Certified Professional Public Buyer (CPPB) Practice Test

Which budgeting type aims to allocate resources based on program performance?

1. Incremental budget

2. Performance budget

3. Traditional budget

4. Flat budget

The correct answer is: Performance budget

The performance budget is designed to allocate resources based on the effectiveness and efficiency of programs. This budgeting approach evaluates the outcomes and outputs of various programs to ensure that funding is directed towards initiatives that demonstrate measurable success. In essence, funds are tied to specific performance metrics, allowing organizations to prioritize programs that deliver the greatest benefits relative to their costs. This method stands in contrast to other budgeting approaches. For instance, incremental budgeting typically uses the previous year's budget as a base and makes adjustments based on inflation, new initiatives, or cuts, without a strong focus on measuring program performance. Traditional budgets often rely on historical expenditures rather than evaluating the outcomes achieved with those expenditures. A flat budget, on the other hand, maintains the same funding levels across time periods, disregarding performance entirely. By linking funding directly to performance, the performance budget encourages accountability and ensures that resources are utilized in a way that maximizes their impact on program goals. This approach helps organizations make informed decisions about where to allocate funds, enhancing overall effectiveness in achieving strategic objectives.