Program-based budgeting is a budgeting structure where money is distributed by program or functional area and based on the nature of the activities performed by the program. It is common in many state and local governments, but businesses also use program budgeting. Its purpose is to align spending with program objectives.
Developing an agreeable budget is a major undertaking for government and business leaders. Each leader has his own ideas on how to best utilize the resources available. In general, a budget should depict the relative importance of certain processes and activities in the construct of the entire organization. Where you put your money shows where your priorities lie. When business leaders cannot agree on company priorities, budgeting is more difficult.
In its "Budget Process -- State Budget Process" overview, the State of Idaho Legislature website points out that state budgets have always been a source of political tension, but development and growth in the use of program budgeting has significantly improved state budgeting processes. Program budgeting lays out all organizational programs or functional areas and determines how much resources to put into each program area based on the services and production outputs it creates.
A primary benefit of program-based budgeting is that it is a systematic approach that, when applied effectively, ties organizational objectives, programs and budgets together. Another major benefit, according to the State of Idaho Legislature, is that it provides a stronger framework for political leaders to come to agreement on budgets. This reduces budgeting time frames and partisan tension.
Performance budgeting adds performance metrics to budgets whereby programs and functions have to show documentation of work production or output results to retain current budgets or to receive increased budgets. As noted in a summer 2002 California State University Long Beach course on "Women & Public Policy," performance budgeting considers not just the budgetary allocation but the outputs of program activities. Programs or functions that do well continue to receive strong budgets. In a business setting, for example, if marketing is not producing the desired objectives of company leaders, its budget might get cut.