An innovation in the budgeting system is the planning programming budgeting system (PPBS).

It is
equally called the Performance and Programming Budgeting System as well as the Planning
Programming Budgeting System. The Performance Budget was the outcome of the recommendation of
the First Hoover Commission, 1949 in the USA. The Performance Budget is defined as;

“A performance budget is one which presents the purposes and objectives for which funds are
requested, the costs of programmes proposed for achieving these objectives, and quantitative data
measuring the accomplishments and work performance under each programme.” – Jesse Burkhead.

Performance budget is mainly to evaluate the work performance of government expenditures. Later, the
term ‘programme’ was coined with the performance budgeting in 1957 as per the recommendation of
the Second Hoover Commission. The Programme budget emphasizes on the need for budgetary
management in the light of long term objectives.

PPBS was first introduced in the Defense Department in the USA in 1961 by Robert McNamara, and in all
departments in 1965 until 1975. This system of budgeting is in practice in the form of Programme Budget
in most of the countries mainly in case of development budget (introduced in Nepal since 2026 B.S.

A description of the Planning-Programming-Budgeting System (PPBS), a management tool to provide a

better analytical basis for decisionmaking and for putting such decisions into operation. A PPBS is
constituted, basically, of five elements: (1) a program structure — a classification of the courses of action
open to an organization for attaining its objectives; (2) an approved program document that includes
precise, quantitative data on needs, resource inputs, and program outputs extending a number of years
into the future; (3) a decisionmaking process that establishes the functions, rules, and timetables for the
actions required by the PPBS; (4) an analysis process for measuring effectiveness and for weighing
alternatives; and (5) an information system that supplies the data required to implement the system

In ancient days, meaning the 1960’s, Planning, Programming, Budgeting Systems (PPBS) was considered
an innovation in budgeting. PPBS was first introduced in the Defense Department in the USA in 1961 by
Robert McNamara, and in all departments in 1965 until 1975. Though it failed to be widely adopted in
government, PPBS is effective is less complex organizations such as NGO’s.

PPBS is an integrated management system that places emphasis on the use of analysis for program
decision making. The purpose of PPBS is to provide management with a better analytical basis for
making program decisions, and for putting such decisions into operation through an integration of the
planning, programming and budget functions. Program decision making is a fundamental function of
management. It involves making basic choices as to the direction of an organization’s effort and
allocating resources accordingly. This function consists first of defining the objectives of the organization,
then deciding on the measures that will be taken in pursuit of those goals, and finally putting the
selected courses of action into effect.

Planning Programming Budgeting System (PPBS)

Planning Programming Budgeting System (PPBS)

An organization can be viewed in a simplified way as carrying out its functions through five basic and
sequential phases: (1) planning, (2) programming, (3) budgeting, (4) operations, and (5) evaluation.

Specification of Objectives – The objectives of the programs are to be specified in consistence with the
long-term goals in quantitative terms as far as possible.

Systemic Analysis – The possible alternative projects to achieve the program objectives are analyzed in a
systematic way with the use of cost-benefit and cost-effectiveness analysis.

Functional Classification – The budget is classified on a functional basis like functions, programs, projects
and activities.

Organization – Budget formulation addresses the organizational structure, managerial and administrative
procedures of the programs/projects/activities.

Evaluation – The mechanism for evaluation of performance on the basis of financial and physical
performances to monitor, and take corrective actions, if necessary.

Each of these phases consists of a distinct but related function in the overall conduct of the
organization’s affairs.

Planning is an analytical activity carried out to aid in the selection of the organizations objectives and
then to examine courses of action that could be taken in the pursuit of the objectives. Planning, in effect,
poses the question of whether some particular course of action would contribute more to the
attainment of the organization’s goal than its various alternatives.

Programming is the function that converts plans into a specific action schedule for the organization.
Programming consists of developing detailed resource requirements and the actions needed to
implement plans.

Budgeting is the activity concerned with the preparation and justification of the organization’s annual
budget. The function of budgeting is to secure sufficient funds to put the program into operation.

Operations consists of the actual carrying out of the organization’s programs. Preparing for operations is
the object of all the other phases.

Evaluation is the function that evaluates the worth of operating programs. Through program evaluation
the worth of programs in attaining goals is measured and appraised. The result of evaluations is used to
modify current operations, if indicated, or in planning future programs.
PPBS provides an opportunity for identifying the program alternatives which offer the biggest pay-off in
achieving communal objections, or require lower costs, and these can be singled out for priority
attention by planning groups.

The intended objectives.

It attempts to promote maximum social advantage with the prudent (wise-full) use of scarce resources.

It incorporates the future budgetary repercussion (may be 3,5,10 years) as per the nature and size of the
projects.

Limitations of Planning Programming Budgeting System (PPBS)

This system of budgeting has not been effective in practice, even in the USA, and so in most of the
countries. The reasons are pointed out as follows:

For appropriation and control purposes, expenditures are continued to be classified in the traditional
line-item approach. Various objectives budgetary policy makes budgeting complex and confusing.

The problem arises in its application in case of multiple objectives of a program/ project that involves
different agencies.

It is difficult to acquire necessary information regarding performance evaluation and cost estimation in
an uniform way in all governmental activities.

It emphasizes on physical and financial performance, not on qualitative performance.

It intends to centralize the budgetary decision makings.

Stages of Planning Programming Budgeting System (PPBS)

Specification of Objectives – The objectives of the programmes are to be specified in consistence with
the long term goals in quantitative terms as far as possible.

Systemic Analysis – The possible alternative projects to achieve the programme objectives are analyzed
in a systematic way with the use of cost-benefit and cost-effectiveness analysis.

Functional Classification – The budget is classified on a functional basis like functions, programmes,
projects and activities.

Organization – Budget formulation addresses the organizational structure, managerial and administrative
procedures of the programs/ projects/ activities.

Evaluation – The mechanism for evaluation of performance on the basis of financial and physical
performances to monitor, and take corrective actions, if necessary

Advantages of Planning Programming Budgeting System (PPBS)

It integrates the process of program/ project formulation, budget allocation and evaluation in a
systematic way.

It helps in the choice of programs/ projects, allocation of resources on them and performance evaluation
for the executive and legislature.

It integrates the decision makings regarding the choice of program/ projects to achieve the intended
objectives.

It attempts to promote maximum social advantage with the prudent (wise-full) use of scarce resources.

It incorporates the future budgetary repercussion (may be 3,5,10 years) as per the nature and size of the
projects.