How to Make a Performance Budget

Performance budgeting is a smart way to plan your spending based on results. It helps link money with outcomes. Governments, businesses, and nonprofits use it to spend efficiently and measure success. Here’s how you can make a performance budget step-by-step:

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1. Understand the Purpose

A performance budget is different from a regular budget. It doesn’t just list expenses. Instead, it shows:

• What you’re spending money on

• What you expect to achieve

• How performance will be measured

This system improves accountability and tracks return on investment.

---

2. Set Clear Goals and Objectives

Start with specific and measurable goals. For example:

• Increase customer satisfaction by 10%

• Train 200 employees in cybersecurity

• Reduce delivery times by 20%

Each goal must have a timeline and a way to measure success.

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3. Identify Programs or Activities

Break down your goals into programs or activities. Each activity should support a specific objective. For example:

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4. Define Performance Indicators

Pick metrics that show if an activity is successful. These are called Key Performance Indicators (KPIs). Choose indicators that are:

• Measurable (e.g. response time, output volume)

• Relevant (closely tied to goals)

• Time-bound (monthly, quarterly, yearly)

Examples of KPIs:

• Number of support tickets resolved per day

• Percentage decrease in complaints

• Average time to complete a task

---

5. Estimate Costs for Each Activity

Assign a cost to every program or activity. Include:

• Labor costs (salaries, training)

• Materials or equipment

• Software or tools

• Overhead or indirect costs

Make sure the cost is realistic. Check past data or get market quotes.

---

6. Link Costs to Outcomes

Now match each cost with the result it’s meant to achieve. This helps you analyze value for money.

Example:

• Cost: $10,000 on training

• Outcome: Improve efficiency by 15%

• KPI: Number of tasks completed per hour

---

7. Prepare the Performance Budget Table

Here’s a simple format to follow:

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8. Monitor and Evaluate Performance

Track performance regularly. Compare results with the targets. Ask:

• Are we meeting our goals?

• Is the spending giving results?

• Do we need to adjust the budget or activities?

Use monthly or quarterly reports to stay on track.

---

9. Adjust for Future Budgets

Use what you learn to improve the next budget cycle. Drop activities that didn’t work. Increase funds for programs that delivered results. Keep refining the process.

---

Final Tips

• Be realistic: Don’t over-promise or under-budget.

• Be transparent: Let stakeholders know how money is used.

• Be flexible: Update goals as things change.

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