PBMA doesn’t just help balance your budget, it maximizes every dollar spent.
Program Budgeting and Marginal Analysis (PBMA) is a framework designed to guide resource allocation decisions in a manner that is explicit, rigorous and transparent. PBMA has been around for over 30 years and has been applied to many fields, including application in over 150 health care organizations worldwide. Typically, PBMA is used where resource allocation decisions are based on a multitude of factors or objectives, and over time the approach has become much more user-friendly and a better fit with the realities that decision makers face.
Marginal Analysis Simplified
Marginal analysis refers to the overall approach to funding decisions embedded in the process. Marginal analysis looks at incremental changes, addition or subtraction. This approach can be contrasted with a ‘program evaluation’ where entire programs or services are assessed. Marginal analysis is quite pragmatic as funding decisions are often about volume levels and not about entire programs or services. It should be noted that ‘marginal analysis’ does not refer to an analysis of small changes but refers to incremental changes. In the extreme, an incremental change could be an entire program or site, but often it will be a part of a program or site. The incremental changes to be considered come from the organization itself, that is, from the staff managing and delivering the services. The best way to understand what these possible changes could be is to view them as the response that would be provided by managers and staff to the question: what action would you take if your budget was increased (investment changes) or decreased (disinvestment changes) by a given percentage or amount? It should be noted that while the process is fundamentally about shifting resources to best meet the organizational objectives within a certain budget, it can also apply only to investments or only to disinvestments, if desired.
Measuring Impact Against Strategic Objectives
Once proposals for change are developed, their potential impact on the ability of the organization or the decision-making unit to meet its objectives is assessed. The impact of any possible change (disinvestment or investment) is measured against a set of criteria developed specifically for this process. These criteria link directly with the strategic priorities and objectives of the organization or of the given decision-making unit. The assessment is done on the same basis across all areas of the organization involved in the process. Assessments of possible changes in any one area are therefore comparable to assessments of changes in other areas, that is, proposals from across the organization can be ranked in two lists: one for investments and one for disinvestments.
Ability to Compare Across Services and Programs
Thinking about the margin does not only apply to the development of proposals for changes but also to the comparison of ranked investment and disinvestment proposals. With marginal analysis, a decision maker assesses the benefit lost associated with a disinvestment, to the benefit gained associated with an investment. Such comparisons lead to recommendations on re-allocation of funding. In this context, the highest benefit gain estimate is an estimate of opportunity cost, or an estimate of what is foregone by allocating resources as they are. In addition to the fundamental economic principles of opportunity cost and the margin, the best implementations of PBMA also incorporate key ethical conditions to ensure that the process is administered in a fair and transparent manner.
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