PREXC Overview

This is a general overview of PREXC. This outlines its history and its general
operative principles.
1. The Program Expenditure Classification (PREXC) approach is a 2-step
process: (1) restructuring an agencys budget by aligning all recurring
activities and projects under programs; and (2) providing performance
indicators (outputs and outcomes) for every program.
2. It is the third phase of the Performance-Informed Budget (PIB) reform
that sought to better link planning to budgeting, and linking budgeting to
execution.
3. The first phase was the 2014 General Appropriations Act (GAA) wherein
we structured the budget along Major Final Outputs (MFOs) with
corresponding performance indicators. This phase of the PIB made the
whole of government more conscious of the importance of measurable
targets for planning the budget. This also made information available to
assess the spending efficiency of agencies.
4. The second phase is the current 2015 GAA wherein we added
performance indicators to the Organizational Outcomes (OOs) of an
agency. By measuring outcomes, weve created a means to understand
how effectiveness of government spending can be measured. Through
the OOs, the day-to-day operations of an agency are linked to the
overall goals of the government, its sectoral goals, as stipulated in the
PDP.
5. For the 2016 GAA we will be piloting PREXC in 6 departments, and it
will be fully implemented for the whole of government for the 2017 GAA.
6. PIB in itself is not new nor a standalone reform. It is actually rooted in
the Organizational Performance Indicator Framework (OPIF) that the
government had started in 2007. PIB is the product of linking the OPIF
with the budget.
7. PREXC is a refinement of the PIB. An MFO has become a general
grouping of various outputs produced through different programs of an
agency. In both the 2014 and the 2015 GAA, the performance indicators
of the MFOs of many agencies do not capture the whole range and
variety of the programs being delivered. We needed to get more
performance information at a lower level in order to better understand
how well an agency is operating. According to the OPIF, Programs are
the level lower than the MFOs.
8. Since the shift of the budget structure in 1994, the items in the budget of
an agency have been called PAPs which correspond to Programs,
Activities, and Projects. Currently, except in the case of locally-funded
and foreign assisted projects, the nomenclature of the budget doesnt
distinguish between these different levels of work processes.
9. PREXC is an attempt to structure the budget in order to differentiate
the programs, activities, and projects. A program, under PREXC, is

defined as an integrated group of activities and projects that contributes

to a particular outcome of an agency. Every item in the budget, be it a
recurring activity or a project should fall under a program.
10. In general, many of the agencies have already structured their budgets
along programs. This makes the first step of PREXC relatively easier for
them. Some agencies, particularly those with several infrastructure
budgets and/or operating units, have considerably more details in their
budget. Nonetheless, the basic policy of aligning activities and projects
apply to all of these agencies.
11.The more important component of PREXC is the Program Profile. This
is a means of understanding what each program is and what each is
trying to achieve. A profile contains the critical information about a
program such as its strategies and intended results, and its output and
outcome targets.
12.
National Budget Circulars (NBCs) 552 and 553 were the first
attempts of government to create a performance management system
of government that is linked to the budget. Though imperfect, theyve
served the important function of making agencies more mindful of what
their major spending items are trying to achieve.
13.
Through the course of fiscal year (FY) 2014, weve received
feedback on the practicality and the usefulness of the MFO
Performance Indicators (PIs) for program managers and senior officials
of agencies. Thus, for PREXC, weve made determining the program
output indicators more intuitive and more economical. The idea of
measuring output targets on the program level is hinged on the basic
idea that one of basic things we need to understand is where does the
bulk of the budget fund. As such, when determining the output
indicators, we merely ask agencies to state what the top three
components of the program are, based on (effort) cost. This leads to a
discussion of how much the Maintenance and Other Operating Expense
(MOOE) and/or Capital Outlay (CO) of a program is actually broken up.
This doesnt mean going down to the Object level (i.e. utilities, supplies,
rent, travel, communication etc.). Rather, we asked them to look one
level higher (i.e. conferences, publications, workshops, trainings).
14.
In this sense, output indicators are linked more to the budget of
each program and how well an agency is able to spend that budget.
Therefore, year-on-year, when given the same budget with all things
equal, there should be no expected change in the level of output for the
program. Increases in output, with the same budget, should either mean
increases in efficiency or decreases in unit costing of inputs. For
programs that are trying to bridge critical gaps (especially those set in
the Philippine Development Plan), output targets are expected to
increase year on year with corresponding increases in the budget.
15.
This is a more nuanced understanding of output measurement.
This makes performance measuring less about setting the targets low

but making sure that agencies can accurately cost the program and at
the same time, completely execute the budget.
16.
The crafting of the OO PIs was a first attempt at measuring
results delivered by an agency through the budget. In PREXC, each
program has a distinct outcome. The core question in determining the
outcome indicators of a program is After a fiscal year, how does the
program manager know that the program is successful? It is our means
of knowing if a program is effective or not. Unlike the output statements,
outcome indicators are a bit harder to structure. It is less about how
much budget is given to a program, and more about the original intent
of creating the program.
17.
We recognize that not many agencies actually track outcome
indicators, and therefore baseline data may either be absent or
incomplete. Nonetheless, we are encouraging program managers to set
up a means to measure the most basic and most critical indicators that
measure the effectiveness of the program.
18.
The usual worry of program managers in outcome targeting is the
repercussions of not reaching the target. Unlike output targeting, not
being able to reach a certain outcome target for an indicator may have
less to do about how the agency operates and more about other factors
such as externalities, effect lag, or in some cases the program may
actually need to be rethought. Thus, decreases in reported outcome
achievement shouldnt automatically lead to penalties but rather, it
should prompt the program manager and the senior officials of the
agency, and eventually oversight agencies like DBM to ask more
probing questions on why the targets were not met.
19.
By prefacing the discussion of output and outcome measurement
along these lines, were able to have a more honest and practical
discussion about the programs. This leads to less instances in gaming
of indicators. More importantly, this makes PREXC a more useful tool
for program managers and agency senior officials for both planning and
in tracking execution.
20.
PREXC is an attempt to make the PIB more intuitive, logical, and
more importantly, useful for program managers. By focusing on the
more important aspects of the program, we are able to zero-in on the
basic measures that are important. PREXC is not a standalone effort
that merely adds a layer of complexity to budget planning and reporting.
Rather, PREXC is a reform deeply rooted in the continuity of the OPIF
and the PIB reforms. PREXC is a means to simplify the budget and the
process of planning and accountability.