Some advantages of a performance budget include easier evaluations for legislative priority, better quantitative estimates of costs in each department, and more effective communication with regard to returns on tax-dollar investments. Some disadvantages to this system are a lack of standard cost systems, faulty judgment with regard to performance information, and an inability to handle emergency needs within budgetary guidelines.
Transparency of performance budgets is one major advantage because taxpayers see results during every budgeting cycle when good programs get funding, whereas bad programs are dropped. Another advantage is quantitative analysis and input from employees that have a vested interest in their departments. Workers and program managers know what budgeting priorities are needed to further the goals of the agency when their performance is examined.
One major disadvantage to performance budgeting is the relative cost between two divisions. Supplies, workload and office needs may differ from one aspect of the agency to the next, which makes larger budgets more challenging. Some department heads may inflate or bloat their successes to ensure better funding during the next budget cycle. Performance budgets are great for routine programs, but if emergency needs arise there may be hassles to try to get more funding.
A performance budget is based upon the output of services versus the input of money to each department. In an ideal situation, government agencies and divisions that have the best results based upon efficiency get funded again for later years.