What is a "performance budget"?

A performance budget is designed to ensure that funding is directly linked to measurable outcomes or results. This budgeting approach emphasizes accountability and effectiveness by connecting the allocation of financial resources with the achievement of specific goals or objectives. Instead of merely detailing expenses and revenues, a performance budget highlights how financial investments lead to tangible results, thus supporting strategic decision-making.

By focusing on performance, this type of budget provides valuable insights into the efficiency and effectiveness of programs and services. It encourages managers to assess whether the resources allocated are producing the desired outcomes, allowing for informed adjustments in funding and operations based on performance data.

In contrast, other budgeting approaches do not focus on outcomes. For example, options that merely list expenses and revenues lack the strategic component that ties finance to results. Furthermore, focusing solely on historical spending patterns does not foster innovation or improvement, as it often relies on previous years’ data without consideration of future program effectiveness. Lastly, disregarding performance metrics entirely goes against the fundamental principles of performance budgeting, which is built on achieving accountability and measurable success.