New Guide on Program Classification Published

Correct program classification – that is, defining programs appropriately – is one of the most fundamental elements of a good government-wide performance budgeting system. Yet it is also an area where governments often make serious mistakes. The World Bank has just published a guide entitled Program Classification for Performance-Based Budgeting designed to help governments to define programs appropriately and in a manner consistent with the key objectives of a sound performance budgeting system. Written by myself, this guide sets out a number of rules which should be followed in defining programs. It also provides concrete case studies of common issues which are faced in the development of a program classification (such as how to treat support services and “one-stop-shops”).

The guide strongly asserts the principle that, to serve their intended purpose, programs should, to the maximum possible extent, be results-based. This means that they should in general be defined as groups of services delivered to external parties (“outputs”) which have common outcomes – product lines in the terminology used in the guide.

Reflecting this fundamental focus on results, the guide rejects the proposition that programs should simply mirror the organizational structure of government, whatever that might happen to be. It nevertheless recognizes that limited departures from the principle of results-based programs are required in recognition of accounting and organizational realities. Accounting requirements rule out defining programs in a way which makes it impossible or impractical to accurately account for expenditure on a program basis. In respect to organizational structure, the guide recognizes that program structure may appropriately diverge from the results-based principle in the case of certain organizational units which contribute to multiple product lines, the most obvious example of which is ministry support services.

Acknowledging that organizational structure requires some limited departures from the principle of results-based programs is, however, not the same as arguing that program structure should simply follow organizational structure. This is a proposition which the guide rejects on the grounds that:

  • Forcing program structure to simply follow whatever organizational structure happens to be in place is inconsistent with the basic program budgeting objective making budgeting as results-focused as possible, and
  • It is not true – as some would have it – that the need to budget in terms of both programs and organizational units requires that programs be the same as organizational units.

The guide also discusses a number of other key issues faced in the development of a program structure, including the appropriate number of levels in the program hierarchy, the number and size of programs, and the relation of programs to the functional classification of expenditure.

4 Responses to “New Guide on Program Classification Published”

  1. Bruce Stacey says:

    Marc

    Great timing as I am just starting down this road in the Philippines. I’ll give you some feedback on your guide once we have completed this exercise. All the best of the season.

    Bruce

  2. Anna Tarrach says:

    Marc,
    Thank you for this new guide! I wonder how can we consider de following case: if a ministry has an executive agency (a non government entity) that runs several programs (for instances the Ministry of Education has an agency that runs the grants for high education and for basic research), and the ministry trasfers money to the agency in order to finance its activities, should this transfer payment be split into two programs, or this is an exception and it should do only one transfer payment (in a support program or a transfer program) and then the agency should allocate the resources in many progams as having?

  3. Marc says:

    Anna, you’ve raised a very important issue which I considered covering in the Guide but ended up omitting to keep it to a reasonable size. The question relates to the definition of programs in respect to “product lines” responsibility for which is shared between ministries and agencies associated with those ministries — what are known in some countries as “outrider” agencies of the ministry, and elsewhere as executive agencies. Formulated in the broadest manner, the question is whether in these contexts the same programs should cover both the ministry and the executive agency, or whether there should be separate programs within the ministry and executive agency.

    To give a simple answer, I favor having the same programs cover both the ministry and its associated agencies — as happens, for example, in Australia. This has the obvious advantage of consolidating the same “product line” within a single program. Implicit in this is, however, a particular view of the way in which ministries and their associated executive agencies should inter-relate — namely that the ministry should provide an overall leadership role, operating something like the head office of a conglomerate.

    I am aware that some countries — Canada is an example — don’t do this, and have separate programs for ministries and their associated agencies even when they are both involved in the same areas of responsibility. The result of this is, I think unfortunate. One ends up with far too many programs across government, which split unnecessarily the same product lines. This is a problem is some East African countries as well.

    The above is too short and unsatisfactory a comment on an issue which warrants more coverage. I’ll try to come back to it in greater depth in a subsequent blog piece. Thank you very much for raising it. Hopefully others may have their own comments to add.

  4. Robert Clifton says:

    Marc,

    Thank you for the superb contribution to the knowledge base on PBB. I’ve faced many if not all of the questions that you raise and to offer pragmatic but disciplined responses.

    Your paper will be useful to the government of Malawi as it tries to extricate itself from the quagmire of output-based budgeting and COFOG aligned programs. It must also confront the difficulty of too many overlapping, poorly defined ministries that share common intermediate outcomes. The note on sectoral and super programs is very helpful in this regard.

    This is also a major challenge here in South Africa but has been recognised as a result of some of the findings coming through the new functional (i.e., sector-based) budgeting approach and the Expenditure and Performance Review initiative led by National Treasury.

    One thing the paper does not address (at least directly) is the separation of program responsibility resulting from devolution. How would you suggest dealing with the seeming conundrum of budgeting, etc. for a program that is designed, coordinated, overseen by a group of national departments and related agencies but where responsibility for services delivered is delegated to provinces or municipalities? For example, the Housing program in SA is ridiculously complex comprising 36 different interventions involving different contributions from 5-6 national departments/agencies, 9 provincial departments and many of the municipalities?