PB Manual Consolidated 6 English Version

Federal Democratic Republic of Ethiopia
Ministry of Finance and Economic Development
Program Budget Manual
Final version
16th September, 2010
Prepared by the Budget Reform Team of the

Ministry of Finance and Economic Development.
MoFED Program Budget Manual – September 2010. Page 1 of 85

Program Budget Manual
CONTENTS
Acronyms
Preface to the manual
INTRODUCING PROGRAM BUDGETING
Part 1 PROGRAM BUDGETING

Chapter 1 PROGRAM BUDGETING – ITS STRATEGIC FRAMEWORK
Chapter 2 PROGRAM CONSTRUCTION AND ANNUAL BUDGETING
Chapter 3 ESTIMATING PROGRAM COSTS
Chapter 4 BUDGET SUBMISSION AND IMPLEMENTATION
Part 2 BUDGET CALENDAR
Chapter 5 FINANCIAL CALENDAR – PLANNING TO BUDGET APPROVAL
Chapter 6 FINANCIAL CALENDAR – BUDGET EXECUTION
Part 3 SUPPORTING SYSTEMS
Chapter 7 BUDGET PERFORMANCE FRAMEWORK
Chapter 8 SUPPORTING INFORMATION SYSTEMS
Annexes
1. PB formats and supporting notes
2. Administration and general program – ‘support services’ examples
3. PB performance – examples

Acronyms
AFRITAC (East) African Technical Advisory Centre (IMF)

ARISIP Annual Report, Infrastructure and Service Improvement Plan
BPR Business Process Re-engineering
BoFED Bureau of Finance and Economic Development
BSC Balanced Score Card
COFOG Classification of Functions of Government
EFY Ethiopian Fiscal Year
EtB Ethiopian Birr
EMCP Expenditure Management and Control Program
FMA Financial Management and Accounting
GFS Government Financial Statistics
GTP Growth and Transformation Plan
HPR House of Peoples Representatives
IBEX Integrated Budget and Expenditure System
ID Institutional Development
IFMIS Integrated Financial Management Information System
ISD Infrastructure and Service Development
MCB Ministry of Capacity Building
MDG Millennium Development Goal
MEFF Macro-economic and Fiscal Framework
MoFED Ministry of Finance and Economic Development
MTEF Medium Term Expenditure Framework
PASDEP Plan for Accelerated and Sustainable Development to End
Poverty
PB Program Budgeting
PBC Permanent Budget Committee
PEM Public Expenditure Management
PFM Public Financial Management
PPB Planning, Programming, Budgeting
WoFED Woreda office; Finance and Economic Development
ZoFED Zonal office; Finance and Economic Development.

Preface to the manual
PURPOSE OF THIS MANUAL
1. The purpose of this PB manual is to secure the conversion of current

Ethiopian line-item (i.e. input based) budgeting to a new program (i.e.
output-based) budgeting (PB) format. The current target for implementing PB
at the federal level is EFY 2004 (2011-12).
Background to PB development in Ethiopia

2. In the mid-1990s, Ethiopia embarked upon a new Civil Service Reform
(CSR) initiative. Arising from its various studies, one recommendation was to
introduce program budgeting. The first piloting took place with federal
ministries from 2006 to 2008 (three years). In 2009, a shadow PB exercise
was undertaken, as a prelude to full implementation a year later. While
significant progress was made, government decided to develop the technical
aspects further, before its new target date, could be achieved. The
recommended technical scope of PB captured in this manual.
3. In August 2009, the first PB manual was presented. In December, a

second edition was prepared, in the light of the shadow PB exercise at the
federal level in September and October 2009. This third edition includes all
the agreed PB formats to be incorporated in IBEX.
Structure of the PB manual

4. This manual presents the core of PB from an organizational perspective
(Part 1). It then sets that organizational perspective into the wider
institutional framework of the Ethiopian budget calendar (Part 2). Finally, it
reviews the supporting systems for PB (Part 3). Each chapter is introduced in
turn.
Part 1 PROGRAM BUDGETING
Chapter 1 introduces the structure of program budgeting and its key

elements. Therefore, it introduces the preparation of a federal organisation’s
suggested Annual Report, Infrastructure and Service Improvement Plan
(ARISIP). Its first part is a strategic performance framework.
Chapter 2 This explains level 2 of PB; program construction; converting each

SMART objective into a set of outputs and indicative, three-year costs (each
program’s MTEF). It then outlines level 3; annual budgeting; converting the
MTEF total into an annual figure and verifying through input analysis for each
output; whether through capital projects or a set of recurrent (major)
activities; all arriving at the annual estimates.
Chapter 3 offers the formats for PB. It therefore looks at the budgeting itself,
input analysis and the sources of funding; the complete program budget.

Part 2 PROGRAM REVIEW AND BUDGET CALENDAR
Chapter 4 present the means for reporting on organisational performance in

program budgeting. It does so by reviewing the process at the operational
(annual) and the strategic (objective’s setting) levels of performance.
Chapter 5 introduces the integrated planning and budgeting cycle – the

budget calendar – for PB at the federal, regional and local levels of
government. It then focuses on the specifics planning, to the budget call.
Chapter 6 introduces the statutory and administrative processes that are

implemented after an organisation’s budget is approved.
Part 3 SUPPORTING SYSTEMS
Chapter 7 presents the PB formats to fulfil the obligations of government’s

financial calendar.
Chapter 8 presents the PB structure and the proposed information system to

support it. The proposed information system is based on amendments to the
existing IBEX.
Chapter 9 introduces the regulatory basis for budgeting. It goes on to

present the proposed changes to those regulations, in order to allow for the
full implementation of PB.
Applying the manual

5. This program budget (PB) manual will be applicable, first, at the federal
level of government. It is hoped that in the light of positive experience,
regional states and city administrations will be encouraged to adapt this
manual to their own circumstances.

INTRODUCING PROGRAM BUDGETING
PURPOSE OF THIS CHAPTER
This introduction explains the basic principles of program budgeting (PB) to all
levels of government. This includes a checklist, as the technical “bottom-line”
of PB in practice.
Purpose of PB
The essence of PB is to allocate resources to outputs, in a program structure.
The program structure is the analytical core of PB. It is the key to linking not
only planning and budgeting but also, capital and recurrent expenditure. The
program is also the means for delivering and measuring the results,
ultimately, of infrastructure and service provision.
Scope of PB
Infrastructure and services are delivered through specific organizations. Thus,
programmes are analysed at the practical level of the organization: the
federal public body (and ultimately, the regional state and individual woredas
(district councils)). For Ethiopia, the primary concern of PB is therefore to get
infrastructure and services delivered to the people. Thus, PB is pursued
through the sovereignty of each federal public body (the budgeting
organization of either a ministry or an independent executive agency), in
order to ensure practical infrastructure and service delivery. The prospects of
higher level reporting of so-called cross cutting (or inter-organisational
programs) are not viewed as a central concern. Instead, such higher reporting
levels can be aggregated and embedded in the supporting PB information
system (Chapter 8).
Wider understanding of PB
In many countries, PB is known as performance budgeting. In this view,
program budgeting is the analytical core of the wider performance budgeting
concept. Ethiopian practice has determined that the initial challenge is to
organise government’s budgeting in an output-based program format. That
will be the foundation to achieve the wider performance budgeting agenda (to
which this manual makes tentative progress).
Development
The demand for infrastructure and services confronts every government in the
developing world. Such governments are therefore faced with the enormous
challenge of finding ways to provide infrastructure and services, within their
eternal financial constraints. The fundamental importance of access to
infrastructure and services, as a means of supporting both economic
development and poverty reduction, is now accepted as common
understanding. PB has the advantage of not only ‘measuring’ such provision
but also, encouraging sound practice in its ‘delivery’.

Measurement and accountability
PB measures performance. This is through the economy, efficiency and
effectiveness of infrastructure and service delivery. Therefore, it also supports
public accountability. Ultimately, PB can encourage program managers 1 to be
more accountable for expenditure to achieve results. PB can therefore be seen
as the foundation for individual performance assessments. This can certainly
be the case, immediately, at the levels of organizational head and program
managers, during the first year of PB implementation (explained further in
checklist item 8, below).
Infrastructure and service delivery

Infrastructure and services are delivered through specific organizations. Thus,
programs are analysed at the practical level of the organization: the federal
public body; the regional state; the individual woreda. For Ethiopia, the
primary concern of PB is therefore to get infrastructure and services delivered
to the people. For this to be done successfully, we need to embrace the
principles of PB, captured in its checklist.
PB checklist2
It is suggested that the essence of PB, captured in the following checklist,
must be satisfied (to a greater or lesser extent, according to local
circumstances) in order to achieve PB in full. The Ethiopian response to date is
offered in italics.
1. PB fails at the first hurdle if the shift from input to output-based budgeting
is not accepted and practiced. Government is committed to this
transformation in that this is now the fifth year of its effort to implement
PB (starting in 2005 with initial piloting for 3 years, then a full shadow PB
exercise in 2009).
2. PB is conceptually redundant without a strategic context to condition the

resource allocating process. A new format is being proposed in this manual
– see chapter 1; its Annual Report, Infrastructure and Service
Improvement Plan (ARISIP).
3. The strategic context for PB is being satisfied increasingly through public

annual reporting in terms of outcomes (wider societal impact) and outputs
(organisationally specific, directly attributable achievements). A new
format is being proposed in this manual – see chapter 1.
4. PB assumes that the real test is of resource allocation against future

intentions (plan), tempered by recent performance (review). The essence
of this is already included in government’s budget calendar; reviewing last
year’s performance; this year’s progress and planning next year’s
proposals – see chapter 4.
1
The term program manager is used in its generic form. A PM could be a state minister, a core
process owner, a departmental head or a director of a directorate.
2
McGill, R (2001). Performance Budgeting. International Journal of Public Sector
Management, Vol. 14, No. 5, pp. 376-390.

5. PB requires all priorities to be in ranked sequence so that difficult choices
are impossible to avoid. There will never be enough money to satisfy all
development demands. A format for prioritization is offered at the
objectives level, in chapter 1 and at the outputs level, in chapter 2.
6. PB’s key unit of planning and budgeting analysis is the program. However,
PB has to reconcile the program structure with the organisational structure
it represents. Ultimately, we are seeking to achieve a program-based
organisational structure, harnessing the benefits of BPR and BSC towards
that end.
7. PB measures the economy, efficiency and effectiveness of the

infrastructure and services delivered by or on behalf of the organization. A
format for such measurement is proposed in this manual – see chapter 4.
The relationship with government’s commitment to performance auditing
is also explained, with additional technical explanation in Annex 3.
8. PB is the foundation for performance agreements with any agency’s senior

(program) manager. This can be implemented in the first year of full PB
implementation, with each public body’s ARISIP being at least the ‘de
facto’ and ideally, the explicit performance agreement between each public
body’s head and MoFED.
Beyond this checklist, the first pre-requisite for PB success, beyond the
imperative of political commitment, is an understanding of the functions of
government and how PB fits into it. For us, this understanding concerns the
function of PB.
Government reform
In government reform, the agenda for change boils down to (a) an
understanding of the current and desired functions of government and (b) the
translation of the desired functions into the:
1. Policy, legal and regulatory context;

2. Organisational structures, the deployment of personnel and their training
needs; and the
3. Planning, budgeting, implementation and review processes, including its
supporting information system.
The shorthand for this is the institutional development (ID) agenda. The ID
process to achieve locally understood and determined reform involves care in
the facilitation of the change itself.3 The central point is that the ID agenda of
context, structures and processes, to perform the functions, should be
mutually inclusive; they should not contradict each other.
3
McGill, R (1999). Civil service reform in Tanzania: organisation and efficiency through
process consulting. International Journal of Public Sector Management, Vol. 12, No. 5, pp.
410-419.

Thus, for the function of PB, the policy, legal and regulatory context should be
in place. The internal organizational structure, including the deployment of
trained personnel, should be established. Finally, the planning, budgeting,
implementation and review process, including its supporting information
system, should be installed. All this optimises the potential for the economical,
efficient and effective delivery of infrastructure and services. If one part of the
ID agenda is ‘out of step’, it distorts the potential for full performance from
the particular institution being reformed.
For MoFED’s development of PB, the policy and legal context is in place,
captured in the current proclamation and regulations. Areas of practical
change are still required. They are outlined in Chapter 9. These will be
captured in a supporting PB directive, issued by MoFED. Finally, specific
guidelines will be issued as part of the next Ethiopian fiscal year’s Budget Call.
Summary
In summary, this chapter has introduced the principles of PB and the PB
checklist. It has also introduced PB’s relationship to the wider government
reform challenge, through the concept of institutional development. The next
three chapters explain PB practice, with the first of these presenting the
analytical core of PB, through each organisation’s ARISIP.

Part 1
PROGRAM BUDGETING
Chapter 1 PROGRAM BUDGETING – ITS STRATEGIC FRAMEWORK
Chapter 2 PROGRAM CONSTRUCTION AND ANNUAL BUDGETING
Chapter 3 ESTIMATING PROGRAM COSTS
Chapter 4 BUDGET SUBMISSION AND IMPLEMENTATION

Chapter 1
PROGRAM BUDGETING – ITS STRATEGIC FRAMEWORK
PURPOSE OF THIS CHAPTER
This chapter introduces the structure of program budgeting and its key
elements. It then outlines the preparation of a federal organisation’s
suggested Annual Report, Infrastructure and Service Improvement Plan
(ARISIP); the key to program analysis and proposals. ARISIP’s first part is a
strategic performance framework; the ultimate focus of this chapter.
The structure of program budgeting

1.1 There are three parts to the structure of program budgeting (PB):
 The organization
 Its programs
 Their inputs
All are captured in the following table.
Table 1.1
Program budget structure
The organization Its programs Their inputs

Federal MEFF Public Programs Output Capital Input Input
level clusters body/sub / sub- code and project summary details
- programs classifica or
organisat tion (i.e. recurren
ion capital or t main
recurrent activity
) code
Unique
XX X XX XX XX XX XX
digits
211/00/10
211/00/10 211/00/10 211/00/101
Example 21 211/00 211/00/10 11/11/611
11 11/11 1/11/6100
2
1.2 The organisational part of PB is made up of the MEFF cluster followed

by the specific public body. If a sub-organisation exists, it is captured as well.
The resulting organisational code has five digits.
1.3 The program part of PB consists of a program, a sub-program (if it

exists), an output and its classification (capital or recurrent). Each output then
generates its projects (capital) or main activities (recurrent). There can be a
maximum of nine programs, nine sub-programs within any program and nine
outputs within any program and sub-program. In contrast, there can be up to
99 projects or main activities within any output. The resulting program code
has six digits.
1.4 The input part of the program comes from the chart of accounts (CoA).
Its summary are the primary areas of expenditure (such as ‘goods and
services’: 6200). Its details are the sub-areas of expenditure (such as
‘maintenance and repairs’: 6240). The input codes have four digits.

Thus, the PB structure table 1.1 can be summarised as:
Organisation / programs / inputs
The organisational analysis, its resulting programs and their inputs are
captured in every public body’s Annual Report, Infrastructure and Service
Improvement Plan (ARISIP).
ARISIP
1.5 An ARISIP is the proposed document to develop and consolidate an
organisation’s PB. It is designed to ensure the integration of planning with
budgeting. It is intended to be a document to report on actual performance in
relation to declared planning and budgeting intentions. Finally, it is intended
to be available for public scrutiny. The central point is that PB is ‘plan-driven’.
The planning and budgeting core of ARISIP is the:
1. Strategic performance framework - the 3 year perspective

2. Performance last year
3. Progress this year
4. Proposals for next year
5. Resource requirements for next year - the consolidated budget bid.
Program budgeting
1.6 PB requires three levels of analysis:
Level 1: A strategic performance framework; the three-year

infrastructure and service delivery perspective, down to SMART objective
setting;
Level 2: Program construction; converting each SMART objective into a

set of outputs and indicative, three-year costs (each program’s MTEF); and
Level 3: Annual budgeting; converting the MTEF total into an annual

figure and verifying through project / main activity and input analysis; i.e.
the annual estimates
Level 1 PB analysis is explained below. Levels 2 and 3 are outlined in chapter

2.
Strategic performance framework

1.7 In the context of each organisation’s Annual Report, Infrastructure and
Service Improvement Plan (ARISIP), it is necessary to establish the structure
of the strategic performance framework. This structure has been developed in
consultation with the Ministry of Capacity Building (MCB) and Balanced Score
Card (BSC) experts. This is because both PB and BSC seek to improve the
performance of government. Their common reference point is a public body’s
strategy. ARISIP carries the public body’s strategy, program definitions,
justification of outputs and explanations of capital projects and major
activities. The agreed ARISIP strategic content is as follows:
National policy and strategy

1. Mission and vision statements (by the public body);

2. Growth and Transformation Plan (formerly PASDEP), sectoral
policies (applicable to the public body) and MEFF implications
(interpreted by the public body);
3. Indicative expenditure projections for three years (for the public
body);
Core program budget

4. Strategic objectives - i.e. program definition (by the public body);
5. Prioritisation of strategic objectives (by the public body);
Each of these is explained in turn.
Mission and vision

1.8 The mission should be a statement to define the mandate, fields
of operation or key functions for the organisation. Using water ministry
as the example, it states its mission: By coordinating development partners,
design and implement water policies, strategies, development plan and legal
framework to realize all round water resource management and make our
water resource that play decisive role for the country's development. Thus the
ministry has structured itself organisationally, through the key words of ‘co-
ordination’, ‘policies, strategies and development plans’ and ‘legal framework’
to ensure the provision of water for all needs.
The vision is normally a goal that governs the direction the

organisation is intending to move. Thus, the water ministry states in its
strategic framework that its supporting vision is: ‘Based up on an integrated
master plan, dependable and sustainable water resources development will
significantly contribute for rapid economic development and the country
eventually emerge as a model in Africa’.
Development and Transformation Plan and MEFF

1.9 The bridge between national policy and a public body’s strategy is the
(new) Growth and Transformation Plan (GTP) and other sectoral policy
documents. The part (or parts) of GTP (or other documents) must be clearly
articulated in the public body’s strategy – so that the practical link between
national policy intensions and resulting public bodies’ strategies is established.
This is crucial! How else can national development policy be implemented?
The implications of MEFF, in the context of GTP, for the organization, must
then be presented. The implications flow from the following:
1. Economic growth and GDP;
2. Government revenue, expenditure and sources;
3. Allocations to federal, regions and councils; and
4. Allocations to capital and recurrent.
It is from these two policy statements, supported by additional sectoral

polices (if they exist), that the objectives of the organization can be declared.
The objectives will be set in the context of MoFED’s declared expenditure
projections; the expenditure ceilings for each public body or ‘subsidy
estimates’.
Expenditure projections

1.10 The initial subsidy estimates are issued by MoFED by the end of
September, in the context of MEFF. They are finalized for federal public bodies
by the end of November. The three-year subsidy estimates for regions are
declared by the end of December. More details from the budget calendar are
presented in Chapter 5.
Objectives
1.11 Objectives have to be SMART: i.e. specific, measurable,
attainable, relevant and time-bound. An objective is therefore a particular
end-state to be achieved. The following illustrates the concept:
Objectives Specific Measurable Attainable Relevant Time-

bound
To increase This is the This is the This carries This assumes For PB, each
access to specific increase from the that the ARISIP’s
water to minimum 66% to 82%. assumption objective is strategy, and
within 500 standard to that the contributing therefore its
metres from be achieved. planners to the objectives,
66% to 82% consider this national or are to be
of the to be a organisational achieved
population. practical strategy. within three
objective. years.
Levels of objective setting

1.12 GTP establishes the goals and objectives for national development. It is
the objectives that are quantified and therefore measurable. Thus, at the GTP
level, the objectives will be defined in terms minimum standards to be
achieved. An inter-sectoral example is as follows.
Provision Minimum Shortfall Objectives

standard
Water Within 500 metres 44% of pop To increase access from 66% to 82%
Food 1.8 quintile pp/pa 60% of pop To increase access from 40% to 55%
Health Within 10 kms 30% of pop To increase access from 70% to 85%
Roads Within 2 kms 70% of pop To increase access from 30% to 50%
Education Within 2 kms 60% of pop To increase access from 40% to 50%
Power Ambition for all 75% of pop To increase access from 25% to 40%
ICT Ambition for all 97% of pop To increase access from 3% to 10%
Each ministry must then interpret its role in contributing to its particular
objective. The point here is that we are differentiating between national
development objectives and the specific organisational objectives of a federal
public body, to contribute to its national objective.
1.13 At both GTP and specific public body levels, the point about an
objective(s) is to understand the current level of provision. That presents the

baseline. A percentage expression is best. The proposed increase in provision
(as an achievable objective, all else being equal) can then be agreed to.
Thus, the objective must be defined in terms of the present situation (66%)
and the anticipated level of provision within the strategic plan period (82%).
Three examples follow; from the Water, Education and Finance ministries.
1. Increase the water supply coverage from the current 66% to 82% between
EFY 2003 and 2005.
2. Expand higher education institutions to the requirement of the country,
and provide all the necessary educational materials, and setting standards
for the construction of educational institutions, from an assessed 50% to
80% by EFY 2005.
3. Increase the foreign assistance and loan resources in quantity and type
from 1% to 1.2% in the three year period.
These objectives are at the GTP level. These must then be converted into the
objectives for the particular public body. The point here is that the national
development objective(s) applicable to any public body must be stated first.
The public body must then define its own objectives (i.e. define its own
programs) to contribute to that national objective(s).
National versus organisational objectives

1.14 Using the water example; the GTP objective is clear: increase the water
supply coverage from the current 66% to 82% between EFY 2003 and 2005.
So, what are the functions of the water ministry in contributing to that
objective? Based on its shadow PB of EFY 2003, it defined five
organisationally-based objectives. In turn, these objectives defined their
programs, all to help achieve that GTP objective. The following table
illustrates:
Table 1.1 MoWD: objectives and programs defined
MoW objectives MoW matching programs
1. To increase the size of the existing Program 1. Irrigation and Drainage Development.
irrigable land area from the current Under this program irrigation and drainage development
62,000 ha. to 518,000 ha. between study, design and construction will be under taken in
the year 2003 and 2005. different regions.
2. Increase the water supply Program 2. Water Supply and Sanitation.

coverage from the current 42% to The activities of this program include; follow up study and
82% and increase the sanitation construction of water supply and sanitation projects, general
coverage from the 28% to 76% evaluation and follow up, give different supports, administer
between 2003 and 2005, by working contract administration, deliver short term training and
together the ministry, regions and workshops and undertake office management.
other development partners.
3. Relates to water resources Program 3. Water Resources Management and

management and regulation and has Regulation.
6 separate objectives (one for each This program contains 6 sub-programs. These include:
proposed sub-program): master plan study and implementation, trans boundary river
affairs, ground water potential study and management,
license permission and regulation, water resources data
supply and water resources research and study.
4. To increase the existing Program 4. Hydro power Study and Design.

alternative hydropower production The activities of this program with regard to hydro power
potential study from the current include, undertake detailed study and design; evaluate study
1750 MW to 5439 MW between 2003 documents, follow up the safety of dams and undertake
and 2005. office management.
5. To deliver all supporting services Program 5. Support services.

according to their timetable. This program supports the Ministry's internal activities.
Source: MoWD, shadow PB, November, 2009
Prioritising objectives
1.15 With objectives established, it is necessary to establish the first level of
prioritisation. It is assumed that there will never be enough money to achieve
all that is needed. Therefore, in the context of MEFF, it is important to
prioritise the objectives - in essence, prioritising the programs at their
aggregate level.
1.16 The prioritization is important because if the funding available is, say,
only 70% of what was anticipated, then difficult choices have to be made. The
assumption is that if funds are less than planned, then the least important
programmes are cut first until the point of affordability is reached. The
prioritization itself is based on agreed criteria. The criteria are then scored. An
example is developed from the water ministry, as follows.
MDGs
Totals
Economic growth
development
Environmental
Gender
impact
Prioritising objectives (i.e. programs)
Irrigable land area from the current 62,000 3 3 3 3 12

ha. to 518,000 ha. between the year 2003
and 2005.
Increase the water supply coverage from the 3 2 3 1 9
current 42% to 82% and increase the
sanitation coverage from the 28% to 76%.
To increase the integrated river basin master 3 3 3 1 10
plan study from the existing 75% to 83%, to
increase the river basin authorities from 25%
to 50%.
To increase the existing alternative 3 2 3 1 9
hydropower production potential study from
the current 1750 MW to 5439 MW between
2003 and 2005.
To deliver all supporting services according to 3 3 3 2 11
their timetable.
Totals 15 13 15 8
1.17 The criteria are positive impact on the MDGs, gender development,
economic growth and environmental impact. The scoring suggested is a range
of ‘+ 3’ to ‘- 3’ and to include ‘0’ as no impact. Three is strong impact, 2 is
modest impact and 1 is slight impact; whether positive or negative.

Conclusion to level 1 PB analysis
1.18 By the end of level 1 PB analysis, three things will have been achieved:
1. The federal public body will have analysed its portion of the
Development and Transformation Plan (formerly GTP), identifying all
the objectives applicable to it;
2. Completed its strategy, within its share of GTP and its expenditure
ceiling declared through MEFF;
3. Defined SMART objectives within its mandate, which define the
programs; and
4. The objectives (the programs) will have been prioritized.
The next chapter explains level 2 of PB; program construction; converting

each SMART objective into a set of outputs and three-year costs (each
program’s MTEF); and level 3; annual budgeting; converting the MTEF total
into an annual figure and verifying through projects / main activity and input
analysis; i.e. the annual estimates.

Chapter 2
PROGRAM CONSTRUCTION AND ANNUAL BUDGETING
PURPOSE OF THE CHAPTER
This chapter explains level 2 of PB; program construction; converting each

SMART objective into a set of outputs and indicative, three-year costs (each
program’s MTEF). It then outlines level 3; annual budgeting; converting the
MTEF total into an annual figure and verifying through input analysis for each
output; whether through capital projects or a set of recurrent (major)
activities; all arriving at the annual estimates.
Contrast between level 1 and 2 and 3 of PB

2.1 Level 1 is concerned entirely with the words to describe and justify the
program budget; captured in each public body’s Annual Report, Infrastructure
and Service Improvement Plan (ARISIP) (see Chapter 1). Levels 2 and 3 focus
on the budget calculations. Level 2 is at the medium term or 3-year horizon.
Level 3 is at the annual level.
Converting objectives into a programs (the ‘top-down’ first estimates)

2.2 Each public body’s objective defines a program (see Table 1.1 above).
The potential outputs to meet 100% of the objective must be determined. The
unit numbers (the targets for each output) must be agreed. Finally the current
unit and total cost of each must be calculated. The result for this (and each)
objective should therefore be a strategic targets table (i.e. the structure of the
program). This adds up to the program’s medium term (3-year) expenditure
requirements. Taking the MoWD examples from Table 1.1 down to the next
level; its first two programs can be presented as follows (again taken from its
shadow PB of November, 2009):
Sub
Unit no. Total cost
Pro - Outpu Unit cost per
per (Col'm 7
g pro t output
output x 8)
g
3 4 5 6 7 8 9
PROGRAM NAME:-
Irrigation and Drainage
1 0 Development
PROGRAM MANAGER
Objective:-To increase
the size of the existing
irrigable land area from
the current 62, 000 ha
to 518, 000 ha between
the year 2003 and 1,419,
2005. n/a n/a 010
Study and Design 77,
12 Projects 1 77,068 068
Projects Constructed 1,337,
21 1 1,337,495 495
Safe Dams and 4,
31 Infrastructures 1 4,447 447

Sub Total
Unit no.
Pro - Outpu Unit cost per cost
per
g pro t output (Col'm
output
g 7 x 8)
3 4 5 6 7 8 9
PROGRAM NAME: Water
2 0 supply and sanitation
PROGRAM MANAGER
Objective:- The Ministry,
Regions and Other
development partners
working together will
increase the water supply
coverage from the
current 66% to 82% and
will increase the
sanitation coverage from
the 54% to 63% between 14
2003 and 2005. n/a n/a 8,196
Trained manpower 2
12 1 28,524 8,524
TOR, Manual and
22 Guideline 1 3,648 3,648
Supervision Report
32 1 5,503 5,503
Approved Procurement
42 Document 1 3,327 3,327
National Inventory Report
52 1 3,717 3,717
Water Quality Approval 10
62 Report 1 103,477 3,477
Prioritising outputs
2.3 The second prioritization (after the objectives’ prioritization – of
programs: see 1.10 to 1.12) is within each program. As such, the policy based
MDG criteria are replaced by that of ‘feasibility’; the potential to deliver each
output, economically, efficiently and effectively. 4 Feasibility itself concerns
three questions: ensuring sustainability; practicality; and basic value for
money. Thus, criteria for testing the priority of outputs is seen most
practically, overleaf (using program 3’s outputs as the example):
Presentation of annual targets

2.4 The annual targets are simply those that are to be achieved in the
particular year of the 3-year cycle. It is the target to be budgeted for the year
of implementation. The simplest presentation of annual targets can be as a
refined version of the 3-year target table for each program.
4
The technical description of the 3-Es is in Chapter 7. At this point, all we need to understand
is that we are dealing with (or measuring) the economy of inputs,
inputs, the efficiency of outputs and
the effectiveness of impact.
impact.

Economy Efficienc Effectivenes Feasibilit Total
WATER of inputs y of s of impact y s
outputs
Feasibility Study 3 3 1 3 10
Report
Established River- 3 3 3 2 11
basin & model
Institution
Flood prone area 3 3 3 1 10
protected and
degraded land
rehabilitated.
Water Resources 3 3 3 2 11
Information System
established
Growth Oriented 3 3 1 3 10
Investment Corridors
Miscellaneous 3 1 3 2 9
Totals 18 16 14 13
Budget details (the ‘bottom-up’ verification)

2.5 Budgets per target (the quantification of each output) are founded on
projects and main activity analysis and resulting inputs, as follows:
1. Projects: e.g. the name and location of each of 15 wells (the number to
be constructed in that year);
2. Main activities (aimed at service provision not capital projects (in our
e.g. maintaining the existing 38% of the service)
3. Inputs (the items required to achieve them – labour, equipment etc.);
4. Input costs (e.g. total money required for labour);
5. Input budget codes (the link to the Chart of Accounts and therefore,
allowing for the tracking of expenditure to results); and
6. Total cost per output.
Projects, main activities and input analysis

2.6 Projects and main activity, and input analysis are designed to verify the
programme expenditure estimates, based on planning intentions (the ‘top-
down’ first estimate of the public body’s strategy). If they do not match,
either the program has to be modified or the projects and main activities have
to be reduced. Planning, programming and budgeting should therefore be an
iterative process: ‘top-down’ plan-driven estimates are tempered by ‘bottom-
up’ detailed input analysis.

2.7 By the end of level 2 PB analysis, four things will have been achieved:
1. Each SMART objective will be constructed into a program;
2. Each program’s outputs, unit numbers (targets), unit costs, total costs
and fund sources will have been calculated; the MTEF for each
program;
3. Each program’s outputs will have been prioritized; and
4. The total 3-year PB for the public body will be known.
2.8 By the end of level 3 PB analysis, four things will have been achieved:

1. Each output’s (capital) projects and (recurrent) main activities will be
defined;
2. Each output’s projects and main activities will be budgeted at the CoA
header code level;
3. Each output’s funding sources will be presented at CoA header level;
and
4. The ‘top-down’ initial annual budget calculation will be finalized by the
‘bottom-up’ input budgeting.
Summarising the program budget structure

2.9 Arising from chapters 1 and 2, the complete program budget, from any
public body’s perspective, is as follows:
LEVEL 1 of PB preparation – STRATEGIC FRAMEWORK
1. Mission, vision and national policy (the organisation’s intention to be achieved in its
policy ‘environment’).
2. Objectives (translating its policy environment into specific, quantifiable and time-
bound objectives – the definition of each program).
3. Prioritising (the objectives in sequence, to establish the initial strategic framework).
LEVEL 2 of PB preparation – PROGRAM CONSTRUCTION
4. Program construction (converting each objective into specific outputs (with targets;
unit numbers) – to be achieved over the 3 year period).
5. Prioritising (in sequence; as a proportion of the 3-year targets - e.g. an equal 1/3 rd
share per annum or some outputs are more important than others in earlier years).
LEVEL 3 of PB preparation – ANNUAL BUDGETING
6. Annual targets (converting strategic targets into annual outputs).
7. Project / main activity analysis (converting each annual output into the things to be
done to implement it).
8. Project / main activity budgeting (converting the activities to inputs required,

account codes and costs).
9. PB consolidation through ARISIP.
The next chapter looks at the detailed estimating to arrive at a program’s

costs.

Chapter 3
ESTIMATING PROGRAM COSTS
Purpose of the chapter
The purpose of this chapter is to illustrate how a program is costed, or how

program costs are arrived at. It pays specific attention to the principles of
direct and indirect costs in a program. The chapter concludes by stating the
simplest method for dealing with indirect costs in PB, approved by MoFED.
Top-down budgeting
3.1 To this point (i.e. to the end of chapter 2), we have arrived at, in
essence, a unit cost basis for budgeting outputs. It gives us a ‘first cut’ at how
much a public body’s program budget will cost. That first cut gives us:
1. A strategic performance framework, down to SMART objectives setting
(level 1 PB): followed by
2. Program construction and costing, over three years; each program’s
medium term expenditure proposals (level 2 PB); and
3. The annual budget, still based on the unit cost calculations (level 3
PB).
What comes after this initial top-down calculation is ‘bottom-up’ budgeting;

the focus of this chapter.
Bottom-up budgeting
3.2 We are looking at the output details and the source of funds to match
those details. The following table highlights the challenge. This is the ‘bottom-
up’ counterpart to the top-down calculations above. These details are taken
from PB Form 1d; the detailed input table for budgeting. This table is then
rolled up to Form 1c (input summaries) and Form 1b (outputs summaries).
This hierarchy of forms is explained further in Chapter 8, concerning the
supporting information system.
Balanc
Source of funds (per input)
Output’s details e (11 -

18)
detailTotal annual cost per input
Capital Capital
project project
or major or major
Detailed input codes
recurren recurren
Retained revenue
t activity t activity Donor Creditor

Total
name code code (* code (*
Assistance
Treasury
fund
separat separat
Loan
sourc
XX e page e page T=0
e per
if more if more
input
than than
detail
one) one)
8 9 10 11 12 13 14 15 16 17 18 19

Every output’s capital projects and recurrent activities
3.3 Every output is made up of either a set of capital projects or recurrent
activities. A capital project, such as the rehabilitation of a specific road, will
have a technical ‘bill of quantities’ attached to it. That will specify all the
project-based inputs required to implement that specific road rehabilitation
project. Detailed budgeting for recurrent activities is a different matter
Budgeting for recurrent activities

3.4 Every activity to implement the output must be specified. Thus, in
education; teachers must be available; the classrooms must be maintained;
supplies and equipment must be present; incidental travel and other expenses
must be accommodated. Every activity must then be defined as an input.
This means ‘What is needed to achieve each activity, such as specialist
personnel, equipment, transport, materials and so on’. Every input must have
a line-item or expenditure code. There can be more than one input for each
activity. The expenditure code is the key to tracking expenditure to outputs.
The detailed input codes are as follows:
Table 3.1
DETAILED INPUT CODES
Areas and Sub-Areas of Expenditure Code Range

Personnel Services 6100
Emoluments 6110
Allowances and benefits 6120
Pension contributions 6130
Goods and Services 6200
Goods and supplies 6210
Traveling and official entertainment 6230
Maintenance and repair services 6240
Contracted services 6250
Training services 6270
Stocks of emergency and strategic goods 6280
Fixed Assets and Construction 6300
Fixed assets 6310
Construction 6320
Subsidies, Grants and Other Payments 6400
Subsidies, investments & grant payments 6410
Debt servicing and repayments 6430
Pension payments 6440
Finally, each input costs something! It is the art of costing inputs that is the
heart of this matter.
Costing inputs
3.5 On the assumption that we are NOT concerned with any aspect of accrual
accounting (and therefore, its more sophisticated costing requirements), we
are therefore dealing with ‘cash’ costs (i.e. not cumulative expenses or
expired costs) . These are both direct and indirect.
Direct costs
3.6 Direct costs are those incurred directly to produce the services being
proposed through the respective target; the quantified part of the intended
output – simply, its ‘unit number’). Direct costs include all personnel costs of

staff directly or wholly engaged in delivering the service. This includes
salaries, wages, overtime, benefits and the cost of any employer’s pension
contributions. Direct costs also include all non-personnel costs. These include
any raw materials or other ‘overheads’, such as electricity or water, that is
directly attributable to the service being delivered. In organizational analysis
terms, this means the ‘line’ function. This contrasts with the indirect costs of
‘staff’ functions.
Indirect costs
3.7 In an organisation, ‘staff’ functions are those that support ‘line’ functions
to deliver their services. These are therefore the additional inputs required to
deliver the infrastructure or services. Typically, indirect costs relate to
activities which are undertaken by and on behalf of the public body as a whole
and are shared by individual units. The sharing is a question of apportionment
(dealt with in the next section). Examples of indirect costs include an
organisation’s central planning, finance, personnel and administrative
departments. Other shared facilities include the common parts of a building,
the central printing room; the registry, common cleaning services, shared
transport provision and so on. Whereas direct costs can be allocated directly
to the delivery of services, indirect costs are normally apportioned.
Apportioning indirect costs

3.8 Apportioning indirect costs should be done in proportion to the use of the
shared services in question. There are two types of indirect costs; for
accommodation; and for shared services. Shared accommodation costs
include:
1. Buildings
2. Furniture and fittings
3. Maintenance
4. Office cleaning
5. Utilities.
Shared services include:
1. Planning department
2. Finance department
3. Personnel department
4. Administration / legal department
5. Transport
6. Office services (e.g. photocopying)
7. Telephone and fax
8. Postage
Each is considered in turn.
Shared accommodation
Buildings
3.9 Buildings are normally accounted for in terms of a rental value per
square metre. If the building is owned outright and no charge exists, it is a
matter of local policy if such a fictitious charge is apportioned. In contrast, if

there is an annual rental charge (or the servicing of the capital debt by way of
a mortgage), the total annual cost must be divided by the building’s total floor
area. The unit cost per square metre can then be calculated. Any direct
service delivery program will then be charged its share of the total building
cost, according to the floor area occupied.
Furniture and fittings

3.10 Furniture and fittings should simply be charged at original cost and
subsequent replacement. The safest technique is to budget for some
percentage of replacement (or repair) each year. An assumption might be that
all such items might be replaced over the course of, say, five years. These
items are easily charged to each service delivery program.
Maintenance and repair

3.11 As with the building rental calculation itself, experience tells us what the
annual maintenance and repair bill will be. Whatever the total, it will be
divided by the total floor area. The unit cost of the maintenance, per square
metre, can then be apportioned according to the floor area occupied by any
‘line’ department or program.
Office cleaning
3.12 As with building maintenance, precedent can tell us what the annual
office cleaning bill is. The same total and unit cost applies. That is, the total
annual cleaning cost is divided by the total floor area, to give the unit cost of
cleaning, per square metre. That is then charged to the service delivery
program
Utilities
3.13 There are two ways to deal with utilities, such as electricity and water.
First, there could be direct meters attached to particular departments, or
programs for water and electricity. That would yield the true cost. This is so
rare as to be impractical. The alternative and practical way is therefore to,
again, calculate the total cost of any utilities for the previous year, then add
an inflation element plus a small cost increase. Again, that should be divided
by the total floor area, resulting in a unit cost per square metre for the
particular utility. This is also charged to the program
Summary of shared accommodation costs

3.14 It is suggested that all accommodation costs are apportioned to the
service delivery program, as described above.
Shared services
Planning, finance HR and so on

3.15 MoFED has already accepted that shared services such as planning,
finance and so on, shall be centralized under one administration and general
program. Therefore, no apportioning will be necessary for these and related
services. Instead, the only argument concerns whether each service, such as
accounts, will be classed as an output within the administration and general
program or as a sub-program, within the public body’s administration and
general program. An illustration of both options is presented in Annex 2.

Other shared services
Transport
3.16 All transport should be charged according to actual use. All central
transport facilities have (or should have) a strict trip record system; normally
a signed voucher completed for every journey and signed by the passenger
(whether or not he is also the driver). That record, and the cost of the
journey, is then assigned to the passenger’s department or program. The unit
cost of the transport itself is the total cost of the transport service; salaries,
fuel, repairs and so on. This is divided by the annual mileage estimate. That
gives us a unit cost per mile. The rest is simply plotting the miles to the
particular program and charging the program for actual use (actual miles
traveled).
Office services
3.17 Office services such as photocopying have an annual cost. As with
transport, the subsequent unit cost can be calculated, say, based on an
average number of prints or copies. It is then a simple task of recording the
actual use of the service by any program and charging accordingly.
Telephone and fax

3.18 Modern systems can record the use of phones and faxes to the point of
use. The actual cost incurred should therefore be charged to the program user
in question.
Postage
3.19 As with telephones, it should simply be a matter of charging the
particular program for the actual service charges.
Summary of program costing – a working example

3.20 It should now be clear that costing programs is a matter of identifying
direct costs and apportioning some indirect costs. The latter is now a basic
application of arithmetic.
Capital project Capital project Total

or major or major Detailed annual cost
recurrent recurrent input per input
Code OUTPUT activity name activity code codes detail
Trained
manpower
12
TOR, Manual
22 and Guideline
Supervision
32 Report
Approved
Procurement
42 Document
National
Inventory
52 Report
Water Quality
62 Approval Report

So, taking each of these outputs in turn, the questions to asked for all these
are as follows, ‘what inputs will apply to each output?’ Within the four areas of
expenditure (to be summarized in Form 1c) we will need the input details (to
be the start of the ‘bottom-up’ budgeting, in Form 1d). The input details (as
the budgeting checklist) are presented above in Table 3.1. Through this
checklist, the person creating the ‘bottom-up’ budget will be able to determine
(a) which inputs apply and (b) how much each input will cost.
Apportioning of indirect costs

3.21 When it comes to the apportioning of indirect items (as described
above), the decision is that such inputs and be included in the administration
and general program for each public body (see illustrations in Annex 2).
Apportioning staff costs

3.22 On staff costs, where capital expenditure is concerned, each project’s
specification will include the staff inputs Where the outputs are funded by
‘recurrent’ expenditure, those staff costs are simply divided equally to each
recurrent output.
Interim solution
3.23 It is important to understand that the apportionment of indirect costs to
the administration and general program is an interim budgeting solution. It is
interim because we want to get the basics of PB in place and working first. As
confidence increases through experience, MoFED will decide when to
implement the general apportionment of indirect costs, as outlined down to
paragraph 3.20.
Summary
3.24 This chapter has reviewed the principles of direct and indirect costing at
the program level. The next chapter looks at the general formats for the
submission, implementation and review of the budget.

Chapter 4
BUDGET SUBMISSION AND IMPLEMENTATION
The purpose of this chapter is to present the PB formats to fulfil the

obligations of government’s financial calendar. The calendar itself is presented
in the following two chapters.
Consolidated PB requirements
4.1 The budget cycle (financial calendar) is to be consolidated in terms of PB
requirements and IBEX processes to support them. The PB requirements
concern three stages of activity:
1. The budget submission process (supported by PB forms 1a to 1d)

2. Budget implementation; (supported by PB forms 2a and 2b) and
3. Performance review (supported by PB form 3).
The technical contents of these three stages are summarized in Table 1.
Table 1 - TECHNICAL CONTENTS OF ‘PB’ FORMATS
PB stages Contents Highlights
1. The budget Request Public bodies’ request to MoFED is based

submission Recommendatio on one written text (ARISIP) and supporting
process n tables.
Notification MoFED’s recommendation to Higher
Authorities is in aggregate tables (Volume
1) and the collective (supporting) written
texts (Volume 2).
MoFED’s notification of the approved
budget is in output-based tables (Volume
3). On receipt, public bodies finalise their
ARISIPs with the approved budget figures
(and make them available to the public).
2. Budget Work plan The work plan is each public body’s

implementatio Variance monthly expenditure projection for each
n analysis output.
Variance analysis is the quarterly
assessment of actual expenditure against
the work plan.
3. Performance Total Total performance is the annual

review performance assessment of whether each program has
been delivered and how, economically,
efficiently and effectively.
BUDGET SUBMISSION
Request formats – from public bodies to MoFED

4.2 The request formats concern what a public body submits to MoFED, in
response to the ministry’s call to budget. Each public body’s submission to
MoFED shall be as follows:
1. Annual Report, Infrastructure and Service Improvement Plan (ARISIP);

2. Output summary table (form 1a; ‘top-down’ budgeting);
3. Input summary table (form 1b; ‘bottom-up’ budgeting); and
4. Output details table (form 1c; ‘bottom-up’ budgeting).
The logic and formats for forms 1a, 1b and 1c are presented in Annex 1.
ARISIP
4.3 ARISIP carries the public body’s strategy, SMART objectives, which
become the program definitions, justification of outputs and explanations of
capital projects and major activities. The agreed ARISIP contents and process
for its preparation, are outlined in Chapter 1. The details of program
construction are explained in Chapter 2.
Recommendation formats – from MoFED to the Higher Authorities

4.4 The recommendation formats concern what MoFED submits to the Higher
Authorities. The recommendation documentation is as follows:
1. The macro-economic prognosis;

2. Total budget summary at the federal level per public body (but to
include the total subsidy to each region);
3. The budget summary for each of the four clusters, to include capital
and revenue expenditure; and
4. The budget summary for each public body, down to outputs, summary
budget codes and source of funds (new format: Form 1b).
This will make up Volume 1 of the budget. The detailed explanation for
each public body’s PB will be in its ARISIP (see Request Formats, above). This
will include in its supporting annexes, all projects and main activities for each
output. This will make up Volume 2 of the budget.
Notification formats – from MoFED to the public bodies

4.5 The notification formats are the documentation that inform each public
body of the approved budget. It is suggested that one format will suffice:
form 1c (the output details and input summary table). This will be Volume
3 of the budget. The actual notification in Form 1c will therefore be:
1. The total budget for the public body;

2. The total budget for each program;
3. The total budget for each output within each program;
4. The total budget for each input for each output, by summary budget
codes 6100, 6200, 6300 and 6400; and
5. The source of funds for each input for each output, again, by summary
budget codes 6100, 6200, 6300 and 6400.

A summary table will be included in each public body’s notification letter,
showing the total capital and recurrent expenditure (a) for the public body as
a whole; and (b) for each program within that public body.
On receipt of the budget notification, each public body’s head will amend his /
her ARISIP, to reflect the approved budget. ARISIP will then be available to
the public.
BUDGET IMPLEMENTATION
Work plan
4.6 Budget implementation requires a work plan to be prepared. In essence,
this is the monthly cash flow requirement for each output, within each
program. The annual total must, of course, equal the approved budget and its
resulting notification. The format is in Form 2a (See annex 1).
The work plan (the cash requirements for each month) will be monitored
constantly, as a matter of course. Formally, there will be a quarterly variance
analysis. This will compare (a) disbursed amounts with actual expenditure and
(b) actual expenditure with the approved budget, presented monthly, in the
work plan. The format is in Form 2b (See annex 1).
Budget implementation means not only spending the approved budget but
also, managing the budget itself. Certain rules must be adhered to in this
management.
Empowering public bodies’ management

4.7 One principle governing PB is to decentralize and empower organizations
so that they can deliver what has been approved, within their finalized (i.e.
their post notification) ARISIP. Ideally, ARISIP will be the de facto annual
agreement between the head of the public body and MoFED concerning
performance. If so, the head of each public body should be responsible for
managing the budget itself.
Managing the budget

4.8 Managing the budget means two things. First, the head of the public
body will spend in accordance with the monthly allocation of proposed
expenditure to programs, through each output. Secondly, that head will
empower each program manager to perform. In both cases, this means
having the freedom to make financial decisions in the course of
implementation.
Financial decisions in the course of implementation

4.9 Certain rules already exist in terms of budget implementation. First, no
public body is authorized to spend more than is approved in its budget.
Secondly, while recurrent allocations can be transferred to capital
expenditure, the opposite is not permitted. Thus, it is suggested that the head
of a public body will be permitted to authorize transfers between programs,
according to the financial realities in the course of the year, subject to the
following; that between programs:
1. No capital to capital transfer will exceed 10% of the original allocation;

2. No recurrent to recurrent transfer shall exceed 10% of the original
allocation;
3. No recurrent to capital transfer shall exceed 10% of the outgoing
transfer’s original allocation;
4. A program manager will apply the same principles to its program’s
outputs;
5. Any transfers between outputs within a program must be approved by
the head of the public body;
6. Any transfers between programs within the 10% limit, will be
authorized by the head of the public body, with notice being sent to
MoFED; and
7. Any attempt to exceed any of these 10% limits between programs must
be referred to MoFED for approval.
In this way, a level of decentralization and empowerment is granted to the

head of the public body, concerning budget implementation.
PERFORMANCE REVIEW
4.10 While the head of the public body shall be answerable to MoFED, if there
is a need to breach the 10% limits concerning transfers (virements),
performance reporting will be as part of the post holder’s annual review. That
review shall be based on the ARISIP. More details are presented in Chapter 7.
Close of Part 1 of the manual
4.11 This concludes the first part of the manual, concerning the public body’s
preparation, submission and initial implementation of its budget. Part 2 of the
manual sets the whole process in the context of the statutory budget
calendar.

Part 2
BUDGET CALENDAR
Chapter 5 FINANCIAL CALENDAR – PLANNING TO BUDGET APPROVAL
Chapter 6 FINANCIAL CALENDAR – BUDGET EXECUTION

Chapter 5
FINANCIAL CALENDAR – PLANNING TO BUDGET APPROVAL
The purpose of this chapter is to introduce the integrated planning and

budgeting cycle – the budget calendar – for PB at the federal, regional and
local levels of government. This chapter applies equally to all levels of
Ethiopian government.
Financial calendar
5.1 Planning, budgeting and financial management have been devolved to
public bodies, regional and woreda governments and regional and woreda
sector bureaux and offices. With this degree of devolution, it is critical that the
planning and budgeting cycle at each level is harmonized and coordinated.
The calendar
5.1 The existing budget calendar is presented in Figure 5.1, overleaf. In
essence it falls into three phases:
1. the policy planning phase – the planning cycle;

2. the budgeting phase – budget preparation and recommendations;
3. the approval phase – budget execution and implementation.
While the present phasing is logical, the time frames for some of the activities
appear very congested. The PB program therefore seeks to rationalize the
calendar. The proposed calendar is presented in Figure 5.2. It is also in three
phases: planning, budgeting and approval. However, apart from some
rationalization in activity sequencing, the new element is to introduce the
consolidated PB modality; every organizations Annual Report, Infrastructure
and Service Improvement Plan (ARISIP). ARISIP is introduced in Chapter 1
above.
Strategic planning phase

5.2 The present calendar states the following:
MEFF:
1. Economic growth and GDP
2. Gov’t revenue, expenditure and sources
3. Allocations to federal, regions and councils
4. Allocations to capital and recurrent
The proposed calendar suggests:
MoFED consultation on:
a. GTP annual implications
b. MEFF, including subsidy estimates
Individual organisation’s ARISIP (a) last year’s performance
The crucial point is that this proposal is meant to capture the sectoral
implications of GTP (with the resulting 5-year development and supporting
expenditure proposals for all three levels of government), followed by MEFF
analysis down to the 3-year projected resource envelope at the federal level,
the block grant to regions, and the resulting annual fiscal plan.

Figure 5.1 – EXISTING BUDGET CALENDAR – THE INTEGRATED PLANNING AND BUDGETING CYCLE
July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July
Federal MEFF: By 10th: By 24th: By 8th: By 22nd: By 2ndJune: By 8th:
1. Economic growth and MEFF. annual public public budget budget approved
GDP By 25th: 3 fiscal investment bodies completed By 15th:
2. Gov’t revenue, year plan program; submit notification of
expenditure and subsidy annual requested approved budget
sources estimates subsidy budget to public bodies
3. Allocations to federal, to estimates
regions and councils regions. to regions;
4. Allocations to capital budget call
and recurrent to public
bodies
Regional 1. Sector planning By 31st: By 31st By 30th By 8th:
2. MEFF budget May: June: budget approved
3. PEP call and final budget By 15th:
4. Fiscal plan pre- ceilings completed notification of
5. Budget strategy paper ceilings and approved
6. Grant formula update to budget subsidy to
regional call to regions
sector sector
bureaux bureaux
Local 1. Community consultations within initial expenditure By 15th: By 10th By 10th:
ceilings (based on current year’s budget) budget call June: final budget
2. Sector planning and pre- ceilings and completed
3. PEP ceilings to budget call By 15th:
4. Fiscal plan sector to sector budget approved
5. Budget strategy paper offices offices By 21st:
notification of
approved budget
to public bodies

Figure 5.2 – NEW BUDGET CALENDAR – THE INTEGRATED PLANNING AND BUDGETING CYCLE
July Aug Sep Oct No Dec Jan Feb Mar Apr May June July
v
Federal By 30th September. By 31st Nov By By 24th: By 8th: By 8th April: By 2nd: By 8th:
MEFF and 3 31st annual budget public bodies budget budget approved
MoFED year subsidy MEFF, fiscal plan call to submit requested completed: By 15th:
consultation on: estimates, include By 31st: public budget thus, notification of
c. GTP annual complete 3 year Individual bodies including approved budget
implications subsid ARISIP ARISIP (a) to public bodies
d. MEFF, including y (b) this and (b) plus By 31st: make
subsidy estimat year’s (c) next ARISIP available
estimates es to progress year’s to the public
Individual regions proposals
organisation’s
ARISIP (a) last
year’s performance
Regional 1. Integrated GTP (i.e. regional By 31st: By 8th: By 8th April: By 15th: By 8th:
development plan – new or update); Individual budget final ceilings and budget budget approved
including: ARISIP call and budget call to completed: By 15th:
a. Sector planning (b) this pre-ceilings sector bureaux thus, notification of
b. MEFF year’s to regional including approved budget
c. Fiscal plan progress sector ARISIP (a) to public bodies
d. Budget strategy paper bureaux and (b) plus By 31st: make
e. Grant formula update (c) next ARISIP available
2. Individual organisation’s ARISIP (a) year’s to the public
last year’s performance – by 31st proposals
October.
Local 1. Integrated GTP (i.e. local development By 31st: By 8th: By 8th April: By 30th: By 15th:
plan – new or update); including: Individual budget final ceilings and budget budget approved
a. Community consultations within ARISIP call and budget call to completed: By 21st:
initial expenditure ceilings (based (b) this pre-ceilings sector offices thus, notification of
on current year’s budget) year’s to sector including approved budget
b. Sector planning progress offices ARISIP (a) to public bodies
c. Fiscal plan and (b) plus By 31st: make
d. Budget strategy paper (c) next ARISIP available
2. Individual organisation’s ARISIP (a) last year’s to the public.
year’s performance – by 31st October. proposals.

PLANNING CYCLE
5.3 There are three stages in the Planning Cycle:
1. The macro-economic and fiscal framework;

2. Notification of the three-year subsidy estimates; and the
3. Preparation of the annual fiscal plan.
These three planning documents must be consistent with higher-level national

planning strategies; the latest being the Growth and Transformation Plan (GTP)
and sectoral planning strategies. Each is explained in turn.
Stage 1. The Macro-economic and fiscal framework (MEFF).

5.4 MOFED is responsible for the preparation and maintenance of a rolling five
year Macro Economic and Fiscal Framework, and to have it presented to the
Council of Ministers for their approval. MEFF is a three-year forecast of the
following:
1. Economic growth and GDP

2. Government revenues and expenditures, and of sources of financing
3. The allocation between federal government expenditures and the total
subsidies to regions and administrative councils
4. The allocation between capital and recurrent expenditures for the federal
government.
Stage 2. Notification of the three-year subsidy estimates.

5.5 Using the approved subsidy formula, and based on the approved MEFF,
MOFED will prepare a rolling three year estimate of subsidies to each regional
government and administrative council, and notify them of these estimates by
November 25 each year.
Stage 3. Preparation of the annual fiscal plan.

5.6 The final stage of the planning cycle is the preparation of the Annual Fiscal
Plan by MOFED. The Annual Fiscal Plan is a detailed estimate of the revenue,
expenditure (including subsidies) and financing requirements for the coming
fiscal year. The Annual Fiscal Plan provides a more detailed and accurate set of
estimates than are available from the first year of the MEFF. By definition, the
MEFF is a high level macro set of estimates, and the MEFF is prepared early in
the planning cycle (i.e. October). The Annual Fiscal Plan on the other hand is
built from the bottom up (i.e. from each public body), and is prepared using
more recent data on revenue and expenditure trends and forecasts (i.e. in
January).
With these three important planning documents available, work can start on the
preparation of the annual budget itself.
BUDGET CYCLE
5.7 There are ten major stages in the Budget Cycle up to approval:
1. Budget preparation by public bodies

2. Mid-year program review

3. Program construction
4. Notification of annual subsidy
5. Issue of the budget call
6. Budget requests
7. Budget hearings
8. Preparation of the draft recommended budget
9. Recommended budget reviewed by Council of Ministers
10. Legislative approval and appropriation of the budget
Each stage of the budget cycle is explained in turn.
BUDGET PREPARATION AND RECOMMENDATIONS
Stage 1 – Budget preparation by public bodies

5.8 Each public body needs to take the initiative to start budget preparations
before they receive the budget call letter from MOFED with their budget ceilings.
There is much preliminary budget preparation work they can carry out prior to
receiving the official budget call letter. This preliminary work is dominated by the
policy and planning aspects of budgeting; that which differentiates PB from line
item budgeting! This preliminary work can be summarized as follows, for federal,
regional and local organizations.
Federal 1. Individual organisation’s ARISIP (a) last year’s

performance
2. Preliminary budgeting based on last year’s allocation
Regional 1. Integrated GTP (i.e. regional development plan – new or

update)
2. Individual organisation’s ARISIP (a) last year’s
performance
Local 1. Integrated GTP (i.e. local development plan – new or

update
1. Individual organisation’s ARISIP (a) last year’s
performance
Stage 2 – Mid-year program review

5.9 Regular reviews of organizational performance through PB, are part of
normal management practice. A mid-year review of program performance should
be carried out by the end of January. The review should be conducted in the
context of the PB measurement framework; the economy of inputs, the
efficiency of outputs and the effectiveness of impact (introduced in Chapter 9).
This will apply to the integrated nature of capital and recurrent expenditure, in
the PB format.

Stage 3 – Work plan preparation – redefined as program construction
5.10 In PB terms, a work plan is something that is prepared after the budget is
approved. That is to say, the budget defines the total amount of expenditure.
The subsequent work plan defines ‘for what’ and ‘when’ the expenditure will be
incurred within the year, monthly! The work plan therefore takes on two roles.
First is project management – when things will be implemented, plus its monthly
expenditure. Secondly is the quarterly budget review role, through variance
analysis. With this principle accepted, Stage 3 of the budget cycle concerns
program construction; introduced, from a policy perspective, in Chapter 2.
Program construction
5.11 The core task in budget preparation is program construction. Program
construction concerns both capital and recurrent expenditure. Programs specify
in detail, the targeted outputs, the activities to achieve them, the inputs
required, and their resource requirements. The technical details are presented in
Chapter 2. The process of preparation is in Chapter 3.
Stage 4 – Notification of annual subsidy

5.12 Using the approved subsidy formula, MOFED prepares the budget for the
subsidies to regional governments and administrative councils. MoFED will notify
each regional government and administrative council of their annual subsidy by
February 8.
Stage 5 – Issue of the budget call

5.13 The Budget Call is a letter from MoFED sent to all public bodies which
provides them with the following:
1. Their ceiling for program expenditure for the coming fiscal year;
2. The deadline for submitting their budget request;
3. A review of the policies that affect the expenditure of public bodies;
4. General guidelines for the preparation of the program budget submission;
and
5. Detailed instructions and formats for preparing the request for the
program budgets.
5.14 In deciding the allocations for capital outputs in programs, MoFED will
consider the progress on implementation of existing projects, whether any new
projects have been approved by Government, and the capacity of public bodies
to implement the projects in their work plans. In deciding the allocations for
recurrent outputs in programs to public bodies, MoFED will review the
effectiveness of programs in each public body, whether any new programs have
been approved by Government and whether there have been any changes to
structures of ministries or departments.
5.15 The Budget Call informs public bodies not only what their ceilings are and
how and when to prepare their budget requests but also, the formats for
submitting these requests. These formats are introduced in Chapter 4 and
presented in full, in Annex 1 to this manual. MOFED will issue the Budget Call
letter to all public bodies by February 8 of each year.

Stage 6 – Budget Requests
5.16 The ‘budget request’ stage of the budget cycle begins when public bodies
receive the Budget Call. The central task for public bodies during the request
stage is to fit their request within the budget ceiling issued in the Budget Call.
To “fit” the request, two tasks have to be completed by public bodies:
1. Adjust their PBs to the budget ceiling notified; and

2. Complete the necessary forms for submitting their PB requests to MOFED.
Stage 7 - Budget Hearings

5.17 Having received the budget requests from public bodies, and before
preparing a draft recommended budget, MoFED will conduct ‘budget hearings’.
These hearings are designed to respond to any issues raised during MoFED’s
initial review of any public body’s PB. Officials from each public body will be
questioned about their budget requests, and sometimes invited to submit
additional supporting information. The information obtained from these budget
hearings enables MoFED to proceed to the preparation of a draft recommended
budget.
Stage 8 - Preparation of the draft recommended budget

5.18 The draft recommended budget is the consolidated budget that MOFED
prepares and submits to the Council of Ministers. In turn, the Council reviews it
and recommends it to the Council of Peoples’ Representatives. MoFED prepares
the draft recommended budget based on the budget requests it has received
from all of the public bodies, and from up to date information on resources that
will be available to fund expenditures. During this stage, the budget requests
from public bodies are reviewed, adjusted and consolidated into a single budget
for capital and recurrent expenditure; the new consolidated PB format.
5.19 The draft recommended PB budget will be finalized by MOFED and printed
from the (revised) computerized budget system. MOFED is required to submit its
draft recommended budget to the Council of Ministers by May 23.
Stage 9 - Recommended budget reviewed by council of ministers

5.20 The Council of Ministers receives the draft recommended budget from
MoFED, and carries out its own review of that draft recommended budget. The
Council of Ministers will carry out its review from the 3 rd week of May to the first
week of June (15 days). The Council of Ministers may ask MoFED to make
adjustments or revisions to the draft recommended budget before the Council
‘recommends’ it to the House of Peoples’ Representatives. MoFED will make
these changes using the computerized budget system, and then provide the
Council of Ministers with the recommended budget.
The recommended budget must be submitted by the Council of Ministers to the

House of Peoples’ Representatives no later than June 7.
The recommended budget is now ready for review, approval and appropriation
by the House of Peoples’ Representatives.

Stage 10 – Legislative approval and appropriation of the budget
5.21 The recommended budget will be presented in a Budget Speech by the
Minister of Finance, to the House of Peoples’ Representatives (HPR), on a
designated date. After consideration, HPR will send the budget document to the
Permanent Budget Committee (PBC) for further scrutiny. PBC, in the presence of
MoFED officials, will then invite selected stakeholders to finalise consultation on
the annual budget. Once approved by the House of Peoples’ Representatives, the
‘recommended budget’ becomes the ‘approved budget’. However, the
expenditures proposed in the approved budget cannot be implemented until an
appropriation law is also proclaimed by the House of Peoples’ Representatives.
5.22 It is important to distinguish between the approved budget and the annual
appropriations. The budget that is approved by the House of Peoples’
Representatives is a detailed budget. However, the appropriations are at a more
aggregate or global level. An appropriation is a legal mandate to spend money
out of the consolidated fund.
5.23 The House of Peoples’ Representatives is required to vote on the annual

appropriations for the approved budget no later than July 7. The appropriation
Proclamation will specify the following; first, for government as a whole:
1. Total revenue source; both domestic and external;

2. Total federal recurrent expenditure;
3. Total federal capital expenditure;
4. Total of all subsidies to regional governments and administrative councils;
and
5. The total subsidy for each regional government and administrative
councils.
Then, for each public body (based on PB form 1b):
1. Total budget for each public body;

2. Total budget for each program;
3. Total budget for each output; and
4. Source of funding for each output.
5.24 The approved budget includes the appropriation Proclamation, as well as

more detailed schedules of the budgeted allocations to and within each public
body, and of forecast revenue collections by each public body. The approved
budget and the annual appropriations can now be referred to as the Proclaimed
Budget, and is published in the Negarit Gazeta – ready for implementation.
Copies are distributed to all public bodies and made available of the MoFED
website.
Summary
5.25 This chapter has introduced the budget calendar, from policy planning to
budget approval. The next chapter looks at budget execution and
implementation.

Chapter 6
BUDGET EXECUTION AND IMPLEMENTATION
The purpose of this chapter is to introduce the statutory and administrative

processes that are implemented after an organisation’s budget is approved.
Budget notification
6.1 After the House of Peoples’ Representatives has approved the budget, it is
the responsibility of the public bodies to implement that budget. Implementation
of the approved budget is known as budget execution.
6.2 It is the responsibility of MoFED to inform all public bodies of their approved
budget. MOFED will notify public bodies of their approved budgets between
July 8–15. Notifications formats are described in Chapter 4 and presented in
technical detail in Annex 1.
Receipt of approved budget and changes to plans by public bodies

6.3 After each public body has received notification of its approved budget from
MoFED, there are two tasks to be completed to implement its budget. First each
public body’s head will amend his / her ARISIP, to reflect the approved budget.
The ARISIP will then be available to the public. This represents the finalization of
the de facto performance agreement between the public body’s head and
MoFED.
6.4 Secondly, each public body will submit its annual work plan to MoFED. This
establishes the monthly expenditure predictions for each output within each
program. This is the key to Treasury’s cash management at the federal level.
The new PB work plan format is form 2a (see annex 1).
6.5 Each public body is required to enter details of its notified approved budget
on to their budget expenditure subsidiary ledger cards for each budget
institution, its programs and its outputs. The budget expenditure subsidiary
ledger cards are used to keep track of approved budget, budget
adjustments/transfers, supplements and commitments.
Budget execution and implementation

6.6 The approved budget is implemented by public bodies over the course of the
financial year, (i.e. from July 8 to July 7 of the next calendar year).
6.7 An approved budget that has been published in the Negarit Gazeta and
allocated by MoFED is the legal authority to spend government funds. In
addition, the approved budget directs how the funds can be spent. Expenditure
in excess of budgeted amounts is a violation of the law.
Unforeseen circumstances
6.8 Although planning and budget processes should be thorough and attempt to
anticipate needs of the next year, not all future circumstances can be foreseen
with accuracy. When the situation demands, the approved budget can be legally
adjustments are not desirable and can be avoided, to a great extent, by proper

planning and budgeting. There are two types of budget adjustments permitted
by law. These are:
1. Budget transfer - moving budgeted funds between public bodies, budget

institutions, projects or items of expenditure, without changing the total
approved budget.
2. Budget supplement - the total approved budget can be increased with the
approval of the House of Peoples’ Representatives on recommendation of
the House of Ministers
Budget transfers
6.9 Budget transfers between public bodies, budget institutions, programs or
outputs are authorized by the Financial Administration Proclamation of 2009 and
the draft Financial Regulations of 2010, subject to certain restrictions, and
subject to the required level of approval or authorization. These restrictions and
authorizations are described in those Proclamations. Only after approval has
been received should any transfer be registered on the budget expenditure
subsidiary ledger cards by public bodies.
Empowering public bodies in budget implementation

6.10 One principle governing PB is to decentralize and empower organizations
so that they can deliver what has been approved, within their finalized (i.e. their
post notification) ARISIP. The ARISIP is the de facto annual performance
agreement between the head of the public body and MoFED concerning
performance. If so, the head of each public body should be responsible for
managing the budget itself, within the policy limits agreed for practical
empowerment (para. 4.9).
Supplementary Budget
6.11 During a budget year, while an approved budget is in the process of being
implemented, it is possible that:
1. An unforeseen or urgent need for increased expenditures arises, (e.g. a

natural disaster); or
2. A new project, not included in the original approved budget, is approved
for commencement during the budget year
3. Additional resources become available (e.g. from external assistance or
loans) that can fund increased total expenditures, including any new
projects.
6.12 Any of these circumstances may require additional expenditure during the
budget year by a public body beyond those in the approved budget. In these
circumstances a supplementary budget and supplementary appropriation are
required. These are also authorized by Part Four of the Financial Administration
Proclamation of 2009 and Part Five of the draft Financial Regulations of 2010. A
budget supplement is additional authority to spend beyond the original approved
budget. As such, it requires the fresh approval of the House of Peoples’
Representatives on the recommendation of the Council of Ministers.

6.13 Supplementary budgets are coordinated by and prepared by MoFED, based
on requests or proposals received from public bodies. Public bodies are required
to prepare their supplementary budget requests in writing and submit these to
MoFED.
6.14 MoFED notifies public bodies of their approved supplementary budget. The
budget expenditure subsidiary ledger card must be kept up to date by public
bodies so as to show the correct adjusted budget and to prevent any
overspending or over commitment of funds available.
Adjusted Budget
6.15 The adjusted budget is the budget that includes:
1. The original approved budget,

2. All approved budget transfers, and
3. All approved supplementary budgets.
All transfers and supplements must be approved prior to being recorded in the
register specified by MoFED, i.e. the budget expenditure subsidiary ledger card.
Delays in budget approval

6.16 In rare circumstances it is possible that the preparation of a budget and
approval of a budget by the House of Peoples’ Representatives may be delayed
and not be ready in time for the commencement of the new fiscal year. In these
circumstances the Financial Proclamation of 2009 authorizes MoFED to
implement the same recurrent budget as the previous financial year on a
monthly basis until a new budget is approved. Similarly, MoFED is authorized to
release funds for previously approved capital projects until a new capital budget
is approved.
Close of Part 2 of the manual
6.17 This closes Part 2 of the PB manual, concerning the planning, approving
and implementation phases of the budget calendar. Part 3 looks at supporting
systems for PB: reviewing PB performance and its information system.

Part 3
SUPPORTING SYSTEMS
Chapter 7 BUDGET PERFORMANCE FRAMEWORK
Chapter 8 SUPPORTING INFORMATION SYSTEM

Chapter 7
BUDGET PERFORMANCE FRAMEWORK5
The purpose of this chapter is to present the means for reporting on

organisational performance in program budgeting. It does so by reviewing the
process at the operational (annual) and the strategic (3-year) levels of
performance.
Is the organization making a difference out there?

7.1 We are seeking to establish ‘what difference the organization is making out
there?’ with the money it is spending. The difference is in terms of particular
client groups (annual) and general social conditions (3-year). Every ministry and
every agency at the federal level is producing something for a client. What is
being produced (an output) has to be defined and quantified.
Plan, budget and review cycle

7.2 In PB, performance starts with the strategy (item 1 in the diagram below)
and ends with an assessment of change – ‘what’s the difference’ – in the socio-
economic variables, captured in the SMART objectives (item 6 in the diagram).
The intervening stages (item 2 to 5) take performance down to the practical
level of actually achieving something in the first place; i.e. delivering the
outputs, whether capital (projects) or recurrent (activities). If there are no
operational outputs, there will be no strategic impact. PB therefore encourages
managers to be practical in their concerns but always keeping an eye on the
strategic imperative of making a lasting (a sustainable) ‘impact out there’!
Participatory Accountable
PLAN and BUDGET REVIEW of PERFORMANCE
1. Level 1 – Strategy. 6. Measuring the changes in socio-

economic conditions, through SMART
objectives; the cumulative impact.
2. Level 2 – Programs ‘top-down’ 3 years. 5. Measuring the outputs in terms of

delivery and immediate impact on
particular client groups.
3. Level 3 – Budgeting ‘bottom-up’ annual. 4. Measuring that the money is spent as

budgeted.
5
It is important to recognise the common language between PB and performance auditing (PA).
They are both centred on measuring the 3-Es. The difference is that PB can be seen as the first
level of PA work; assessing basic performance. PA is much more investigative; seeking
explanations as to why performance has been weak and making recommendations accordingly.
The budget department is liaising with those responsible for PA, to establish the practical links
between them.

Organisational performance
7.3 Organisationally, program budgeting is founded on the principle of
delivering infrastructure and services, economically, efficiently and effectively.
We are therefore concerned with the mechanics of measuring the process. The
measurement key is as follows.
(1) = Economy of inputs (where T = 100%), using the four variables of:
1. Budget
2. Actual
3. Variance
4. % variance
(2) = (A+B)/2 = Efficiency of outputs (where T = 100%), using the two

variables of:
A = % specification
B = % time
(3) = (C+D)/2 = Effectiveness of impact (where T = 100%), using the two

variables of:
1. C = % occupancy rate / use of facility
2. D = % assessment of 'problem solved'
The total performance for any program is therefore the sum of the economy,
efficiency and effectiveness scores, divided by three. This means that we are giving
equal weight to each of the three performance variables. Thus:
T = (1+2+3)/3 = Total performance
Each variable is explained in turn.
Economy of inputs
7.4 Any organisation’s leader knows that if you budget X, you should spend X
and that you should deliver what you promised. Variance analysis is the first
technique in measuring the economy of inputs. Thus, if the item of infrastructure
or the targeted service to be delivered costs EtB 10,000, the following is already
assumed:
1. That the budgeted figure is technically accurate;

2. It is based on experience (if service delivery, dominated by personnel
costs) or an engineer’s ‘bill of quantity’ (if a capital project); and
3. It anticipates any cost fluctuations, say, because of the prospect of a rise
in inflation.
7.5 The budget is set at 10,000. While expenditure monitoring should be

constant, formally, it is likely to take place monthly, in accordance with a work
plan. Strategically, monitoring reports would take place each quarter. If there is
a difference between the ‘budget’ and the ‘actual’ expenditure, then the system
highlights the ‘variance’. If the expenditure is less than anticipated, it is a
positive variance; i.e. there is still money to spend. If the budget is already
over-spent, it is a negative variance; i.e. too much money
has already been spent. Either way, adjustments should be made accordingly.

7.6 Experienced practitioners understand this basic concept. PB simply ensures
that the discipline of budget monitoring is formalized, in the context of program
delivery. Thus, the first score in measuring PB performance is:
(1) = Economy of inputs (where T = 100%)
Here, ‘T’ is the target of 100%. So, if the budget is EtB 10,000 and the actual is
EtB 10,000 then we are on target; a score of 100%. If at the end of the year,
only EtB 5,000 is spent, then the score is 50% and so on. The basic principle is
that of common sense.
Efficiency of outputs
7.7 Any organisation’s leader knows that if you budget to deliver outputs (a
road; primary health care), it is that for which you are most obviously,
accountable. This is especially so if you have told the public that ‘these are the
things we intend to deliver next year’. The public accountability mechanism is
captured in the ARISIP (see Chapter 1). In order not to drown PB in data, only
two criteria are advocated for measuring the delivery of outputs. These are:
A = % specification
B = % time
7.8 If the output is capital expenditure, then there is always a technical

specification of what is to be constructed (a new school; the rehabilitation of X
kilometers of road). If there are 20 items in the technical specification, all have
to be satisfied. If all are satisfied, then the specification is fully satisfied, so
100% (divided by 2 because this is only half of the output measure).
7.9 The other half is of time. If the output is to be delivered in 60 days and it
takes 60 days, you are on target. If more, then you are over-budget in terms of
time and the score is less, accordingly.
Recurrent output
7.10 If the output is recurrent expenditure, then the test is different. We have to
define what standard of service is to be delivered. For example, in education,
how many pupils should a teacher teach in the course of the year. In health,
how many people should the health clinic be able to service, comfortably. In
agriculture, what should the extension service be providing and when. Putting
measures for recurrent expenditure is more difficult but again, for experienced
practitioners, it really is a matter of applied common sense.
7.11 On the question of time; a basic timetable for any particular service can be
established. A school must provide three terms of schooling in a year; has this
been achieved? In a clinic; has the service been available as intended? In
agricultural extension, has the service been made available in accordance with
the annually agreed timetable?

7.12 Experienced practitioners also know that the output being delivered as part
of any program is that which is directly attributable to the program’s owner.
Basic accountability is therefore assured. Thus, the second score in measuring
PB performance is
(2) = (A+B)/2 = Efficiency of outputs (where T = 100%)
Here again, ‘T’ is the target of 100%. So, if the specification is fully satisfied and
everything has been delivered according to time, then the score is for each,
100%; which is then divided by two, to give the aggregate score for that
deliverable. Again though, the basic principle is that of common sense.
Effectiveness of impact
7.13 Any organisation’s leader knows that the economy of inputs and the
efficiency of outputs, ultimately, have no practical meaning if there is no
effective impact. At the annual level, there are two basic criteria to measure this
impact. These are:
C = % occupancy rate / use of facility

D = % assessment of 'problem solved'
Whether delivered through capital or recurrent expenditure, the result of the

asset created or the service delivered has to be in terms of a basic impact
question; is the school or clinic fully utilized; is the new market being fully used?
What is the ‘bottom-line’ here? Has the original problem been solved?
Problem solving
7.14 Anyone in any community is able to define a problem to be solved. Equally,
anyone is able to assess, from a user’s perspective, if the problem has indeed
been solved. A table of problem definition follows (overleaf).
Problem definition and “raw” project proposal
Perceived Elements of the problem Proposal Recurrent investment &

problem source
No  Nearest education 10 1. New Teachers and supplies, through
education km away school the education ministry
 380 school-age children building
need the service, hence
viability of a new school
No health  Nearest clinic 10 km 2. Health Staff and medical supplies, co-
care away post funded by health ministry and
 Malaria community
 No basic preventive
health care
Inadequat  Nearest main source 7 3. Deeper Maintenance of wells and
e water km away wells and catchment locations, through
 Shallow wells catchment community initiatives
 No catchment systems terracing to
retain the
water table
No vehicle  Seasonal problem 4. Culverts Regular maintenance through
access in  Flooding and fords community programmes
bad
weather

No market  Nearest market 10 km 5. Area and Maintenance through owner
away basic levies and community
structures supervision
Lack of  Available fertile (Relate to N/a
food locations inadequate
 Available underground water
water sources proposal)
It is at this ‘effectiveness’ level that the client – the recipients of the service –
are best placed to inform the providers of the new capital asset or the delivered
service. So, ‘has the problem been solved?’ is answered by responding to the
two right-hand columns.
7.15 This is why, in the ARISIP, client’s become the foundation to accountability.
They help to assess last year’s performance (based on the declared
intentions), this year's progress (whether as direct implementers or as
community supervisors of the construction or service being provided) and help
plan next year’s proposals (see 5.2 above).
7.16 Finally, experienced practitioners know that the output being delivered as
part of any program must have a positive (i.e. a planned) impact on those for
whom the infrastructure or service is being delivered. This encourages public
accountability. How else can one measure the third score in measuring PB
performance, which is:
(3) = (C+D)/2 = Effectiveness of impact (where T = 100%)
Again, ‘T’ is the target of 100%. So, if the customers are satisfied with the
infrastructure or the service, then 100%. If more objectively, has the original
problem has been solved, then 100% again; which is then divided by two, to
give the aggregate score for that deliverable’s impact. For fear of repetition, the
basic principle remains that of common sense.
Total program performance measurement

7.17 Total program performance is economy (1), efficiency (2) and effectiveness
(3), divided by three, to give the final percentage score, as follows:
T = (1+2+3)/3 = Total performance
In this approach to PB performance, equal weight is given to the ‘3-Es’.
Performance assessment framework

7.18 The assessment framework for measuring performance is in PB form 3. The
form and its supporting notes are presented overleaf.
Operational versus strategic performance assessment

7.19 So far, everything has concerned the operational level of PB performance
measurement; the annual planning and budgeting cycle. That is to say, we have
been dealing with the internal performance of each program. The strategic

performance assessment is therefore, more than just the aggregation of the ‘3-
Es” scores for each program for the three years. It is the measurement of
progress in achieving the objectives; the objectives being defined over three
years, thus each carrying its program’s MTEF.
7.20 Measuring objectives means, for example, measuring the increase in

service provision from X% to Y% over the strategic plan period of three years.
Such measurement will require official data, including geographical and
statistical analysis. The point is that the conclusions to the strategic part of the
performance assessment will be the foundation for the next three-year strategic
framework.

Chapter 8
SUPPORTING INFORMATION SYSTEM
This chapter presents the PB structure and the proposed information system to
support it. The proposed information system is based on amendments to the
existing IBEX. This chapter currently applies to the federal level of government.
Eventually, it will be equally applicable to the regional and local levels of
government.
Generic PB structure of the information system

8.1 The PB structure, its coding and its policy dimensions are in the following
table. The shaded areas represent the generic left-hand portion of every PB
form.
PB structure and policy dimensions

level clusters body/sub / sub- code and project summary details
- programs classificat or
organisati ion (i.e. recurrent
on capital or activity
recurrent
) code
Unique
XX X XX XX XX XX XX
digits
211/00/10 211/00/10 211/00/101 211/00/101
Example 21 211/00 211/00/10
11 11/11 1/11/6100 1/11/6112
GTP – MEFF – 3 MTEF – 3 Public Public Capital Public Public

developme year year bodies’ bodies’ outputs will bodies’ bodies’
nt policy macro- expenditur ARISIP, output include a input input
and expenditur e ceilings including 3 summary list of each summary details per
strategic e ceilings, per public year per project to per output,
priorities. per cluster, body, strategic program, deliver that program, through
driven by driven by framework captured in output. captured in IBEX.
GTP. GTP and and its Form Recurrent its Form
MEFF expenditur 1a, outputs will 1b. This
(MTEF e included in include the will be
eventually, allocations ARISIP; list of main generated
to replace per the written activities to as a
MEFF). program, explanatio deliver that summary
within the n and output. of the
public justification detailed
body’s for the input
MTEF program budgeting,
ceiling. budget. captured in
form 1c,
both within
IBEX.
The diagram below illustrates the supporting information system cascade. A

universal characteristic of information systems is that they operate as a cascade;
from the general to the particular and from the particular to the general. The key
point is that data is entered at the lowest ‘particular’ level. The roll-up is then a
series of summaries or aggregations.
Supporting PB information system cascade

level clusters body/sub / sub- project or summary details
- programs recurrent
organisat activity
ion
Budget
hierarchy; 21
the
supporting
211/00
information
system
cascade 211/00/10
211/00/10
11
211/00/10
11/11
211/00/10
11/11/61
211/00/101
1/11/6112
The above two diagrams are explained in detail below.
The policy and coding structure for PB
National policy
8.2 GTP – development policy and strategic priorities. This is, of course,
supplemented by other national and sectoral policy declarations. The first point
about PB (apart from shifting budgeting from input-based to output-based) is to
allocate resources according to policy and planning intentions (and not according
to precedent – mere adjustments to last year’s budget). GTP and related
documents lie outside the information system (IBEX).
MEFF clusters
8.3 MEFF – 3 year macro-expenditure ceilings, per cluster, driven by GTP. The
first level of MEFF analysis is down to the four expenditure sectors:
Administration and General Services; Economic Services; Social Services; and
Other Expenditure. This is the first level of IBEX coding; two digits and in this
example, 21. This is for the economic sector.
Public body
8.4 MTEF – 3 year expenditure ceilings per public body, driven by GTP and
MEFF (MTEF eventually, to replace MEFF). According to the Financial
Administration Proclamation 2009, MEFF is to provide ‘estimates of expenditure
for each public body… (Article 19,b). The anticipation is that the current MEFF
system will be strengthened by an international standard medium term
expenditure framework (MTEF) process. The second level of IBEX coding
therefore identifies the particular public body; an additional digit, so 211. This
public body code is for the Ministry of Agriculture.
Sub-organisation

8.5 In this approach to PB, a sub-organisation (previously, a sub-agency) has
nothing to do with a recurrent budget (in that PB is integrating capital and
recurrent budgeting into one format and one process). Instead, a sub-agency is
an organization that is not yet defined as a public body for budgeting purposes.
Obvious examples include a hospital or a university college. Where sub-agencies
exist, they are identified with an additional two digits. So, if the Ministry of
Agriculture as a sub-agency, the code would read, say, 211/01. This would
represent the first of up to 99 possible sub-agencies under that (or any)
ministry.
Programs
8.7 Public bodies’ ARISIP, including 3 year strategic framework and
expenditure allocations per program, within the public body’s MTEF ceiling. The
key to PB is the program. The program is generated by the SMART objectives
each public body agrees to pursue, essentially, to fulfil its share of the GTP
implementation. Thus, the objective defines the program. There will never be
more than 9 programs within any public body. Hence the first digit will signify
that unique (and prioritized) program number. The first digit of the program
code therefore defines its prioritized status. Within the cumulative coding to
date, the two organisational codes, 211/01 is followed by the first of the three
program digits, thus 211/01/1 The second concerns the sub-program.
Sub-programs
8.8 Where organizations decide that there is a genuine need for sub-
programs, then the second digit will represent any sub-program within the
program. Again, the maximum number of sub-programs will be 9. Where no
sub-program exists, the program code number will be, say 10, or 20 or 30; that
is to say, not ten, twenty or thirty but ‘one-zero’ or ‘two-zero’ or ‘three-zero’.
Where sub-programs are to exist and they are the top priority within each
program, their coding will be 11 or 21 or 31; ‘one-one’ or ‘two-one’ or ‘three-
one’. The cumulative code is now 211/01/11
Output code and classification (i.e. capital or recurrent) code

8.9 Public bodies’ output summary per program, captured in its Form 1a,
included in ARISIP; the written explanation and justification for the program
budget. Outputs are the things to be delivered, which are directly attributable to
the program manager. Again, if a program is defined with discipline, there
should never be a need for more than 9 outputs in any program. If the
temptation is to have more, then on closer analysis, it may (as is often the case)
be discovered that some of the outputs are merely projects or major activities
(the things to be done to deliver the outputs; inputs are the means to achieve
them). The cumulative code is now 211/01/111. The ‘111’ tells us that it is the
first priority program, the first priority sub-program within that program and the
first priority output within that sub-program. In contrast, if the program code
was ‘101’, then we would have the first priority program, with no sub-program
and the first priority output within that program. Finally is the output
classification. It is either ‘1’ for a capital output or ‘2’
for a recurrent output.

The full program code is therefore made up of four digits; the first two
concerning the program and sub-program; the second two concerning the
prioritized output and its classification, so 211/01/1112. This means that the
output is classed as recurrent.
Capital project or recurrent activity

8.10 Capital outputs will include a list of each project to deliver that output.
Recurrent outputs will include the list of main activities to deliver that output.
Each output will therefore be ‘broken down’ to the next level of analysis. A
capital project will list up to a maximum of 99 projects. A recurrent major
activity (the provision of a service, such as teaching children or maintaining
roads) can also have up to 99 activities but in practice, much, much less! Two
digits are therefore used. The cumulative code is now 211/01/1112/32. ‘32’ is
therefore the 32nd major activity) within the output and its program.
Input summary
8.11 Public bodies’ input summary per program, captured in its Form 1b. This
will be generated as a summary of the detailed input budgeting, captured in
form 1c, both within IBEX. The input summary concerns the four input code sub-
heads: 6100, 6200, 6300 and 6400, meaning respectively, for personal services,
goods and services, fixed assets and construction, and subsidies, grants and
payments. Each code is therefore added, as appropriate, to the existing code, so
for example, 211/01/1112/32/6100. This means that the public body’s
personnel costs apply to the 32 nd recurrent activity within program 111, of sub-
agency 01 of the Ministry of Agriculture.
Input details
8.12 Public bodies’ input details per output, through IBEX. The inputs are the
last level within the PB structure and its supporting information system. The
main sub-areas of expenditure within the four primary areas (6100 etc) have
already been presented, in the program costing Chapter3. Therefore, when staff
in public bodies start detailed input budgeting (the ‘bottom-up’ analysis) to
verify the previous ‘top-down’ plan-driven initial estimates, they will input their
estimates with these sub areas of expenditure. Therefore, the full code would
read (and be entered) as follows: 211/01/1112/32/6120. This means that
allowances and benefits are needed as a cost input to ensure that the main
activity is implemented to help deliver the output for that program.
Summary
8.13 This chapter has presented the PB structure and the proposed information
system to support it. The proposed information system is based on amendments
to the existing IBEX. The essence of the information system’s structure is as
follows:
Organisational code / PB code / Projects-main activities / Chart of accounts
Converted to
22100 /10127/238/61109
6
6
Ministry of Water Resources, with no sub-agency
7
Top priority objective and top priority recurrent output within its program; with no sub-program
8
Projects or main activity 23
9
Emoluments (salaries and wages)

CLOSE OF MANUAL
This concludes the main text of the PB manual. Three technical annexes follow.
Annexes
1. PB formats and supporting notes.
2. Administration and general program – ‘support services’ examples.
3. PB performance – examples.

Annex 1
PB FORMATS AND SUPPORTING NOTES
1. Budget preparation, submission and approval
1a THREE-YEAR ‘PB’ TOP-DOWN OUTPUT SUMMARY (i.e. Medium-term

Expenditure Framework)
1b ANNUAL ‘PB’ BOTTOM-UP INPUT SUMMARY - for PROCLAMATION
1c ANNUAL PROGRAM BUDGET OUTPUT DETAILS - for REQUEST,

RECOMMENDATION and NOTIFICATION
1d ANNUAL PROGRAM BUDGET REQUEST – DETAILED INPUT CODES
2. Budget implementation
2a ANNUAL PROGRAM BUDGET - MONTHLY WORKPLAN
2b ANNUAL PROGRAM BUDGET - WORKPLAN QUARTERLY REVIEW
3. Performance review
3 ANNUAL PROGRAM BUDGET – TOTAL PERFORMANCE
NOTE: All the PB forms have the same left hand portion; their first six
columns. These are (in summary):
Organisational code
Column 1: XXX Public body code

Column 2: XX Sub-organisation code
Program budget code
Column 3: X Program code

Column 4: X Sub-program code
Column 5: XX Output code and classification (i.e. capital or recurrent) code
Program description
Column 6: Mission, name, program manager, SMART objective, and outputs.
Supporting notes on each form follow after the forms themselves.

Form 1a – THREE-YEAR ‘PB’ TOP-DOWN OUTPUT SUMMARY (i.e. Medium-term Expenditure Framework)
Program Balance
Organisational code Program budget code Top-down' calculations Source of funds (per output)
description: (9 - 19)
Public Sub- Prog Sub- Output
revenueRetained
Creditor code
body organi- prog code Total Total
Donor code
Assistance
Treasury
sation Unit Unit cost of 3 funds
Loan
X no. cost year Year Year Year (col's
per per strategy 1 2 3 13,
T=0
XXX XX X XX
output output (Col' 7 x 14, 15
8) & 17)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
152 00 1 0 NAME:
MANAGER:
OBJECTIVE: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

OUTPUTS:- N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

11
21
32
41
52
62
71
82
2 0 NAME:
MANAGER:
OBJECTIVE: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
OUTPUTS:- N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
12 etc

Form 1b ANNUAL ‘PB’ BOTTOM-UP INPUT SUMMARY - for PROCLAMATION
Program budget Program Balance Balance
Organisational code Total annual cost per output Source of funds (per input)
code description: (7 - 8) (8 - 16)
Retained revenue
Donor Creditor
body organi- prog Total
code (* code (*
Assistance
sation 'Top-down' funds
Treasury
'Bottom-up' separate separate
(col's
Loan
X (taken from
(taken from col’ T=0 page if page if T=0
X XX col' 10, form 10,
7, form 1d) more more
XXX XX 1a) 11, 12
than than
& 14)
one) one)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
152 00 1 0 NAME:
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
MANAGER:
OBJECTIVE: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

OUTPUTS:- N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

11
21
32
41
52
62
71
82

Form 1c ANNUAL PROGRAM BUDGET OUTPUT DETAILS - for REQUEST, RECOMMENDATION and NOTIFICATION
Program Balanc
Organisational Program budget 'Bottom-
description Outputs details Source of funds (per input) e (11 -
code code up’
: 18)
Public Sub- Pro Sub Outpu Capital Capital
detailTotal annual Total annual cost per input

body organi- g - t project project
sation pro or or
g recurren recurren
t major t major
XXX XX X X XX activity activity
input codesSummary
name code
Retained revenue
Donor Creditor Total
Total per code (* code (* fund
Assistance
XX
Treasury
output separat separat source

Loan
(taken from e page e page per T=0
col’ 7, form if more if more input
1d) than than summar
one) one) y
1
1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19
1
PROGRAM N/a N/a N/a N/ N/ N/ N/a N/ N/a N/a N/a
152 00 1 0 NAME: a a a a
PROGRAM N/a N/a N/a N/ N/ N/ N/a N/ N/a N/a N/a
MANAGER: a a a a
OBJECTIVE: N/a N/a N/a N/ N/ N/ N/a N/ N/a N/a N/a
a a a a
OUTPUTS:- N/a N/a N/a N/ N/ N/ N/a N/ N/a N/a N/a
a a a a
11 610
0
620
0
630
0

640
0
610
0
620
0
32
630
0
640
0

Form 1d ANNUAL PROGRAM BUDGET REQUEST – DETAILED INPUT CODES
Program Balanc
Organisational Program budget 'Bottom- Source of funds (per input)
description Output’s details e (11 -
code code up’
: 18)
Public Sub- Pro Sub Outpu Capital Capital
detailTotal annual cost per input

body organi- g - t project project
sation pro or major or
Detailed input codes

g recurren major
Retained revenue
t activity recurre Donor Creditor
Total
XXX XX X X XX Total annual name nt code (* code (*
Assistance
Treasury
fund
cost per activity separat separat

Loan
sourc
output code e page e page T=0
(taken from if more if more
e per
input
col’ 11) XX than than
detail
one) one)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
PROGRAM N/a N/a N/a N/ N/ N/ N/ N/a N/ N/a N/a N/a
152 00 1 0 NAME: a a a a a
PROGRAM N/a N/a N/a N/ N/ N/ N/ N/a N/ N/a N/a N/a
MANAGER: a a a a a
OBJECTIVE: N/a N/a N/a N/ N/ N/ N/ N/a N/ N/a N/a N/a
a a a a a
OUTPUTS:- N/a N/a N/a N/ N/ N/ N/ N/a N/ N/a N/a N/a

a a a a a
6113
6114
11
6223
6323
6111
6113
32
6212
6313

Form 2a ANNUAL PROGRAM BUDGET - MONTHLY WORKPLAN
Program budget Program 2nd

Org'n code Approved budget 1st quarter 3rd quarter 4th quarter Balance
code description: quarter
body organi- prog Totals
sation Input Costs
Sept
June
May
July
Nov
Aug
Dec
Mar
Feb
Apr
Oct
Jan
(per T=0
X codes 000s
XXX X XX output)
XX
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
152 00 1 0 NAME:
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
MANAGER:
OBJECTIVE: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
OUTPUTS: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a

6100
6200
11
6300
6400
6100
6200
21
6300
6400
6100
6200
32
6300
6400
6100
6200
41
6300
6400

Form 2b ANNUAL PROGRAM BUDGET - WORKPLAN QUARTERLY REVIEW
Program Program
Org'n code Approved budget 1st quarter 2nd quarter 3rd quarter 4th quarter Balance
budget code description:
body organi- prog Totals Budget
Input Costs varianc T = varianc T = varianc T = varianc T =
sation (per budget actual budget actual budget actual budget actual actual
codes 000s e 0 e 0 e 0 e 0
XXX XX X output) T=0
X XX
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
152 00 1 0 NAME:
PROGRAM N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
MANAGER:
OBJECTIVE: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
OUTPUTS: N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a N/a
6100
6200
11
6300
6400
6100
6200
21
6300
6400
6100
6200
32
6300
6400
6100
6200
41
6300
6400

Form 3 – ANNUAL PROGRAM BUDGET - TOTAL PERFORMANCE
Program T=
Organisational code Program budget code Economy of inputs Efficiency of outputs Effectiveness of impact
description: 100%
Public Sub-organi- Prog Sub- Output
(1) (Y/X*%) =
(3) (C+D)/2 = Effectiveness of

body sation prog
C = % occupancy rate / use of
D = % assessment of problem
impact (where T = 100%)

(2) (A+B)/2 = Efficiency of
outputs (where T = 100%
(4) Total performance =

XX
(1+2+3)/3 (where T =
XXX X X XX
Y = Actual expenditure
Expenditure variance
X = Approved budget
A = % specification
Economy of inputs (where T =
facility
solved
100%)
B = % time
100%)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
PROGRAM N/ N/ N/
152 00 1 0 NAME: a a a N/a N/a N/a N/a N/a N/a N/a N/a
PROGRAM N/ N/ N/
MANAGER: a a a N/a N/a N/a N/a N/a N/a N/a N/a
OBJECTIVE: N/ N/ N/
a a a N/a N/a N/a N/a N/a N/a N/a N/a
OUTPUTS:- N/ N/ N/
a a a N/a N/a N/a N/a N/a N/a N/a N/a
11
21
32
41
52
62
71
82

‘PB’ BUDGET FORMS – SUPPORTING NOTES
All the PB forms have the same left hand portion; their first six columns. These
are (in detail):
Organisational code
Column 1: Public body = the budget code for the public body or other
organization responsible for submitting a budget to MoFED. This is a three-digit
code.
Column 2: Sub-organisation = an organization that is managed independently

but is not yet classed as a public body for budgeting purposes. The best
examples are the university colleges under the Ministry of Education. This is a
two-digit code.
Program budget code
Column 3: Program = the core of PB analysis. It is the means for analysing

(and ultimately, delivering) outputs to achieve the program’s strategic (3 year)
objective). This is a one-digit code. This means that the maximum number of
programs in any public body will not exceed nine. In normal practice, the
number should be much less.
Column 4: Sub-program = a sub-core of PB analysis. It is permitted in the

event that sub-programs are actually necessary. It should be regarded as an
exception rather than a rule. This is a one digit code. This means that the
maximum number of sub-programs, within any program, will not exceed nine. In
normal practice, the number should be much less.
Column 5: Output = that which is actually to be delivered. In education,

delivering a quantified level of primary education is an output. This is different
from an activity (the things you do to deliver the output). Also, every public
body has a set of support services; planning; accounting and so on. These also
deliver outputs but these are internal; to the delivering programs themselves.
This is a one digit code. This means that the maximum number of outputs in any
program or sub-program will not exceed nine. In normal practice, the number
should be much less.
Program description
Column 6: Each program is named, its program manager is identified and its
SMART objective presented. Each objective is then followed by the outputs to
achieve the objective. If a sub-program is used, it must have a name, manager
and SMART objective. The manager can be the same as for the ‘parent’ program.
The specific details of each form are described overleaf.

1. BUDGET PREPARATION AND SUBMISSION
Form 1a
THREE-YEAR ‘PB’ TOP-DOWN OUTPUT SUMMARY (i.e. Medium-term
Expenditure Framework)
‘Top-down’ calculations
Column 7: Unit number per output = the target to be achieved for any output.
If 12 studies are to be produced, then the number 12 is entered. If 1,000
serviced housing plots are to be provided, then the number 1,000 is entered. If
it is impossible to determine such unit numbers, then the number 1 is entered,
simply to retain the integrity of the calculation formula in the budget sheet.
Column 8: Unit costs per output = the estimated cost to deliver one item of the
particular output. Thus, a ‘ball-park’ figure is entered for one study. A more
accurate figure is entered for one serviced plot. If it is impossible to establish a
unit cost because a unit number cannot be set, then a global calculation for the
output is entered (i.e. what the total cost might be). The purpose of the unit cost
is simply to give a first impression of what the three-year program will cost,
driven by the strategy the public body is attempting to pursue. This is the ‘top-
down’ approach to calculations. Later, in detailed annual budgeting, the ‘bottom-
up’ approach to calculations (using activity and input analysis) will verify the
initial ‘top-down’ calculations (see notes to form 1b).
Column 9: The total cost = the unit number multiplied by the unit cost. It is an
automatic calculation in the sheet. The totals for each program are also
calculated automatically, as is the total cost for the public body itself. This is the
total cost for the program over the life of the strategy and its individual
objectives; i.e. the total cost is for 3 years.
Column 10: Year 1 total = the first year’s budget estimate per program,
calculated from the total cost column, 9.
Column 11: Year 2 total = the second year’s budget estimate per program,
Column 12: Year 3 total = the third year’s budget estimate per program,
Source of funds (at the output level)
Column 13: Treasury = the funding supplied by government, through MoFED.
Column 14: Retained revenue = locally generated funds (e.g. through fees and
other charges) that contribute to the organisation’s expenditure.
Column 15: Assistance = equals external contributions, from donors. This is in

the form of a grant.

Column 16: Donor code = the identification of which donor is actually providing
the assistance. Where there are multiple donors, a separate ‘window’ shall
record them.
Column 17: Loan = anything that the public body borrows and therefore, incurs
principle and interest charges. This includes loans from donors.
Column 18: Creditor code = the identification of the source of loan. Where
there are multiple creditors, a separate ‘window’ shall record them.
Column 19: Total funds = all sources of revenue to fund each output.
Balance
Column 20: Balance = the total budget minus the total source of funds. They
must balance; i.e. the target number is 0. If not, either the budget must be
adjusted or the source of funds must be altered.

Form 1b
ANNUAL ‘PB’ BOTTOM-UP INPUT SUMMARY - for PROCLAMATION
All the information for columns 1 to 7 are taken straight from the Three-
year Program Budget Submission – Output Summary (Form 1a). The
’bottom-up’ analysis summary at the annual level starts from column 8.
‘Bottom-up’ summary
Column 8: Input codes = are at the summary sub-chart of accounts level only:
6100, 6200, 6300 and 6400. This summary is generated automatically from
column 7 in form 1d (the input budgeting baseline).
Balance
Column 9: Balance = the difference between the ‘top-down’ policy and

strategy-driven annual cost with the ‘bottom-up’ input-based calculations. Where
there is a difference, either the objectives and resulting outputs have to be
adjusted or the projects / activities and inputs have to be amended; or a mixture
of the two have to be negotiated arithmetically, to reach the required target of
zero.
Source of funds (per input)
All as in Form 1a.
Column 16: the total of all sources of funds.
Balance
Column 17: Balance = the total budget minus the total source of funds. They
must balance; i.e. the target number is 0. If not, either the budget must be
adjusted or the source of funds must be altered.

Form 1c
ANNUAL PROGRAM BUDGET OUTPUT DETAILS - for REQUEST,
RECOMMENDATION and NOTIFICATION
Form 1d
ANNUAL PROGRAM BUDGET REQUEST – DETAILED INPUT CODES
Please note: all the information for columns 1 to 6 are taken straight
from the Annual Budget Submission – Input Summary (Form 1b).
’Bottom-up’ analysis details at the annual level starts from column 8.
‘Bottom-up’ summary
Column 7 = the total cost per output (taken from column 7 of form 1d).
Column 8 = Capital project or recurrent activity name.
Column 9 = Capital project or recurrent activity code: three digits; the first is
whether capital (1) or recurrent (2). The remaining two digits are the unique
project or main activity numbers, therefore, with a maximum of 99 for any
output.
Column 10 = for form 1c, the summary input codes; for form 1d, the detailed
input codes.
Column 11 = for form 1c, the total cost per summary input; for form 1d, the
total cost per detailed input.
Columns 12, 13, 14 and 16: Every source of funding per input summary
(form 1c) and per input detail (form 1d).
Column 15 = allows for the identification of specific donors as a funding source.
Column 17 = allows for the identification of specific creditors as a funding

source.
Column 18: Totals = the sum of the input costs for each output; in summary
(form 1c) and detail (form 1d).
Balance
Column 19: Balance = the difference between the input summary (form 1c) or
inputs detail costs (form 1d) on the one hand – their respective column 11 –
and the total funding source per input, in summary (form 1c) and detail (form
1d) – on the other hand.

2. BUDGET IMPLEMENTATION
Form 2a
ANNUAL PROGRAM BUDGET - MONTHLY WORKPLAN
Form 2a is based on the approved version of Form 1b, culminating in columns

7, 8 and 9 namely:
Approved budget
Column 7: Input codes = are at the summary sub-chart of accounts level only:
6100, 6200, 6300 and 6400.
Column 8: Costs = the total cost for each summary CoA, in order to implement
the outputs (a capital output’s projects and a recurrent output’s main activities)
are presented in the explanation of each program, within ARISIPB).
Column 9: Totals = the sum of the input costs for each output.
Monthly work plan
Columns 10 to 21: The monthly work plan then presents the intended
expenditure for each major sub-code, for each output, for each month.
Balance
Column 22 = balance between the approved budget totals per output and the
resulting expenditure over the year, where T = 0.
Form 2b
ANNUAL PROGRAM BUDGET - WORKPLAN QUARTERLY REVIEW
Form 2b is the quarterly variance analysis to establish progress in work plan

implementation from an expenditure point of view.
Variance analysis per quarter
Columns 10 to 13 = the total budget for the quarter, the actual expenditure,
the variance and the quarterly balance, where T=0.
Balance
Column 26 = balance between the approved budget totals per output and the
resulting expenditure over the year. Again, T = 0. This annual balance feeds into
the economy of inputs section of form 3 (its columns 7 to 10).

3. PERFORMANCE REVIEW
Form 3
ANNUAL PROGRAM BUDGET – TOTAL PERFORMANCE
Columns 1 to 6 contain the standard information as in previous forms.
Column 7 = the approved budget for each output.
Column 8 = the actual expenditure for each output.
Column 9 = the expenditure variance; the difference between the approved

budget (column 7) and actual expenditure (column 8).
Column 10 = the first stage of the total performance measurement, where the
economy of inputs should equal 100%; i.e. 100% of the budget has been
spent for the output to be delivered.
Column 11 = the level of achievement for the output’s specification; whether a

project or service; the target being 100%.
Column 12 = the length of time taken; on target being 100%.
Column 13 = the second stage total performance measurement, where the

efficiency of outputs should equal 100%; i.e. columns (12+13)/2.
Column 14 = the percentage occupancy rate (say, of a classroom) use of the

facility (say, a produce market); the target being 100%.
Column 15 = the percentage assessment of whether the original problem has

been solved / or the opportunity satisfied; the target being 100%.
Column 16 = the third stage total performance measurement, where the

effectiveness of impact should equal 100%; i.e. columns (15+16)/2.
Column 17 = the total performance of the three Es (economy, efficiency and

effectiveness) for each output, where the first, second and third stages of
performance are added and divided by three; columns (10+13+16)/2 – where
the target is 100% success!
End.

Annex 2
ADMINISTRATION AND GENERAL PROGRAM – ‘SUPPORT SERVICES’ EXAMPLES
Unit Unit Source of funds

Org' Pro Outpu
n g t Sub-program description: no. cost Total cost
EtB Retained Assistanc Loa T=
Treasury
A B AxB revenue e n 0
111 10 PROGRAM NAME: Support services
PROGRAM MANAGER
OBJECTIVE: to deliver all supporting 3,276,0 3,276,0
services according to their timetables n/a n/a 00 00 0 0 0 -
24,00 168,0 168,00
12 Planning 7 0 00 0 0 0 0 -
24,00 360,0 360,00
22 Finance 15 0 00 0 0 0 0 -
24,00 360,0 360,00
32 HRM 15 0 00 0 0 0 0 -
20,00 100,0 100,00
42 Procurement 5 0 00 0 0 0 0 -
24,00 96,0 96,00
52 Capacity building 4 0 00 0 0 0 0 -
24,00 192,0 192,00
62 Auditing 8 0 00 0 0 0 0 -
500,0 500,0 500,00
72 Property management 1 00 00 0 0 0 0 -
1,500,0 1,500,0 1,500,0
82 Common services 1 00 00 00 0 0 0 -
Note: the ideal is that every public body treats each of its main support services as outputs. In this way, all indirect costs are
aggregated for each output – for each support service. Where the temptation - or the technical justification - merits some or all
of these outputs being treated as sub-programs (something to be considered by strong exception only), then examples of each
of these outputs, as sub-programs, follows. It means that each sub-program then has to generate (or justify) an additional set
of outputs. In short, the functional analysis for PB has to drop one level to support sub-program analysis.

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE - PLANNING

no. cost Total cost
Org'n Prog Output
Sub-program description: EtB
Retained T=
Treasury Assistance Loan
revenue 0
A B AxB
SUB-PROGRAM NAME: Planning and

111 11 budgeting
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full program 1,084,0 1,084,00

budgeting service according to timetable n/a n/a 00 0 0 0 0 -
Last year's review completed 24, 168,0 168,00

1 7 000 00 0 0 0 0 -
This year's progress completed 24, 360,0 360,00

2 15 000 00 0 0 0 0 -
Next year's annual budget completed 24, 360,0 360,00

3 15 000 00 0 0 0 0 -
Monthly work plan managed 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
Quarterly progress managed 24, 96,0 96,00

5 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE - FINANCE

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
SUB-PROGRAM NAME: Finance and

111 12 accounts
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full finance and 1,084,0 1,084,00

accounts service according to timetable n/a n/a 00 0 0 0 0 -
Accurate payments completed 24, 168,0 168,00

1 7 000 00 0 0 0 0 -
Accurate financial reports completed 24, 360,0 360,00

2 15 000 00 0 0 0 0 -
Accurate posting of revenue achieved 24, 360,0 360,00

3 15 000 00 0 0 0 0 -
Accurate posting of expenditure achieved 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
Ad-hoc financial reports completed 24, 96,0 96,00

5 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE – HUMAN RESOURCES

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
SUB-PROGRAM NAME: Human

111 13 resource management
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full human

resource management service according to 1,084,0 1,084,0
timetable n/a n/a 00 00 0 0 0 -
All vacant posts filled 24, 168,0 168,00

1 7 000 00 0 0 0 0 -
All entitled promotions implemented 24, 360,0 360,00

2 15 000 00 0 0 0 0 -
All annual performance appraisals 24, 360,0 360,00

3 completed 15 000 00 0 0 0 0 -
All staff records maintained 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
Ad-hoc HRM reports completed 24, 96,0 96,00

5 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE - PROCUREMENT

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
111 14 SUB-PROGRAM NAME: Procurement
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full

procurement service according to 1,084,0 1,084,00
All procurement opportunities advertised 24, 168,0 168,00

1 accurately 7 000 00 0 0 0 0 -
All bids scrutinised according to 24, 360,0 360,00

2 legislation 15 000 00 0 0 0 0 -
All decisions issued in a timely manner 24, 360,0 360,00

3 15 000 00 0 0 0 0 -
All subsequent contracts signed 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
Ad-hoc procurement verification reports 24, 96,0 96,00

5 completed 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE – CAPACITY BUILDING

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
SUB-PROGRAM NAME: Capacity

111 15 building
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full capacity 1,084,0 1,084,00

building service according to timetable n/a n/a 00 0 0 0 0 -
Capacity assessments completed 24, 168,0 168,00

1 7 000 00 0 0 0 0 -
Capacity building interventions agreed 24, 360,0 360,00

2 15 000 00 0 0 0 0 -
Capacity building implemented 24, 360,0 360,00

3 15 000 00 0 0 0 0 -
Capacity building experience evaluated 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
Ad-hoc capacity building reports 24, 96,0 96,00

5 completed 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE - AUDIT

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
111 16 SUB-PROGRAM NAME: Audit
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full auditing 1,084,0 1,084,00

service according to timetable n/a n/a 00 0 0 0 0 -
Annual audit plan prepared and agreed 24,0 168,0 168,00

1 7 00 00 0 0 0 0 -
Routine audits completed and reported 24,0 360,0 360,00

2 15 00 00 0 0 0 0 -
Investigative audits completed and 24,0 360,0 360,00

3 reported 15 00 00 0 0 0 0 -
Corrective action from audit reports 20,0 100,0 100,00

4 taken 5 00 00 0 0 0 0 -
Ad-hoc audit reports completed 24,0 96,0 96,00

5 4 00 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE – PROPERTY MANAGEMENT


no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
SUB-PROGRAM NAME: Property

111 17 management
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full property

management service according to 1,084,0 1,084,00
All required accommodation provided 24, 168,0 168,00

1 7 000 00 0 0 0 0 -
Furniture and fittings provided and / or 24, 360,0 360,00

2 maintained 15 000 00 0 0 0 0 -
Annual maintenance completed 24, 360,0 360,00

3 15 000 00 0 0 0 0 -
Full cleaning service achieved 20, 100,0 100,00

4 5 000 00 0 0 0 0 -
All utilities bills paid 24, 96,0 96,00

5 4 000 00 0 0 0 0 -

SUPPORT SERVICES SUB-PROGRAMS EXAMPLE – COMMON SERVICES

no. cost Total cost
Org'n Prog Output
Retained T=
revenue 0
A B AxB
SUB-PROGRAM NAME: Common

111 18 services
SUB-PROGRAM MANAGER
OBJECTIVE: to deliver a full common 1,084,0 1,084,00

service according to timetable n/a n/a 00 0 0 0 0 -
All transportation provided 24,0 168,0 168,00

1 7 00 00 0 0 0 0 -
All office services provided 24,0 360,0 360,00

2 15 00 00 0 0 0 0 -
All telephone and fax services provided 24,0 360,0 360,00

3 15 00 00 0 0 0 0 -
Full postage service provided 20,0 100,0 100,00

4 5 00 00 0 0 0 0 -
Ad-hoc additional services achieved 24,0 96,0 96,00

5 4 00 00 0 0 0 0 -

Annex 3
‘PB’ PERFORMANCE – EXAMPLES
1. Organisational performance
Organisationally, program budgeting is founded on the principle of delivering
infrastructure and services, economically, efficiently and effectively (para. 7.3 of
main text). We are therefore concerned with the economy of inputs (from 7.4),
the efficiency of outputs (from 7.7) and the effectiveness of impact (from
7.13).
2. Relationship to performance audit

The first point to recognise is that organisational performance in PB is built on
the same concepts as that for performance auditing (PA). Government’s PA
manual defines these three key words as follows:
Input Measures - These show the inputs (cash and resources) consumed by
the scheme, sometimes linked with the relevant direct outputs. These tend to
address economy and efficiency issues. For example, a rural access program
could be measured by the grant cost per kilometer of pathway /roadway
established for public use. But care is required to ensure that measures
concentrate on directly relevant activities and not peripheral ones.
Output Measures - These show the extent to which the scheme's immediate
(outputs) have been achieved. In the example quoted this might be the usage
of the pathways by the public.
Impact Measures - (sometimes known as outcome or final output measures)

These assess how far a scheme is securing its wider aims. Identifying such
indicators is not always easy but is a key step in establishing a clear view of the
true benefits of a scheme.
Source: PERFORMANCE AUDITING, GUIDE I, BEST PRACTICES IN THE MANAGEMENT OF

AUDITED ENTITIES Prepared by: External Audit Project August 2003 Reviewed and
updated by Cowater International Inc. under the ACE Project Nov 2005.
3. Ethiopian examples
The idea is that the Ethiopian practice in PB performance measurement is kept
as simple as possible in order to show its practicality both to government and to
the particular stakeholders that receive the services from the public bodies,
ultimately, at all levels of government.
4. Economy of inputs
Budget less actual = variance. At the end of the year, the variance should =
zero. So, target T = 100 (the approved budget has spent in full). Here, the
declared budget and the actual expenditure is the same. The question then is,
has the money been spent to deliver the targeted output, efficiently?

4. Efficiency of outputs
Has the output been delivered to specification and to time?
Capital
For all capital projects within an output, these tests are simple. Every capital
project has a design, supported by a ‘bill of quantities’. Every item in that bill
must be achieved. So, if the bill has 30 items and all 30 have been implemented
then 100% (if less, then a pro-rated lesser percentage score). If the project
takes 60 days and ends up taking 120 days, then twice the time has been taken
so the time score is 50%. The total efficiency score would then be 150% / 2 =
75%.
Recurrent
For all recurrent main activities within an output, the tests are not as easy but
still worth making the effort with. The time factor is less critical, so long as the
service is achieved in full within the year. The specification can still be defined.
The following examples from each of the main budget clusters illustrate:
ADMINISTRATION AND GENERAL SERVICES
Output Total cost of

Unit no.
code Unit cost 3 year
per
per output strategy (Col'
output
XX 7 x 8)
5 6 7 8 9
PROGRAM NAME: Public finance
management
PROGRAM MANAGER
OBJECTIVE: Achieve overall efficient
management of public expenditure and
reduce the accounts closure backlog from
two years to one year, with co-ordination of
EMCP in three years. n/a n/a 2,177,201
11 Closure of accounts of federal public bodies 10 28,647 286,470
21 Closure and consolidation of regional accounts 15 28,647 429,705
31 Efficient cash management 22 28,647 630,234
Monitoring and support of internal audit of public
41 bodies 29 28,648 830,792
Source: Ministry of Finance and Economic Development, Shadow PB, November 2009.
All four outputs are recurrent funded. The first output has a technical
specification to define the meaning of ‘closure of accounts’. The same applies to
the second output. The third output must have a MoFED-defined standard or
indicator for the meaning of ‘efficient cash management’. The last output has
explicit requirements and standards for auditing. All outputs are time-bound.
Therefore, these outputs are measurable, in terms of efficiency.

ECONOMIC SERVICES
Output
Unit no. Total cost of 3
code Unit cost
per year strategy
per output
output (Col' 7 x 8)
XX
5 6 7 8 9
PROGRAM NAME:- Irrigation and Drainage N/a N/a N/a
Development
PROGRAM MANAGER N/a N/a N/a

Objective:-To increase the size of the
existing irrigable land area from the current
62, 000 ha to 518, 000 ha between the year
2003 and 2005. n/a n/a 4,257,030
OUTPUTS:-
11 Study and Design Projects 1 77,068 231,204
21 Projects Constructed 1 1,337,495 4,012,485
32 Safe Dams and Infrastructures 1 4,447 13,341
Source: Ministry of Water Development, Shadow PB, November 2009.
The first two outputs are capital funded. The specification is easy to define in
each; for 1.1, the design must be complete; for 1.2 the projects must be
constructed, according to the design and its supporting bill of quantities. The
time to be taken can be established. The measurement is straightforward.
Output 3.2 is recurrent. It concerns a quality control or safety standard to be
achieved and maintained. Once the standard is established, ensuring it is
maintained, in the sense of quality control inspections, is not hard to measure.
SOCIAL SERVICES
Output
Unit no. Total cost of 3
code Unit cost per
per year strategy
output
output (Col' 7 x 8)
XX
5 6 7 8 9
PROGRAM NAME: Specialist development
services
PROGRAM MANAGER
OBJECTIVE: Complete cross-cutting
development services according to the agreed
timetables. n/a n/a 4,080,092
1,020,0
1 Special needs 1 23 1,020,023
1,020,0
2 Adult education 1 23 1,020,023
1,020,0
3 Educational equity 1 23 1,020,023
1,020,0
4 Gender equality 1 23 1,020,023
Source: Ministry of Education, Shadow PB, November 2009.
All four outputs are recurrent funded. All four outputs will require a specification
as to what is to be achieved. What is the standard to be achieved for special
needs education, and for adult education, and for educational equity and finally,
for gender equality? All outputs will also be time-bound. Therefore, these
outputs are also measurable, in terms of efficiency.

5. Effectiveness of impact
Has the output solved the original problem and is the asset or service being used
as planned?
Capital
For all capital projects within an output, these tests are again simple. If there
was no footbridge (the problem), is there now a footbridge (the solution). Has
the problem been solved? ‘Yes’ so 100%. Is the footbridge being used as
planned; is it fully utilized? If yes, then 100% again. The effectiveness of impact
would therefore be 200% / 2 = 100%
Recurrent
For all recurrent main activities within an output, the tests are not as easy but
still worth making the effort with. The time factor is less critical, so long as the
service is achieved in full within the year. The specification can still be defined.
The following examples from each of the main budget clusters illustrate again:
MoFED
Output Problem solved? Service fully used?
Closure of accounts of federal Successful closure = YES! Do the public bodies respond
public bodies accordingly?
Closure and consolidation of Successful closure = YES! Do the public bodies respond
regional accounts accordingly?
Efficient cash management Successful cash management Do the public bodies respond
= YES! accordingly?
Monitoring and support of Successful support = YES! Do the public bodies respond
internal audit of public bodies accordingly?
Water
Study and Design Projects Designs completed = YES! Is the design being
implemented?
Projects Constructed Projects functioning = YES! Is the result as planned?
Safe Dams and All is safe? = YES! Is the infrastructure providing
Infrastructures the service as intended?
Education
Special needs Successful provision = YES! Do the recipients respond

accordingly?
Adult education Successful provision = YES! Do the recipients respond
accordingly?
Educational equity Successful provision = YES! Do the recipients respond
accordingly?
Gender equality Successful provision = YES! Do the recipients respond
accordingly?

The key to measuring the effectiveness of impact is that a sample of the
recipients of the infrastructure or service must be involved in making that
judgement! This is where the participatory process in PB starts; the review of
last year’s performance! This is then followed by a review of this year’s
progress. Both then help to condition the planning and budgeting for next
year’s proposals, all within the three-year strategic framework (see Chapter
1).
End of manual.
This PB manual is a living document. It is therefore

designed to be open to annual reviews in the light of
experience in implementing PB. Such reviews shall be
supervised by MoFED. Each year therefore, the manual will
become an improved version of the previous year’s
document.

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Federal Democratic Republic of Ethiopia

Ministry of Finance and Economic Development

Program Budget Manual

16th September, 2010

Prepared by the Budget Reform Team of the

MoFED Program Budget Manual – September 2010. Page 1 of 85

Preface to the manual

INTRODUCING PROGRAM BUDGETING

Part 1 PROGRAM BUDGETING

Chapter 2 PROGRAM CONSTRUCTION AND ANNUAL BUDGETING

Chapter 3 ESTIMATING PROGRAM COSTS

Chapter 4 BUDGET SUBMISSION AND IMPLEMENTATION

Part 2 BUDGET CALENDAR

Chapter 5 FINANCIAL CALENDAR – PLANNING TO BUDGET APPROVAL

Chapter 6 FINANCIAL CALENDAR – BUDGET EXECUTION

Part 3 SUPPORTING SYSTEMS

Chapter 7 BUDGET PERFORMANCE FRAMEWORK

Chapter 8 SUPPORTING INFORMATION SYSTEMS

1. PB formats and supporting notes

2. Administration and general program – ‘support services’ examples

MoFED Program Budget Manual – September 2010. Page 2 of 85

AFRITAC (East) African Technical Advisory Centre (IMF)

MoFED Program Budget Manual – September 2010. Page 3 of 85

PURPOSE OF THIS MANUAL

1. The purpose of this PB manual is to secure the conversion of current

Background to PB development in Ethiopia

3. In August 2009, the first PB manual was presented. In December, a

Structure of the PB manual

Part 1 PROGRAM BUDGETING

Chapter 1 introduces the structure of program budgeting and its key

Chapter 2 This explains level 2 of PB; program construction; converting each

MoFED Program Budget Manual – September 2010. Page 4 of 85

Chapter 4 present the means for reporting on organisational performance in

Chapter 5 introduces the integrated planning and budgeting cycle – the

Chapter 6 introduces the statutory and administrative processes that are

Part 3 SUPPORTING SYSTEMS

Chapter 7 presents the PB formats to fulfil the obligations of government’s

Chapter 8 presents the PB structure and the proposed information system to

Chapter 9 introduces the regulatory basis for budgeting. It goes on to

Applying the manual

MoFED Program Budget Manual – September 2010. Page 5 of 85

PURPOSE OF THIS CHAPTER

MoFED Program Budget Manual – September 2010. Page 6 of 85

Infrastructure and service delivery

2. PB is conceptually redundant without a strategic context to condition the

3. The strategic context for PB is being satisfied increasingly through public

4. PB assumes that the real test is of resource allocation against future

MoFED Program Budget Manual – September 2010. Page 7 of 85

7. PB measures the economy, efficiency and effectiveness of the

8. PB is the foundation for performance agreements with any agency’s senior

1. Policy, legal and regulatory context;

MoFED Program Budget Manual – September 2010. Page 8 of 85

MoFED Program Budget Manual – September 2010. Page 9 of 85

Chapter 1 PROGRAM BUDGETING – ITS STRATEGIC FRAMEWORK

Chapter 2 PROGRAM CONSTRUCTION AND ANNUAL BUDGETING

Chapter 3 ESTIMATING PROGRAM COSTS

Chapter 4 BUDGET SUBMISSION AND IMPLEMENTATION

MoFED Program Budget Manual – September 2010. Page 10 of 85

PURPOSE OF THIS CHAPTER