Organisation de Coopération et de Développement Économiques
Organisation for Economic Co-operation and Development
PUBLIC GOVERNANCE AND TERRITORIAL DVELOPMENT DIRECTORATE HAND OUT
PUBLIC MANAGEMENT COMMITTEE English Text Only
Working Party of Senior Budget Officials
PERFORMANCE & RESULTS
3rd Annual Meeting of SBO Network
EXPERIENCES IN UTILISING PERFORMANCE INFORMATION IN
BUDGET & MANAGEMENT PROCESSES
2-3 May 2006
-- DRAFT CASE STUDY –
Experiences of utilising performance information in budgeting and
Country Report for Denmark - experiences of utilising performance information in
budgeting and management processes
I. Description of the performance system
The country report for Denmark concentrates on the development and current content of the
performance management system in central government. Specific initiatives launched at the municipal-
and/or county level are not discussed.
Two constitutional rules are important in order to understand the Danish ministerial system. First of
all, the Prime Minister is the sovereign responsible for appointing and dismissing ministers and for
making decisions on ministerial portfolios. Secondly, the legal and normative principle of sovereign
ministerial responsibility plays a fundamental role in the system.
As such each minister is personally accountable for any activity within the ministry relating to
parliament while at the same time being responsible for both political and administrative affairs in the
departments and agencies of the ministry. The minister therefore has a high degree of autonomy.
Since there is no formal hierarchy of ministries in Denmark the Ministry of Finance or other
coordinating actors have few powers that allow them to require that departments and agencies alter
their management infrastructure. Performance management initiatives are therefore primarily put into
practice on a voluntary basis and as a consequence of the recommendations made by the Ministry of
Background and Context
The Danish experiences of utilizing performance indicators primarily concern the management process,
especially with the development of a comprehensive performance-based contract management system.
As in most other OECD countries the performance system is only to a lesser extent focused on
stringent utilization of performance information in the budget process.
Two main events stand out in the historical development of the current Danish performance
management system. Firstly, the budget reform and modernization programme launched by the
government in the 1980’s. Secondly, the introduction of performance-based contracting in the 1990’s.
The budget reform in the 1980’s
The comprehensive budget reform process, started 1983, was borne as a child of the economic crisis
mood that prevailed in many OECD countries in the early eighties. The Budget reform was
implemented from 1985 onwards and came to form the basis of many of the activities in the
modernization efforts in the following years, including the introduction of the earliest performance
management initiatives. In that sense performance management in Denmark was an offshoot of
expenditure control policy.
The budget system prior to 1985 was based on centralized and detailed planning, but the system had
proven incapable in assisting the Ministry of Finance in controlling public spending. The Ministry of
Finance found itself in continuous negotiations with other departments and these negotiations often
proved very difficult due to the usual problem of information asymmetry. Therefore budgeting was also
characterized by a high amount of changes and revisions during the fiscal year.
After 1985 government set a total economic frame for the state’s expenditures during the next fiscal
year and total expenditure limits for each individual ministry were introduced into the budget system.
At the same time, budget-holders were given increased autonomy and flexibility in budgetary affairs due
to the principles of framework budgeting.
Total expenditure limits proved effective in reducing increases in overall public spending. However, the
reforms did not result in large-scale improvements in efficiency in central government. This was
predominantly due to the fact that the input-oriented system did not provide incentives to reduce unit
costs or improve quality.
The introduction of results-based management and performance contracts
The limitations of the total expenditure budget system led to an increased focus on results in Danish
central government in the early 1990’s. This again led to the introduction of results-based management
as the new management paradigm and performance-based contracts as the preferred specific
governance tool from 1993 onwards.
The results-based contract management is based on three core elements: Setting targets, development
of contracts and reporting in annual reports. Annual reports were not introduced initially, but were
made an integral part of the performance system from 1996.
The implementation of results-based management was intended to serve several purposes. First, an
increased focus on output was expected to improve the ability of political decision-makers to prioritise
among principal government objectives. Second, it was anticipated that focusing on output would
improve the quality and efficiency of government services. Finally, results-based management was
expected to improve efficiency by levelling out information imbalances between departments and
At the outset in the early 1990s, the Ministry of Finance linked the use of performance management to
budget guarantees based on multi-year agreements, thereby providing an incentive at the agency level to
undertake reforms. After a certain critical mass was met in terms of the number of participating
agencies, the Ministry of Finance relied on highlighting good examples and stressing why performance
management is beneficial.
The performance contracts were later supplemented by a reporting system. Each agency had to prepare
an annual report that would list the achievements on the targets set in the contract. Annual reports
were meant to be documents which could lay the ground for more thorough evaluation of performance
of central government agencies. This is also an example of how the performance management system
has been refined and redeveloped throughout the period since the introduction in 1993.
The Danish taximeter model
There is one example of a clear cut activity based budgeting model in Denmark, which is called the
taximeter-model. The main idea of using an activity model to determine budget was conceived in 1981
and was in the beginning only used at university level in Denmark.
In the 1990’s the concept of taximeter budgeting was spread out to institutions of secondary education
and is today used in almost the entire secondary and tertiary education sector. In 1990 the overall
expenditures administered under the model was around 200 million DKK which corresponded to less
than 5 pct. of the total expenses under the area of higher education. Today this amount has grown to
approximately 4.6 billion DKK which corresponds to around 42 pct. of the total expenses in the area
of higher education.
Furthermore the taximeter model has been expanded to other areas besides education. This has given
rise to the total appropriations governed by the taximeter model is now around the amount of 10
The taximeter-model uses a simple output criterion to determine the level of funding for tertiary
institutions. Depending on their research activities, universities receive between 30 and 50 percent of
their funding based on their educational production.
For each student who passes an exam, an amount of money is paid to the university. The university is
then free to distribute the appropriations internally in the organisation. As such the budget is calculated
as an activity multiplied by various tariffs. The exact amount of money depends on the education. As
an example of the complexity of the model, today 17 different tariffs are used for different educations.
Furthermore there is no compensation for students who fail their exams or do not take exams.
The model is usually split in 3 parts so that the universities receive a tariff for the costs of education
and equipment, a tariff for joint costs, and a tariff for buildings. Adding to the complexity some of the
appropriations to the university is based on the taximeter model and some is based on a “block”
appropriation covering research for example, cf. figure 1a and 1b.
Figure 1.a. Public expenditures pr. year in Figure 1.b. Public expenditures for the
higher education in 2004 (2006 prices). complete period (norm) in higher
education in 2004 (2006 prices).
1000 Dkr. 1000 Dkr. 1000 Dkr. 1000 Dkr.
300 200 1400 1200
250 150 1200 1000
200 1000 800
150 100 800 600
100 600 400
0 0 0 0
Taximet er appropriat ion Average block appropriat ion Taximeter appropriation Average block appropriation
Basis appropriat ion for reseach Basis appropriation for research
More tariffs are currently being discussed. One example could be a tariff rewarding quick fulfilment of
the main thesis and so on.
The model is not a “real” voucher model as the students cannot use the taximeter to buy services from
private providers, though the government is planning to allow students to use their taximeter to buy
education at foreign universities.
The benefits of the model are obvious. The institutions focus on results and output and can in principle
keep the surplus from more lean administration and so on. More over the Ministry of Finance is not
tied up in complex budget brawls every year with the universities, which used to be unable to redivide
and prioritize the budget amongst the different branches of the universities.
But there are also clear disadvantages. One risk associated with the taximeter model is that there can be
an incentive of institutions to artificially increase pass rates to receive more resources. In other words,
to avoid decreasing educational quality, the model depends on the existence of a strong quality
assurance mechanism and deep-rooted professional standards among university staff.
Moreover the expenditures are very hard to control for the Ministry of Finance as it follows intake of
students (inputs). That is naturally no problem in periods with falling intakes of students, but the
problem arises when too many students are being put through the system, and MoF is faced with large
unexpected demands of appropriations in the end of the year. In practise, however, a level field of
intake of the student has made some of these problems seem less important.
Also the complexity of the model (17 tariffs split in various parts plus the block appropriation) can
make it hard for the individual institution to foresee the effects of intake and therefore require
competencies in microeconomic steering on a higher level.
Finally the is an inherent risk that the tariffs will be reduced every year thereby reducing the incentives
that the individual institutions have to cut down on costs thereby earning a surplus that derives from
the gab between income (tariff) and cost.
In total, however, there might be a need of fine tuning the different tariffs and simplify the system, but
no other system can be seen as being more relevant at the moment.
The concept of taximeter budgeting has not yet been used in general in other areas of government. The
MoF will consider this as a follow up on the accrual budgeting reform.
Current Content and Approaches
Three major initiatives in the area of performance management since the millennium has been the
introduction of efficiency strategies including a refinement of the performance contract system, the
introduction of accrual accounting and budgeting and an increased focus on evaluation.
Since 2004 all departments have been committed to publish an efficiency strategy, which covers the
entire departmental area. The purpose of the strategy is, first, to ensure coordination and consistency
between the different tools agencies use to increase efficiency and effectiveness, such as performance
contracts, outsourcing and procurement. Secondly, the purpose is also to facilitate the transition to
activity based costing and accrual budgeting.
The efficiency strategies should focus on activities for improving efficiency and effectiveness, rather
than a general description of the responsibility of the department. Hence, the strategies should be a
focused instrument for controlling the performance and organisation of the departments’ field of
The efficiency strategies should aim at simplifying the performance management systems of the state in
order to focus on results, effectiveness and efficiency. As a minimum the following four elements must
Clear targets for user- oriented tasks in order to secure the greatest possible transparency as to what
enterprises and citizens can expect from the service of state institutions.
Strategy for performance contracts, reporting on results etc. in order to secure productivity,
effectiveness and efficiency of the state’s task performance
A tender policy with the purpose of encouraging active and systematic work with tender issues in all
sections of the ministry.
A public procurement policy with the purpose of securing that procurement issues are dealt with in a
systematic and professional way.
Adjustment of the performance-based contract model in light of the experiences
As a part of the work on formulating guidelines for efficiency strategies The Ministry of Finance also
made notable adjustments to the performance-based contract model. Over the last 10 years a number
of weaknesses were identified in the model. There were too many targets and objectives in these
contracts and most of them could not be measured. Furthermore, almost all the targets were related to
the internal business of the organization. Such targets could be IT-system development, work
processes, competence development etc. This meant that the agencies were not sufficiently oriented
towards the needs they were supposed to be serving – that is the needs of the citizens and the private
In addition, the targets were not prioritized which made it very hard to follow up on a negative goal
fulfilment as you could not see which goals were very important and which were less important.
Finally, there was no linkage between the contracts of the directors of the agencies and the
performance contract for the general agency. This meant that the contract of the director might make
him follow another strategic direction than the agency, and that the structure of incentive built into the
contract of the director therefore did not work. This lack of coordination of course had perverse
effects on the whole concept of performance contracts.
In 2003 an adjusted system was introduced which tried to remedy some of these defects. The main
adjustments of the concept of performance contracts are that:
Contracts should primarily focus on external targets. External targets are targets concerned with
results in the agency’s environment – e.g. concerning products, benefits or effects.
The contract with the Directors General should be integrated with the contracts for agencies, in
order to ensure coherence between the objectives of the agency and those of its Director General
The performance-related part of the Directors General’s salary should be related to the
performance of the agency,
In the long run there should be a closer connection between performance contracts and the budget
(this is supported by the implementation of accrual budgeting).
The following parts of the concept of performance contracts are maintained: the contracts are still not
legally binding, the performance of each agency is reported on in an annual report, and finally it is still
up to each department if and how performance contracts will be used.
Accrual accounting and budgeting
As part of the modernization program for the public sector, the Danish government has decided to
implement accrual accounting in both central and local government. In addition, the government in
2004 decided to complement this with a move to accrual budgeting for the central government sector.
For central government, the reform is primarily aimed at increasing efficiency by changing behavior at
the micro level. In order to achieve better management information and financial incentives and more
cost consciousness, accruals are adopted not only on the accounting side, but on the budgeting side as
well. However, infrastructure and heritage assets should still be treated on a modified cash basis.
The basic principle is simple. The old system of focusing on payments (cash principle) and a yearly
result has been replaced by a system focusing on accruals, depreciation and a balance sheet to
complement the yearly result. In that way all departments and agencies must prepare financial
statements with balance sheets, income statements and so on.
The philosophy of the accrual accounting is thus to focus on the use of resources and cost distribution.
This opens a new window of opportunity for performance management as it is now possible to
distribute cost on each activity and thereby obtain information that can be used in performance based
Already some elements of performance budgeting can be seen in the new system. For example the
annual surplus is now divided into two parts. One part constitutes the “free” surplus that can be used to
whatever activity the institution sees fit (however in line with the general purpose the appropriation was
given under). The other part constitutes a reserved surplus that can only be used for the specified concrete
project the appropriation was given for.
As such the first part, the free surplus, is a crude measure of how well the institution has enhanced the
efficiency of the micro economy of the institution and the reserved surplus is a measure for which tasks
the institution did not finish before. This information is reported in the annual reports, and was not
available in the old cash system. This is a clear improvement for the Parliament, the MoF and the
institutions as it enhances transparency in the budget process.
Furthermore, the linkage between costs aimed at tasks will be markedly strengthened due to the
implementation of accrual budgeting. As from the 2007 budget the budgetary notes for projects above
1 million kroner must specify costs against the particular tasks within the responsibility of the
institution referred to. This information will be repeated in the annual reports. So there will be a direct
linkage between budget notes and performance management. This improvement also has a bearing to
the potential for cross-sector performance information and management. In box 1 below one example
is provided of an institution that took part of a pilot test of accrual budgeting in 2005.
Danish State Library - Explanation of the reserved surplus in total.
(Relates to point 2 above)
The DSL is a state institution under the Ministry of Culture and participated in 2005 in a pilot test of the system of accrual
accounting and budgeting. This library is an overall research and university library with a number of national library
functions such as handling of the statutory obligation to deliver publications. Besides the DSL is superstructure to all
Danish public libraries
Overview of reserved surplus (Million DKK - year 2005) as per task and future time frame
Tasks to be financed by reserved Reserved Consump- Reserved Expected
surplus surplus, tion during surplus accomplishment-
start of year the year end of 2005 year
Periodicals. Strengthening the 4,45 2,39 2,20 2008
purchasing function by more e-based/
Digitalisation. Project for digitalisation of 2,04 0,56 1,34 2007
old sound recordings
Improvement of processes. 2,45 1,00 1,41 2007
Accomplishment of project for electronic
Clearing of depot library. Implementation 2,48 1,12 1,50 2007
of e-code, numbering and scrapping of
Preservation of digitalised cultural 0,00 0,00 0,97 2006
heritage. Later depreciation of
investments than planned in budget
Total 11,42 5,09 7,42
The Danish State Library had a reserved surplus on 11,42 MDKK by the beginning of 2005, related to 4 tasks. By the
end of 2005 a total of 5,09 MDKK of this reserved surplus had been turned into specific activities in support of these 4
tasks. Task no. 5 refers to a postponed depreciation. Thus the total reserved surplus by the end of the year amounts to
That much said the budget reform does not yet have real cost distribution making for example activity
based costing models possible. But the ground work has been laid as it is now possible to at least
measure cost and in the future a true cost distributing model will be considered.
Denmark was a late starter as regards evaluation. Whereas the rise of the social sciences in the United
States introduced evaluation on a wide scale in the 1960’s, it was only in the 1980’s that Denmark began
using evaluations on a larger scale.
Most of the early evaluations were large thematic exercises encompassing several public sectors and
operating with large social models with many variables. Recently, however, many evaluations have been
conducted on a smaller scale focusing on programme evaluations and often using external consultants
to carry out the evaluations.
Evaluations in Denmark are quite different in their approach reflecting the culture of the respective
policy sectors. Thus in the policy sector of education one model of evaluation is being used whereas
health sector has opted for another model.
The government can have evaluation clauses integrated in reform programmes and legislation, but there
is no formal demand for an evaluation to take place if for example a social programme exceeds its
budget. So there is no evaluation policy like the one in the EU-Commission.
International co-operation is often the motivating factor in many of the evaluations as specific
requirements exist in different sectors. One could mention certain requirements for foreign aid as
indicated by OECD (DAC), another example would be the need for evaluation as stressed by the
European Association for Quality Assurance in Higher Education.
Most of these decentralized evaluations are as mentioned performed by external consultants, but there
are several state institutions with the formal task of evaluating activities. This can be observed in the
educational sector and in the foreign aid sector. Although the reports produced by these institutions
can be used in the budgetary process there is no formal linkage between budgets and evaluations. Most
of the time the evaluations are thus used as pawns in a political game and provide but one input in the
process of deciding next year’s budget.
Recently an analysis by the General Accounting Office in Denmark (Rigsrevisionen) concluded that
considerable amounts are spent on programme evaluation in Denmark. From 2001 to 2003 there were
258 evaluations in 7 ministries at an average price of 200.000 dollars each (including external effects).
Rigsrevisionen concluded that the general quality of the evaluations was up to par but that follow up
was insufficient and that some of the evaluations were too expensive not delivering sufficient value for
The performance-based contract system is not defined in law, but in guidelines issued by the Ministry
of Finance. The agencies are however obligated by law to draw up an annual report that evaluates the
performance both in relation to the budget and externally related targets associated with the agencies
core activities. This means that, de facto, all agencies have a performance contract.
The Ministry of Finance is the key actor in developing initiatives and providing guidelines in the area of
performance management and budgeting. The ministry’s internal organization is based on three primary
working areas – budget, macroeconomic policy and modernization of government.
The Modernizing Government Division is responsible for the development of the general performance
management paradigm and the division issues guidelines to assist the ministries in implementing
performance management initiatives. Furthermore the Modernizing Government Division maps the
general implementation of performance management initiatives and meets frequently with the other 18
ministries to discuss possible improvements to the system.
It is a basic characteristic of the decentralized Danish system that the ministries have got a high degree
of autonomy in implementing the performance management initiatives. The ministries adapt and tailor
the performance management system to their specific field and procedures with the guidelines issued
by the Ministry of Finance as the point of departure.
In the Danish framework the Prime Ministers Office is not a key player in this respect.
Scope and Coverage
Today all central government agencies have got a performance contract and draws up an annual report
on their results in relation to the budget and core activities related towards citizens and companies.
The Ministry of Finance reviewed the use of performance contracts in the Danish central government
in 2004. The result is presented in table 1 below that shows the aggregate measures of the performance
contracts. It is worth noting that more than 71 pct. of the targets are now externally related. This
represents a clear rise in the percentage of external targets compared to the results of a review made in
2002. This indicates that the new features and focus introduced in the guidelines from 2003 has had an
Aggregate measures of the 2004 performance contracts
Total number Total number of Total number of Total number of Total number Total number of
of contracts objectives targets measurable of quantitative externally
targets targets related targets
119 853 3701 3508 1472 2641
94,8 pct. 39,8 pct. 71,4 pct.
Table 2 below shows the different types of result targets in the performance- based contracts in 2004.
Types of targets in the 2004 contracts
Target Number of targets Average number of Pct. of total number
targets pr contract of targets
Targets for case handling time 384 3,2 10,2
Productivity target 193 1,6 5,1
Output target 872 7,3 23,2
Quality target3 437 3,7 11,6
Other targets4 1879 15,8 49,9
Total number of targets 3765 31,6 100
1: Productivity is defined as the relationship between production and use of resources. Examples of targets are: “cost pr handled case”, “number of
standard cases pr million Danish kroner”.
2: Output refers to the size of production. Examples of targets are: “number of cases closed”, “number of reports published”, “number of inspections”.
3: Quality refers to the level of agreement between citizens/users expectations and their experiences of process, result and effect when in contact with
public institutions. Targets are typically measured in user satisfaction surveys.
4: Other targets refers e.g. to development of project plans, new campaigns, new initiatives e.g. a new self service solution on the institutions web site.
II. Measuring and Assessing Performance
It is recommended that the performance contract contain only 4 sections: the parties of the contract,
the mission statement of the agency, the objectives and targets of the agency, and finally an optional
section on formalities.
Setting targets using the hierarchy of tasks and activities
In order to clarify the relationship between specific tasks on the one hand and the main purpose of the
agency on the other hand, it is helpful to view the activities of the agency as a hierarchy of tasks and
activities – see figure 2 below. The notion of a hierarchy of tasks will help facilitate the transition to
accrual budgeting as these tasks at the highest level is noted on budget law and the expenses related
hereto is distributed.
Hierarchy of tasks and activities
Financial means are the money (including appropriations, administrative fees and user fees) with which
an agency has to carry out an activity. The financial means finances the agency’s resources, i.e. personnel,
buildings etc. The resources are used to carry out activities such as cleaning, personnel management,
analysis etc. Activities can be classified according to which services they support. Services can be grouped
according to outputs, which finally contribute to the outcome of the agency.
Sustainable farming can be used as an illustration of a hierarchy of tasks – see figure 3.
Example of a hierarchy of tasks – sustainable farming
Sustainable farming Outcome
Aid Counselling Research Output
Aid for organic farmers
Administration Cleaning Management Activity
Material Employees Resource
The agency’s targets should be formulated at the highest possible level in the hierarchy of tasks in order
to clarify against the connection between the mission of the agency on the one hand and the individual
performance measures on the other hand. It is recommended that:
The targets should cover all main tasks of the agency. This does not mean that an agency should
formulate a measure for each activity. On the contrary, financial means, resources and activities
refer to services or outputs that are covered by measures for services and outputs.
Targets and measures should be strategically anchored in the mission of the agency.
The targets should be connected to the highest possible level in the hierarchy of tasks.
It should be possible to evaluate whether the targets have been reached. Hence, it should be clear
how and on what grounds the targets are evaluated.
The hierarchy of tasks and activities can be very good in helping the agencies to get an overview of
what level the objectives and targets can be formulated on.
The targets and contract terms for the performance contracts are negotiated between top decision
makers within the department and the agency’s director general. The minister usually does not take
direct part in the negotiations. The negotiation process is decentralized in the sense that the department
and the agency are the only ones involved. The Ministry of Finance has no formal role in judging the
appropriateness of the targets.
III. Integrating and Using Performance Information in the Budget Process
The Budget Preparation Process in Denmark follows generally the same pattern every year. The time
schedule is illustrated in box 2.
The budget preparation process in Denmark
January Ministry of Finance examines Budget preconditions
and proposes overall Budget targets
Early February Break down of overall Budget targets to ceilings for
consumption and income transfers for each ministry
Early May Line ministries give their draft Budget Proposals to
The Ministry of Finance
May – June Ministry of Finance performs technical scrutiny of the
Budget Proposal helped by various budget analysis and
holds discussions with line ministries on the financing
of new initiatives etc.
August Last minute estimates of the economic situation and
the influence on the Budget Proposal
End of August Presentation of the Budget Proposal
Early September First Parliamentary discussion on the Budget Propo-
Early November End to political negotiations on the Budget Proposal
Mid November Minister of Finance proposes the Governments
amendments and changes to the Budget Proposal
(including the result of the political negotiations).
End of November Minister of Finance presents amendments due to a
final estimate of the economic situation and the
influence on the Budget Proposal
Mid December Third and final Parliamentary discussion on the
The primary point of interest from a performance review system is the first phase that is budget
analysis and other instruments to control the expenditure.
Several such instruments exist. First of all there is the analysis part. These analyses are mostly diverse
economic evaluations focusing mainly on input/output (eventually outcome) relations. They differ in
depths and methods and most of them are produced in 2-3 months eventually with an external
consultant helping out with labour intensive data analysis. In these different budget analyses
information from performance contracts, annual reports, diverse evaluations and general efficiency
strategies usually is used together with other inputs.
Second there is the analysis of the financial situation medium and long term. These different analyses
are thorough outlooks where the Danish economy is seen from a macro perspective through
Thirdly there is the priority memorandum that starts out the budget process and sets in frame the
general weighting and resources between the different budgets. One example could be a much pressing
question on how much money one should spend on knowledge-production and innovation compared
to other areas.
As to the budget follow procedure in the Ministry of Finance three annual budget reports and provided
by the ministries. They contain the following information:
Spending to date compared to the budget
Estimates for spending the rest of the year
Initiatives to solve or alleviate problems
Needs for informing the Finance Committee of parliament with requests for supplementary
appropriations (such requests has to be authorized by the Ministry of Finance)
Furthermore the Ministry of Finance prepares three annual budget outlook reports to the Parliament.
The main point of this quick exposition of the budgetary system is thus that the Danish budget system
like most other budget systems depends on a variety of sources of input.
As such two different systems can be distinguished:
Management by expenditure frames and economic tools
Management by goal setting and performance information
The main field of challenges regarding performance information and the relation to the budget lies in
the interface between the two perspectives. A successful development of this interface means that
measures of resource allocation and performance management become interrelated in a causal
This is illustrated in figure 4.
Corporate Governance at the ministerial level
Management Tools to compare Performance
of expenditure costs, activities & management
FM: Budgetary Performance
Planning & •long-range budgets objectives
framework •investment planning
Budgetting Budget •consolidated budgets Performance
proposals •guidance for contracts
Periodic approval of •speedy procedures Day-to-day
accounts •key figures (MIS) management
control & •cash management using various
follow-up Framework •activity based costing information
statement •task hierarchy systems
Annual •approval of accounts Annual
report •surplus reserves report
annual account reporting reporting
In conclusion the annual reports, the performance contract, evaluations and the efficiency strategies are
elements in the general budget process and there cannot be said to be a stringent performance review
system that feeds into the budgets in Denmark. However, there are examples of ad hoc performance
review information through budget analyses, annual reports, efficiency strategies and general bilateral
contact between the control in the MoF and the relevant ministry that is part of the input to the
IV. Reporting on Performance
The agency’s annual report shows the results achieved against targets for all specified
outcomes/outputs and is published three months after the end of each fiscal year. The format of these
reports has changed considerably over time. They used to be long narrative reports which in turn were
not widely read. In order to increase the user-friendliness, the Ministry of Finance has decided that the
annual performance report should be integrated with the annual financial report of the agency. A
statement of outcomes and outputs is now to be included as one of the statements, alongside the
income statement, the balance sheet and the cash-flow statement. This is a very condensed statement
showing results against targets with practically no discussion.
The move to accruals accounting and budgeting makes it possible in the future to produce annual
reports similar to the annual reports in the private sector. Thus a wealth of relevant information and
various financial key figures such as the degree of solidity and various key figures for cash flow can be
presented in the reports on the basis of the accrual system. In that way the reports can play a more
active role in the budgeting system of Denmark.
The submission of annual performance reports became mandatory as from 1997 for agencies in central
government. Annual performance reports are intended to provide information on the use of resources
and the fulfilment of targets as stated in the performance contract. The required reporting has lately
been modified to ensure an adequate follow up on accrual accounting and budgeting. The annual report
must not exceed 15 – 20 normal pages in total.
The annual report must include information on the following main elements, each of which are further
specified in the appropriate guide:
1. Report (short introduction to the actual organisation, its results and expectations)
2. Performance report (external given targets, actual performance, analysis of over-
/underperformance and explanation of reserved surplus in total)
3. Accounts (description of principles of accounts, statement of results, balance, cash flow review,
4. Approval - signing of annual report
5. Attachments – (explanatory notes, sources of income, fees, grants, investments, statement on
principles of accounts and practical modifications etc.)
Annual reports are written by the agencies and approved by the responsible department. The reports
are then submitted to the Danish Parliament (Folketinget) and made available to the public.
Below one example is presented from annual reports for the year 2005 showing goal fulfilment
Danish Medicines Agency - Actual performance on externally given targets.
(Relates to point 2 above)
The DMA is a separate agency under the Ministry of Interior and Health. The agency supervises and authorises
medicinal products (medicine and equipment) and advises both users and producers, including surveillance of economy
and consumption of medicinal products.
Overview of actual performance, related to performance contract (year 2005)
Main tasks Satisfactory On the way Un- Dropped
Authorisation of medical products 13 1 3
Controlling and supervision of medicinal 4 1
products and of standardisation
Supervision of secondary effects 2
Authorisation of undertakings 1
Controlling and supervision of 3 1
Clinical trials 3
Collection, distribution and utilization of 1 1
data on medicinal products
Health Assurance grants for medical 4 2
Fields of initiatives 6
Total 32 4 4 1
The DMA considers its contractual performance as overall satisfactory based on a specified results record of 95,6 points
of100 point as potential total. Also 6 ”fields of initiative” included in the performance contract have been fulfilled.
V. Key Challenges and Solutions
The key challenges concerning the development and implementation of the Danish performance
management system have been technical, cultural and institutional issues and only to lesser degree
There has been a wide political support for the reforms and the politicians have not interfered directly
in the negotiations about the performance contracts between the departments and the agencies. This
responsibility has been delegated to the permanent secretary and the agency’s director general who are
also the parties signing the final contract. However, the minister still has the formal responsibility of the
targets in the contract.
One of the main technical challenges is related to measurement, e.g. setting relevant and adequate
targets for the agencies’ core activities, finding accurate measures of the performance and collecting the
right data to evaluate the performance. The reforms have moved towards measuring specific output
and outcome, but the ministries continue to struggle with finding the relevant, valid and reliable
measures. Furthermore, outcomes are often dependent on the interaction of many cross-cutting factors
between the various ministries and agencies. If the targets and measures are not used carefully, there is
always the risk of goal distortion where agencies neglect crucial areas in order to perform better on the
most achievable and measurable targets.
Related to this measurement problem, there is a risk of having a very fragmented performance
management system that only measures the individual agencies’ performance targets and hence lacking
measures for cross-departmental targets. Often the performance of one individual agency is very closely
related to another agency’s performance. In case of a lack of cross-cutting targets there are no
incentives to coordinate activities closely between agencies and ministries.
As part of the solution to the issue of lack of cross-cutting targets, the government in 2005 initiated a
new programme of measuring the development in key policy areas e.g. health, social care, elderly care,
child care, integration etc. Working groups within each policy area with representation from the
relevant ministries were given mandate to set measurable targets and indicators for the outcome in
these areas. The working group should agree on the targets and indicators that several ministries would
be accountable for.
One can add to this point that current government when re-elected in February 2005 launched a
comprehensive programme of work that totalled 55 pages with concrete goals and targets for most
policy areas. This document acts can be said to act as a benchmark for the government’s performance
and naturally provides input to goal settings throughout all policy areas.
An important aspect of the work has been to ensure that the necessary data is collected and that the
data is of a high quality. The problem today in many of these areas is a lack of systematic data from The
National Board of Statistics. Once the ministries agree on the targets and indicators, the process of
measurement can begin. However, the ministries are still struggling with setting up good quality targets
and indicators and agreement with the local authorities has not yet been achieved.
An institutional challenge is related to the very decentralized and sovereign Danish ministerial system
which has not allowed a very centralized and systematic programme implementation approach to
performance management. The reforms have been implemented in a very pragmatic step-by-step
approach which depends a lot on the ministries’ support and willingness to show progress. The
Ministry of Finance cannot prevent the risk that the ministries are setting the targets too low or that the
ministries measure the most achievable outcomes. However, the decentralized Danish system also has a
lot of strengths. The ministries tend to be more loyal to reforms that give a leverage to adapt and tailor
the performance system to their specific needs and it also gives the ministries a sense of ownership of
To sum up the challenge is to find the right balance of between flexibility and accountability.
Furthermore, there is the challenge of using the performance information in the budget processes more
directly than is happening today. The possible pitfalls of the taximeter model can serve to illustrate if
and how a more direct link should be made between performance information and budgets.
The right mix of incentives surely is one area that needs to be focused on. The taximeter model can be
inherently complex and might lack some of the required transparency required if the model should add
to microeconomic steering advantages.
Also the model has an inherent risk of being too automatic – that is the MoF and the Parliament are
unable to control the appropriations except by changing the tariffs with a risk of altering the right mix
Finally the taximeter model is - although complex – a model that measures output in a relatively simple
way. The question is if such a model can be used in all areas of government and if so, whether the
necessary quality of data can be collected. In other words the positive effects of such a model will need
to be very thoroughly weighted against the disadvantages. No thorough analysis has been made in this
Another challenge concerning the relationship between performance measuring and budgets may be
added. A fundamental idea about the introduction of performance-based contracts is to make public
agencies use of resources more transparent. However, it is worth noting that more transparency about
resource level and resource use potentially also can be used in the political process where ministries
negotiate for higher appropriations. In other words the targets introduced in the performance-based
contracts can be used as a lever for a later political process with the MoF. In that sense performance
measuring may not always support a strong control of public spending. On the other hand the Danish
performance management system undoubtedly gives ministries tools that can support more efficient
planning and activity and thereby liquidating resources for other purposes.
As emphasized in the beginning the focus of this paper is the performance management in central
government. However, it is worth mentioning that the major local government reform commencing on
1 January 2007 will be accompanied by an increased focus on performance measurement at municipal
The local government reform creates larger and more viable municipalities. On that basis it has been
decided that the state should base the future dialogue with, and steering of, the municipalities on frames
and result- and effect-targets. This also highlights an increased need for systematic documentation and
evaluation at municipal level. One initiative in that respect is the establishment of a municipal
1 Søren Serrtizlew (2004) ”Taxameterbudgettering, incitamenter og effektivitet ”in Blom-Hansen, Nørgaard, Pallesen (eds.) Politisk ukorrekt, Aarhus: Aarhus