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The purpose of this paper is to provide a dynamic model for implementing performance-based budgeting (PBB) in Ministry of Health and Medical Education (MOHME) in Iran.

The insights from PBB, organizational theory and theory of system were integrated based on system dynamic approach. The primary data were gathered in a two-step process through in-depth interviews and focus groups. The data gathered from the interviews were analyzed using thematic analysis and were considered as a basis for modeling based on system dynamic. The dynamic model was verified in the MOHME of Iran based on the data gathered from the focus group.

An analytical implementation model was adopted for the PBB, including comprehensive variables at both external (country) and internal (organizational) levels and accordingly the relationships were established among these variables based on system dynamics (SD). In addition, verifying this model in the MOHME of Iran sets the stage for gaining a deeper understanding of what is required for successful implementation of PBB.

This paper introduces an efficient modeling methodology based on SD, which explains how soft methodology can be used in management science for designing an implementation model of PBB in healthcare sector of Iran.