Harnessing Evaluation as a Budgeting Tool

In the wake of the global financial crisis, many OECD countries are looking to increase the role of evaluation as a tool to support good budgeting. In particular, evaluation is increasingly seen as an important part of the information base necessary to underpin an effective spending review process. Spending review aims to identify savings options which might be implemented on budget, and evaluation as an important role in helping to identify savings options. This raises the crucial question of the relationship between budgeting and evaluation, which is the subject of a paper of mine which has just been published by the World Bank, entitled Connecting Evaluation and Budgeting. The paper argues that evaluation is an essential tool for good budgeting and a core element of any well-designed government-wide performance budgeting system. Evaluation has a crucial role to play in providing the performance information necessary to maximize the effectiveness of budgeting as a tool for expenditure prioritization and for the promotion of effective and efficient service delivery. It is wrong to assume – as is often assumed – that performance budgeting concerns only the use of performance indicators for budgeting purposes. As invaluable as performance indicators are, they have limitations. It is often impossible to assess the effectiveness and efficiency of expenditure based on performance indicators alone. Indicators often require careful analysis and interpretation, and this is precisely what evaluation does.

The importance of evaluation as a budgeting tool has long been understood. It was, for example, a key theme of the US Planning, Programming and Budgeting System (PPBS ) of the 1960s which was essentially the original form of program budgeting. Unfortunately, however, the potential value of evaluation as a budgeting tool has not been realized in practice. In part, this is because evaluation has often not been sufficiently tailored to the needs of budget decision makers. Too often, evaluation has been seen exclusively as a management and policy improvement instrument rather than as an instrument for helping budgeters to target spending cuts. However, the failure to make full use of evaluation as a budgeting tool also reflected the fact that, prior to the global financial crisis, governments were often not terribly interested in using the budgeting process to achieve good expenditure prioritization or to promote performance. All too often, they prefer to avoid decisions about budget priorities than to face them squarely.

Things have now changed. The difficult fiscal circumstances facing many countries in the wake of the global financial crisis have created unparalleled pressures for expenditure cuts, not only to support debatable “austerity” policies but also to free resources for high-priority new spending. The pressures for good expenditure prioritization and improved efficiency have greatly increased. It has become vital to connect evaluation and budgeting, to ensure that evaluation fully contributes to the task of cutting ineffective expenditures.

To achieve this, it is necessary that evaluation – insofar as it is specifically intended to support budgeting – change. The choice of evaluation topics and the scope of evaluations need to focus on identifying ineffective or low-priority government programs that should be terminated or scaled back to assist either in reducing government expenditure or in creating additional “fiscal space” for high-priority new expenditures. The differing needs and requirements of evaluation for budgetary purposes, as opposed to evaluation for management and policy improvement purposes, need to be recognized. The notion that a single government-wide evaluation system can serve both of these purposes effectively should be reconsidered.

It is equally important, however, to change budgeting. Only when budget decision makers focus fully on optimizing expenditure prioritization and promoting performance will they adequately appreciate the value of evaluation. Particularly important here is the creation of continuing spending review processes designed to identify options for spending cuts. Those responsible for managing this process and advising political leaders on spending cuts should be the primary budgetary users of evaluation information.  The connection between evaluation and budgeting also needs to be sharpened, through the adoption of program classification of the budget, based on outcomes and outputs as opposed to inputs and organizational structures. This is a core element of a government-wide performance budgeting system.

The paper which is just been published articulates the type of relationship between evaluation and budgeting which governments should seek to establish. On this basis, it points to the types of evaluation which are of most value for budgetary purposes, and to how budgeting should change to make full use of these types of evaluations. It closely examines international experience in the linking of evaluation in budgeting, with particular attention to experience in Canada, the United States, France and Chile.

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