Performance Based Budgeting (PBB)

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Performance-based budgeting is the practice of developing budgets based on the relationship between program funding levels and expected results from that program. The performance-based budgeting process is a tool that program administrators can use to manage more cost-efficient and effective budgeting outlays.[1]

A performance budget has the following characteristics:[2]

  • It presents the major purpose for which funds are allocated and sets measurable objectives.
  • It tends to focus on changes in funding rather than on the base (the amount appropriated for the previous budget cycle).
  • It identifies programs and agencies that are seeking similar outcomes, thereby drawing such inter-relationships to the legislature's attention.
  • It offers agencies flexibility to reallocate money when conditions merit, rewarding achievement and possibly imposing sanctions for poor performance.

It is important to understand that performance-based budgeting is not simply the use of program performance information in developing a budget. Performance-based budgeting does more than just inform the resource allocation decisions that go into the development of a traditional type of budget. In other words, it is not just "budgeting based on performance." Instead, it is the process by which a particular type of budget is developed -- a Performance Budget (or "program performance budget"). To design an effective system of performance-based budgeting, it is therefore vital to understand first exactly what the end product itself should be, what it should contain, and how it should look. A true Performance Budget is not simply a Line-Item (or object class) budget with some program goals attached. It tells you much more than just that for a given level of funding a certain level of result is expected. A real Performance Budget gives a meaningful indication of how the dollars are expected to turn into results. Certainly not with scientific precision, but at least in an approximate sense, by outlining a general chain of cause and effect. The most effective governmental Performance Budget does this by showing, for each program area, how dollars fund day-to-day tasks and activities, how these activities are expected to generate certain outputs, and what outcomes should then be the result.[3]


  1. Defining Performance Based Budgeting
  2. Performance Based Budgeting Fact Sheet
  3. What is Performance Based Budgeting?