While often grouped together, government planning, budgeting, and monitoring activities serve separate purposes. GFOA has developed best practices related to each of these topics. However, its important to understand which applies. Resources on this page will help differentiate various planning, budgeting, and monitoring processes and provide recommendations for each.
- Planning is articulating a desired future state for where the organization wants to be in the future.
- Budgeting is making decisions on allocation of limited resources
- Monitoring is making sure that the commitments made during planning and budgeting are lived up to and to maintain an understanding of the environment.
Planning is articulating a desired future state for where the organization wants to be in the future. Given that, what are the purposes planning must accomplish to be successful?
- Produce a long-term vision. The planning process should result in an inspiring, shared vision. A shared vision provides the basis for working together during the budget process and getting past parochial interests.
- Promote collaboration and open communication. As Eisenhower said, “planning is everything, the plan is nothing”. The act of planning brings people together to work towards a common goal.
- Promote long-term thinking. The budget will necessarily have a short-term bias. Planning balances this with a long-term perspective.
- Create the conditions for fairness in the budget process. If planning process does not set the conditions for fair allocation of resources, then it is unlikely the budget process will result in fair allocation of resources. For example, if the community is excluded from decisions that impact them during planning, it will be more difficult to reach budgeting decisions that everyone is willing to accept.
- Link planning processes together. “Planning” is not necessarily a financial process. It is a process of deciding where the community wants to be in the future. This could include strategic plans, operational plans, and community (e.g., land use) plans.
GFOA Planning Best Practices
Long-Term Financial Planning
Capital Improvement Planning
A budget is a definitive allocation of a local government’s limited resources. With that in mind, what purposes must a budget must accomplish to be successful? Note that some of the items are contradictory. This is part of what makes budgeting hard.
- Accountability. By associating government publicly with certain expenditures, opponents can ask questions or contribute criticisms. Here, the clarity of the budget presentation is linking expenditures to activities, outputs, and/or intermediate outcomes and responsible officials is crucial. Clarity on what is being committed to allows stakeholders to later monitor if commitments are being lived up to.
- Control. Are the funds which are authorized and appropriated being spent for the designated activities? Are expenditures within the limits (a) stipulated or (b) desired. Control provides needed “rigidity” to the budget, to control spending. This might also be related to continuity – providing a sense of stability from year to year.
- Efficiency. Doing whatever is done at least cost or getting the most out of a given level of expenditure - and/or of effectiveness - achieving certain results in public policy like improving the health of children or reducing crime.
- Treat People Fairly. A budget must produce outcomes that are seen as fair in order for the outcomes to be seen as legitimate and for the local government to gain/maintain the trust and support of stakeholders inside and outside of government. This includes both procedural and distributive justice.
- Clear rules to make and support good decisions. A budget must provide the capacity to make good choices. Thus, the effect of budgeting on the capacity to make and support decisions-has to be considered. This includes the ability of the budget to put long-term into action.
- Resolve conflict. Since inability to implement decisions nullifies them, the ability to gain support is as important as making the right choice. This speaks to the capacity for making changes and creating flexibility.
- Deciding who gets what. A budget is an expression of what the government believes is important. Limited resources need to be allocated between competing purposes. Some people will get more of what they want than other people will get. The priorities of the government should be clearly aligned with those expressed not only by other policy makers and the departments, but also a broad base of community stakeholders, many of whose input may not otherwise be incorporated into the final budget.
Monitoring is making sure that the commitments made during planning and budgeting are lived up to and to maintain an understanding of the environment. So, what are the purposes of monitoring?
- Balance accountability and flexibility. While people should live up to their commitments, the monitoring system must also recognize there is need for flexibility. For example, the environment can evolve. People may have been overconfident in what they thought they could accomplish or external factors may make original goals unachievable or insufficient.
- Set decision boundaries. Define the limits of acceptable action.
- Set time boundaries. Define the timeframe in which the effects of decisions will be monitored. For example, a traditional budget has a de facto boundary for one year for most decisions.
- Define a common point of reference for monitoring. There must be a commonly accepted standard against which to monitor. The traditional budget’s standard, for example, is whether the budget is overspent or not. More recently, performance measures have been used to attempt to provide a common reference point for the value produced by government spending.
- Maintain the credibility of financial information. If the financial information underpinning the monitoring system is not believed and timely, then the monitoring system will not be trusted.
- Make people’s actions transparent and put their reputations on the line. A monitoring system must provide clarity in how decisions are made. People that decide to make selfish decisions must suffer reputational consequences.
- Tie back to sanctions and rewards. The budget is a powerful way to reinforce collaborative behavior: Those who work with others toward shared goals can receive favorable treatment, while those who don’t will not. The monitoring system must provide information that allows sanctions and rewards to be applied justly.
- Don’t encourage bad behavior. Padding the budget, spending out unspent funds at the end of the year, and exaggerating legal restrictions on funds are all examples of behaviors that are often encouraged by the design of the monitoring system.