Performance-Based Budgeting (official name Activity-Based Budgeting in Estonia), being fully adopted in 2020, is an integral part of the State Reform, which aims to achieve more effective and efficient implementation of public functions, higher quality of public services, reduction of general government expenditure and staff costs, and more flexible and less bureaucratic management of the government sector.
More effective governance requires the ability to use the available resources as optimally as possible, which often means the implementation of strategic goals beyond the boundaries of ministries and organizations.
The objectives of development and financial decisions must be carefully considered in order to ensure the quality and availability of public services. It is unlikely that the Government will be able to allocate additional resources for the provision of public services in the near future, therefore the Government is faced with the task of improving efficiency. In order to increase the efficiency of service provision it is necessary to measure its cost, which in turn requires linking the resources with the activities and better monitoring and evaluation of the outputs and results of the activities.
In developing strategic and financial management, the emphasis is on improving cooperation between government areas, increasing the transparency of budget planning of how the public money is spent and what it is used for.
Activity Based Budgeting in Estonia
The concept of Activity-Based Budgeting implies the introduction of performance management which combines strategic and financial management, and where resource planning is based on results. Areas of Government have the flexibility to incrementally adopt financial management developments on their own timescale, taking into account their specific needs, but no later than 2020. The budget process of 2020 starts in April 2019, when all the budget documents of Line-Ministries are prepared according to PBB methodology.
There are three conditions that need to be fulfilled for transition to activity-based budget:
• The budget is drawn up by programs
• 100% of the costs are connected to the services
• Government Agencies (incl. Ministries) have introduced traditional or activity-based costing for pricing services.
Activity-Based Costing (ABC) enables agency-level activity-based budgeting (ABB), which also results in an activity-based budgeting logic. All Agencies are equipped with cost accounting software by Central Budgeting Agency, Ministry of Finance. The costing software implies no extra cost for the Agencies.
The transition to a program-based state budget requires better organization of strategic planning and reduction of the number of current development documents. Strategic planning must be structured along five levels of management: performance areas (outcome areas), programs, measures, program activities and services.
Performance area (outcome area) development plan identifies the overall long-term objective, sub-goals, performance indicators, and the policy instruments by which the goals are to be achieved.
The program is a development document for achieving the sub-goals of the field of performance area. The program defines measures, activities and services, including their objectives, indicators, and financial plan.
The transition to service-based management enables a more customer-centric approach and more efficient resource management. Public services provided by Agencies (and Ministries) are divided into 4 categories: indirect services, direct services, external support services (incl. shared services) and internal support services. The service breakdown helps managers to determine target groups and set metrics during the preparation process of services and programs. Classification of services is also the basis for designing program based budget estimates - for example, cost of support services is allocated to the services which they generate value for.
The preparation for the transition to Activity-Based Budget also implies further development of the existing financial management information systems as well as the introduction of new information systems. The Ministry of Finance has made improvements to State Budget Information System, introduced central Strategic Management Information System and a comprehensive Cost Accounting Information System. Information systems are available to all Government Agencies. Already 150 Government Agencies are using cost accounting software for planning and monitoring resource implementation on all management levels in the form of integrated reporting. Some ministries are preparing cost accounting for smaller agencies or groups of agencies, for example schools.
The transition to Performance Based Budgeting has been achieved, all PBB material has been prepared for the new budgeting process cycle and submitted to Ministry of Finance. The Ministries are ready for new form of 2020 state budget. The reform does not involve foundations, legal entities by public law and local governments.
|Award category:||new solutions to complex challenges - a public sector citizen-centric, sustainable and fit for the future - european or national level|
|Sector:||Public administration, modernisation, institutional affairs, reform|
|Type of activity:|
|Keywords:||activity based budgeting, public services, strategic planning, performance management, outcome based budgeting, BI, management dashboards|
|Short English description:||Performance-Based Budgeting (official name Activity-Based Budgeting in Estonia), being fully adopted in 2020, is an integral part of the State Reform, which aims to achieve more effective and efficient implementation of public functions, higher quality of public services, reduction of general government expenditure and staff costs, and more flexible and less bureaucratic management of the government sector.|
|Organisation:||Ministry of Finance|
|Level of government:||national level|
|Size of organisation:||>100|
|Number of people involved:||>15|
|EU membership:||EU member|