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Outcome-focused Management and Budgeting

Article  in  OECD Journal on Budgeting · May 2002

DOI: 10.1787/budget-v1-art20-en · Source: RePEc

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 Outcome-focused Management and Budgeting
by
Jens Kromann Kristensen, Walter S. Groszyk and Bernd Bühler*

1. Introduction
Over the last two decades, the focus of public sector budgeting and manage-
ment in most OECD Member countries has changed from inputs towards outputs.
While important elements of an input-based management approach remain, many
managers are now more often judged by how their programmes perform rather
than by how well they adhere to administrative controls and procedures, or how
successful they are in obtaining resources for their programme. The jury is still out
as to the details of actual gains and losses connected to this change, but generally
it is the view of central budgeting and management institutions that this change in
focus has enhanced the quality of management and increased programme effec-
tiveness and efficiency.
Despite this generally positive view, it is recognised that the output approach
has a number of limitations:
• An emphasis on quantitative output measures can distort attention in deliv-
ery agencies, with agencies losing sight of the impact their programmes
have on society.
• Politicians and the general public tend to think in terms of outcomes and
not of outputs. An accountability mismatch may arise between politicians
thinking in terms of outcomes and agency managers administering in term
of outputs.
• Outputs typically do not forge a strong link between government policies
(whose purpose is likely to be phrased in terms of outcomes) and their
implementation.

* Jens Kromann Kristensen is Administrator, Budgeting and Management Division, Public

Management Service, OECD. Walter S. Groszyk is Senior Adviser for Performance
Management, Budget Review and Concepts Division, Office of Management and Budget,
United States. Bernd Bühler works in the Department for Budgeting and Planning, Minis-
try of Finance, Hamburg, Germany. 7

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OECD Journal on Budgeting

• With an output focus, little information is obtained or “learned” by the gov-

ernment for subsequent use in formulating policies or examining what pro-
grammes are actually accomplishing.
These limitations have led several OECD Member countries to begin placing
more emphasis on outcomes, while continuing to be attentive to costs, inputs and
outputs.
While several OECD Member countries are already implementing an out-
come-focused approach, other Member countries are considering if, and how, they
should embark on this next step in the development of public management and
budgeting. In these countries, practitioners in central policy institutions, as well as
programme managers, are examining ways to define, evaluate and use outcome
measures. And they are striving to establish links between policy formulation,
political decision-making, management, audit and evaluation.1
The purpose of this article is to provide an overview of the conceptual frame-
work, the motives for moving to an outcome focus, the implementation challenges
and problems, the options available when designing systems and the actual
approaches in selected OECD Member countries.

2. Framework

2.1. Public management regimes

A public management regime can be defined by a number of criteria – for

example, by its view on what affects human behaviour, its main objectives and val-
ues, its distribution of duties and responsibilities, or its implementation struc-
tures. However, at the admitted risk of simplification, budgeting and management
regimes can also be described according to the weight they give to costs, inputs,
processes, outputs and outcomes and the corresponding measures of achieve-
ment, i.e. effectiveness, efficiency, economy and value for money, see Figure 1.
Figure 1 outlines the different elements ordered along a classical notion of
rational policy implementation and the connected measures of achievement. A
more elaborate discussion of the relations between costs, inputs, outputs and out-
comes and the connected measures of achievement can be found in the Annex to
this article.
Input-focused management and budgeting is oriented toward how much resources,
staff, facilities, etc. are made available for a programme or ministry. The amount of
money being spent on a programme or problem is often the main performance
measure when managing to input. The internal management information of an
8 input system does not reveal what the resources actually bought or achieved were

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 Outcome-focused Management and Budgeting

Figure 1. Focuses and measures of achievement

Outcomes
Effectiveness

Outputs
Value for money

Process Efficiency

Inputs
Economy
Costs

and often an input focus is accompanied by process regulation – i.e. standards and
rules on how inputs should be aligned, how things should be done.
However, ministries and agencies are not only created to spend money and
adhere to rules. To varying degrees, governments have sought to describe and
measure what the money is buying. Mostly, these descriptions and measurements
have been of outputs.
An output-focus to management and budgeting typically describes public func-
tions in terms of goods or services and calculates how many services are being
delivered, or products produced. An output focus is primarily oriented to indica-
tors such as volume and timeliness, and to a varying degree, quality; for example
how many beneficiary claims will be processed with minimal errors.
The extent of a manager’s direct control over outputs is less than that for
inputs but it is still usually substantial. Even for an organisation with an outcome-
focused approach to management and budgeting, the day-to-day management
and budgeting of the ministry is likely to rely on output data.
In outcome-focused management and budgeting, the government defines what a
particular programme or function is to achieve in terms of the public good, welfare
or security; for example, outcomes to reduce the incidence of disease or ensure,
for most students, a certain level of educational attainment. Having defined the out-
comes, an outcome system typically defines indicators, which helps assess how
well it does in achieving these outcomes.
In principle, outcome-focused budgeting and management involves greater
internalisation of the information needed for formulating, implementing and eval- 9

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uating policies, taking into account the need to establish the linkages between the
five elements mentioned in Figure 1 above (ex ante, during implementation and ex
post). Thus, outcome-focused management and budgeting brings together organi-
sations involved in policy formulation, policy execution and audit or evaluative
institutions, as well as the connections between the three.

The move to an outcome-focus in budgeting and management is thus a wid-

ening of management and budgeting ambitions compared to the historical domi-
nant focus on inputs and later outputs.

2.2. Vocabulary

Moving from an input-focus to an output- or outcome-focus means an increase

in the amount of information and change in the type of information generated and
used for budgeting and management purposes – using information about costs,
inputs, outputs and outcomes. Characteristically, the use of the information
involves setting targets for outputs and indicators and/or targets for outcomes to
help hold people and/or organisations accountable for their delivery.

Box 1. Terms

Inputs are what an organisation or manager has available to achieve an output

or outcome. Inputs can include employees, equipment or facilities, supplies on
hand, goods or services received. Costs are the expenses incurred using the
inputs. Outputs are the goods or services (usually the latter) which government
agencies provide for citizens, business and/or other government agencies. Pro-
cesses are the ways inputs are aligned to bring about outputs. Outcomes are the
impacts on, or the consequences for, the community from the outputs or activities
of the government. Outcomes reflect the intended and unintended results from
government actions and provide the rationale for government interventions.
Examples of input could be secretaries, computers or office space. An
example of an output from a Ministry of Finance could be a monthly delivery of
reports of government financial performance and the annual financial state-
ments. An example of an output target could be that 90% of economic reports
are delivered within the timeframes agreed and are rated excellent or above
average by principal users. An example of an outcome from such a ministry
could be that government finances are sustainable. An example of an outcome
target could be that government finances will produce a budgetary surplus of 2%
in the next fiscal year.

10

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Though there is convergence of the vocabulary in OECD Member countries,

there are a number of observations to take into account when reading texts and
comparing approaches in different countries:
• The distinction between “outcomes” and “outputs” does not translate well
from English into other languages. Most other languages in OECD Member
countries only operate with the generic term “results/résultats/resultate/
resultados/resultater” and when introducing an outcomes focus, administra-
tions in non-English speaking countries have to construct new terms to
make the distinction clear. This problem of translation interestingly enough
also applies to a number of other English public management reform terms
as for example “effectiveness”, “performance”, “accountability” and “gover-
nance”, to name a few.
• There are generally two perceptions of what constitutes an “outcome”. For
some, an outcome is seen as the intended consequences of government
action on society. This is how the Office of Management and Budgeting in
the United States use the term. For others, “outcomes” are perceived as the
actual impact – whether intended or not. The Department of Finance and
Administration in Australia use “outcomes” this way.
• Some countries, for example the United States and the United Kingdom,
make a distinction between different levels of “outcomes” depending on
the time horizon for measurement, the generality of the connected outcome
targets or the degree of government influence on the outcome. This results
in the usage of additional terms like “goals”, “objectives” and “impacts”.
• Similarly, a distinction can be made between “activities” and “outputs”, the
latter being groupings and generalisations of the former. If, for example,
“policy advice” is an output, activities would include the individual acts of
giving advice (reports, discussions with the minister, analyses). This is a dis-
tinction implemented in, for example, New Zealand whereas it does not
loom large in France or the United Kingdom.
The definitions offered in Box 1 above thus simplifies the vocabulary but
should suffice to giving a general overview.

3. Motives
There are several reasons for countries to embark on an outcome-focused
approach to budgeting and management.

3.1. Orientation of public sector production – effectiveness and efficiency

The idea is that in the interest of increased effectiveness and efficiency of
delivery, the perspective of managers can change from one that primarily is 11

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OECD Journal on Budgeting

inward-focused on how the organisation is being administered to one that looks

outward, at public conditions, needs and problems. An aspect of this objective is
a quest to increase public sector learning though feeding information about the
performance of policies (outcomes) to the policy formulation process. Can out-
come-focused information be used to ensure that government and its agents are
delivering services, benefits and products properly aligned to the public interest
and with efficient use of resources? Does government make a difference?

3.2. Public awareness – transparency and accountability

Another motive is to make governance more transparent and government

managers more accountable for the performance of their programmes in regard to
societal effects. Managerial emphasis is thus shifted from how many resources will
be received to what will result from the resources being spent. Governments
intend to demonstrate the effectiveness of their programmes in improving peo-
ple’s lives and national conditions (economic, social, environmental, safety). How
can citizens be better informed about outcomes and the responsibility for achiev-
ing them?

3.3. Reallocation

Resource allocation may be enhanced on the basis of outcome information by

matching programme costs with programme results, and by making comparative
assessments of programme efficiencies, effectiveness and the relative worth of
programmes in producing results. For this purpose, the budget can be structured
around outcomes and an outcome focus can be integrated into the budget and
reporting system and cycle. How can resources be allocated to the government’s
priorities and to the most effective programmes?

3.4. Co-operation and co-ordination

A fourth motive is cultural change by fostering cross-ministerial co-operation

and co-ordination. Outcomes have the potential to provide cohesive and consis-
tent direction to related programmes on an intra-ministry and inter-ministry basis
where these programmes work toward common objectives; i.e. to minimise a silo
or stovepipe approach to programme management. (Successful achievement of
many outcome goals depends on several programmes working together in a
co-ordinated and supportive way.)

In the countries reviewed, no single reason predominated to the exclusion

12 of others.

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4. Implementation challenges
Outcome-focused management and budgeting is relatively new in OECD
Member countries. It is therefore too early to assess the overall usefulness and
value of this approach to governance and agency management. And it is difficult to
compare its strengths and weaknesses to earlier attempts in this direction such as
the PPBS (Planning, Programming and Budgeting System) and more isolated initia-
tives in the public sectors of the OECD. It can be noted, however, that no govern-
ment has (yet) turned away from this approach, although there are many
challenges that must be overcome before it becomes institutionally and culturally
accepted by managers and other government officials. Among the challenges are
the following:
• Expectations must mirror reality. Performance measures, including outcome
goals, are only one factor in policy and resource decision-making. Issues
such as establishment of majorities in Parliament and attracting media
attention might have a (bigger) say. Rarely will elected officials make pro-
gramme decisions solely on the basis of performance information. Their
decisions may even be contrary to what might be expected if performance
data had dictated the choices made.
• For many, this will be a major shift in the way they manage and run their
programmes. A widespread and fundamental change in management cul-
ture and philosophy will usually be resisted somewhere.
• Knowing whether an outcome is actually achieved can be difficult (and
expensive) to measure and analyse.
• Public visibility invites public scrutiny, not only of ministry management
skills but of the basis for government policy-making.
• Government budgeting and financial systems may presently be capable of
generating only rudimentary matches of resources with outcomes.
• Constituencies and beneficiaries may prefer that programme results not be
measured or evaluated, fearing that their programmes may be shown to be
ineffective, of little value, or unimportant in achieving the desired effect or
impact.
• Co-ordinating efforts to achieve outcomes that cross agencies or will be
achieved by more than one level of government can be daunting.
• There are limits on how much information politicians and public servants
can incorporate into their decision-making, and they can only devote atten-
tion in detail to a few areas at a time.
• Some incentives have much more influence on how officials direct their
attention than others do (for example, the urgent driving out the important). 13

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OECD Journal on Budgeting

• The choice of management information architecture formed on an outcome

basis might reduce the quality of input or output information, which might
be more useful for certain purposes, e.g. for controlling corruption or for
increasing efficiency.
Challenges vary between countries according to individual governance
arrangements and the actual approaches to outcome-focused management and
budgeting will vary accordingly.

5. Governance and implementation options

The introduction of an outcome-focused approach to budgeting and manage-
ment involves a number of governance and management decisions, which will
affect information flows and the distribution of power in a given political system.
The following are some of the main questions and issues identified in OECD
Member countries embarking on outcome-focused reforms.

5.1. Purpose
What is the purpose of adopting an outcome-focused approach to manage-
ment? Is it the government’s fiscal outlook? Is it pressure from the public to make
the budget more informative? Is it following naturally from observations of the limits
of an output approach? Or has the outcome focus just become a possible gover-
nance option with the enhanced availability and decreasing price of information?

5.2. Phasing
With the possible exception of Australia, which introduced outcomes as an
integral part of its framework at the outset, no government seems to have started
immediately with an outcome-focused approach to results-focused management.
Rather, the outcome approach is typically preceded by extensive use of output
measures. Are there general public management or capacity preconditions which
must be met before an interest in introducing outcome information is warranted?
Does the optimal mix of outcome/output/input information vary from one policy
area to another?

5.3. Driving force

What is the initiating and driving force behind outcome-focused manage-
ment? Is it the legislature (by enacting a law requiring this be done) or the Execu-
tive (utilising internal directives) and if so, which part of the Executive? If
outcome-focused management is not established in law, will this affect the likeli-
hood of institutionalising and running this approach, particularly if the ruling party
14 or parties (which introduced the approach) changes?

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 Outcome-focused Management and Budgeting

5.4. Who defines and approves outcomes?

Within the government, who is or should be responsible for defining out-
comes and identifying indicators and who gives assurance on quality in this area?
Is it the legislature, the head of state, the Cabinet collectively, the minister
responsible for the programme, the programme’s executive or manager, career
government officials; or should outcomes be defined jointly by several of these
parties? Once an outcome is defined, is or should there be a schedule for subse-
quently reviewing outcomes and revising or re-affirming them?

5.5. Transparency
What participation or involvement in outcome definition should there be by
the general public, stakeholders, recipients, users and beneficiaries of a pro-
gramme? If non-governmental parties are to be involved, what means should be
used to bring about this participation and when in the process should it occur?
Should outcome targets be publicised – and how? Should publicising also
cover public reporting on the government’s progress and success in achieving the
outcomes?

5.6. Evaluation
Collecting and evaluating data on the achievement of outcomes is usually
more difficult than data collection and analysis for outputs. The difficulties arise
from time lags in reporting, ability to gauge effects of an outcome on society, the
economy, the environment or similar sphere, and uncertainty about how much
outcome-effect can be attributed to individual programmes in a multi-programme
effort. To what extent does, or should, the potential difficulty and expense of col-
lecting and evaluating data on outcomes influence the choice of outcomes or how
they are defined?

5.7. Accountability
To what extent should government officials be held accountable for achieving
outcomes? Should officials be given more flexibility in managing and administer-
ing programmes in exchange for their assuming greater responsibility and
accountability for outcomes? To what extent should individual or organisational
accountability be public?

5.8. Outcome and performance management

Having to report on and be accountable for outcomes can reinforce manage-
ment’s attention to them as a tool and framework for administering programmes and
allocating resources. However, it is usually much easier to manage for outputs than 15

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outcomes. How should governments use outcomes as a performance management

tool? How can officials be given incentives to pay more attention to outcomes?

5.9. Outcomes and the budget

Perhaps the most ambitious aspect of outcome-focused management is in
using outcomes (and the performance levels associated with outcomes) to influence
and drive decisions on budget levels. This is often a challenge because calculating
the cost of the effort to achieve outcomes can be more difficult than costing outputs.
As outcomes may not be as precisely defined as outputs, uncertainty may arise over
how changes in resource levels may affect performance levels. Before the budget is
decided, should outcome performance levels be considered before determining
resource levels for a programme? After the budget is decided, should outcomes be
used to justify the resource levels in the budget? Should resource levels be identi-
fied for all outcomes, or only in the aggregate for outcomes of a certain type or
scope, such as an outcome that covers a broad government function?
If outcomes are used to inform decisions on budget levels, which staff or gov-
ernment organisation should be mainly responsible for first estimating the cost of
achieving an outcome? Which staff or organisation should analyse this estimate?
Should budget estimates of outcomes be independently analysed by the legisla-
ture or by auditors prior to the legislature appropriating funds?

5.10. Outcomes and risk

External forces and circumstances may affect the achievement of outcomes.
How should governments take account of such external factors?

5.11. Vertical coherence – levels of government

Should an outcome-focused approach include all levels of government or just

one or two levels in addition to the national level? The logic of an outcome
approach is that outputs or activities financed and organised by the public sector
should be aligned to outcome targets independently of which organisations actu-
ally produce the output. On the other hand, accountability for outputs is a basic
governance value in many countries. Should an outcome approach therefore
include different levels of government and how is such an approach balanced
against the quest for clear lines of responsibility?
Similarly, should sub-national levels of government introduce a counterpart
outcome-focused approach to their management, and should this be done under
the sponsorship and direction of the national government? The assessment might
also examine whether sub-national efforts mainly focus on those programmes,
16 which are funded and overseen by the national government.

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5.12. Horizontal coherence – Crosscutting issues

Achieving some outcomes will require that different programmes or organisa-
tions work together. Such outcomes can often cross ministries. Defining and
achieving outcomes that are inter-agency is a challenge and opportunity. The
opportunity arises from getting related programmes across the government to
communicate with each other, and agree to work in a mutually supportive way
toward a common objective. This can increase the effectiveness and efficiency of
the individual programmes. The challenge stems from the difficulty often experi-
enced in forging these agreements, and co-ordinating the tasks, especially when
no one ministry is given lead responsibility for the outcome. What has been the
government’s experience in defining and achieving outcomes that are cross-minis-
try in nature?
A number of countries have addressed some or most of these questions and
issues, and approaches vary significantly.

6. Overview of country approaches

6.1. Overview

6.1.1. Introduction
Process-oriented management, management by political decree, legal com-
mands and management by campaigning has never really gone out of fashion.
Similarly, input controls continue to be popular with politicians and in central min-
isterial departments. Thus, the change of management regimes in OECD Member
countries has generally been cumulative: When new approaches to management
and budgeting are introduced, some elements of the old regime are preserved.
The efforts to introduce more outcome-focused management is no different in
this respect. It does not replace input management, the process of output man-
agement, or other techniques from the public management tool kit. The aim in
OECD Member countries is to complement these approaches by focusing on
outcomes.
In Australia and the Netherlands, the main budget and accounting documents
are now being restructured around outcomes. This restructuring is accompanied
by plans to change the focus of budget negotiations. Accrual accounting systems
are intended to underpin the allocation of costs to outputs and outcomes.
In countries such as Canada, the United Kingdom and the United States,
agencies have to provide separate performance documents with outcome and
output goals together with the main budget documents. Agency managers are
held accountable on the basis of annual reports, which present whether planned 17

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goals have been achieved and how much money has been spent for these pur-
poses. In France, an annex is presented together with the main budget document
mapping performance and illustrating how outputs relate to outcomes. The main
focus, however, is on outputs. France is currently restructuring the core budget
documents to take better account of outcome and output targets and information.
Other OECD Member countries focus mainly on inputs and outputs in their
budgeting and management systems, though reforms are under way. In New
Zealand, the budget is structured around outputs. Work is under way to better
integrate outcome information into budget and management processes. Some
agency managers, however, are held accountable for outcomes if these are
deemed to be controllable and information on performance can be made avail-
able. In Japan, efforts are under way in some ministries to adopt a more systematic
approach to outcome evaluation. In Norway, outcome information appears on an
ad hoc basis in performance documentation.

6.2. Australia
In April 1997, the Australian Government agreed to implement accrual-based
budgeting, under an outcomes and outputs framework, for the 1999-2000
Commonwealth Budget. By November 1998, all ministers had approved the out-
comes their portfolios would work towards and the mix of outputs that would be
used to contribute to those outcomes. The 1999-2000 Budget, tabled in May 1999,
was the first to implement the full accrual-based outcomes and outputs framework,
incorporating accrual budgeting and reporting. Annual Reports for the first accrual
budget period have now been published and tabled in the Australian Parliament.
Outcomes are the results, impacts or consequences of actions by the
Commonwealth on the Australian community. Agencies are directly responsible
and accountable for the delivery of outcomes identified in the Appropriation Bills
and receive appropriation based on their outcomes.
Defining the outcome statement is a complex process. Agencies develop an
outcome statement in conjunction with the portfolio minister. Legal advice is
sought to ensure that the outcome can be appropriated against. The outcome
statement then requires the endorsement of the Minister for Finance.
Agencies are responsible for developing a series of outputs which, in con-
junction with administered items, work directly towards the delivery of the rele-
vant outcome. Outputs are the actual deliverables (i.e. goods and services)
agencies produce which, together with administered items, generate the
desired outcomes specified by government. All departmental outputs must con-
tribute to the realisation of a specified outcome. This also applies to purchaser/
provider arrangements where the provider is delivering services to contribute to
18 the purchaser’s outcomes.

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 Outcome-focused Management and Budgeting

Annual Portfolio Budget Statements identify each agency’s planned perfor-

mance for the coming budget year. Annual Reports detail the degree to which
those plans have been realised and the efficiency of agency outputs and adminis-
tered items used to achieve this. In preparing the two documents, agencies are
required to enable a clear read between planned and actual performance.
Performance indicators specified by agencies fall into two categories – indica-
tors of effectiveness and indicators of efficiency. Effectiveness indicators should
be designed to identify as clearly as possible the causal relationship between the
outcome and the outputs and administered items in place to achieve it. Efficiency
indicators provide information on the productivity of a given output in terms of
the combined and interdependent effects of its quality, quantity and price.
The full implementation of the framework is not yet completed. Rather, it is
expected to be an iterative process, which may take several years.

6.3. Canada

With the Programme Review of 1994, Canada increased its efforts to imple-
ment outcome-focused management. The Programme Review aimed at ensuring
that the federal government’s resources were directed to the highest priority
requirements and to those areas where the federal government was best placed
to serve citizens. Following this review, departments and agencies began to plan
and report on medium- and longer-term results, called “Key Results Commit-
ments”. All government departments now plan and report against their Key
Results Commitments and present this information to Parliament and the public.
Every department presents a “Report on Plans and Priorities” to Parliament
each spring shortly after the Minister of Finance tables the budget. This report is
supposed to be a department’s primary planning document; in it, the department
outlines how it will work towards achieving its Key Results Commitments (over the
next three-year period).
In the fall, Departmental Performance Reports are tabled in Parliament along with
the President of the Treasury Board’s annual overview of government performance
(Managing for Results). It is in these reports that departments chart progress made
towards the achievement of their Key Results Commitments. The reports describe
to what degree the intended outcomes and outputs of a department have been
achieved, the resources used, and how departmental activities contributed to the
department’s strategic direction and to government-wide commitments. Managing
for Results gives an overview across departments and tracks the development of
outcome-focused management practices. As these reports are published five
months prior to the next fiscal year, they provide context for the following perfor-
mance plans and the budget. 19

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OECD Journal on Budgeting

Departments and agencies are required to link inputs and outputs to Key
Results Commitments for each of their principal areas of business. However, prac-
tice shows that it is difficult to cost outcomes clearly. The federal government is
therefore preparing an initiative to improve measuring costs in relation to out-
comes. This initiative is part of a wider strategy, which also includes a shift to
accrual accounting.
Planning and performance reports are referred to appropriate committees in
Parliament, thus giving parliamentarians the opportunity to review them and to
offer comments and recommendations. In addition, departments and agencies are
encouraged to consult with other stakeholders such as their clients, industry offi-
cials and interested Canadians in defining outcome goals.
Planning and performance reports are published on the Treasury Board’s
website.

6.4. France

Since the end of the 1990s, elements of performance information have been
gradually introduced in the French Budget. Until recently, however, the main focus
had only been on outputs.
Since 1997, a new budget layout has been developed based on so-called
budget aggregates. The aggregates are essentially groupings of existing budget
sections according to outcomes. (Budget sections are appropriations against insti-
tutions and programmes). Until recently, Parliament voted on budget sections
whereas aggregates were provided to Parliament for information.
At the request of the National Assembly, steps have been taken to improve
the information provided in the budgeting and accounting documents. For
the 2000 Budget each ministry was asked to include an outline of the relevant
objectives for each aggregate and, wherever possible, quantitative indicators of
the results produced. This procedure was taken further with the 2001 Finance Bill,
which introduced a consistent structure and layout for aggregates in the budget.
Furthermore, this bill established a follow-up process for the information in the
aggregates between the budget directorate and the ministries similar to the pro-
cedure for financial information.
Following these initial changes a major reform took place in June 2001 with
the modification of the 1959 Order on Finance Acts. The reform has two main
objectives:
• to modernise public management though increased budgetary transpar-
ency and a thorough reorientation of the budget according to outcomes and
20 performance;

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 Outcome-focused Management and Budgeting

• to alter the balance of powers with regard to public finance by improving

parliamentary information and control of the budget.
The most important element of the reform is the creation of “programmes”
which are formalising the prior trial with aggregates. Instead of voting on budget
sections, which are essentially input-based, Parliament will vote on programmes,
which are broken down into so-called “missions” related to the government’s out-
come objectives. Each mission is accompanied by performance indicators.
The reform introduces an extensive fungibility of appropriations within the
approximately 150 programmes. When fully-developed, budgeting based on “pro-
grammes” will make possible a shift from an input budget to budgeting based on
objectives and outcomes.
Spending authorisations will remain annual but a multi-year dimension will
be introduced in the form of non-binding projections
The central government budget will continue to be drawn up on a cash-basis.
Accruals will be introduced gradually as an accounting basis.
The full implementation of the framework is not completed, rather it is seen
as an iterative process which will take several years. Its application is not
expected to be fully effective until about 2004.

6.5. Japan
Japan introduced a government-wide policy evaluation system in early 2001.
According to this system, each ministry is required to run evaluations of policies,
programmes and projects they are in charge of. Furthermore, the Ministry of Public
Management, Home Affairs, Post and Telecommunications is entitled to initiate
evaluations of the line ministries’ policies.
Ministries are obliged to undertake policy evaluations but can develop their
own evaluation approach according to their specific demands. To help ministries
in this regard, the Ministry of Public Management, Home Affairs, Post and Tele-
communications has designed three different models for evaluation. Ministries
can combine the models, adjust them or use them as they are. One of these mod-
els refers to “performance evaluation”.
The performance evaluation system distinguishes between intended goals
(“basic objectives”) and measurable targets (“achievement objectives”). The latter
contribute to the achievement of the intended goals. Ministries are required to
use outcomes to define their goals, where possible. Targets should be quantita-
tively measurable.
Outcomes and outputs specified for policies have to be published. In addi-
tion, it is encouraged that the approach used in setting out the targets and
expected costs of the activities that contribute to the achievement of the goals be 21

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OECD Journal on Budgeting

explained. Actual performance has to be measured against the goals and targets,
and the documents are also to be published.
In order to be able to manage the risks associated with intended outcomes
and outputs properly, external factors, that are not controllable by the ministry,
should be identified before the actual policy implementation.
Within this framework, ministries have a large degree of freedom and flexibil-
ity in regard to how to embrace performance evaluation. Some ministries have
started their own attempts to integrate policy evaluation in the policy process.
The Ministry of Economy, Trade and Industry (METI (former MITI)), for exam-
ple, has established a system consisting of evaluations at three stages of a policy.
At the policy planning stage, the objective of the policy has to be described and
translated into outcomes and outputs. Comparison of different policy alternatives
on the basis of the performance indicators should help identify the most efficient
and effective option. Performance indicators and descriptions are included in the
Appraisal Statement.
The ministry regularly monitors the progress and measures actual perfor-
mance against the goals and targets. Where performance indicators don’t show
expected progress, the central (evaluation and/or resource) divisions of the METI
can undertake a detailed evaluation.
Major policies are evaluated when they are finished or after a specific period
by independent evaluation divisions within METI. With such an evaluation, the
success of the policy is assessed on the basis of the actual outcomes and outputs,
which are compared with planned results. A report on the evaluation is published.
The division, who was running the programme in question, is required to take
actions according to the recommendations given in the evaluation report.
METI is currently focusing on strengthening the performance dimension of the
evaluation system. The aim is to make divisions and the managers more perfor-
mance-oriented in policy management by making them familiar with outcome and
output measures through “on-the-job training”.

6.6. The Netherlands

Since the 1970s, Dutch ministries have provided elements of annual perfor-
mance data in their budgets. Until recently, however, the focus has been on out-
puts, and not all organisations have been legally obliged to generate performance
information. Public agencies and contract partners, however, were obliged to do
that since the early 1990s. In 1997/1998, the first steps were taken by the central
ministries to develop key figures on the outcome of policy measures and thus to
22 include targets on the effectiveness of policy programmes in their budgets.

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 Outcome-focused Management and Budgeting

In 1999, it was decided to introduce a full-scale outcome-focused budget sys-

te m. T h e first o ut co me- base d bu dge t w as pr ese n te d to Pa rliam en t in
September 2001. This fundamental reform will be followed by the introduction of
accruals as the accounting basis of budgeting to replace the present mixed cash-
accrual basis. The likely time horizon for this part of the reform is 2006.
The Dutch reforms of the budget are led by a quest for answering three ques-
tions: What do we want to achieve? What are we doing to achieve these goals? What will be the
costs of our efforts? And the reform of the annual report is led by the corresponding
accountability questions: Have we achieved our goals? Have we done what we should have
done in achieving it? Did that cost what we had expected?
The structure of the budget and accountability documents will be fundamen-
tally re-arranged according to outcome targets and performance. The number of
budget articles will be reduced from about 600 to about 200.
For each ministry, the budget will have the following elements:
• The Legislative Proposal, which will integrate the expenditure and the reve-
nue under each department, though separate votes on expenditure and
revenues will be upheld.
• The Policy Paragraphs where government’s policies will be stated as well as
the means that will be applied to achieve them and the financial resources
allocated. Administrative and programme expenditure will be grouped
under the policy targets to which they contribute.
• The Management Paragraph, which will give an overview of major expected
organisational changes in the ministry, such as the creation of an agency or
change of accounting standards.
• The Agency Paragraph which will contain basic financial information on
agencies connected to the department in question. Besides financial infor-
mation, the inputs, outputs and outcomes of agencies will be integrated in
the budget and accounting documents as if it were any other expenditure,
i.e. they will be included in the Policy Paragraphs. This approach is justified
with reference to the ministerial responsibility for agencies’ activities. Every
agency will still be treated as a section of the ministry to which it is part.
• The In-depth Appendix, which will include as little technical information as
possible.
Budget documents are still organised around the line ministries.
This issue is addressed with “cross-cutting policy overviews” which are cre-
ated in cases where several ministries contribute to an outcome or set of out-
comes. The 2002 Budget will have four “cross-cutting policy overviews”. The
constructions are not part of the budget bill proper but are presented to Parlia-
ment for information. 23

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OECD Journal on Budgeting

As it may prove to be too expensive or impossible to cover all aspects of out-

comes every year, the frequency of providing outcome information will differ
between policy areas. Especially when it comes to policy effectiveness (the
degree to which policy measures “made a change”), policy evaluation research has
an important role. Output indicators are included on an annual basis.

6.7. New Zealand

New Zealand made a distinction between outputs and outcomes at the outset
of the major management and budgeting reforms in the late 1980s and this dis-
tinction has guided reforms ever since. It was decided to restructure the budget-
ing and management systems on outputs rather than outcomes on the view that
outputs are controllable and measurable whereas outcomes are generally not.
Nevertheless, outcome targets and information can be found in several
places in the New Zealand budgeting and management processes.
Government sets outcome targets in its “Key Government Goals” which are
statements of broad policy direction. This document is used to a varying degree in
budget prioritisation exercises and in the strategic plans of public organisations. It
does not contain specific, measurable outcome targets.
The Key Government Goals are translated into departments’ strategic planning
through “Key Priorities”. Key Priorities usually form part of the Chief Executive’s
Performance Agreement. Key Priorities are supposed to be measurable, achiev-
able, results-focused and time-bound. Since chief executives are held account-
able for delivering on these Key Priorities, they tend to be output-focused rather
than outcome-focused.
The budget is based around outputs and information on inputs is very limited.
Ministers are required to identify the link between outputs and outcomes in the
budget. However, in most instances this has been done in a cursory fashion
merely by asserting that output a) contributes to outcome goal; b) Parliament
appropriates explicitly for outputs.
New spending proposals, which reflect the greater part of ministerial scrutiny
of expenditure in the budget process, are guided by the “Key Government Goals”.
The “Fiscal Provisions Framework” sets the level of discretionary government
expenditure. Ministers are not required to provide outcome measures in support
of the new proposals but they are required to indicate how the intervention would
be evaluated. Thus, outcome information is expected to be generated over time.
As there are only limited requirements to evaluate existing programmes, out-
comes for older policies tend to be evaluated on an ad hoc basis (with some excep-
24 tions). In many departments there is not a strong culture of evaluation.

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Some departments produce statements on “States of the World” which are snap-
shots on the state of New Zealand in regard to the policy area for which the
departments are responsible. It is currently being considered how the quality of
information available about the state of the World can be improved.
In summary, New Zealand’s public management system is output-based. The
design of the system had outcomes at the centre of decision-making processes,
but that vision has not yet been fully realised. Work is continuing to integrate out-
come targets and outcome performance measurement better into budgeting and
public management.

6.8. Norway
A new framework for performance management and budgeting was enacted
in 1997. The framework invokes six documents which each ministry and govern-
ment institution has to provide: a Strategic Plan, an Annual Plan, a Letter of Alloca-
tion, an Annual Performance Report, an Annual Financial Report and Evaluations
and Assessments.
Strategic plans set out the long-term objectives for the organisation in question
and are normally prepared at an agency level. It is not compulsory to draft these
plans. Some Strategic Plans are presented to Parliament.
The Annual Plans and the internal annual budget are, to a large extent, inte-
grated processes. At agency level, the budget and accounts structures are partly
organisational and partly programme- or activity-based. This implies that some
agencies link the budget to the performance targets, while others mainly focus on
inputs.
Once Parliament has approved the budget, ministries discuss with their agen-
cies the outputs with which the latter should contribute to the ministries’ goals.
The discussions result in a “Letter of Allocation”, which defines performance targets,
allocated resources and reporting requirements on actual performance. This letter
also formally authorises the agency to spend the allocated money. Agencies’ top
managers are held accountable for the achievement of the performance targets
stated in the Letter of Allocation.
At the end of a fiscal year, annual Performance and Financial Reports are prepared.
They show to what extent the performance goals in the Annual Plans have been
achieved and are used in both decision-making processes within agencies and in
the dialogues between ministries and their subordinated agencies.
Evaluations and Assessments are carried out on a periodical basis as an important
supplement to the performance information provided on a regular basis.
In addition to these explicit performance documents, performance goals are
included in the budget documents. Depending on the policy area, the levels of the 25

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goals vary; some ministries define outputs, others outcomes. However, Parliament
still focuses more on inputs than on performance goals during budget negotiations.
Each minister is constitutionally and politically responsible for achieving the
planned outputs and outcomes and for establishing monitoring systems which
ensure that actual performance meets expectations.
In 2000, the Ministry of Finance launched a review of performance and finan-
cial management in the central administration in Norway. One goal of the review
was to analyse the effects of the framework reform.
The overall picture is that the new framework for performance management
and budgeting has had several positive effects. For example, roles and responsi-
bilities are being clarified, and a greater emphasis is being put on integrated plan-
ning and resource allocation. On the other hand, in many instances performance
targets are not really performance-oriented, but are descriptions of activities and
processes to be carried out by different organisational entities within agencies.

6.9. United Kingdom

Since 1998, management and budgeting decisions in the United Kingdom are
taken on the basis of outcome and output information. The framework has two
main elements: Public Service Agreements (PSA) and Service Delivery Agree-
ments (SDA). These can be considered agreements on effective and efficient ser-
vice delivery between the government and the public.
Larger government departments make a Public Service Agreement, which
usually covers a period of about three years. A PSA sets out the overall aim and
aspirations of a department and translates them into a number of targets, that
mainly concern outcomes against which performance and progress can be mea-
sured. Additionally, PSAs include value for money targets that provide a measure
relating inputs to outcomes (see Figure 1 above).
Besides the departmental PSAs, there exist some cross-departmental PSAs,
in which all the departmental targets relevant to the delivery of the government’s
objectives in a specific cross-cutting policy area are drawn together.
For each PSA, a Technical Note has now been published on the website of the
appropriate department setting out in detail how each target will be measured
including the source of data, the baseline, definitions of any ambiguous terms and
the details of validation arrangements for the data.
Output and process targets, which are intended to contribute to the outcomes
described in the Public Service Agreements, are defined by departments in Ser-
vice Delivery Agreements. In some cases, SDAs also include details of factors out-
26 side the control of the department that could affect the delivery of the outcomes.

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 Outcome-focused Management and Budgeting

Small departments, who do not publish a PSA, have to provide an SDA. They
use this document to set out their performance targets; where possible, these are
outcomes.
PSAs and SDAs only apply to ministry departments. As PSAs should be cas-
caded throughout the organisation and be linked to the targets of agencies, they
are also involved in the performance management process. Agencies are required
to align their priorities and targets with those of government departments.
In order to strengthen the link between national targets and local delivery, an
initiative is currently underway piloting Local Public Service Agreements (LPSAs)
between central government and individual local authorities.

Budget negotiations are principally based on outcomes. PSAs are discussed

and budgets allocated at the same time by the same Cabinet committee. The
White Papers that present the budgets and the PSAs are published as part of the
same announcement.
Treasury monitors the outcomes quarterly, which were defined by the depart-
ments in the PSAs, and measures actual performance against the goals. This
review is presented to the relevant Cabinet committee. In addition, departments
provide a public progress report against intended outcomes and outputs annually
in their annual departmental reports.
Since the establishment of the new framework, progress has been achieved in
defining outcome goals. The share of outcome targets in PSAs has increased from
11% in 1998 to 67% in 2000. Notwithstanding these improvements, the project is
still in its beginning and further experiences have to be made. Currently, steps are
being taken to improve policy evaluation and the integration of outcomes in the
policy-making process. Another initiative aims at defining clear contributions of
agencies to the outcome targets set out in the Public Service Agreements and
defining outcomes for the agencies themselves.

6.10. United States

With the Government Performance and Results Act, the United States Gov-
ernment established a performance management framework for federal depart-
ments and agencies in 1993. The framework consists of Strategic Plans, Annual
Performance Plans and Annual Performance Reports.
In Strategic Plans, which cover a period of at least six years, agencies present
their mission statements and define a set of long-term goals. These long-term
goals are mainly outcome goals and describe how an agency will carry out its
mission. 27

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Long-term goals need not be directly measurable. If achievement of a goal

cannot be directly measured, an agency describes the measures (including output
goals) that will be used to determine whether the outcome goal was achieved.
Agencies have to consult with Congress and different stakeholders, such as
other federal agencies, states, local governments, interest groups and associa-
tions, when preparing their Strategic Plans. However, Congress has no authority to
approve a Strategic Plan. If Congress or other stakeholders disagree with particular
goals or an agency approach, the agency publicly records and reports these con-
trary views in its final version of the plan. The completed Strategic Plan is avail-
able to the public, and in most instances, published on the Internet.
In Strategic Plans, agencies also describe risks that might impede achieve-
ment of the long-term goals. These risks can result from external factors, which are
beyond the control of the agency. However, agencies do not calculate risk proba-
bilities, nor are agencies encouraged to describe mitigating actions to be taken if
an external factor actually affects goal achievement.
The Annual Performance Plan translates the goals of the Strategic Plan into
Annual Performance Goals that will be achieved during a particular fiscal year.
These performance goals are usually a combination of outcome and output goals.
The Annual Performance Plan also includes information on how much money
will be spent to achieve a set of performance goals. After the President sends the
budget to Congress, agencies send their Performance Plans to Congress to help
show the linkage between budget and performance goals. Congress, however,
does not appropriate money by performance goals but by agency and budget
account.
Both the Executive and Congress are seeking a better linkage between pro-
gramme performance and budget resources. Most agencies are having difficulty
aligning the budget with performance goals, in particular due to the differences
between accounts and performance goal structures. Currently, many accounts are
structured by organisational unit, whereas most performance goals are structured
by programme. Another current difficulty is that different organisational units
within an agency often contribute to the achievement of one performance goal.
With their separate budget accounts, this can complicate the calculation of how
money is being spent to achieve the goal. Initiatives to improve the linkage are
underway but will take time.
Agency officials use the Annual Performance Plan in managing programmes
and administering operations. They are held accountable for achieving the goals
set out in the Strategic Plans and Annual Performance Plans on the basis of Annual
Performance Reports.
Annual Performance Reports compare actual performance with planned outcomes
28 and outputs in the Annual Performance Plan. If some goals haven’t been achieved,

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 Outcome-focused Management and Budgeting

there will be an explanation of the reasons, and a schedule and steps for meeting
the goal in the future. The Annual Performance Reports also include a summary of
the findings and recommendations of any programme evaluation completed dur-
ing the fiscal year.
The Annual Performance Reports are transmitted to the President, Congress
and the Director of the Office for Management and Budgeting (OMB) and are pub-
licly available; most agencies post their reports on the Internet.
Until recently, only the Executive branch was defining performance goals. A
new congressional rule now requires that the House of Representatives identifies
performance goals before considering and voting on laws to authorise or re-autho-
rise programmes.

7. Conclusion
The purpose of this article was to present the framework, the motives, the
implementation challenges, the systems design options and the actu al
approaches to outcome-focused management and budgeting in selected OECD
Member countries.
It was illustrated how introducing an outcome approach to budgeting and
management enlarges the scope of management and budgeting by increasing the
range of information and type of information generated and used. It is recognised
that outcomes are what really matter for politicians and society and that budgeting
and management systems should try to address this.
The approach thus supplements and builds on input and output-focused
management and budgeting approaches and increases the possibility of better
integrating measures of achievement, for example effectiveness and value for
money, in budgeting and management. It was also argued that the vocabulary to
the approach has a common core across OECD Member countries, though some
qualifications are needed.
A number of reasons for introducing an outcome approach were identified,
including increased public sector efficiency and effectiveness, improved learning,
better policy formulation, increasing transparency and accountability and
enhanced policy coherence. These motives reflect a move from a more narrow
managerial focus to a wider agenda of governance perspective.
Implementation challenges abound. Among the challenges, special emphasis
was given to measurement of outcome realisation, costing of outcomes, the com-
peting interests in evaluation, problems of dealing with outcomes to which differ-
ent organisations contribute, and capacity problems in regard to the processing of
information in decision-making and implementation. The management of expecta-
tions in regard to what can be achieved and at what speed is a major challenge in 29

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OECD Journal on Budgeting

itself. In some ways, challenges in regard to an outcome focus in budgeting and

management have similarities to problems encountered when “evaluation” had its
heyday.2
A large number of systems design options have been identified. Prominent
issues include applicability and phasing, purpose and the distribution of respon-
sibilities, rights and accountability in regard to setting of targets, measurement of
results and use of information. Connected to this is the relationship of an outcome
focus to (other) performance management, audit and evaluation initiatives.
Approaches differ across the OECD, ranging from a reorganisation of the cen-
tral budgeting documents and processes in Australia, New Zealand and France to
adding strategic plans and annual reporting to the existing processes in the
United States and Canada.
At a certain level of abstraction, OECD Member governments recognise that
there is an increased need to enhance transparency about what governments do
and achieve, strengthen accountability for actions and results, increase effectiveness
and efficiency in policy implementation and facilitate policy coherence.3 To the extent
that these broad objectives are influencing reform of public management and
budgeting, it is likely that implementation of the outcomes approach will continue
to develop in countries already working in this direction and spread to other coun-
tries in the years to come.

30

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 Outcome-focused Management and Budgeting

Notes

1. An experts meeting on Outcome-focused Management and Budgeting was held at

OECD Headquarters, Paris, on 19-20 January 2001. Representatives from Australia,
Canada, Chile (observer), France, Japan, Mexico, New Zealand, Netherlands, Norway,
the United Kingdom, and the United States participated. The deliberations in this
paper build on discussions and presentations at the meeting. The articles in this issue
of the OECD Journal on Budgeting on outcome-focused management and budgeting in
Australia, Japan, New Zealand, the United Kingdom and the United States are adapted
from the presentations at the meeting.
2. Though there are differences around the world, it could be said that “evaluation” was
the public management tool in a number of OECD Member countries in the decade
surrounding 1980 – notably in the United States and Australia. The interest among pub-
lic management reformers waned due to problems of information overload, problems
of getting access to the policy making process and problems of excessive costs of mea-
surements compared to the perceived value.
3. See for example “Resolution of the Council Concerning the Mandate of the Public Man-
agement Committee”, OECD, 2000.

31

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Annex
Measures of Achievement

Outcome-focused management and budgeting is about generating and using informa-

tion for management and budgeting purposes. Specifically, the information generated facil-
itates using different measures of achievement – i.e. the ratios of costs, inputs, outputs and
outcomes to each other.1 Typically, efficiency, effectiveness, economy and value for money
have been used to denote these measures. The problem of using this vocabulary, however,
is firstly that it does not capture all possible ratios and secondly that there is a slight ambi-
guity as to the meaning of the terms.2
In Figures A1-A3 below, possible ratios between costs, inputs, outputs and outcomes are
illustrated taking into account that countries embarking on an outcome-focused approach
typically are interested in three kinds of analyses: a) they want to improve policy-making and
public sector learning and therefore want to use both ex ante and ex post analyses; b) they want
to improve learning by analysing ratios of actual costs, inputs, outputs and outcomes to each
other; c) they want to improve learning and accountability by comparing ratios of actual costs,
etc. to planned costs, etc.
Building on these aspirations, the picture of ratios of control becomes slightly more com-
plicated than suggested by the notions of three (or four) E’s.
Figure A1 illustrates the relationship between actual costs, inputs, outputs and outcomes.

Figure A1. Ex post I

Actual

Costs Inputs Outputs Outcomes

Costs 1 2 4
Inputs 3 5
Actual
Outputs 6
Outcomes

The notions of economy (Ratio 1), efficiency (Ratio 3), effectiveness (Ratio 6) and value
for money (Ratio 4) are embodied in this juxtaposition, but Figure A1 also points to relations
32 as outputs to costs (Ratio 2), which are essential in systems based on output pricing and com-

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 Outcome-focused Management and Budgeting

petition between providers. Furthermore, it includes outcomes to costs (Ratio 5), which are
the implication of using an outcomes approach for reallocation purposes.
Ratios of actual costs, etc. depicted in Figure A1 are often seen as important for enhanc-
ing learning and accountability. Especially in regard to accountability, however, the ratios of
intended costs to actual costs, etc. as depicted in Figure A2 below is seen as equally impor-
tant in countries embarking on output and outcome-focused management and budgeting.

Figure A2. Ex post II

Intended

Costs Inputs Outputs Outcomes

Costs 7
Inputs 8
Actual
Outputs 9
Outcomes 10

The notion of target setting, performance assessment and ex post evaluation rests heavily
on these ratios.
Finally, Figure A3 below depicts the six ratios relevant to ex ante policy analysis or eval-
uation, though the idea of an output- or outcome-focused approach will typically imply plan-
ning of policies on costs to outputs (Ratio 12) and/or costs to outcomes (Ratio 14), leaving the
other issues to managers responsible for delivering on targets and aims.

Figure A3. Ex ante

Intended

Costs Inputs Outputs Outcomes

Costs 11 12 14
Inputs 13 15
Intended
Outputs 16
Outcomes

Counting the possible ratios in Figures A1-A3, the potential number totals 16 in a fully rolled-
out outcome-focused budgeting and managing system. The inclusion of outputs and outcomes
in budgeting and management thus potentially increases the information and control complexity
of the systems. Furthermore, this complexity inherently increases the risk of information over-
load. Depending on the motives and implementation challenges in the country in question, a
number of strategic design decisions thus have to be made to counter these inherent risks. 33

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Notes

1. The notion of ratios is inspired by Kavasseri V. Ramanathan, “A proposed Framework

for Designing Management Control Systems in Not-For-Profit Organizations”, Financial
Accountability and Management, Summer 1985.
2. In a public management and budgeting context, “effectiveness” denotes the ratio of
outcomes to outputs in some countries (for example, in the United Kingdom), whereas
in others (for example, in Denmark) it will denote the relationship of actual outcomes
to intended outcomes.

34

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