(Originally published 24 June 2011)
One of the thorniest problems for program budgeting is the relationship between programs and organizational structure. If ministries have major organizational units which straddle several programs, significant practical problems arise in linking organizational unit budgets and program budgets. It becomes necessary to allocate organizational unit expenditure between programs, both in budget preparation and in financial reporting. Such expenditure allocation is a challenging task in any country. In practical terms, however, it is beyond the capacity of many developing countries. For these reasons, strong pressures arise to force programs to conform to organizational structure, thereby by-passing the problem.
The problem arises because programs should ideally be based on output groups, whereas not all organizational structures are defined in these terms. The program budgeting ideal is that programs should be based on groups of services delivered to external parties (“outputs”) which have common outcomes – “product lines” in shorthand terminology. It is only by basing programs on product lines that programs become a useful tool for expenditure prioritization and a good means of increasing pressure upon ministries to deliver better results to the community.
Many organizational units are also based on product lines. However, there are always some which are not. The most obvious examples are internal support services within ministries – the ministry’s finance department, human resources department* etc. There are also departments which are organized along activity rather than product lines. For example, the public works ministry might be structured around design, construction and maintenance departments rather than around product line departments (such as a transport infrastructure department and a public buildings department). There is also the case of regional service delivery departments, which often have the responsibility of delivering the entire diverse range of their parent ministry’s product-lines in their respective region.
The idea of “solving” the problem by making programs conform to organizational structure is a simple one: whatever the existing organizational structures are, one simply defines “programs” in terms of them. If the public works ministry happens to be structured as just outlined, one adapts to it by establishing a design program, a construction program, and a maintenance program. When ministries have regional service delivery units exist, one simply gives them regional services programs.
This approach, in my view, goes too far in inappropriately and unnecessarily undermining the basic objectives of program budgeting. What it leads to is not a program budget, but a traditional budget based on organizational unit allocations, superficially rebadged as a program budget.
It is necessary to adopt a principles-based, as well as pragmatic, approach to dealing with conflicts between organizational structure and program structure. Such an approach can guide decisions about when and to what extent to modify program or organizational structures to fit one another. In my view, it leads to two key conclusions.
- Management programs (“support”) grouping internal ministry support services are justifiable in principle, as well as on pragmatic grounds. In other words, even in countries capable of handling the technical challenges of expenditure allocation between programs, they make sense. However, such management programs should in principle be used in a very limited way. Approximately speaking, only program support services which need to have flexibility in the way in which they allocate their assistance between “product lines” during budget execution should have their expenditure allocated to the management program, and other multi-programs organizational units should – where the country is technical capable of doing this – have their expenditure allocated between the programs concerned.
- Developing countries do not need to distort their program structures in order to avoid being forced to allocate expenditure between programs. There is another, and arguably preferable option: in the short-term, to “park” all organizational units serving multiple programs – whether or not they meet the criteria just identified – in the management program, while in the medium term reviewing their organizational structures to make them more product-line based and, in the long-term (and only the long term), hopefully develop the capacity for cost allocation between programs.
I will explore both of these points in more detail in subsequent blog pieces.
* We use the term “departments” to refer to the major organizational units within ministries.