A.

Budgeting approaches and techniques

 Largely American introduced.
 American-installed
 American-Supervised.

In the Philippines experience today, American influence in local fiscal administration is most evident in the area of
budgeting. The Americans themselves set-up the administrative system in the Philippines. This system was largely
unchanged even after the granting of independence and our transition from various regimes to the present Republic.

Four basic methods and Approaches in budgeting:

1. Line-Item Budgeting (LIB)

2. Performance Budgeting (PB)
3. Planning, Programming, Budgeting System (PPBS)
4. Zero-Base Budgeting System

B. ORIENTATION IN BUDGETING
According to Allen Schick, budget is characterized by three major orientations: Control, Management and
Planning.

1. CONTROL ORIENTATION
 Enforcing limitations and conditions set in the budget and in appropriations.
 Securing compliance with spending restrictions imposed by central authorities.
 Line-Item budget has a control- orientation in view of its limited concern.

2. MANAGEMENT ORIENTATION
 Use of budgetary authority at both agency and central levels.
(to ensure the efficient use of staff and other resources in the conduct of authorized activities.
 Focus is on agency output.
(what is being done and produced and at what cost and how does performance compare with the
budgeted goal?)
 Best illustrated in a performance budget
(it is more concerned with operations and results rather control, with efficiency rather than the legality of
expenditures.)

3. PLANNING ORIENTATION
 Determining public objectives and the evaluation of alternative programs.
 Information concerning the purposes and effectiveness of programs.
 Must be informed of multi-year spending plans.
 The linkage between planning, spending and public benefits.

C. LINE-ITEM BUDGET APPROACH

 LIB is the traditional form of budget making
(LIB is the traditional form of budget making and dominated the US Federation government (From 1900’s
to early 1950’s).
 Also called “ITEM of EXPENDITURE APPROACH”
(It controls expenditures at the department or agency level with emphasis on the accounting aspects of
governmental operations in terms of items bought or paid.)
(to reduce the complexity and conflicts of budget-making.)
 Give emphasis on listing of objects for itemized expenditures.
( This includes Supplies, personnel, equipment, without much regard for the purposes of programs for
which such items are proposed.)
 Accept the preceding year’s budget as the base for the next year’s budget.
(LIB is simply the allocation of resources according to the cost of each object of expenditure.)
Line-Item Budget in Philippines:

 Enacted of Commonwealth Act No. 2546 known as Budget Act of 1937.

(In the Philippines, LIB in government was adopted through the enactment of Commonwealth Act No. 2546
otherwise known as Budget Act of 1937)

 Provide administrative control of costs of inputs to government activities and projects.

(To that extent, specific items of expenditure were provided without relating them to any objective or output of
activity.)

Ten advantages of Line-Item Budget. PAGE 288

1. It enables central authorities to control input.
2. Provide external control by legislators and central monitors.
3. Effective for Salaries and Purchases.
4. Control is uniform.
5. Control is comprehensive.
6. Control is exact.
7. Control is routine.
8. Multiple opportunities for control.
9. Both aggregate and detailed control are promoted.
10. Establish basis for budget cutting.

Disadvantages

 May create only a superficial analysis of expenditures.

 May result unnecessary spending unused funds near the end of the fiscal year.

D. PERFORMANCE BUDGETING

 Known as “activity” or “functional” budgeting.

 Adoption of a budget based upon function, activities, and projects.
(The Hoover Commission Report to the US Congress in February 1949 and explained the meaning of Performance
Budgeting. They recommend the whole budgetary concepts of the Federal Government should be changed.)
 Focus attention upon the general character and relative importance of the work to be done or upon service to be
rendered.
 Important is the work or service to be accomplished and what that work or service will cost.
 The objects of expenditures are deemed as significant factors in relation to what they are used for and not in
relation to their specific character.
 The basic purpose is to enable administrators to assess the efficiency and the work of spending agencies.

1. COMPONENTS:
Common components of performance budgeting system:
A. Functional and Activity Classification
 Emphasis on redesigning expenditure accounts and grouping expenses into functional
and activity categories.
 A function refers to a group of related activities for which a governmental unit is
responsible. (Such as public safety, health, and transportation)
B. Performance Measurements
 Measurement is essential to the success of performance budgeting.
 Performance measurements generally are derivatives of cost accounting and scientific
management.
 Cost accounting is methods of measuring the total and partial cost of each unit of
production or service.
 Scientific Management is techniques for relating units of input (such as labour) to
quantities of output.
C. Performance Reports
 Reports are a special type of performance measurement and assessment of what was
accomplished with budgeted resources.
 Performance report can either be an interim-audit or a post –audit of work and costs. It
compares the actual cost and accomplishment with what was projected in the budget.
ADVANTAGES OF PB: In recommending the adoption of a PB for the United States, the Hoover Commission pointed
several advantages of the new budget system:

 Gives more comprehensive and reliable information

To the chief executive, the legislative body and general public on the policies of the government
 Help individual legislators
To understand what the government is doing and what are the cost.
 Improve legislative examination of budgetary requirements.
To decide more easily the basic expenditure issues each year.
 Submission and consideration of the budget for a shorter length of time.

 Permit effective performance in reporting.

On budgeting and management.

2. ATTITUDE TOWARDS PERFORMANCE BUDGET

 Performance Budgeting was criticized as too radical and too complicated. Particularly with
its over-refinement in details which could unclear the prime purpose of an agency’s program
to the point that budgeting becomes a mere exercise in accounting.

3. THE PHILIPPINE EXPERIENCE IN PB

 The Philippine government took concerted efforts to improve the budgetary system. The
move was towards a more systematic pattern of allocating available funds among competing
public expenditures requirements.
 PB was introduced in the Philippines as part of the package of reforms which was initiated
during the term of the late President Ramon Magsaysay by the Economic Survey Mission
headed by Daniel Bell in 1950.
 The American management consultancy firm (Booz, Allen and Hamilton) was hired to train
and conduct workshops on the PB method.
 The passage of Republic Act No. 992 or the Revised Budget Act on June 4, 1954 formally
launched the establishment of PB in the Philippines.
-
-This Act directed the modernization of the accounting system.

Despite the advantages and benefits it purported, PB was not free of criticism and weaknesses in the Philippine setting.
Certain fundamental administrative problems in the Philippines would block the successful and complete of the
implementation of BP:

1. Lack or Absence of Performance Measurements

 While line-item budgeting merely lists the items of expenditures however PB is based on
programs, projects and activities. The formulation of precise and accurate units of work
measurement is the most critical problem. The unit of work measurement is the very essence of
PB as it measures the results of agency programs and activities. The Department of Budget and
Management has been in an endless search for exact work measurement units on which to base
the financial requirements of the government agencies.
2. Personnel
 PB is disadvantaged by the lack or absence of personnel possessing necessary technical skills
and competencies such as management and cost accounting.
The responsibility for preparing the budget shifts from the accountants to the manager who has
to express his agency’s plans in terms of programs and projects.
 PB demanded a tremendous amount of cost data which was not available at the time the system
was installed. The accounting system as earlier set up by the Americans was not at all cost-
oriented. In view of the incompatibility between the accounting system and the desired cost data,
a meaningful performance budget was hardly achievable.

3. Organization
 The frustration in rationalization the government’s organizational structure hindered the
success of PB which requires a logical, rational and efficient organizational structure.
 4. Legislature
 Lack of congressional support
 Initial support leading to RA No. 992 eventually changed to downright hostility on the part of
the Congress.
 The budget was not useful in solving the severe economic problems plaguing the Philippines at
the time.
 Budgeting remained as an administrative control measure and not as tool for the
implementation and formulation of developmental fiscal policy.

F. PLANNING, PROGRAMMING AND BUDGETING SYSTEM

 Originally developed by the Rand Corporation in Sta. Monica, California for use by the United States Air Force.
-Adopted in 1961 by the Defense Secretary Robert MacNamara for his department’s operation.

 In August 1965, President Lyndon Johnson issued an executive order instructing all executive departments to
adopt PPBS thus making this system the decision-making and financial tool of the federal government.

 The system responds to the need for an economic allocation of resources and the effective conduct of
government policy.

PURPOSE OF THE SYSTEM

 Ott and Attiat Ott state that the aim of PPBS is to specify the objectives or “output” of government’s
spending programs and then to minimize the cost.
(To do so requires the systematic use of analysis in connection with budget formulation, planning, program
development and evaluation.)

 Arthur Smithies defines the purpose of systems is to convert the annual routines of preparing a budget into
a conscious appraisal and formulation of future goals and policies.

SPECIFIC FEATURES OF PPBS

- Specification of objectives
To be achieved through government spending and expenditures

- Existence of a multi-year planning and programming process

Which incorporates and uses an information system to present data in meaningful categories essential to
major executive decisions.

- Selection of a decision from various alternatives

To achieve program objectives where the choice is arrived at using economic method of analysis such as
cost benefit analysis and feasibility studies.

- Existence of analytic capability

Used by the agency by permanent specialized staffs to meet objectives.

- Existence of a budgeting process

Which can take broad program decisions, translate them into more refined decisions in a budget context.

- Systematic use of analysis throughout the process

Hence integrative in approach requiring economic and planning skills.

PBBS: PH EXPERIENCE

 After the declaration of Martial Law in September 1972, PD no. 1 called for the reorganization of the entire
government system. The government’s advocacy for the development planning linked with the budget
process rationalized the adoption of PPBS.
 PPBS doctrine was first initiated in the Philippines by the military. Military officials who were sent to the US
were given training in the system. In turn, these officials strived to implement it in the local military.
 The Philippine Navy attempted to work out a PPBS model for the entire Department of National Defense
(DND) in 1976. DND started one month PPBS orientation program for its executives in cooperation with the
 University of the Philippines. The DND intended to have orientation program followed by seminars and
workshops for technical people.
 As a result of exposure to PPBS, Filipino scholars and experts read papers in seminars on the possible
usefulness of PPBS in the Philippine setting.
 Local budget officials were very careful about advocating PPBS. PPBS provide a clear leakage between
planning and budgeting and offers techniques which might help solve the problem of resource allocation
and setting of positions.

ASSESSMENT OF PPBS
The critics of PPBS are more outspoken and forceful in their assessment of PPBS implementation.
According to Allen Schick and Aaron Wildavsky:

1. PPBS has never influenced governmental decisions according to its own principles.
The program structures do not make sense to anyone. They are not in fact used to make decisions of any
importance.

2. PPBS has also been hampered by lack of trained manpower, absence of essential data and even
inadequacies in cost data.
According to Wildavsky. Assumed defects can be remedied. Training can be stepped up, politicians and
bureaucrats can be replaced to better ones, better data can be collected and methods of analysis can be
improved.

3. Disabilities of PPBS occur not merely in program implementation but in policy design itself.
According to Wildavsky the disabilities of PPBS occur not merely in program implementation but in policy
design itself. Its defects are in principle not in execution. PPBS have failure built into its very nature
because it requires the ability to perform cognitive operations that are beyond present human or
mechanical capabilities.

CONCLUSION

PBBS offers a logical, objective approach to planning and budgeting. Potentially, PPBS allows administrators to
evaluate the anticipated results of proposed programs and systems alternations, and to compare results from different
proposals in search of a “best” or “satisfying” alternative. With that, one should recognize the fact that PPBS is only a
tool for budgetary forecasting, planning and programming. The tool never makes decisions; decision-makers who use
the data derived from the tool make the choice.

G. ZERO-BASE BUDGETING

 The ZBB approach “revolutionized” the budgetary systems in both developed and developing countries.

 Concept traced back to 1924 in the United States, when a certain Nelson Young criticized the practice of taking
last year estimates and just adding increased expenditures to it.

 The first formal and comprehensive ZBB system was designed only in 1964 by Peter A Phyrr.

 Adopted by a private firm in texas for annual budget preparation.

 According to Peter A. Phyrr it is… “an…….” And shifts the burden of proof to each manager to justify why he
should spend any money.

 In other words, ZBB is a management and budgeting process which necessitates each manager responsible for a
major activity, cost center, or function to justify fully his budget proposal following a systematic method of
identifying, analyzing, evaluating, and ranking present and new projects.

 The term “zero” in budgeting connotes a negative impression. However, “zero-base” really means the analysis of
the entire budget from a starting point of zero or from “scratch”.

- The most important projects may succeed with adequate funding rather than distribute the resources
thinly among many activities and achieve nothing in the end
FEATURES OF ZBB

1. It is a total budget approach- all activities proposed whether existing or new are analyzed, evaluated and
justified. Rather just increased from current operating levels.

2. ZBB requires that all activities proposed be analyzed and evaluated systematically without reference to past
practices.

3. ZBB shows where resources should be allocated and ensure of objectives.

4. ZBB challenges each manager to look for alternatives ways of performing an activity.

ZBB PROCESS

ZBB process can be simplified in two major steps.

1. Development of Decision Packages

-Activity Justification Document- document that identifies and describes a specific operation in a manger that
enables management to evaluate and rank it against other operations competing for limited resources and to
decide whether to approve or disapprove it. Contains: Objectives, Description of activity and alternative methods
to consider.

2. Ranking

-The most critical step is the ranking process. To be started by the manager who directly supervises the operation
then manager above him reviews it and consolidates the packages.

-the heart of ZBB is the ranking process. All decision packages are listed in the order of decreasing benefit by the
managers in charge of them. Since the packages have a price tag attached, there is a cumulative cost as the list
proceeds in descending order.

ZBB in the Philippines

 Introduced in the Philippines in 1977 during the preparation of the Calendar Year 1978 National budget.
 Section 8 of PD 1177 (Budget Reform Decree)
- It requires agency proposals be reviewed on their own merits and not on the basis of a given percentage
or peso increase or decrease from a prior year’s budget level.

JUSTIFICATIONS FOR ADOPTING ZBB IN THE PH BUDGET SYSTEM

-The reasons advanced by the Office of Budget and Management:

1. Managerial involvement in budgeting- Sometimes, only budget or planning officers prepares the agency budget.
Managers are surprised when their offices run short of funds for priority projects or when they face budgetary
constraints which they did not anticipate or understand during the budget preparation. ZBB tries to correct this.

2. Priority setting of projects and activities- government activities must be prioritized and scheduled in order that
resources may be more effectively used.

3. Effective performance measurements and cost benefit analysis- Gives responsibility on the manager in charge of an
activity to qualify and quantify his performance outputs and compare the benefits derived from the activity.

Conclusion: One may safely safe state that ZBB is not a substitute for most of the other budget methods like PB or PPBS
rather ZBB complements them. It neatly brings together in one system management principles, approaches and methods
required for effective planning, budgeting and decision making.
WEAKNESSES OF ZBB

ZBB is very rational. It forces people to think rationally, to use an intellectual approach and it eliminates the inherent
waste in doing incremental budgeting. However, the budget officials have to recognize the following weaknesses:

1. Insufficient training of agency personnel on the intricacies of implementing ZBB

2. Emphasis on forms or too much paper work
3. Lack of central staff fully trained in ZBB- as to guarantee an effective orientation to agency budget and planning
personnel
4. Difficulty of translating or operational the ZBB concepts- To more comprehensible, concrete terms which are
socially digestible and palatable to end-users.

What budget approach are we actually using in the Philippines budgeting at present?

The chief of a financial management office of a leading agency when confronted with this question, answered:

“At the agency level, we are enjoined to use ZBB, in budget authorization and accountability, it is performance budgeting
which sets the standards. In actual implementation, it is still the good old line-item budget.”

WHY IS THE LINE-ITEM BUDGET STILL USED IN ACTUAL IMPLEMENTATTION OF THE BUDGET?

Perhaps, it is still this type of budget which is the most useful tool when revenues are not collected as projected,
expenditures soar uncontrollably and unprogrammed projects are launched.

Up to now, the government is still searching for an effective budgeting approach continues.