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Strategic Budgeting
The Challenge
USAID manages program funds from a number of foreign affairs accounts directed at addressing a broad array of international issues facing the United States. These range from fighting the HIV/AIDS pandemic and sustaining key countries supporting the war on terrorism to bolstering democracy, the rule of law, and good governance in countries important to U.S. national security. Approximately 80% of USAID programs are implemented through field offices overseas.
The Agency's portfolio of funds in FY 2004 was nearly $14 billion -- double the amount of FY 2001. These increases have been necessary to support U.S. foreign aid objectives to address the instability and insecurity that arise from terrorism, transnational crime, failing states, and global diseases.
The growing global complexities underscore the need to use U.S. foreign assistance resources effectively. USAID's challenge is to move from allocating resources based on incremental adjustments to the annual budget to a strategic budgeting approach that informs resource allocation decisions to better align foreign aid and U.S. foreign policy objectives.
The Response
Building on the President's Management Agenda goal to integrate budget and performance, USAID launched a strategic budgeting initiative. Budget and Performance Integration is one of five government-wide priorities outlined in the President's Management Agenda (PMA) and emphasizes the development of budgets focused on results, rather than inputs and outputs.
Performance-based budgeting links the budget process with strategic planning and performance management data - from approved program objectives and rigorous metrics to documented results linked to budget allocations. Performance-based budgeting is critical not only for PMA compliance and good management, but also helps demonstrate USAID's foreign assistance leadership within the U.S. Government.
Agency Budget and Performance Integration activities
The USAID/State Strategic Plan (FY 2004 - FY 2009) provides the performance goals to drive the Strategic Budgeting initiative.
The following strategic planning tools enable performance based decisions:
- The Agency developed a statistical budgeting model that assesses the allocation of program resources to improve the linkage between strategic and program priorities.
- USAID uses the Program Assessment Rating Tool (PART) to help the Agency improve the effectiveness of its programs. The PART, developed by the Office of Management and Budget (OMB), is a standardized and systematic template for USG agencies to rate program performance. The PART also provides OMB with feedback on how well federal programs are performing and achieving their goals.
- The Agency also designed an Overseas Staffing Template to determine the appropriate allocation of Foreign Service officers to USAID missions.
In combination, these three strategic planning tools improve the Agency's effective use of its resources.
Achievements
Joint State/USAID Strategic Plan (FY 2004 - FY 2009)
The first State/USAID Strategic Plan directly supports the U.S. National Security Strategy. The five year plan guides the Agency in planning and prioritizing programs and in the delivery of development and humanitarian assistance. The Joint Strategic Plan lays the framework for the development of performance measures and targets against which the Agency's program performance will be measured and reported. To ensure consistency in the application of the plan, USAID and Department of State synchronized their budget and planning cycles in FY 2004.
Strategic Budgeting Model
The Agency developed a formal strategic budgeting model to help decide how to allocate resources to bilateral country programs. The model is based on the following criteria: development need, country commitment, foreign policy importance and program performance. USAID first applied this model to the formulation of its FY 2004 budget request, which resulted in reallocation of some funds from lower performing to higher performing programs. The model was expanded during the formulation of the FY 2005 budget to categorize countries based on Millennium Challenge Account (MCA) criteria of commitment to economic freedom, governing justly, and investing in people.
The countries were divided into four categories:
- Top Performers (based on MCA criteria),
- Good Performers (including near misses and other high performers who do not meet the per capita income threshold for MCA consideration),
- Fragile or Failing States, and
- Other Foreign Policy Priority Countries (those which are rated low on country commitment, as measured by MCA criteria, or which are important for U.S. foreign policy reasons).
This more sophisticated model was used to inform the budget allocations to USAID country programs across the four categories. The Agency has several appropriation accounts that finance country programs around the world. The Economic Support Fund (ESF) is primarily for financing important foreign policy programs in countries such as Israel and Egypt; Child Survival and Health (CSH) focuses on sector programs that affect maternal and child health, HIV/AIDS, other infectious diseases, and family planning and
reproductive health; and Development Assistance (DA) is mainly for financing economic development, agriculture, democracy and governance, environment and education programs. DA and CSH are generally allocated to programs in countries that are considered top or good performers.
The Agency analyzed the proposed budget request for FY 2005 to determine how well the fund allocations aligned with the country categories. The graphic below shows that DA and CSH are the primary funding sources for top and good performers and ESF is primarily the funding source for fragile and failing states and foreign policy important countries. This allocation is consistent with U.S. foreign policy objectives and represents a strategic alignment of these appropriation accounts.
The Strategic Budgeting Model will be further differentiated to take account of how to allocate program resources in transformational development countries; fragile, failing and recovering states; and in countries of geo-strategic importance to U.S. foreign policy.
Program Assessment Rating Tool (PART)
The PART reviews at USAID began in FY 2002 when the following Agency sector program areas were evaluated: Population - funded through the CSH account; Global Climate Change; and Food Aid. These initial evaluations contributed to the FY 2004 budget process. In FY 2003, USAID moved from a sector focus to a geographic focus and applied the PART to the Latin American and Caribbean (LAC) region programs in Child Survival and Health and Development Assistance as well as to programs in Transition Initiatives. In FY 2004, USAID completed a program performance assessment of its Operating Expense funded management services. The Agency received a good evaluation from OMB on this PART review due to recently implemented management reforms such as: use of performance information to make process improvements; and use of information technology capital planning and investment control processes to improve the selection and oversight of IT investments. At the close of FY 2004, USAID assessed fully 60 percent of its programs.
The PART results help the Agency to improve program effectiveness and resource allocation decisions. The PART assessment of USAID's Population program, for example, led the USAID to allocate funds more strategically by taking account of country-level needs (measured in terms of population density, fertility, and unmet needs for family planning). As a result, USAID reassigned over $30 million of the FY 2002 Population/CSH allocation from lower need countries to higher need countries.
The PART results provide performance assessments of Agency programs to managers making resource allocation decisions. This information is the basis for providing evidence-based funding requests aimed at achieving specific, positive results.
The Agency's new Strategic Budgeting Model as well as information obtained from PART reviews inform performance-based budget decisions.
Overseas Staffing Template
USAID's Overseas Staffing Template was developed to determine the appropriate allocation of U.S. Direct Hire (USDH) mission staff based on a variety of factors including program size, foreign policy priorities and MCA criteria. This was done to better align staff with Agency strategic objectives.
In FY 2004, USAID began to reallocate its existing 700 overseas staff positions based on this model. As a result, 21 positions are being reassigned to the Asia and the Near East region. The template will be applied every two years to ensure staff is allocated in line with program and U.S. foreign policy initiatives.
| Strategic Budgeting Milestones |
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| Integrate State/USAID Annual Performance Plans; Finalize joint performance indicators. |
2nd Quarter Fiscal Year 2005 |
| Implement the Agency's new business model. |
4th Quarter Fiscal Year 2005 |
| Begin mission program management evaluations. |
During FY 2005 |
Next Steps
An internal business model review looked at how well USAID is set up to carry out its development, humanitarian, and other missions; how quickly it can respond to new challenges; and how safely and effectively it operates in dangerous locations overseas. The study's recommendations, which call for improving cross-agency strategies, are being implemented in FY 2005 as follows.
A new strategic planning process categorizes hundreds of field mission strategic objectives into 40 standardized program components that enable USAID to set performance targets and create improved accountability. A standard set of performance indicators are in development.
The revised strategic planning will facilitate improved Agency-level reporting, while allowing Missions enough operational flexibility to address country-specific situations around the world.
Streamlining the strategic planning process will reduce the time and resources expending on planning efforts. Interim guidance for these reforms was issued during the 4th quarter of FY 2004.
Mission management assessments have been re-introduced, another recommendation from the Business Model Study. These assessments, conducted every three to four years, review how mission programs are staffed, structured and managed.
The Agency's new Business Model will help the Agency to continue to "right-size" and "regionalize" program delivery, as appropriate, and provide linkage to Strategic Budgeting efforts to improve the efficiency and effectiveness of central, regional and bilateral program operations.
The Strategic Budgeting initiative will continue to evolve as the Agency implements the joint strategic plan. The results of this effort will institutionalize a set of processes and tools that integrate performance information into the budget decision-making process.
Summary of Strategic Budgeting Achievements
& Benefits
FY 2001 - Present
Initiative |
USAID
Employee Benefits |
U.S. Taxpayer
Benefits |
State/USAID Joint Strategic Plan
(FY 2004 - FY 2009)
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Provides strategic objectives and performance goals that clearly establish linkage to employee job contributions to Agency's mission. |
Joint State/USAID programs and resource better aligned.
Joint performance standards and targets for development and diplomacy result in more efficient use of taxpayer dollars.
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| Strategic Budgeting Model |
Provides a transparent method for understanding factors that determine the allocation of program resources to USAID missions. |
Enhances performance-based decision-making and better accountability of taxpayer funds. |
| Program Assessment Rating Tool
(PART) Reviews
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Provides a disciplined approach to assessing program performance.
Enables managers and program staff to make informed funding decisions based on performance measures and targets.
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Provides a tool to evaluate the successfulness of program resources that are intended to make a substantial contribution to U.S. foreign policy objectives. |
| Overseas Workforce Template |
Ensures mission staff is assigned where needed to effectively accomplish mission program delivery functions. |
Improves ratio of staff to program dollars delivered.
Promotes more efficient use of human resources. |
| New Strategic Planning Framework |
Categorizes hundreds of field mission strategic objectives into 40 standardized program components that enable USAID to set performance targets and improve accountability. |
Provides streamlined, transparent method to measure effectiveness of Agency programs. |
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