Output-Driven Management and Budgeting Principles in the Public Sector

Over the past three decades, many democracies around the world have reformed their national budgeting and management processes in order to improve public services and make them more efficient, and to respond more effectively to the changing needs of the public and their elected representatives. Within the Israeli government, there is no organized procedure for ordering national priorities. The Ministry of Finance presents a single version of the recommended budget that it offers to the government for its approval. This version forms the basis for negotiations which precede formal approval of the budget by the government. This method of formulating state budgets barely emphasises the designation of objectives and goals for the executive bodies within the various government ministries; instead, it stresses inputs. Thus, the ministries cannot determine how to serve the public's needs and carry out their various functions more efficiently. The budgetary process in government ministries is incremental, involving marginal additions to or subtractions from provisions in the existing "base" budget, usually the previous year's budget. Under this procedure, it is impossible to determine either the necessity or efficacy of the existing activities and programs. Another critical weakness in this budgeting system is that it is a line-item (input) budget, which focuses on the cash input items for salaries or projects, without providing any information about programs, results, output, performance or achievements. Under these circumstances, it is impossible to assess the efficacy or efficiency of the various programs. An output-based budgeting process involves the following stages:

Stage I: Policy determination by the government. The government establishes a comprehensive policy, chooses major objectives and establishes priorities for achieving the desired results.

Stage II: The minister and the director-general together determine the budget for the upcoming fiscal year. In presenting the desired budget to the government, the minister must relate the performance levels of each ministry to the results which the government expects to achieve. The director-general must present the projected budget for the upcoming year to the minister. He must also define the ministry's performance indicators. Public managers then have the task of implementing these sub-indicators, which are defined by the senior and subordinate managers together.

Stage III: The government examines the performance outputs of each ministry for the preceding budget year. Resources are budgeted to the various ministries according to outputs defined in terms of quantity, quality, time frame and cost, and in line with budget limitations.

Stage IV: The Knesset will supervise the government's activities and the various ministries' execution of the budget via the Finance Committee. Both the government and the ministries must report to the Finance Committee.

Stage V: The measurement of the output levels that have been achieved so that public services provided meet the objectives for which they are designed is a crucial element in this system of management. This is the final stage in this performance output-based budgetary process. In order for this proposal to succeed, the Knesset must legislate the principle of personal responsibility in the public sector. Legislation designed to effect his purpose must include the following provisions:

1. A guarantee that the information necessary for proper supervision will be transferred;
2. The institutionalization of personal responsibility and managerial responsibility level;
3. Augmentation of the power of the various government ministries.