Program Budgeting

Program budgeting --the successor to PPBS--is actually its predecessor. The roots of program budgeting can be traced back to turn-of-the-century efforts at budget reform. Program budgeting offers considerably more latitude within which to combine a financial planning orientation with the basic functions of management control. Therefore, program budgeting provides a foundation for a dual budgetary system more fully attuned to the basic objectives of accountability, efficiency, and effectiveness.

In recent years, the techniques of program budgeting have been adopted (and adapted) by some state and local governments and other public organizations. Few applications of the techniques and procedures of program budgeting at the state and local levels of government are identical. Many are actually performance budgets, presenting budget information in work-efficiency terms by projects or activities. Other format have been tailored to the point that they are not easily recognizable as program budgets in the pure conceptual form. This tailoring usually is the result of fiscal management needs as perceived by the governing body, however, and should not be considered a violation of the basic conceptual frame-work of program budgeting.

Program budgeting is designed to provide a more rational basis for decision-making: (1) by identifying data on the costs and benefits of alternative resource allocations in the pursuit of program objectives, and (2) by providing measures of effectiveness and efficiency to facilitate the continual review of programs and subprograms designed to attain chosen objectives. The features of accountability and personnel management, which are distinct characteristics of the object-of-expenditure budget, can be retained through the development of program information statements.

The concept of a program crosswalk was developed to provide a basis for translating object-of-expenditure budget data into program terms. Primary cost data are regrouped from the more traditional budget format into program and subprograms. Personnel costs--salaries and wages and staff benefits--are the most significant elements of expense for most public activities. Therefore, personnel commitments serve as the focus for most program crosswalks, with other operating costs initially following the distribution of personnel costs. A crosswalk can also be used to provide program budget information in the more detailed object-of-expenditure format.

While the procedural steps leading to a program budget may be initiated in sequence, they are more often carried out through a series of iterations. The process of identifying goals and objectives, for example, may further clarify the appropriate programs and subprograms of the agency. This clarification, in turn, may help determine which activities should be placed within each subprogram. Precise statements of strategic and management objectives may not be possible, however, until the agency's activities have been examined in some detail. The establishment of activity schedules may require careful examination of alternative strategies and associated measures of efficiency and effectiveness. Thus a program budget must be viewed from the top down in terms of strategic and management objectives and from the bottom up in terms of agency activities necessary to carry out these objectives.

Program Structure

Program budgeting provides the basis for resource allocation procedures that incorporate the basic objectives of accountability, efficiency, and effectiveness. Programs represent groups of interdependent, closely related activities or services. A program is a distinct organization of resources that contributes to a common objective of either: (a) eliminating, containing, or preventing a problem, (b) creating, improving, or maintaining a condition affecting the organization or its clientele or (c) supporting or controlling other identifiable programs.

The following aspects should be taken into account in identifying programs:

(1) A program defines a series of activities within a larger process; some of the elements of a program are interdependent while others may be effective on a free-standing basis.

Exhibit 6. Program Structure: City of Rurbana

I. Security of Persons & Property VI. Education
a. Law Enforcement a. Public Schools
b. Traffic Safety b. Adult &Vocations Education
c. Fire Safety c. Community College Services
d. Maintenance of Public Order d. Higher Education Opportunities
e. Prevention & Control of Other Hazards VII. Recreation & Culture
f. Administration & Support a. Recreration & Parks
II. Housing & Community Development b. Youth Opportunities
a. Housing Standards & Code Enforcement c. Cultural Enrichment (inc. Libraries)
b. Community Improvement d. Administration & Support
c. Administration & Support VIII. Economic Development
III. Transportation a. Industrial Development & Promotion
a. Traffic Control & Accessibility b. Job Opportunity Development
b. Street Development & Maintenance c. Consumer Protection & Regulation
c. Mass Transportation d. Administration & Support
d. Administration & Support IX. Finance & Revenue
IV. Environmental Enhancement & Protection a. Financial Operations (inc. Purchasing)
a. Environmental Health b. Assessment & Tax Collections
b. Water Services c. Internal Audit & Records
c. Sewer Services d. Recorder of Deeds
d. Sanitation Services c. Administration & Support
e. Environmental Code Enforcement X. Executive Director & General Support
f. Administration & Support a. City Council
V. Human Resources b. Executive Management
a. Conservation of Health c. Budget and Control
b. Personnel, Payroll & Benefits d. City Planning
c. Vocational Rehabilitation e. Human Relations & Affirmative Action
d. Public Health Services f. Voter Registration & Elections
e. Ambulance & Rescue Squad Services g. Community Relations
h. General Service Administration Support

(2) A program should facilitate the comparison of alternative methods of pursuing imperfectly determined objectives.

(3) Each program, however, should be delineated to permit at least partial quantification of its objectives.

(4) Some programs may have overlapping structures that serve as the means to meet certain common objectives.

(5) A program is concerned with a time span of expenditures beyond the current fiscal period, and every effort should be made to bring together all costs associated with its execution.

(6) Program objectives must be consistent with the resources available (or anticipated). Specific objectives must be described--how and where specific resources (personnel, equipment, materials, capital expenditures, etc.) will be used.

An example of a program structure for local government is provided in Exhibit 6. Governmental activities of the City of Rurbana are grouped according ten basic functions, with several programs identified under each function. The function of Public Safety, for example, includes basic programs for law enforcement, traffic safety, fire safety, maintenance of public order, and the prevention and control of other hazards. These six programs, in turn, are supported by a general administrative program.

Programs are formulated in response to broad public goals. Detailed program analysis often is not feasible at this level, however, because the goals usually are not specific enough. It may be difficult to measure cause and effect relationships accurately since linkages between specific program inputs (costs) and outputs (accomplishments) may be rather vague or only broadly defined. The program goal for Public Safety, for example, is: "To reduce the amount and effect of external harm to persons and property and to maintain an atmosphere of personal security among all citizens of Rurbana."

It often is necessary and appropriate to "factor" or subdivide pro-grams into component parts--subprograms and program elements. The programs under the function of Public Safety are illustrated in Exhibit 7, while the subprograms under the Law Enforcement Program are identified in Exhibit 8. More specific and measurable objectives and activities can then be associated with each component. Resources provided for subpro-grams often are interchangeable for maximum accomplishment. That is to say, given a budget target at the program level, an agency must determine how resources are to be distributed among the component subprograms to achieve the optimal output.

Exhibit 7. Program Budget for Public Safety

Programs Last Fiscal Year Current Budget Next Fiscal Year
Law Enforcement $3,770,595 $4,122,005 $4,787,095
Traffic Safety $1,415,720 $1,604,830 $1,861,680
Fire Safety $2,202,670 $3,778,975 $4,499,125
Maintenance of Public Order $459,435 $510,605 $592,230
Prevention & Control of Other Hazards $582,045 $726,128 $871,245
Unassigned $0 $0 $0
Total $8,430,465 $10,742,543 $12,611,475


Exhibit 8. Program Budget for Law Enforcement Program

Subprograms Last Fiscal Year Current Budget Next Fiscal Year
Police Operations $2,308,265 $2,498,640 $2,876,080
Police Investigations $1,068,160 $1,196,645 $1,419,835
Judgment of Non-Traffic Offenses $152,260 $164,820 $189,715
Rehabilitation of Offenders $241,910 $261,900 $301,465
Total $3,770,595 $4,122,005 $4,787,095

Program analysis seeks: (1) to determine whether a particular program or proposal is justified, (2) to rank various program alternatives appropriate to a given set of objectives, and (3) to ascertain the optimal course(s) of action to attain such objectives. Program analysis operates within an extended time horizon. Insofar as possible, it includes explicit consideration of both direct and indirect cost factors involved in the allocation of resources.

Program evaluations of the actual performance of ongoing or recently completed activities may be carried out to: (a) suggest changes in resource allocations, (b) improve current operations, or (c) plan future activities. The feedback from programs that have been formulated to meet agreed-upon objectives should be monitored on a continuous basis, as should an subsequent revisions to these programs. Program analysis is prospective; program evaluation focuses on the actual performance of ongoing or recently completed activities. Program analysis and evaluation must be an iterative process, involving refinement and modification as dictated by changing circumstances in program delivery. The probability that program revisions will be required increases significantly as the time span of decisions increases.

In practice, the time frame of programs formulated under a program budget is between five and ten years. Multi-year program plans often are developed to identify the anticipated outputs of services and facilities according to the program and subprogram objectives. Program plans indicate what accomplishments can be expected from a given commitment of resources.

Program costs are obtained from the organization's financial management system. These costs are projected to match revenue sources to support the proposed programs. Future cost commitments generated by current programs must also be projected. After the budget has been developed in program terms, total costs can be disaggregated by type of inputs (i.e., salaries and wages, materials and supplies, equipment, and so forth). In short, multi-year program and financial plans serve as the critical link between program objectives and other outputs, on the one hand, and resource inputs, on the other.

Program and subprogram objectives bring specificity to program goals by identifying key results (strategic and management objectives) to be accomplished within a specific time period. Objectives form the basis for program strategies and measures; therefore, to the extent possible, they should be quantifiable or verifiable. Objectives must be realistic and attainable, but they should present a challenge to improve conditions, consistent with existing governmental policies and procedures. A program objective must be consistent with the resources available or anticipated. Specific responsibility and accountability should be assigned within an objective, even when joint efforts among agencies are involved.

Program Measures

Measures of efficiency and effectiveness provide the mechanisms for determining the success (or lack thereof) of a program element in achieving agreed-upon objectives. Some measures may be expressed in terms of inputs, such as the number of worker-days, number of requests received, number of calls responded to, or number of cases per staff member. Such measures are appropriate in measuring agency/program efficiency. They do not provide a basis, however, for assessing the effectiveness of program or activities in relation to the costs incurred. The output of many public programs may be difficult to define and measure in direct terms. As a consequence, secondary measures--called surrogates--must often be used to evaluate costs and to test alternative approaches, The direct benefits of a program that seeks to reduce the incidence of dropouts from high school, for example, may be difficult to measure. A surrogate measure might be derived by comparing the anticipated life time earnings of individuals who complete high school with those who drop out. Such figures, available in terms of national averages, can be applied as rough measures--surrogates--of program benefits.

The purpose of defining appropriate strategies and measures is to establish a baseline against which to test adequacy of effort. In the absence of such a base line, the traditional least-cost compromise is likely to prevail. What may appear in the short run to be the least-cost approach, however, may have significant (and detrimental) implications for the community or organization in the longer term.

The program elements of the Investigations Division are shown in Exhibit 9. The subprogram has been divided into three program elements: general investigations by detectives; investigations involving moral turpitude (vice); and investigations of crimes involving juveniles. These three elements correspond to basic categories of misdemeanors and felonies. A fourth program element reflects the laboratory support services common to the three other sections or units. A fifth program element, dealing with efforts to increase citizen awareness of the consequences of substance abuse, is also shown but with no resources assigned. This program element has not previously been specifically identified among the Division's program responsibilities, although the detectives and other officers assigned to other program elements have been carrying out some efforts in this area. Finally, the personnel costs associated with the impoundment of automobiles and other miscellaneous property and with the issuance of licenses and registration of firearms have been transferred to Police Operations.

Exhibit 9. Program Budget for Police Investigations Subprogram

Program Elements Last Fiscal Year Current Budget Next Fiscal Year
Detective Section $542,720 $604,345 $704,964
Vice Squad $187,785 $214,375 $288,113
Juvenile Section $184,060 $195,100 $228,920
Laboratory Services $153,595 $182,825 $197,838
Substance Abuse Prevention $0 $0 $0
Totals $1,068,160 $1,196,645 $1,419,835
Transfers $28,880 $30,615 $32,630

Program Crosswalk

A "crosswalk" was performed on the various activities associated with the Investigations Division to arrive at the cost data for the program elements. The crosswalk is built on the distribution of personnel among the four program elements currently staff and is illustrated by program information in Exhibit 10 for the Detective Section. Like many government programs, the activities of the Investigations Division are labor-intensive. Personnel costs, including salaries, benefits, and overtime payments, account for 91 percent of the $1,334,795 requested for the next fiscal year.

Operational objectives should be cited for each program element along with suggested measures of efficiency and effectiveness. It is anticipated that the workload (number of cases) for each program element will increase, but only in the Detective Section is the request staff increase sufficient to result in a reduction in the case load per FTE (full-time equivalent personnel).

The results of the crosswalk are further delineated in Exhibit 11. Further detail could be provided at the object code level under each of the line-items. Alternative staffing distributions might be considered during the budget analysis. For example, increasing the Detective section to 15.25 FTE would result in a modest reduction in the case load (to 42 cases per FTE). The assignment of the 0.50 FTE thus freed up to the Juvenile Section, however, would yield a significant reduction in the case load--from 80 cases to 73 cases per FTE.

The data presented in Exhibits 7 through 11 illustrate the format of program budgeting in accordance with textbook definitions. Public resources are aggregated and allocated according to agreed-upon goals and objectives. Each level of in the program structure is allocated a certain level of funding, and these amounts can be aggregated upward or disaggregated downward. Thus, the program structure forms a pyramid or programmatic hierarchy.


Exhibit 10. Program Information: Detective Section

Objectives To accommodate the increase in the number of reported misdemeanors and felonies at an increase of no more than 7% in the cost per case.
To maintain or reduce the number of cases per FTE to ensure adequate attention is given to the timely resolutiion of each case.
Work Data Last Fiscal Year Current Budget Next Fiscal Year
1. Staff Hours 26,400 28,800 31,680
2. Full-time Equivalent Personnel 13.75 15.00 16.50
3. Number of Work Units 598 620 675
Measures of Efficiency
4. Cost per Case $908 $975 $1,044
Measures of Effectiveness
5. Compliance with Standards
6. Number of Cases per FTE 43.49 41.33 40.91
Activity Costs
7. Labor Cost $508,611 $548,880 $656,714
8. Material Cost $14,109 $22,465 $25,375
9. Equipment Cost $20,000 $33,000 $22,875
10. Total Cost $542,720 $604,345 $704,964

Program budgeting provides a more rational basis for resource allocation decisions by identifying data on costs and benefits and by providing measurements of effectiveness and efficiency. The features of accountability and personnel management, which are distinct characteristics of the object-of-expenditure or line-item budget, can be retained through the development of program information statements (as shown in Exhibit 11). Program crosswalk techniques were developed to provide a basis for translating traditional budget data into program terms. However, a crosswalk can also be used to provide budgetary information in the more traditional line-item format.

Under program budgeting, resources are allocated on the basis of goals, objectives, and strategies. These performance expectations, in turn, are translated into measures of effectiveness and efficiency. Program results (actual performance) are then evaluated on the basis of this planned performance. The data required to carry out such an evaluation include major elements derived from a cost-managerial accounting system. Other measures of effectiveness are based on the relative change in the situation that the program is meant to affect--for example, percent decrease in the incidence of a program following the introduction of the program. Meaningful cost-effectiveness or cost-benefit analyses can be developed by interrelating key indices from both of these measurement sets.


Exhibit 11. Budget Crosswalk for Investigations Division

Line-Item Detectives Vice Squad Juveniles Lab Support Subprogram Totals
Personal Services
Lieutenant $9,450 $9,450 $9,450 $9,450 $37,800
Lab Supervisor $33,600 $33,600
Sergeants $30,200 $30,200 $30,200 $90,600
Inspectors $29,375 $58.750 $29,375 $117,500
Detectives $370,688 $67,781 $55,781 $494,250
Property Clerk Transferred
Photographer $24,150 $24,150
Lab Technician $22,680 $22,680
Photo Technician $19,425 $19,425
Secretary $9,420 $4,710 $4,710 $18,840
Clerk-Stenographers $15,799 $15,799 $15,799 $15,799 $63,195
Subtotal: Salaries $464,931 $186,690 $145,315 $125,104 $922,040
Overtime @ 5% $23,246 $9,335 $7,265 $6,255 $46,100
Staff Benefits $168,538 $67,675 $52,677 $45,350 $334,240
Total Labor Costs $656,714 $263,700 $205,256 $176,709 $1,302,380
FTE 16.5 6.875 5.375 5.25 34.0
Contractual Services $10,413 $4,165 $4,165 $2,083 $20,825
Supplies & Materials $12,113 $5,483 $5,483 $15,551 $38,630
Equipment $2,125 $2,125 $2,125 $2,125 $8,500
Current Obligations $2,850 $1,140 $1,140 $570 $5,700
Program Element Totals $704,964 $288,113 $228,920 $197,838 $1,419,835

Zero-Base Budgeting and Service Level Analysis

The primary mission of local government and of many not-for-profit organizations is service. Therefore the activities of such organizations can be readily identified and often can be measured in service delivery terms. In an era of increasing public demand for efficiency, effectiveness, and accountability in the delivery of services, the limitations of more traditional practices of budgeting (financial planning) and accounting (management control) are becoming more widely recognized. These shortcomings include:

(1) Insufficient Information--Traditional accounting and budgeting practices provide relatively little useful management information about: (a) the type and level of services provided, (b) the objectives and beneficiaries of the services, or (c) the special resources required in the provision of specific levels of service.

(2) Lack of Choice Mechanisms--With increasing frequency, local governments and not-for-profit organizations have insufficient resources to fund all services at the requested levels. Conventional practices provide few mechanisms to help make choices or to identify the trade-offs among different services on anything approaching a cost-benefit basis.

(3) Impact of Change--No meaningful processes exist: (a) to predict how significant changes in funding will affect service delivery, (b) to determine the benefits in services afforded by increases in funding, or (c) to identify the absolute minimum level of service that must be provided.

Traditional budgeting procedures, based on incremental changes in the status quo, examine only the differences between budget requests for the next fiscal year and budget appropriations for the previous fiscal year. Since the results of previous allocations are accepted as the primary decision criteria, existing programs are often continued into the future without being subjected to intensive re-examination. A comprehensive analysis of previously allocated resources--the budget base--is effectively precluded by this incremental approach. Therefore, incremental budgeting is limited in its ability to allocate scarce resources in the most efficient, economical, and effective manner.

Service Level Analysis

Budget procedures have been formulated that subject all programs--old or new--to the same mechanisms of evaluation. This more comprehensive budget format is sometimes referred to as a zero-base approach, because the incrementally established budget base is not accepted as being fixed or permanent. In more recent applications, however, detailed analysis of programs "to the zero base" have been replaced by the concept of service levels--that is, the analysis focuses on the resources required to deliver various levels of service.

Traditional budgeting procedures focus on proposed dollar increases in the budget. Under service level analysis, attention is drawn to the elements of the budget base along with proposed changes in the level of services to be delivered. Service level analysis is applicable to all actionable programs or activities--those in which there is some discretion as to the course of action to be pursued. All activities of local government that compete for general fund revenues (or the equivalent in other public organizations) should be included in the service level analysis. Other special funds, such as intergovernmental grants and formula-funded programs, often are excluded from traditional budget analyses. These special funds should be identified as part of a service level analysis in order to determine their importance to other organizational activities.

Service level analysis may have only limited application to program for which the levels of expenditures are imposed by law or statute, inter-governmental commitments, or other legal or fiscal constraints. Service level analysis can assist, however, in identifying the public costs of such imposed constraints.

Actionable or discretionary program (that is, those for which expenditure levels are not fixed) make up only a portion of the total budget (less that 25%, according to some estimates). [19] However, such programs often represent the more difficult activities to analysis and plan. Thus, more effective financial planning and management control of these components through service level analysis can greatly affect the entire financial commitments of the jurisdiction or organization.

One objective of service level analysis is the identification of essential service levels, so that an agency can maintain, deliver, and be held accountable for such programs in a more efficient and effective manner. Defining a public service as essential is not the same as labeling its supporting expenditures as fixed. Local governments may have relatively little choice about the funding of essential service levels, and such service levels may comprise a major portion of the annual budget. Essential services, however, can be provided more efficiently (at less cost) or more effectively (with greater benefits).

Budget Units and Decision Packages

The basic components of a service level analysis include:

(1) Identification of budget units

(2) Analysis of decision packages

(3) Priority ranking and evaluation of services.

Budget units are the basic building blocks within the organizational structure that are responsible for the delivery of services. Budget units often correspond with established divisions within the established departments or agencies of the local or state government or other public organization. Large multi-functional units may be further subdivided, however, to reflect more specific functions. Since it is unlikely that budget units will change significantly from one year to the next, the identification of these units is generally a one-time task. Minor adjustments may be required in subsequent years as new programs are initiated or existing programs are revised.

The goals and objectives of each budget unit should be identified, and the current purposes and methods of operation of each unit should be examined. Methods for measuring performance and effectiveness, as well as relations with other budget units, should also be delineated.

Decision packages are discrete sets of services, activities, and resources required to carry out a given operation or accomplish a program objective. Decision packages may involve different methods for deliver-ing a service (for example, using outside contractors versus carrying out the functions in-house) or alternate approaches that use "more" or "less" of the same basic resource inputs (for example, assigning full-time salaries personnel versus hiring part-time wage personnel on an as-needed basis). A decision package should be described in such a way that it can be evaluated and ranked against other packages competing for the same limited resources.

For some essential services, only one decision package may be readily evident. Continuation of the current approach at the current level of commitment may be the only feasible alternative. One of the underlying sources of waste and inefficiency in organizational operations, however, is the maintenance of existing programs simply because "that's the way it has always been done."

To illustrate these basic components, assume that the substance abuse aware program, identified in connection with the program budget presentation of the Investigations Division, is designated as a budget unit--a set of activities to which organizational resources are assigned. Two basic decision package can be delineated: (1) to assign this set of activities to the established units--the Detective Section, Vice Squad, and Juvenile Section--to be carried out within the scope of their existing responsibilities or (2) to establish a new organizational unit to undertake these program responsibilities. Each of these decision packages, in turn, have several variations in terms of levels of service (funding and staffing commitments).

Minimum Service Levels

A minimum level of service should be identified for each decision package. By definition, the maintenance of an existing program or the initiation of a new program would not be feasible below this minimum level. Minimum service levels include only the most essential elements or activities within chosen decision packages. These elements provide the highest priority services or meet the most critical needs of the government or organization. The minimum service level also defines the minimum level of funding for each package.

In the case of the substance abuse prevention program, the minimum service level would be for the existing investigators to carry out these responsibilities on a "voluntary basis," that is, with no additional staffing or re-assignment of other duties. Even this alternative would generate some operating costs (i.e., for materials and supplies, equipment, printing, and so forth). Thus, in Exhibit 12, the minimum service level is budgeted at $9,550; the $3,700 requested for contractual services is for a media consultant to assist in the preparation of materials for this prevention program.

It often is difficult to identify a level of service/funding below the present level of support. In such cases, a percentage of the current level may be arbitrarily set as the minimum level--typically, 65 to 80 percent of the current appropriation. The budget unit manager is asked to identify the level of service that could be provided at this reduced funding level and what current activities might have to be eliminated to accommodate this funding level.

Additional levels of service should then be identified. Each succeeding level should expand the services available until the level of service equals or exceeds current service standards (see Exhibit 12). Each level of service must be analyzed in terms of the specific quantities and qualities of work to be performed (and services to be provided). Appropriate costs should be assigned to each level, and potential service impacts should be described.

Exhibit 12. Service Level Analysis for Substance Abuse Prevention Program

Cumulative Percent
Service Level Total Positions Total Positions Total Positions
1. Volunteer Service $9,550 0.0 $9,550 0.0 7.44% 0.00%
2. 5% Assignment $55,513 1.1 $65,063 1.1 50.68% 44.00%
3. Substance Abuse Prevention Team $63,308 1.4 $128,371 2.5 100.00% 100.00%
4. Sybstance Abuse Prevention Section $67,865 1.5 $196,236 4.0 152.87% 160.00%
5. Add Second Team $86,540 2.0 $282,776 6.0 220.28% 240.00%
Object Codes Level 1 Level 2 Level 3 Level 4 Level 5
1110 Salaries $0 $31,988 $31,013 $37,800 $49,200
1140 Overtime Payments $0 $1,599 $1,551 $1,890 2,460
1200 Contractual Service $3,700 $1,000 $2,105 $1,500 $4,700
1300 Supplies & Materials $3,000 $1,000 $1,120 $3,075 $4,000
1400 Equipment $1,000 $9,000 $8,400 $6,900 $10,000
1500 Current Obligations $1,850 $50 $200 $2,045 $1,900
1600 Employee Benefits $0 $10,876 $18,920 $14,655 $14,280
Totals $9,550 $55,513 $63,308 $67,865 $86,540
Object Codes Level 1 Level 2 Level 3 Level 4 Level 5
1110 Salaries $0 $31,988 $63,000 $100,800 $150,000
1140 Overtime Payments $0 $1,599 $3,150 $5,040 $7,500
1200 Contractual Service $3,700 $4,700 $6,805 $8,305 $13,005
1300 Supplies & Materials $3,000 $4,000 $5,120 $8,195 $12,195
1400 Equipment $1,000 $10,000 $18,400 $25,300 $35,300
1500 Current Obligations $1,850 $1,900 $2,100 $4,145 $6,045
1600 Employee Benefits $0 $10,876 $29,796 $44,451 $58,731
Totals $9,550 $65,063 $128,371 $196,236 $282,776

As shown in Exhibit 12, the second service level recognizes the substance abuse prevention program as a 5% assignment of each member of the investigative staff--the lieutenant, sergeants, inspectors, detectives, and the laboratory supervisor. This specific assignment of effort is equivalent to 1.1 FTE, and in order to cover the existing work load of the Investigations Division, the staff would have to be increased accordingly (i.e., service level two is no longer on a "voluntary basis").

The third service level involves the establishment of a substance abuse prevention team, staffed by 2.5 FTE--a sergeant (50%), an inspector, and a detective. These positions are new resources--that is, either new staff would be hired or existing staff would be given the assignment, and their current responsibilities would have to be covered on a "hire-behind" basis. This third service level is the recommend or requested level for the next fiscal year (as indicated by the 100% designation under the "percent positions" column in Exhibit 12).

The fourth service level in this example involves the establishment of a separate section, equivalent to the three existing investigative sections. This section would add to the previously defined team a detective and the other 50% of effort of the sergeant, bringing the total staffing to 4 FTE. Finally, the fifth service level would involve the establishment of a second team--consisting of an inspector and a detective--which would increase the staff commitment to 6 FTE. This level of service would permit more complete coverage of cases involving substance abuse.

The resources required to deliver each level of service should be summarized for each budget unit. This summary should include detailed costs to be met from all funding sources and a listing of personnel, equipment, and other major resource requirements. The mechanisms of the object-of-expenditure format can be reintroduced at this point (see lower portion of Exhibit 12). Once the detailed cost data have been established for the minimum level of service, these data can be built upon in cumulative fashion for each successive level. Only in exceptional cases, where decision-packages represent distinct service delivery alternatives, is it necessary to prepare separate object-of-expenditure budgets for each service level.

Ranking Service Levels

The difference between identifying levels of service and ranking them is similar to the distinction between efficiency and effectiveness. Peter Drucker has defined efficiency as "doing things right" and effectiveness as "doing the right things." [20] Formulating service levels involves a determination of how to do things right. Deciding to do the right things is the primary objective of the ranking process.

Ranking establishes an order or priority among service levels for various activities or programs. For example, the service levels for the existing and proposed activities of the Investigation Division are ranked, and these rankings are then integrated with similar rankings of all other units (subprograms) under the Law Enforcement Program. Service levels are listed in descending order of importance until all levels have been included. This process of ranking, or "prioritizing," is analogous to procedures that many localities have adopted for programming capital improvements (CIP). In this case, the priority system is applied to an analysis of the operating budget rather than the capital budget.

Before ranking can begin, it is necessary to establish a set of criteria on which to base these decision. Criteria should address such questions as: Is the program or service legally required? Can the jurisdiction afford not to implement the program at the proposed service level? Will the service delivery be cost-effective? Does the unit have the necessary technical skills to implement the planned activities? Does the proposed approach have a previous track record of success? Will lower-level management accept and execute the program?

In all likelihood, more service levels will be presented than can be funded from available resources. Three approaches can be used to bring proposed expenditures and projected revenue into balance:

(1) Funds can be withheld from the lowest priority service levels.

(2) Efforts can be made to reduce the cost of providing one or more levels of service.

(3) Resources can be increased (for example, by increasing service fees, raising taxes, or liquidating assets).

Funds are allocated to the service levels in order of priority until the anticipated resources are exhausted. A funding "cutoff line" is drawn at this point, and those services below the line are not funded. Unfunded service levels should be reexamined, and if deemed necessary to the well-being of the organization or community, efforts should be made to reduce costs or increase resources.

Without a ranking process, budgeting is little more than a juggling act. Decision-makers may try--often in a hit-or-miss fashion--to find the proper pieces in a somewhat jumbled jigsaw puzzle that will add up to an acceptable whole. Unable to determine which programs or activities are of a lower priority, decision makers often are forced to make across-the-board cuts. Service level analysis minimizes this need by creating an explicit priority listing.

Service level analysis can also be helpful in driving accountability for budgeting and budget execution deeper into the organization. Program managers must be involved in the analysis from the outset, thus tapping a larger reservoir of program knowledge and analytical skills. Direct involvement of program managers in budget making, in turn, often increases their concern for the proper implementation of organizational policies and programs. Thus service level analysis can help to transform policies into plans and plans into action.

Service level analysis can serve as an important mechanism of financial planning and control, seeking to eliminate unnecessary spending that may be the consequence of obsolete, inefficient programs or duplications of effort. Depending on the objectives and commitments of public officials, a number of organizational and financial management improvements can be achieved through the use of service level analysis, including:

(1) Better control of expenditures, reductions in costs, and more effective allocation of fiscal and other resources.

(2) Fuller diagnoses of community service needs and greater equity in service delivery.

(3) Improved managerial insights into agency activities and operations.

(4) Increased involvement of operating managers in budget formulation procedures.

(5) Increased credibility of program identification through the establishment of long-range objectives.

Service level analysis goes beyond an examination of incremental changes to existing programs by providing a closer scrutiny of all activities, old and new. Funds are channeled to the more important demands, thereby increasing overall efficiency. Service level analysis does not involve any radical departures from established financial management principles. It reflects the long-accepted practice of building a budget on a sound appraisal of needs matched against resource limitations.

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