Government Budgeting: PPBS To

Performance-Based Budgeting
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Introduction

In this modern-day, money management has higher level of importance. Budgeting plays an
important role in controlling operations in an efficient and effective way. Basically, budgeting is
divided into two different entities namely public entities and private entities. It is important to divide
budgeting into classes since the entire budgeting process involves different bodies in the
governmental system. The involvement of different bodies is needed for some stages in the
budgeting namely preparation, negotiation and approval. Furthermore, it also plays an important role
in spending approval after the budget allocation is completed. Compared to the private sector, this
budgeting system is more complex.
Traditional budgeting system has given a lot of contributions to the government. However, the
methods are considered to be unsuitable as business grows faster. For more than 30 years,
government has used many different budgeting approaches such as the Line-item Budgeting,
Program Budgeting and PPBS Budgeting. These traditional budgeting methods offer advantages but
lately it is found that they fail to meet business demand. Traditional budgeting systems only present
little information to decision makers; usually it estimate the forthcoming expenditure based on the
previous budgeting plan. With the numerous weaknesses that traditional budgeting offers,
organizations consider that these tools are not able to help them achieve goals more effectively.
To help the developing nations restructuring their budgeting and spending process, World Bank has
created new model of budgeting system. The new model has triggered public sector to understand
and finally adopt new budgeting system.
This new budgeting method emerges to improve the traditional one. This new model evaluates that
the former ways of analyzing and utilizing budget figures are not enough. In the traditional method,
the budgeting analysis is considered to be very simple. Organizations only build up their long-term
projects and break the projects into the estimated annual budget. Then, budget figures are
compared with the project results. This method has some drawbacks especially on how to adjust
similar budget figures for the upcoming periods.
This new budgeting system approach offers sophistication over the traditional one. To describe how
this new method works, the governmental project in enhancing children welfare in a remote area can
be the example. For this long-term project, governments have to decide the objectives and activities
needed to reach the goal.
To achieve the project goals, the government may make improvement on the schools and send
trainers to succeed the educational programs. The long-term projects then broken down into annual
budgets that combine monetary figures. When the long-term projects are completed, the traditional
method in measuring the success of the project is by calculating on the gap between the budget and
the money spent.
The new budgeting approach offers more sophisticated methods but the goals to achieve are also
more difficult. The governments should be certain if they had been successful in helping the children
in the remote area. Besides, governments should be able to determine the expected cost.

Performance-Based Budgeting
The new budgeting system that some nations start to adopt is called Performance-Based Budgeting
System. This is a budgeting system that links the funding of public sector organizations to the
expected goals. In other words it can be said that performance budgeting system is a way to allocate
budget to achieve goals of certain projects. Therefore, they key of this new budgeting system is
"result".
This new budgeting system has some purposes. The first purpose is to communicate the expected
result of a budget allocation. Meanwhile, the second purpose is to link budget and project results.
There are five steps in performance-based budgeting: (1) establish the expected outcomes; (2)
select the measurement of project result; (3) define a goal; (4) to provide written account of project
result; (5) perform consequences.
This new budgeting system also offers some benefits:
1. It focuses resources toward the most important result. Thus, it increases the effectiveness of
government operations.
2. Government would be more accountable in deciding program that affects budget result.
3. Improve the understanding on important issues.

Achieving PBB
Performance-based budgeting requires Key Performance Indicators. KPI is a technique used by an
organization to evaluate the success of certain projects. To choose the right KPIs, an organization
should understand the aspects that are important for them. In some organizations, performance
indicator selections are often similar to the techniques that are used to assess the current condition
of a business and its main activities.
Performance-based budgeting links the performance indicators established by an organization to
resources. This process is almost the same as Corporate Performance Management (CPM)
framework in which the project plans are measured. Those two frameworks offer policy similarities
that are worth to analyze. Unfortunately, CPM framework doesn't get much attention in the area of
performance-based budgeting. The CPM framework technical foundation is actually a great means
to explain a better budgeting approach that is addressed for public sector and commercial
companies.

Performance-Based Budgeting System Challenges

This new budgeting method is considered to be appropriate initiative for all countries. However,
countries need to evaluate some aspects before implementing this new budgeting method. It is
important to evaluate the governance, human resources and the current situation of public financial
management.
The implementation of this budgeting system has just started in some developing countries; one of
them is Indonesia. To make the implementation process runs easier, Indonesia can learn the
experience of other countries in implementing this budgeting method.
In adopting the new system, there are challenges that Indonesia has to face:
1. The parliament plays an important role in determining budgetary policies and designing the annual
budget.
2. Government finds difficulties in measuring performance indicators.
There are more challenges in the process but the good news is that developing nations like
Indonesia is starting to reform their budgeting system. Indonesia is in the early stage of
implementing this system but several progresses have been made. Currently, this nation has been
selected pilot ministries to assist the implementation of this new budget method. New legal
framework has been laid and The Directorate General of Budget of the Ministry of Finance of
Indonesia has been assigned to succeed the budgeting reform.