From CAM-I Wiki
The planning and budgeting process involves making decisions regarding how resources will be allocated across an organization. Common complaints are that decisions are made with outdated information/assumptions because the process takes so long and that budget decisions may not reflect the operational reality of the organization. It is important that decisions be clearly communicated throughout the organization so that participants understand the basis for decisions..
Summary: Planning and budgeting decisions involve three primary steps: gathering information needed to make decisions; making the decisions, and communicating the decisions. Balancing the amount of information collected with the desired level of certainty is an important consideration, as is the relevance of particular decisions to those in various roles in the organization. More...
Summary: Traditional views of the use of financial and performance information in the federal budget process tend to focus almost exclusively on uses by external stakeholders. This focus takes an incomplete view of the budget process. There are many opportunities for better informing the budgeting process at other stages, such as an organization’s budget development, financial and resource plan monitoring and execution, and audit and evaluation. More...
Planning and budgeting are driven by the need to make decisions, and the actual decisions themselves. (We take as a given that the decisions are germane to something that the organization cares about.) Decisions close off certain possibilities and direct the results of planning and budgeting toward operational execution. The way that the members of organizations make decisions during planning and budgeting, therefore, affects what program of activities will be executed. Moreover, without decisions during the planning and budgeting phases of the organization’s management processes, the members of the organization cannot know what is appropriate to, accepted by, or needed for others. In this way, decisions provide a touchstone, or baseline, against which further actions and decisions can be judged.
Decisions require information, choice, and broadcast. The maker or makers of decisions collect, evaluate, and analyze data until they are able to make a decision that is useful by some members of the organization. Typically, the more certainty decision-makers possess about an issue, the more widely they are willing to communicate their decision. In any case, information provides decision-makers both the substance about which they are making a determination (i.e., the choice), as well as a degree of certainty about the decision (i.e., confidence in the choice). Decisions have impact on the organization when they are either shared or communicated in some way, and so a decision is made real when it is communicated.
Decisions can be made by a single individual, or by many persons acting collectively. While some tools can provide decisions based on business rules, and the like, those machines are simply applying rules about decisions that either a person or persons have programmed. People make decisions because they make choices. People are able to make the choices because of information. The decisions matter because they are communicated to others.
Information used in decisions can vary widely. It can consist of the extrapolation of known data to a new period or circumstance. It can come from another time, organization, industry, or level that is seen by the empowered decision-maker as being relevant. In any circumstance, however, the impact and usefulness to a decision maker is dependent on the usefulness/relevance of the data. For example, information on unit costs may aid in making decisions about changing production levels of those units, but be less useful in deciding whether the firm should stay in business at all, or making marketing choices about increasing demand. Also, what would have been relevant information may be “old”, such as information on the last fiscal year’s costs if the organization or its processes have since changed.
The choice made by the decision maker can be no more relevant than the data available, but the impact of that decision is no greater than its usefulness to others. A high level strategic decision may have no relevance to many in the chain of command, especially in the near term. The time it takes the decision maker to obtain certainty may cause the decision to be “overtaken by events,” and, therefore, irrelevant.
Information and choice may be antagonists. More information and analysis delays choices being made, but may make them more robust. A clearer choice may require a great deal more data and analysis. More information incurs costs and those costs must be weighed against the desirability of having certainty in the ultimate choice. The stopping rule for each step of decision-making is determined either by a judgment as to the marginal benefits of (1) obtaining and using more information, (2) reducing uncertainty, and (3) additional communication efforts, or by the action-forcing ability of an inflexible schedule.
Even in the absence of much certainty by the decision-maker, others may see the decision itself as being decisive and final. That sense may make the decision-maker want to secure even more certainty before communicating their choice. In planning and budgeting, however, it is sometimes desirable simply to move the process forward by letting others begin to make decisions once a predecessor decision-maker has made a choice. In this situation, the content of the decision may be less significant than the fact that a decision was made at all. This is the value of memorializing decisions – to move the process forward. It may well be that other decision-makers may be able to obtain better or more timely data, or might have more salient insights that improves the value and validity of the choice being made.
The final step is the robust communication of decisions. Also, the choice expressed in the decision should be clear – not subject to varying interpretations by others in the organization or its stakeholders more broadly. In this way, future decisions can be focused on relevant issues of concern and can be made by relevant participants. The negative aspect of robustly communicating decisions, however, is that they can be perceived as being “cast in stone” either when they should not be, or are (in fact) not meant to stifle discussion but to shape it.
To be sure, the calculus of determining how a decision should be best communicated in order to shape the ensuing steps of planning and budgeting might stump even Isaac Newton, himself. Nevertheless, decisions are judgments about the future based on past experience and current knowledge, and there are many reasons why decisions might not be helpful. The process and steps taken to arrive at a substantive decision are also often useful to communicate, since subordinates are sometimes unaware of the additional information, or considerations, with which the decision-maker had to deal.
Some organizations and participants do better at some of the steps of making decisions than others – in information gathering and use; in making choices; and in communicating the decision itself in a useful way. Some may be more fact-based than others; some may contain very decisive people or business rules; others may do an excellent job of socializing choices across the broader organization. To the extent, however, that organizations and their members are not skilled in these stages of decision-making is the extent to which other decision-makers will complain that the process takes too long, or is too rigid, or is too uncertain, or ties their hands, or is characterized by lack of communication.
One of the defining attributes of decision-making is that it is a process rather than an event (although the process can be quite short if there is previous knowledge and experience with a particular type of decision), and so may not always be as timely, certain, and relevant as the customers of that decision might sometimes wish. Even so, a useful decision in the planning and budgeting process typically moves the process forward while informing subsequent decisions with sufficient information, and endowing subsequent decision makers with sufficient time and criteria to make their own choices.
Overview: Traditional views of the use of financial and performance information in the federal budget process tend to focus almost exclusively on uses by external stakeholders. This focus takes an incomplete view of the budget process. There are many opportunities for better informing the budgeting process at other stages, such as an organization’s budget development, financial and resource plan monitoring and execution, and audit and evaluation.
Including and linking performance information with financial information to assess progress and results is a key starting point. It helps lay the foundation for use of financial and performance information in the decision-making process. As difficult as it has been for organizations to increase the production of performance information, the challenges pale in comparison to the problems that public sector agencies face in getting the data to be used for decision making. The impediments to the use of performance and cost information stem from a lack of incentives. Incentives will ultimately determine the fate of the various processes sought for improving the budget process and better informing decisions – such processes, as, results-based budgeting, activity-based budgeting, or performance-informed budgeting.
The opportunities to use cost, financial, and performance information for budgeting exist at each stage of the budget process, but are particularly pronounced in budget execution. Contrary to the opinion of skeptics, the sustained activity of many public sector agencies over the past decade, coupled with the preexisting groundwork already laid in many agencies have created a nurturing environment for decision-informed budgeting.
Potential Legislative Oversight Improvements: Even though public sector managers have significant discretion to pursue improvements in performance independent of legislative action, improvements in the legislative arena would help and enable these agencies to use their resources more efficiently. They could help public sector agencies out by: (1) making expectations clearer, which would reduce the level of ambiguity for managers in budget execution; (2) reduce or eliminate impediments to agency performance, such as staffing floors or ceilings or earmarks; and (3) make more systematic use of financial and performance information to drive the legislative oversight agenda.
While increasing the amount of planning, performance, and budget information available in the process will not answer the vexing resource trade-offs involving political choices, it does have the promise to modify and inform policy decisions and resource allocation by shifting the focus of debates from inputs to outcomes and results. Pursing the systematic and integrated use of performance, budget and financial information is essential to achieving a more results-oriented and accountable government.
More Complicated Than Just Better Information: Better informing the decision process with more complete financial and performance budgeting should not be expected to provide the answers to resource allocation questions in some automatic or formula-driven process. Since budgeting is the allocation of resources, it involves setting priorities – making choices among competing claims. In its broadest sense the budget debate is the place where competing claims and claimants come together to decide how much of the government’s scarce resources will be allocated across many compelling national purposes. Key financial and performance information is an important factor – but only one factor and it cannot substitute for difficult political choices. There will always be a debate about the appropriate role for the federal government and the need for various federal programs and policies. Performance information cannot settle that debate. It can, however, help move the debate to a more informed plane – one that focuses on competing claims and priorities. In fact, it raises the stakes by shifting the focus to what really matters: lives saved, children fed, successful transitions to self-sufficiency, and individuals lifted out of poverty.
Key metrics and measures do not offer single budgetary answers. Such metrics, which indicate problems, may well prompt cuts or program eliminations. They may also inspire enhanced investments and reforms in program design and management, if the program is deemed to be of sufficiently high priority to the nation. Conversely, a program that is found to be exceeding its performance expectations can be a candidate for budgetary cuts, if it is of a lower priority than other competing claims in the process. The determination of priorities is a function of competing values and interests that may be informed by performance information. It also reflects such factors as equity, unmet needs, and the appropriate role of the federal government in addressing these needs. (cm)
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Your input is welcome here
- Recognize that decisions are the ultimate objective of the Planning & Budgeting process.
- A decision is not relevant until it is communicated, Communicate decisions to all relevant stakeholders
- Establish an authoritative source for decisions and documention of the decision.
- Make expectations clear to reduce the level of ambiguity for managers in budget execution.
- Reduce or eliminate impediments to performance, such as staffing floors or ceilings or earmarks.
- Make more systematic use of financial and operational performance information to drive strategy.
1) Cast in stone although business conditions are always changing (6) 2) Managers held accountable although assumptions/numbers are out dated (6.02) 3) Provides a touchstone or baseline (6.03) 4) Final decisions made on old information (6.04) 5) Lower level cannot communicate to upper levels (6.05) 6) Not understood that planning is continuous (6.06) 7) Business cycle may not be synched to the planning and budgeting process (6.07) 8) Focus on short term only 9) Budgets serve a memorializing function (6.10) 10) Budgets are not sufficient to guide management (6.15) 11) Budgets are not the best tool from which to manage (6.14) 12) Formal decision is important (1.04.02) 13) Balance between need for certainty and need to communicate 14) The decisions are important (5.02) 15) Some organizations/functions are more dynamic than others 16) Unit cost versus total cost 17) Potential conflict between unit and total cost (usefulness) 18) |Arbitrary budget reductions from upper levels(9.05) 19) Submitters should understand decisions (9.04) 20) Too long to formal decision (1.04) 21) Requires commitment/decisions (2.10.02) 22) What is the stopping rule?