Government agencies often provide essential
services that no one else provides. Therefore, the managers
who run those agencies need a tool to manage for results, and
citizen consumers of those services need one to gauge their
performance. The new Obama administration has shown considerable
interest in the performance of government agencies, appointing a
chief performance officer, who reports directly to the president. A
tool for managing and gauging performance is more important than
Fortunately, there is such a toolbudgeting and performance
management (B&PM). This article, the first of two on B&PM,
introduces the tool and discusses the first half of the process:
creating a strategic hierarchy and measures and targets for
success. The second article will cover the other half of the
process: determining the cost and the means of success.
Earlier versions of B&PM took on bureaucratic-sounding
namesbudget and performance integration, performance budgeting,
strategic budgeting, performance improvement, and results
budgetingbut B&PM actually concerns why government
organizations exist (and whether they should continue to exist).
That is, to render essential services to citizens to ensure their
safety, health, and prosperitytheir very lives. It concerns
planning for government to do what it is supposed to do and then to
do it effectively.
The author of this article once drafted fifty steps for developing
a performance budget for a federal agency. Although comprehensive,
it was not a bestseller. No one wants a fifty-step process for
anything, let alone budgeting, so this article distills the fifty
steps down to four. Assembling a toy takes more than four steps, so
this approach should be doable for anyone. Admittedly, however,
four steps does not have much panache, so this article uses the
punti, which means
four points, or steps. Like the Punto, a Fiat supermini, it
hasa sportier sound.
The article synthesizes existing concepts in a unifying framework.
It offers examples (in box form) from agencies currently using
their own versions of B&PM to ensure effective programs that
serve their constituency.
Those who think of budgets usually think in numbers. However,
government organizations exist for a reason, and the organizations
budget is a statement of political intentions about that reason.
Budgeting used to concern how much money an organization would
spend: so much for this category of expense or for that program.
B&PM is the evolution of political intention, which now focuses
on results. B&PM identifies the results or outcomes to be
bought with the budget: improvement in childrens health, reduction
in homelessness or hunger, increase in defense readiness, or
opportunity for activity in national parks. These results are
policy options for organizations. The budget should define, for
example, how much the organization would improve childrens health
(the result). The money it spends on labor costs or health programs
is only the means to that end.
B&PM can be distilled into these quattro punti (four steps) as
a basic process you can use to help your organization achieve
What are you doing and how?
How do you measure success?
How much does it cost?
How are you going to achieve it?
Primo Punto: What are you doing and how?
A mission statement explains what an organization does or the
results it expects to achieve: the reason for its existence. In the
late 1990s, at the direction of Congress, the Internal Revenue
Service (IRS) changed its mission statement from collect the proper
amount of tax revenue at the least cost to provide Americas
taxpayers top quality service. Congress wanted the IRS to change
what it was doing. The first step in B&PM is to understand what
your organization is doing, its mission. You cannot properly budget
unless you know what the organization is supposed to do.
Old- style, incremental budgeting started with the question: how
much did we spend last year and what changes, plus or minus, are we
making to our programs and resources? The problem with incremental
budgeting is that it ignores performance. We need to know whether
the organization accomplished what it was trying to do with last
years budget. Incrementing a budget that did not achieve results
last year only creates a budget that will not achieve results
If we assume your organization has a mission statement and it
adequately identifies the results your organizationexpects to
achieve, then you know the biggest part of what your organization
does. The next part is determining the details. To do so, we need
to build a strategic hierarchy, establishing a
structure on which to build B&PM.
This strategic hierarchy is the alignment of basic building blocks
of an organizations operation: mission, goals, objectives, and
activities. If your organization already has a strategic plan, you
can use it in building your strategic hierarchy.
In addition to mission (defined above), the elements of the
strategic hierarchy are as follows:
. Broad, medium-
to long-range general statements that, taken together,
ensure accomplishment of the mission.
shorter-term statements that, taken together, ensure
achievement of a goal.
Operations an organization undertakes that, taken together,
ensure meeting an objective.
Organizations typically have a single mission, multiple goals,
multiple objectives related to each goal, and multiple activities,
generally related to specific objectives (Figure 1).
Each organization needs to build its own strategic hierarchy, but
here is a brief example.
If an organizations mission is to enhance the health of Americans,
its goals might be to
The objectives of the improve health care goal might be to
mprove access to health
increase health care services, and
recruit and develop a health care
The activities related to the increase health care services
objective might be to
establish and run clinics for underserved
expand publicly funded health centers and
substance abuse programs, and
provide resource information and peer support
to families with children who have special health care
Logic Model/Strategy Map
Assembling a strategic hierarchy means fitting the blocks (goals,
objectives, and activities) into an arrangement that explains your
organizations inputs, actions, and outputs. Next, you determine
whether the arrangement or alignment can actually work to achieve
the desired results. Some call this a logic model or strategy map
Starting at the top of the strategic hierarchy, you determine
whether achieving all of the goals you have listed will guarantee
mission accomplishment. Using the example above, would improving
health care, preventing and controlling disease, and advancing
medical research be enough to ensure enhancing the health of
Americans? Must you also achieve other goals to ensure mission
accomplishment? If so, you need to identify those goals and their
accompanying objectives and activities, and the organization must
initiate these new activities.
Similarly, you have to determine whether any of the existing goals
are not essential for mission accomplishment. This determination
can be politically difficult because identifying activities the
organization no longer needs and should abandon can be unpopular.
Next, you determine whether meeting all the objectives guarantees
that a goal will be achieved or whether another objective needs to
be met to ensure goal achievement. If so, you need to identify that
objective and the accompanying activities that the organization
must initiate. Similarly, you determine whether any of the existing
objectives are not essential for goal achievement, leading to
activities that the organization no longer needs to do and should
Finally, you determine whether performing all of the activities
guarantees meeting an objective. Is something missing? Is something
Applying a logic model is also an excellent opportunity for
considering alternative methods of attaining the mission, goals,
and objectives. Even if current objectives are accurate, different
activities may meet these objectives more effectively or more
cheaply. For example, rather than running public health clinics,
the organization could choose to obtain health insurance for the
target population so it could obtain services from private health
Agencies that use a planning, programming, budgeting, and execution
(PPBE) process -such as the U.S. Departments of Defense and
Homeland Security, the National Oceanic and Atmospheric
Administration, and NASAalready employ a formal step (programming)
to consider alternatives. Agencies that do not use PPBE can still
build consideration of alternatives into their planning and
Building the strategic hierarchy is the key to B&PM, and it
requires critical thinking skills not always needed in a more
quantitative budgeting environment. Once you have constructed a
thoroughly logical strategic hierarchy, you are ready for the
Secondo Punto: How do you measure success?
A critical aspect of creating any new government programor
organizationis determiningup-front how you will know laterthat it was a success. Organizations are
created for a purpose, and we need a way to determine whether they
are achieving their purpose (mission). The strategic hierarchy lays
out what you are doing and how you are doing it; the next step is
laying out how you determine your success, that is, measuring how
well you achieve the desired results.
We determine the success of programs with performance measures
(Figure 3). The creation of performance measures for each level of
your strategic hierarchy is as necessary as it is logical. You
wouldnt exercise and diet to lose pounds and then never weigh
yourself, and you dont establish goals and objectives and then
never determine whether you achieved them. The basic purpose of
performance measures is to define success: how we know whether the
objectives have been met, goals achieved, and mission accomplished.
Performance measures are also useful on the journey to success.
They can affirm that you are on the right path or indicate that you
need to change direction. Regular performance measurement tells you
whether you are making progress. If you lost two pounds this week,
you are on the right path. If you did not lose anything, you may
need to make some adjustments.
There are various types of performance measures: outcome, output,
input, and efficiency. All have a role, but outcome measures are
the most important for B&PM because they measure results. In a
public health clinic, you might want to know the number of doctors,
nurses, and patients (input); the number of patients seen each day
(efficiency); and the number of vaccinations given (output).
However, the only way to know whether the clinic is successful is
to measure the incidence of serious disease or the overall health
of the target population (outcome).
Performance measures for the mission and goals should be outcome
measures; at these levels of the strategic hierarchy, you are
closest to measuring results. Performance measures for objectives
tend to be output measures; think of these as strides toward
results. Performance measures for activities include a mix of
output, input, and efficiency measures, depending on which aspects
of the activity you are checking. Every item in your strategic
hierarchy needs at least one performance measure.
Although an organization has many performance measures, no one
person in the organization uses all of them. Senior leadership
focuses on mission and goal measures, whether it is achieving the
desired outcomes and results. Management focuses on objective and
activity measures, whether it is doing the things needed to build
up to mission accomplishment.
Sources of information on creating performance measures abound, so
we do not review them here except to note that the creation of good
performance measures is not an easy process. The difficulty or
inability to measure precisely is sometimes a legitimate reason for
not measuring. However, we must measure performance to know whether
our programs are working, and we must know whether our programs are
working to justify our organizations existence.
The number of performance measures for each goal, objective, and
activity depends on your characterization of success. If you are on
an exercise and diet plan, you may want to lose thirty pounds or
just drop one clothing size. Especially at the activity level,
multiple measures are often needed to respond to multiple
"If you don't know where you're going, you'll wind up somewhere
else." - Yogi Berra.
A performance target is the level of success you expect to achieve.
Performance measures without targets only indicate whether you are
getting better or worse than before, usually not sufficient for
successful B&PM. You could do better than before but still not
achieve real results, such as just losing someweight in the next twelve months, rather than thirty
Interim targets break a long journey into manageable parts. It
might take four years to achieve a desired program result, so you
need to determine what you should be achieving at the end of each
quarter in one, two, and three years to ensure that you are on the
right path. You cannot wait years to determine this. You also need
to know what you need to do to get back on track if you are not
meeting your interim targets. For example, you can have a target to
lose five pounds after one month and nine pounds after two months.
Then you can check your progress each month and make any needed
adjustments to ensure that you still reach your goal of thirty
pounds in twelve months.
The article covers the first half of the B&PM process. We
discuss how to create a strategic hierarchy and ensure that it can
work. We describe how to create measures and targets of success. In
the next issue, we will look at the final two steps: how much does
it cost and how are you going to get there?