.g. water, sanitation, immunization)
- disease categories (e.g. vector-borne and diarrhoeal diseases)
- levels of care (e.g. primary care, secondary care)
- geographical areas (e.g. districts)
- institutions (e.g. hospitals, health centres).

A government's policy objectives and the availability of information will influence the choice of programmes.

Allocating activities to programmes: each programme should in theory contain all activities (services) that contribute to the programme, regardless of the agency that is responsible for them. For instance a child health programme should contain under-fives clinics, paediatric wards, school health etc.

Costing the programmes: the resources used by each programme should be costed. In theory, all costs should be included whoever pays them (Ministry of Health, community, individuals etc.). Existing accounting systems may make it difficult to identify expenditure with programmes.

Cost information should ideally be presented for the last few years and can be projected into the future.

Adding output measures to programmes: within each programme, the cost of each activity should be matched with information on outputs in order to assess the efficiency of resource use and the value of the activity. Measures of health output should ideally be used (e.g. lives saved), but in practice measures of 'intermediate' output are often used (e.g. number of children immunized).

Evaluation: programme budgeting information can be used in a variety of ways

- to evaluate existing patterns of resource allocation and whether they match government policies

- to evaluate whether a new plan will move resource allocation patterns in the desired direction and whether it has done

- to investigate the implications for health expenditure of changes in the sociotechnical environment: e.g. change in the composition of the population, or the introduction of new technologies

- as the starting point for cost-effectiveness or cost-benefit analysis

- to review the claims of budget-holders for additional resources in the annual budgeting cycle.

The relationship of programme budgeting to the management and accounting system: a crucial question is whether programme budgeting should be used primarily as a tool for planning, or whether the budgeting and accounting system should be changed to incorporate programme budgeting principles.

There is no easy solution. If programmes are defined in terms of client or target groups, these cut across existing institutional structures and budget-holding by programme would complicate accounting systems. If programmes are defined in terms of existing institutional structures (e.g. a vertical malaria control programme, or district hospitals) then this may strengthen their isolation and independence.

However, this problem may be outweighed by the advantages gained in being able to channel resources to a priority programme. For instance, if primary health care is part of a district health care budget, funds may be retained in the hospital. If primary health care has its own programme and budget, then managers can make sure that primary health care obtains an adequate share of total resources.

5. Alternative Budgetary Reforms

Some of the other reforms of existing budgetary procedures that could strengthen the budget process are:

- the decentralization of budgetary control (for example, to the districts or even cost centres at the district level)

- regular consultation with, and involvement of, all levels of the health system and of appropriate non-accounting officers (e.g. medical officer, matron, administrator) during the budget development period

- the provision of budget limits which decentralized budget holders must not exceed but within which they are allowed some flexibility (e.g. for the reallocation of budget items)

- establishing budgets on a 'basic needs basis' ('zero-based' budgeting) to clarify the resource requirements of existing services and to help in identifying budget priorities

- the re-structuring of budgets to reflect the decentralized approach (eg. main division by cost centre, sub-divisions by budget code)

- more timely publication of expenditure data and more appropriate disaggregation of the data (particularly by cost centre, supplemented by summary totals by sub-vote, budget code etc.)

- the adoption of new financial planning approaches (see Chapter 14) together with related budget procedures and structures.

However, any budgeting reforms must also be associated with staff training and skills development. The accountancy cadres in many developing country ministries of health are often under-trained and need support. Budgeting is, moreover, not simply an accountancy exercise but should involve all health managers, who themselves need training in budget development and financial management.