Performance Budget: A result of the First Hoover Commission in 1949 it was first applied for federal budgeting in 1950 by President Truman. It is a technique under which allocation of funds are based on functional classification. It specifies the demands with the heading as well as the objective it sets out to achieve. Thus the legislature has total control over the executive actions and knows what it is to expect at the end of the Budget life cycle and can evaluate it and hold them accountable.
This type of budget shows a clear relation between inputs and outputs. It helps the legislature hold the executive accountable in a better manner,helps head of departments of administration as communication for activities is clear from top to bottom and they find it easier to direct subordinates and achieve the specified goals,it helps the auditor as well as he has a clear idea of each and every detail as mentioned above. This technique was first recommended by the Estimates Committee in 1956,however,it was introduced in Parliament for the first time in 1968-69 on recommendation of the first Administrative Reforms Commission.
Limitations of Performance Budgeting
The limitations to this technique are:
1. Difficult to measure performance of various activities of govt./executive for it is quite vague and cannot be directly measured.
2. Expenditure made by govt. under number of heads do not present themselves in the form of results that are objective enough to be directly measured.
3. For various govt. activities,it is not easy to determine the unit cost of such activities.
4. Not easy to establish links between development heads and accounting heads.
Planning Programming Budgeting System (PPBS):
This system was first developed by General Motors in 1920's for managing financial matters and then implemented in the department of defense. Impressed by the results it was first introduced into political fray for Federal budgeting in 1966 by President Johnson of USA as a replacement for the shortcomings of the Performance Budget system.
It incorporates planning function where basic goals of the organisation are determined along with the selection of programmes that are best suitable to achieve them. Programming encompasses the scheduling and execution of those programmes efficiently through clearly defined projects. Budgeting then takes over to convert the goals, programmes and projects into monetary estimates for a review of the administrative heads and then to be presented to the legislature for appropriation. This technique thus seeks to incorporate all functions of Planning, Decision Making and Budgeting of government goals and objectives/policies.
Limitations of this technique are:
1. Tries to incorporate different departments and agencies work together thus making the process cumbersome.
2. Periodic reviews and evaluations needed to check its effectiveness along with good and clear coordination between different agencies like planning, bureaucracy, accounting/finance ministries and departments etc.
3. Analytical in nature and not practical.
4. Socio economic objectives are difficult to follow in a calculated manner as a lot of variables come into play.