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[Podcast] Applying Performance-Based Budgeting at Educational Institutions in the Mekong Delta Provinces

13 September, 2024

Keywords: Budgeting, Mekong Delta, Educational Institutions

Performance-based budgeting is a current reform trend in the “new public management” of many countries for the effective use of budget resources. However, performance-based budgeting has not been widely implemented because of the lack of guidance documents for public services in Vietnam, in general, especially those in education, which account for a large proportion. Therefore, the author from University of Economics Ho Chi Minh City (UEH) conducted research on this issue to support educational institutions in the Mekong Delta Provinces in budgeting activities.

Budgeting based on performance is an inevitable trend

The reform of the accounting and budgeting systems in the public sector is being continuously implemented by countries to prevent corruption of limited budget resources in a timely manner. In addition, the New Public Management (NPM) model of modern society has promoted public sector management reform to privatize public units and to emphasize more on performance results, including the reform of performance-based budget management, which has affected the way of budgeting of public units. Therefore, the new way of performance-based budgeting is the current reform direction in the “new public management” of many countries.

The process of budgeting and target setting represents an opportunity for management agencies to develop visions and missions as well as realize the expectations and the desires of society in line with the potential of management agencies. However, the implementation of budget estimates faces various challenges. Therefore, according to the United Nations, based on the experience of member countries in applying performance-based budgeting, the factors affecting the application of budgeting include resources (like human resources), program objectives, outcomes and expected outcomes, and other external factors depending on the expected outcomes.

In Vietnam, although new budgeting has been piloted by the Ministry of Finance since 2009 in some provinces of the Mekong Delta through the pilot development of a medium-term expenditure framework (MTEF), the application of this budgeting has not been widely implemented without sufficient clear guidelines.

In addition, at the conference to assess the current situation of preschool and general education in the Mekong Delta region in Can Tho in 2019, a representative of the Ministry of Education and Training (MOET) pointed out that the current situation of education and training in provinces and cities in the Mekong Delta has been facing various shortcomings in educational development and allocation of local budget expenditures. Educational institutions in the region need to be proactive and not depend on the state budget. First of all, it is necessary to balance revenue and expenditure reasonably, build appropriate development strategies to achieve the goal of financial autonomy, and ensure the quality of education. To achieve that goal, educational institutions must develop performance-based budgeting. Therefore, it is necessary to examine the factors affecting the application of performance-based budgeting at educational institutions in the Mekong Delta.

What is performance-based budgeting?

Performance-based budgeting (PBB) is based on accessing output information to allocate and evaluate the use of financial resources to achieve the strategic goals of the unit in particular and the government in general. Therefore, this method includes many stages listed as Determining the mission of the public unit; Determining the goals of the public unit; Determining and quantifying the outputs needed to achieve the set goals; Determining and quantifying the activities to be performed to achieve the goals; Operating costs to achieve the goals; Comparing costs with the financial resources of the unit; Prioritizing activities to match the financial resources used.

Benefits of Performance-Based Budgeting in Public Sector

Performance-based budgeting links expenditures to outcomes by illustrating the relationship between inputs, outputs and outcomes. In addition, the use of budgeting brings many benefits as follows:

First, it helps enhance communication between budget members and citizens. This method clarifies program objectives and identifies performance targets, giving units and employees a better sense of performance expectations. In addition, it helps state managers communicate more effectively about their activities, performance results and the benefits of their programs to the public.

Second, it improves the efficiency and effectiveness of public management in public agencies. Public agencies have increased flexibility and autonomy to manage service delivery, resulting in helping restructure unsuccessful programs or eliminate unnecessary programs through performance evaluation, leading to increased flexibility in using resources more effectively and efficiently, and providing better information to decision makers.

Third, more information makes budget decisions easier. This approach will add value to discussions when information on performance is taken into account when deciding on funding levels. With appropriate performance information, politicians are able to pressure agencies to improve and gain a better understanding of the issues involved. In addition, information on good performance will help governments compare the performance of agencies with other providers and choose the level and mix of outputs that agencies should be funded to achieve government outcomes.

Fourth, it improves accountability and transparency of government operations. Performance-based budgeting is viewed as a key tool for demonstrating transparency and accountability to the legislature and the public. On the other hand, it categorizes resources by program and provides better measurement of performance indicators, enhances accountability, and makes managers more accountable for decisions about programs that affect budget outcomes.

Last but not least, performance-based budgeting facilitates auditing, monitoring, evaluation, and reporting on performance. Furthermore, it improves performance by linking budgets and program performance over time. Performance-based budgeting also saves costs, reduces duplicate services, and promotes a better understanding of government operations.

Applying performance-based budgeting at educational institutions in the Mekong Delta provinces

Conducting research through an analytical survey with a sample of 95 budgeting subjects of educational institutions in some Provinces of the Mekong Delta in Vietnam, the author found that:

  • The factor of perceived attitude towards the relative benefits of PBB is very important in implementing PBB at educational institutions in the Mekong Delta. Educational institutions are proactively piloting the implementation of the autonomy mechanism so as not to depend on the budget, and implementing the policy of promoting socialization, encouraging links and cooperation with individuals and prestigious domestic and foreign units to mobilize resources to improve the quality of education. Therefore, educational institutions increasingly understand the importance of effectively balancing the budget; to do this, it is necessary to use performance-based budgeting – PBB.
  • In addition, the support of the organization has a great influence on the application of PBB in educational institutions in the Mekong Delta provinces. This result commended the importance of support from the organization, especially support from managers to promote the implementation of PBB. In addition, the interest and the support from educational institutions in the Mekong Delta provinces are not similar to each other, some institutions have not had the interest and support to implement performance-based budgeting yet. The cause of this problem may stem from the autonomy policy, which has only been piloted in some Provinces in the Mekong Delta and depends on the characteristics of each region with different policies. In addition, educational institutions in some Provinces in the Mekong Delta have not boldly supported the implementation of PBB yet as they do not have a clear set of indicators to evaluate performances in education.

Policy implications for educational institutions in the Mekong Delta

From the above results, the authors would like to suggest some implications for effective implementation of performance-based budgeting in educational institutions.

*In terms of educational institutions: Identifying factors affecting the application of performance-based budgeting as well as the level of influence of these factors. That is, positive attitudes related to the relative benefits of performance-based budgeting and organizational support.

*In terms of the Ministry of Finance, the Ministry of Education and Training and competent authorities: It is necessary to support educational institutions in the Mekong Delta Provinces by reviewing policies and advising the Government to issue policies to support and to facilitate educational institutions to develop educational quality in the Mekong Delta Provinces, especially quickly issuing local education assessment indicators, resulting in assessing the educational quality of each locality and each region, in other words, the output basis for educational institutions to prepare appropriate unit budgets. In addition, it is necessary to increase support and to issue appropriate policies so as to create an autonomous mechanism for localities in order to create conditions for localities to balance revenue and expenditure, contributing to reducing the burden on the state budget. Moreover, they can actively promote the policy of socializing education, encouraging educational institutions to proactively link and to cooperate with prestigious individuals and domestic and foreign units to mobilize resources in order to reduce dependence on the state budget and facilitate educational development.

(1) Positive attitudes towards the relative benefits of PBB

The biggest challenge in implementing performance-based budgeting in educational institutions is how to get educational institutions to use performance information and incorporate it into budgeting. Therefore, local and central governments must take steps to build performance-based management systems and performance measurement systems, as well as understand the role of budgeting as a planning and control tool. Currently, public agencies in general are being influenced by traditional input-focused budgeting; therefore, government agencies need to require public agencies to supplement performance information; metrics and indicators in budgeting documents as a basis for budget-related decisions, resulting in helping public agencies understand the importance and benefits of performance-based budgeting.

In addition, to enhance positive attitudes towards PBB, state agencies need to evaluate the performance of educational institutions based on performance results. In addition, they need to grant autonomy to units so that they can boldly apply performance-based budgeting to manage resources more effectively. Although there are, currently, a number of legal documents on the autonomy mechanism for public service units, in order for units to be more autonomous, boldly eliminate the traditional management culture and budgeting, and be able to apply performance-based budgeting to educational institutions, it requires the harmony between educational institutions and state management agencies, in which management agencies need to gradually remove procedural barriers, gradually be flexible and simplify procedures. In addition, the government as well as educational institutions regularly communicate the policy of evaluating and making decisions based on performances through various channels. In addition, humans are an important factor that can hinder the application of PBB. Consequently, in order to apply PBB, public units must have a clear definition of performance indicators at the unit level, as well as regularly train policy and budgeting staff to understand the benefits of performance-based budgeting. Therefore, educational institutions will be bold in making performance-based budgets to manage resources more effectively.

(2) Strengthening organizational support

Educational institutions using other budgeting methods must consider the perspective of the entire system, promote and encourage user thinking, and fully consider the forms of incentives in the public sector including salary, status, individual role motivation, cooperation and achievement in the unit.

In addition, units must first have a strategic plan, performance indicators, and budget allocation changes based on performance indicators. Units will decide on performance indicators based on their own needs. For budget planning within the unit, it is necessary to decentralize the authority to develop the Medium-Term Expenditure Framework (MTEF) to low-level stakeholders at a low level prior to aggregating to the unit level. Therefore, educational institutions should provide additional training and workshops for their staff on the medium-term expenditure framework, and provide opportunities for staff to participate in strategic planning and budgeting of the unit.

Each educational institution should arrange an effective monitoring and reporting system to ensure that each unit’s activities can achieve the goals or objectives stated in the strategic plan. Furthermore, the implementation of all activities in each project included in the annual action plan should be calculated and compared with the criteria and targets determined for each financial year. This information will be used as a guideline for further improvements in the upcoming year so that each institution can adjust its budget allocation to better match actual performance and effectively correspond to its goals.

The entire research article on Applying Performance-Based Budgeting at Educational Institutions in the Mekong Delta Provinces, Vietnam can be found HERE.

Author: Dr. Le Thi Cam Hong – University of Economics Ho Chi Minh City (UEH).

This article is part of the research series spreading applied knowledge from UEH with the message “Research Contribution For All”. UEH cordially invites readers to wait for the next UEH Research Insights issue.

News, photos: The Author, UEH Department of Marketing and Communication

Audio: Thanh Kieu