Government Budgeting: PPBS to Performance Based Budgeting

Introduction
 
In this modern age, money management has a higher level of importance. The budget plays an important role in controlling the operations in an efficient and effective manner. 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 budget process involves different organs of the government system. The involvement of different agencies is needed at some stages of budget development, namely preparation, negotiation and approval. Furthermore, it also plays an important role in spending approval once the budget allocation is completed. Compared to the private sector, this budget system is more complex.

The traditional budget system has given many contributions to the government. However, the methods are considered inadequate as the business grows faster. For more than 30 years, the government has used many different budgeting approaches, such as the line item budget, the program budget, and the PPBS budget. These traditional budgeting methods offer advantages, but lately they have been found to be falling short of business demand. Traditional budgeting systems present only little information to decision makers; You generally estimate upcoming expenses based on your previous budget plan. With the many weaknesses that traditional budgeting offers, organizations find that these tools are not capable of helping them achieve goals more effectively.

To help developing nations restructure their budgeting and spending process, the World Bank has created a new model budgeting system. The new model has caused the public sector to understand and finally adopt the new budget system.

This new budgeting method arises to improve the traditional one. This new model assesses that the previous ways of analyzing and using budget figures are not enough. In the traditional method, budget analysis is considered very simple. Organizations only build their long-term projects and divide the projects into the estimated annual budget. The budget figures are then compared with the results of the project. This method has some drawbacks, especially on how to adjust similar budget figures for the next periods.

This new approach to the budgeting system offers sophistication over the traditional one. To describe how this new method works, the government project to improve the welfare of children in a remote area can be an example. For this long-term project, governments have to decide on the objectives and activities needed to reach the goal.

To achieve the goals of the project, the government can make improvements to schools and send trainers to succeed in educational programs. Long-term projects were then broken down into annual budgets that combine monetary figures. When long-term projects are completed, the traditional method of measuring project success is to calculate the gap between budget and money spent.

The new budget approach offers more sophisticated methods, but the goals to be achieved are also more difficult. Governments need to be sure if they have been successful in helping the children in the remote area. In addition, governments should be able to determine the expected cost.
 
Performance Based Budgeting

The new budgeting system that some nations are beginning to adopt is called the Performance Based Budgeting System. This is a budgeting system that links the financing of public sector organizations with the expected goals. In other words, it can be said that the performance budgeting system is a way of allocating budget to achieve the objectives of certain projects. Therefore, the key to this new budget system is the “result”.

This new budgeting system has a few purposes. The first purpose is to communicate the expected result of a budget allocation. Meanwhile, the second purpose is to link the budget and the results of the project. There are five steps in performance-based budgeting: (1) establish the expected results; (2) select the project outcome measure; (3) define a goal; (4) report in writing the result of the project; (5) perform consequences.

This new budgeting system also offers some benefits:

1. Focus resources on the most important result. Thus, it increases the effectiveness of government operations.

2. The government would be more responsible when deciding the program that affects the result of the budget.

3. Improve understanding of important topics.
 
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 must understand what is important to them. In some organizations, performance indicator selections are often similar to techniques used to assess the current condition of a business and its core activities.

Performance-based budgeting links performance indicators set by an organization with resources. This process is almost the same as the Corporate Performance Management (CPM) framework in which project plans are measured. Those two frameworks offer policy similarities worth exploring. Unfortunately, the CPM framework doesn’t get much attention in the area of ​​performance-based budgeting. The technical basis of the CPM framework is actually an excellent means of explaining a better approach to budgeting for the public sector and commercial companies.
 
Challenges of the performance-based budgeting system

This new budgeting method is considered an appropriate initiative for all countries. However, countries need to evaluate some aspects before implementing this new budget method. It is important to assess governance, human resources and the current state of public financial management.

The implementation of this budget system has just started in some developing countries; one of them is Indonesia. To facilitate the implementation process, Indonesia can learn from the experience of other countries in implementing this budgeting method.

In adopting the new system, there are challenges that Indonesia must face:

1. Parliament plays an important role in determining budget policies and designing the annual budget.

2. The government finds it difficult to measure performance indicators.

There are more challenges in the process, but the good news is that developing nations like Indonesia are beginning to reform their budget system. Indonesia is in the initial stage of implementing this system, but several advances have been made. Currently, this nation has been selected as pilot ministries to assist in the implementation of this new budgeting method. A new legal framework has been established and the Directorate General of Budget of the Indonesian Ministry of Finance has been assigned to carry out the budget reform.