Performance Budgeting (PB)

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 03, 2023

Performance Budgeting (PB): Explanation

Performance budgeting involves the development of refined management tools (such as work measurement performance) so as to achieve the specific goals of the business over a period of time.

The emphasis in performance budgeting is on the improvement of internal management, keeping in view the volume of work and its cost, that has to be accomplished during a financial year.

Performance budgeting is a convenient tool in the hands of management to achieve the objectives of an organization.

In the short run, it lays immediate stress on achieving the objectives as specified in the budget.

In the long run, it serves both as a tool for reviewing the efficiency of existing operations and their results and as a system of feeding the data for planning future services.

It helps in making the organization sensitive and adaptive to the dynamic needs of the organization.

Steps in Performance Budgeting

  • The first step in the technique of performance budgeting is the establishment, improvement, and extension of the programs that help to achieve the specific and overall goals of the organization.

    The resources to be used should be clearly specified so that financial responsibility at every level within the organization can be clearly specified.
  • The second step involved in performance budgeting is to develop a yardstick for work measurement and also for determining performance standards.

    The most suitable metric for a given area of performance should be devised, and the aim should be to move toward higher levels of perfection.

    Suitable standards should be determined because variances between the actual and the budgeted realities may suggest the need for remedial action, thereby increasing the value of budget control.
  • The final step in performance budgeting is to ensure that recordkeeping happens along functional lines.

    These records indicate the variance between budgeted and actual costs. This helps management take suitable corrective actions.


Performance budgeting helps to organize work in a systematic and scientific way.

It helps to provide information for the effective and efficient working of the organization, thereby increasing the chance that its business objectives are achieved.

Performance Budgeting (PB) FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.