4 Budgetary Approaches (Nota)

4 Budgetary Approaches
Learning Outcomes
 Discuss the form of traditional budgeting, its

strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.
Public Sector Accounting Governance and Accountability in the Malaysian Context All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–2
Introduction
 Budgeting approach is the technic or the

method by which allocation estimates are
determined.
1. Traditional Budgeting
2. Programme and Performance Budgeting
3. Modified Budgeting
4. Outcome-based budgeting
Traditional Budgeting
 The traditional budget is also known as the line-

item budget or standard-object budget
 The presentation of the traditional budget is
based on line-item, or on the nature of income
and expenditure
 Example, income from fees, sales, and grants;
expenditure on employment, consumables, and
travelling, among others
Traditional Budgeting (cont.)
 Financial control is focused solely on minimising

expenditures and controlling inputs (costs)
 Main aim ensuring the limited funds were

allocated effectively, which is to minimise
excessive and unauthorised expenditures
 Allocation of resources according to the

expenditure objects without taking consideration
of objectives, policies, and priorities
 Unutilised allocation has to be surrendered to

the Treasury at the end of the year and can lead
to lesser allocation in the following year.
Budgeted administrative expenditure for the year XXX
RM million
Emoluments 23.64
Services and supplies 73.42
Assets 8.11
Fixed charges 0.98
Other expenses 1.37
Total administrative expenditure 107.52
 Incremental approach
Current year’s estimates
Actual spending for Determination of

the year increments
Current year’s estimates

+ increments
Discussions and
approval Next year’s estimates
 Rationale
– Simple and easily incorporated in the accounting
system.
– Does not require extensive analysis on the
activities carried out, especially when most public
sector activities are either mandatory or very
required
– Reduces arguments during budget presentation
and approval
– Reflects rational economic policy.
 Shortcomings
– No consideration of whether a particular activity is
still compulsory in meeting the objectives
– Focuses on inputs (spending) instead of outputs
(achievement of objectives)
– There is no link between the allocation and the
objectives of the public sector
– Less information cost-effectiveness.
 Shortcomings
– Encourages departmentalism, budget padding
and unnecessary spending
– Fails to indicate the planned level of activity for
the services offered
– Limited to short-term planning
Programme and Performance
Budgeting
 The approach was mooted by the United

Nations in 1967
 The aim was to transform public budgeting

system from the control of inputs to a focus on
outputs or outcome in the interest of improving
operational efficiency and promoting result-
oriented accountability
Budgeting (cont.)
 The concept is to link between resource

allocation with programmes that are able to
facilitate the public sector in achieving its
objectives.
Budgeting (cont.)
 Main components
– Programme budgeting
• Determination of objectives and programmes to
achieve the objectives
• Budget allocation is based on the programmes
– Performance budgeting
• Development of performance indicators as a way
for measuring performance and costs
Budgeting (cont.)
 The implementation
– Identifying overall objectives
– Planning and structuring of programmes
– Analysing and selecting programmes
– Evaluating performance
Budgeting (cont.)
Objective Programme Activities

 Dengue awareness
campaign
Eradication of dengue cases  Community ‘gotong-
royong’
 Regulation enforcement
Improve  Installation of children’s
local playground
Expansion of recreational
community’s  Maintenance of camping
parks
wellbeing sites
 Security control
 Janitorial services
Landscaping and
 Landscape maintenance
beautification
 Landscape architecture
Budgeting (cont.)
 Implications
– Improvement of record keeping, classification and
coding scheme for revenue and expenditure, and
the introduction of vote book,
– Implementation of better financial management
system whereby cost controls were delegated to
the agencies
– Budget dialogues became more meaningful
Budgeting (cont.)
– Encouraged good management practices among

managers
– Provides for proper performance evaluation that

links between utilisation of resources and
achievement of objectives
Budgeting (cont.)
 Shortcomings
– The local environment was not considered
leading to poor development of programmes
– The focus on line item and annual perspective
was retained
– Performance indicators were poorly developed
especially for measuring intangible benefits and
programmes with shared objectives
Budgeting (cont.)
– The complexity of public sector was ignored in

the development of the programme structures
– Conflicting objectives of the public sector
Modified Budgeting
 The main concept is ‘let managers manage’ and

‘accountability to match authority’
– greater authority and autonomy in financial

management given to controlling officers
– Controlling offices were to set their own targets

and prioritise their programmes.
Modified Budgeting (cont.)
 Focussed the ‘value for money’ in the spending

of public money:
– Economy: input (charges and expenditures)
– Effectiveness: output (products and services),
– Effectiveness: impact (effectiveness of input and
output as measured in terms of quantity, quality,
timeliness and costs).
 Elements:
– Expenditure target
– Programme agreement and exception report
– A cycle of programme evaluation
– A more generalise approach to expenditure
control.
The maximum spending estimate allowed

Expenditure target
Determined by the Treasury
Elements for determination: last year allocation, existing

policies, new policies, one-offs, threshold, and efficiency
dividend
Upper level manager
• A contract • Report on
performance
Programme
• Delegation of
Agreement
authority deviations
• Accountability
Exception
• Agree on the input,
reporting
output and impact reporting
• Contains:
of programme
• Indicate the • The variance
• Causes
acceptable
• Remedial
performance
variance actions
Lower level manager
Programme selection
 Programme evaluation
– determines whether a programme
Evaluation planning
delivers the expected impact
– A form of monitoring
Data collection
– provides feedback on the
achievement of objectives,
efficiency, constraints, an Data analysis
usefulness
– one year in a cycle of five years Report preparation
and submission
 A more generalised approach to expenditure

control
– A comprehensive approach towards expenditure
control instead
– Lower level managers are accountable for the
activities that are under their control
– Stricter control over aggregate resources where
additional allocations are rarely provided or even
considered.
 Implications
– Provides flexibility for managers to make
decisions within their authority and focus on
strategic planning
– Encourages accountability via clear delegation of
authority and feedback
– Clearly identify the customers
– Better programme rationalization and analysis

– Better programme indicators
– Emphasize the value of money concept
– Promotes management by exception.
 Shortcomings
– Sole focus on the output in terms of quantity
rather than quality
– Budgeting become mere compliance
– Lack of structured monitoring framework
– Programme evaluation was carried out on an ad-
hoc basis
Outcome-based Budgeting
 Outcome-based budgeting was implemented

with the aim to:
– Efficiently manage national resources via
delegation of authority
– Links programmes to the Malaysia Plan
– Focus on impacts towards national economy
– Increase accountability via strong governance
framework.
(cont.)
 Characteristics:
– Programme-based approach
– Budget examination involving the Treasury, EPU
and PSD
– Programmes are linked to Malaysia Plan
– Adoption of medium-term perspective
– Delegation of authority
– Incentives linked results
– Systematic training
(cont.)
 Main components:
– The Performance Monitoring and Evaluation

(M&E) System
– The Management Information System (MIS)
– MyResults
(cont.)
National
 Implementation National Plan
budget
– Outcome-based
Bottom-up budget preparation

Top-Down Budget Planning
National
planning; National-level Programmes’
programmes budget
– Budget
preparation; Ministries’
budget
– Monitoring, Ministry-level
programmes
evaluation and Programmes’
budget
reporting of
results. Ministry-level
activities
Activities’
budgets
(cont.)
 Outcome-based planning
– A top-down approach
– All programmes and activities are integrated and
hierarchical in nature and could be traced to the
national strategies.
– Stakeholder needs, target performance, and
output are determined for each outcome
Strategy Outcome Programmes Activity
(cont.)
 Budget preparation National budget
– Bottom-up
approach National Programmes’ budget
– All applications for Ministries’ budget

programmes are
consolidated at the
Programmes’ budget
ministry level
Activities’ budgets
(cont.)
 Monitoring, evaluation and reporting of results
– Monitoring:
• Achievement or results, financial aspects, and the

physical project implementation
• Quarterly and annual basis
(cont.)
– Evaluation
• Complete programme evaluation within a five-year
period
• Identifies programmes that need to be reduced or
expanded
• Determines allocations that are to be retained,
reduced, increased or abolished
Outcome-based budgeting
• Tests effectiveness in achieving outcomes,

achievement of optimal results and existence of
wastage
• Determines the appropriateness and relevance of
programme objectives.
(cont.)
 Implications
– Strengthens the linkages between national
objectives and strategies, between short-term
plan and long-term plan
– Restructuring of programmes and activities
– Focus on programme performance and results
during budget examination
– Better budget examination and coordination
– Enhances performance
(cont.)
– Balanced allocations between operational

expenditure and development expenditure
– Better reporting of budgeting and performance
data.
Summary
Traditional budgeting 1950s-1969

Programme and Performance budgeting 1969-1990
Westminster model
Modified Budgeting 1990-2013
Mooted by United
Line-item Nation Outcome-based
Lets managers budgeting 2014 -
Incremental manage
Programme Links budget with
approach structuring Expenditure target
national plan
Programme
agreement and
Linked budget exception report System support
allocation with
programmes Programme
evaluation Emphasis on quality
Generalized
expenditure control
Learning Outcomes
 Discuss the form of traditional budgeting, its

strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.

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4 Budgetary Approaches

 Discuss the form of traditional budgeting, its

 Budgeting approach is the technic or the

 The traditional budget is also known as the line-

 Financial control is focused solely on minimising

 Main aim ensuring the limited funds were

 Allocation of resources according to the

 Unutilised allocation has to be surrendered to

Budgeted administrative expenditure for the year XXX

Current year’s estimates

Actual spending for Determination of

Current year’s estimates

 The approach was mooted by the United

 The aim was to transform public budgeting

 The concept is to link between resource

Objective Programme Activities

– Encouraged good management practices among

– Provides for proper performance evaluation that

– The complexity of public sector was ignored in

– Conflicting objectives of the public sector

 The main concept is ‘let managers manage’ and

– greater authority and autonomy in financial

– Controlling offices were to set their own targets

 Focussed the ‘value for money’ in the spending

The maximum spending estimate allowed

Determined by the Treasury

Elements for determination: last year allocation, existing

Upper level manager

 A more generalised approach to expenditure

– Better programme rationalization and analysis

 Outcome-based budgeting was implemented

– The Performance Monitoring and Evaluation

– The Management Information System (MIS)

Bottom-up budget preparation

Strategy Outcome Programmes Activity

 Budget preparation National budget

– All applications for Ministries’ budget

 Monitoring, evaluation and reporting of results

• Achievement or results, financial aspects, and the

• Quarterly and annual basis

• Tests effectiveness in achieving outcomes,

– Balanced allocations between operational

Traditional budgeting 1950s-1969

 Discuss the form of traditional budgeting, its

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