What is one function of performance measures in budgeting?

Performance measures in budgeting serve several critical functions, one of which is to evaluate efficiency and effectiveness. This process allows organizations to assess how well resources are being utilized in achieving specific goals and objectives. By establishing clear performance metrics, managers can understand not only how much is being spent but also the outcomes associated with those expenditures.

Evaluating efficiency involves analyzing the relationship between inputs (such as funding and resources) and outputs (such as services delivered or programs implemented) to determine how effectively resources are allocated. Effectiveness looks at whether those outputs actually achieve the desired outcomes or impacts. This evaluation is fundamental in guiding future budgeting decisions, ensuring that funds are directed toward programs and initiatives that yield the best results.

The other functions listed, while important in their own right, do not directly reflect the primary role of performance measures in budgeting. For instance, ensuring compliance with regulations may be a necessary aspect of budgeting, but it relates more to governance than to the evaluation of resource use and outcomes. Similarly, restricting spending doesn't align with the purpose of performance measures, which focus on outcomes rather than limiting financial resources. Lastly, increasing deficits is generally contrary to the goals of budgeting and performance evaluation, which typically aim for fiscal responsibility and sustainable financial practices.