analysis of Performance based budgeting implementation in local government

1. Thesis Seminar
Analysis of Performance Based
Budgeting Implementation in Local
Government Institution (Case Study in
Bukittinggi Local Government)
Thesis Advisor :
Mr. Efa Yonnedi, SE, MPPM, Phd, Ak.
By:
Sari Haryanti
07 153 128

2. Research Background
The enactment of legislation package in the field of Public
Finance  foundation for the implementation public
financial management sector reform : PBB, MTEF and
Unified Budget
Ministry of Home Affairs Regulation (Permendagri) No.
29/2002 on technical guidance in
arranging, implementating until reporting of
implementation PBB
Indonesian Ministry of Finance, 2008  The
Performance based Budget approach has been
adopted and implemented, but it has
encountered several obstacles
Chapter I. Introduction

3. Research Problem
• To what extent has Bukittinggi City
implemented Performance Based
Budgeting since 2002?
• What are the factors that influence
implementation of Performance
Based Budgeting in Bukittinggi Local
Government?
Chapter I. Introduction

4. Research Objective
• Conducting studies in general
towards performance based
budgeting in Bukittinggi Local
Government compared with Benefit of research
the theory and regulation • Get an overview of
achievement preparation and
• Identify the factors that implementation of PBB in
influence the implementation Bukittinggi Local Government
of Performance Based • Knowing the factors that
Budgeting in Bukittinggi Local influence implementation of
Government PBB in Bukittinggi Local
Government
• As the basis for further
research on the preparation
and implementation of PBB in
Indonesia, specifically in
Bukittinggi Local Government
Chapter I. Introduction

5. Theoretical Framework
2.1. • Definition Of Performance-Based Budget
2.2. • Principles For Performance-Based Budget
2.3. • Elements Of A Performance-Based Budgeting
2.4. • Supporting Elements Of Performance Based Budget
2.5. • Performance-Based Budget Precondition
2.6. • Benefit And Challenges Of Performance Based Budgeting Application
2.7. • Performance-Based Budget Formulation
2.8. • Relationship Between Strategic Planning, PBB And The MSS
2.9. • Case Study from Others Countries
2.10. • Previous Research Analysis
Chapter II Theoretical Background

6. 2.10.Previous Research Analysis
Haoran • Performance Budgeting Resuscitated:”why is it still inviable?”
Lu (1998) • Journal of Public Budgeting, Accounting & Financial Management ; Summer 1998;10,2
• Condition to implement outcome-oriented performance budgeting: some empirical
Xiao Hu Wang evidence.
(1999)
• Journal of Public Budgeting, Accounting & Financial Management, winter 1999;11,4
Marc • Best practice in Performance Budgeting
Robinson
(2002) • Discussion Paper no.124 November 2002, Queensland University of Technology
M. Aris • Factors that influence PBB planning in DKI Jakarta Province
Firmansyah • University of Indonesia
(2007)
• Phenomenology study to Local Budget Preparation Process, Empiric evidence from
Sri Rahayu & 1 work unit in in Jambi Province
friends (2007)
• Simposium Nasional Akuntansi X, UNHAS Makasar 26-28 Juli 2007
• The performance budgeting process phenomenon studies at Local Government of
Nuraeni Temanggung.
Utari (2009) • Thesis for magister Accounting UNDIP
Ari Eko • Implementation of Performance based budgeting : phenomenon studies (case
Widyantoro study at Diponegoro University)
(2010) • Thesis for magister Accounting UNDIP
Chapter II Theoretical Background

7. Research Design
• Aims to
investigate
implementation •Respondent:32 •Respondent : 2
of PBB in head department members of
Bukittinggi LG and staff of budgeting team of
Bukittinggi Local
• Qualitative planning & finance Government and 1
approach which subunit in work member of
is descriptive units (SKPD) in budgeting team
analysis research. Bukittinggi Local from DPRD
• Conducted from Government
March 2011 until
June 2011at local
government In-depth
Questionnaire
Institution in Interview
Bukittinggi city.
Research
Objectives
Chapter III Research Design

8. Data Analysis Method
1) validity test : triangulation; include methods, sources and data
Method Triangulation Question interview
Source Triangulation naire
Head of Regional Development Planning and Investment - √
(BAPPEDA & PM)
Secretary of Finance and Asset Management Regions - √
Vice Chairman of Bukittinggi House of Representatif - √
Head of Budget Department of Finance and Asset Management √ √
Regions (DPKAD)
Secretary of Regional Development Planning and Investment √ -
(BAPPEDA & PM)
Head of planning & finance Department in unit work √ -
Head of economic & development Department √ -
Staff of planning Department √ -
Staff of finance Department √ -
Chapter III Research Design

9. Questionaire
• level respondent knowledge on PBB: (1)gives score
1 for each correct answer and score 0 for each
incorrect answer,(2)analyzed through mean
In-depth Interview
method aimed to finds the average score (mean)
and categorized based on: the score exceeds
average shows high knowledge, and below average The process and analysis of the data are
means low knowledge(3) the find percentage of
conducted with the following ways:
each variable question for detail information.
• Item implementation of some steps in making • Describe the informant
budget and element of PBB , used scoring system: 1 • Collect all the data obtained from
for never, 2 for seldom, 3 for sometimes, 4 for sources
usually, and 5 for always. To analyze the answers • Organize and create a sequence of data
from the respondent, reasearcher also used mean in accordance with the purposes of
method. research
• Item of the challenges in the implementation of
• Categorize data which has similar
performance-based budgeting in Bukittinggi Local
characteristics or patterns
Government:defines the frequency then finds the
percentage • Summarize in the form of matrix
• Item of solutions that officer have done and • Analyze each items and then analyzes
recommendations : analyzed by making a list and refer to the theory and the results of
group of respondent answer. other studies
Chapter III Research Design

10. • 4.3. Results and Discussion
• 4.1.General Description of
Bukittinggi Budget Institution • 4.3.1. Respondent Knowledge
=> TAPD and BANGGAR
Table 4.4
Frequency Distribution of Budget
• 4.2. Respondent Description Preparation Process
a. Questionnaire Respondent
Table 4.2.
Frequency Distribution of Questionnaires Respondent Frequen Percentage
Respondent Knowledge on PBB
Knowledge cy
Respondent Frequ Percentage High 15 46.9%
Education ency
Low 17 53.1%
Senior High School 1 3.1%
total 32 100%
Diploma III 1 3.1%
Bachelor Degree 20 62.5%
Master Degree 10 31.3%
total 32 100%
b. In-depth interview Respondent
All respondent educational
background : Master degree Chapter IV. Result & Discussion

11. Table 4.3
Percentage of Respondent Knowledge on PBB
No Statement % True % False
1 Budgets are prepared in accordance with the requirements and ability of local revenue 100 0
2 Preparation of Budgets guided by RKPD in order to realize a service to the community to achieve the purpose of the state 100 0
3 Budget function : function of planning, supervision, allocation, and distribution 93.8 6.2
4 Budget, budget changes, and accountability for implementation of the budget each year is determined by local government 90.6 9.4
regulations
5 Local expenditure which used for government activity authorize by province or regency/city consist of obligatory affair which 12.5 87.5
stated by regulation
6 Total revenues are budgeted in the budget are estimates measured in a rational way that can be achieved for each source of 96.9 3.1
income
7 All local government income, local expenditure, and local funding are budgeted on a net basis in the budget 21.9 78.1
8 In preparing the budget, budgetary expenditures should be supported by the estimating of revenue availability in sufficient 9.4 90.6
quantities
9 RPJMD for a period of 5 (five) years are the elaboration of the vision, mission and programs of regional head of the preparation 96.9 3.1
is guided by the Regional RPJP with due regard to National Development Plan and minimum service standards set by the
government
10 RKA-SKPD prepared using the approach of regional medium-term expenditure framework and integrated budgeting 56.3 43.8
11 What is a performance based budget? 78.1 21.9
12 Which is not including the principles of performance based budget 'Value for money'? 25 75
13 The appropriate elements of PBB is 34.4 65.6
14 The supporting elements of PBB, except 18.8 81.3
15 Performance-Based Budget Preconditions By Allen Schick, except ... 18.8 81.3
16 The newest rules are still used as a regional financial guidance is ... 37.5 62.5
17 Which is includes Income Balance Fund based on article 23 of Government Regulation Number 58 of 2005 75 25
is, except ..
18 Local government expenditure referred to in Article 20 paragraph (3) Government Regulation Number 58 of 50 50
2005 are classified according to ..., unless..
19 Which does not include local funding in Article 28 of Government Regulation No. 58 year 2005 are 37.5 62.5
20 The rules are guidelines for the preparation of budget year 2010 is... 50 50

12. 4.3.2. Analysis of Budget Preparation Process in
Bukittinggi Local Government
4.3.2.1. Budget Process
4.3.2.3. Time Realization in
Table 4.4
Budget Preparation
Frequency Distribution of Budget -Almost all respondent said
Preparation Process there is a delay in the
Budget Frequen Percentage implementation the time
Preparatio cy allocation of buget preparation
n process
- Reason : late audit BPK
Good 17 53.1%
results, inability of SKPD staff
Not Good 15 46.9% and less of discipline in running
total 32 100% the agreed schedule
4.3.2.2. Time Allocation in The Budget Process
In line with regulation & theory time allocation in
making budget is started by collecting society
aspiration which called Musrenbang since Januari
untill March, after that the latest discussion held on
April, then on June all document entered to DPRD
and on November it has been legally authorized for Chapter IV. Result & Discussion
next year budget

13. 4.3.3. Analysis of Performance Based Implementation
in Bukittinggi Local Government
• 4.3.3.1. Early implementation of PBB : since 2001and also chatagorized as the first region that
implemented it
• 4.3.3.2. Implementation of PBB in Bukittinggi Local Government : based on theory and
regulation : in practice there are several things that are still inappropriate with the rule such as
additional activity plan in mid of budgeting year; doing the stages not on time; It is already
appropriate format, clear input, outputs, outcomes but still cannot identify impact and benefit;
• 4.3.3.3. Analysis of PBB Precondition in Bukittinggi Local Government : Bukittinggi already has
performance measurement system and good integrated accounting system; financial audit
system is regularly done by BPK and Bawasda
• 4.3.3.4. Vision, Mission and Activities Alignment : all document already has correlation each
others
• 4.3.3.5. Reward and Punishment : for reward and punishment is already existed, in term of
professional allowance. There is a performance measurement for every unit work even for
every employee, but in realization the follow-up of this report score is still not good.
• 4.3.3.6. Standard Cost : it’s stated by major regulation
• 4.3.3.7. Work Contract : The work contract exists between Major of bukittinggi with the
headman of each work unit ,but in realization, this work contract is not maximal
• 4.3.3.8. Performance Evaluation : Performance evaluation already implemented in Bukittinggi Local
Government, even for staff, SKPD and the major , there is a problem in following-up the evaluation
result, related SKPD only can send reminding letter and cannot give a punishment
Chapter IV. Result & Discussion

14. 4.3.4.Challanges in the Implementation of PBB
Questionnaire
Table 4.6 In-depth interview
Frequency Distribution of Challenge in - human resources: weakneses
the Implementation of PBB of internal condition such as
less discipline, less
N Constraints Frequ Percent commitment, problems in
o encies age placement of staff,
1 Lack of socialization and training of PBB 8 8.25%
- regulation : always changes,
2 Lack of knowledge/ understanding civil 26 26.8% personnel regulation which
servant about PBB asks the staff to move to other
3 Lack of motivation on employees to apply 19 19.59% work units in order to get
the maximum PBB advance career
4 There is no clear setting standard 18 18.56% - Besides concerning to the
performance implementation budget this
5 The limited availability of local budgets 10 10.31% year, at the same time staff
6 Lack of expertise 7 7.22% should concern in making next
year budget as they have
7 The budget team has not been fully 9 9.28%
double jobs in the same time
involved at every stage of budget
planning process
Chapter IV. Result & Discussion
Total 97 100%

15. 4.3.5. How Bukittinggi Local Government Address the Challenges?
Questionnaire In-depth Interview
• Socialization and workshop about • making an agreement with
PBB
• Consultation with unit work that major
related to budgeting process, such
as Regional Development Planning • done training for staff
and Investment (BAPPEDA & PM)
and Department of Finance and • evaluation
Asset Management Regions
(DPKAD)
• Consultation with budget team of
Bukittinggi local government
• Find literature and regulation
related to PBB
• Try to understand list of jobs as a
basis of implementation PBB
• Give assistance to unit work
• Create circular letter for all work
unit to collect RKA on time based
on schedule
Chapter IV. Result & Discussion

16. 4.3.6.How to Improve Performance Based Budgeting Implementation in Bukittinggi
Local government
• For human resources : creating professional team in planning and
preparing budget based on existing regulation, importing professional
team to Bukittinggi for socializing and facilitating the preparation of
PBB, recombining perception each element that involved in prepare
budget about meaning of PBB, giving motivation for all staff to understand
PBB, giving technical instruction and routine assistances for preparation
budget process, developing a mindset about PBB, and the commitment
between chairman and staff about expenditure used based on PBB
Increase quality of human resources.
• For system and condition should be exist : creating clear standard and
manual direction for PBB implementation, unit work should follow all
regulation until the detail part of implementation PBB, making a relation
between implementation of PBB with reward and punishment
system, implementing review and evaluation for every program, all
expense appropriate with achieved output ,managing all resources
effectively and efficiently.
• For regulation and manual from central government : need clear indicator
standard, technical direction/manual from central government, central
government also give an example of consistent implementation of PBB
Chapter IV. Result & Discussion

17. • Performance based budgeting has already implemented in Bukittinggi Local Government
Conclusion
1
since 2000. The first implementation already good because of direct supervision from
ICMA (International City/Country Management Association) in cooperation between
Ministry of Finance, Ministry of Home Affairs and USAID. It’s implemented due to strong
commitment between the Bukittinggi Major and staffs who’s did it still has strong
commitment.
• The respondent has low knowledge on budget and PBB which indicated by 53.1 % of them get score under average. Most
2
of them has wrong answers in important part of PBB such as: the estimation of revenue availability in sufficient quantities;
local expenditure which is used for government activity authorized by province or regency/city consists of obligatory affair
which is stated by regulation; the supporting elements of PBB; performance-based budget precondition; all local
government income, local expenditure, and local funding are budgeted on a net basis in the budget; the appropriate
elements of PBB; the newest rules is still used as a regional financial guidance; and which does not include local funding in
Article 28 of Government Regulation No. 58 year 2005.
3
• Bukittinggi Local Government has followed the stages that regulate by regulation and theory in implementation of
performance based budgeting. All of those stages are done but the quality is questionable. The most challenge in
the implementation is commitment to do all stages based on agreed schedule with maximum quality. There are
many things to be evaluated such as: human resources aspects (lack of knowledge, lack of discipline, lack of
commitment in implementation PBB based on regulation, inappropriate of employee placement, and lack of
expertise on accounting/planning), system and precondition should be exists (performance measurement system,
wok contract system, internal control system not implement effectively), and regulation that always changes in
short time.
• Key factors that influence the implementation of PBB in Bukittinggi :Human resources: knowledge on
4
PBB, staff discipline, understanding of their own job responsibility, quality of human resources, right
placement of employee, and strong commitment in implementation PBB based on regulation;System
and precondition : clear standard and manual direction of PBB and the availability of budget funds;
Regulation : changes in regulation from central government (Ministry of Home Affairs regulation and
other regulation on it)
Chapter V. Conclusion

18. Recommendation
• the local government should first concern to the employee
Human that related to implementation PBB. Such as good placement
of staff based on competencies (right man in the right
Resources place), give enough understanding and motivation to
increase the quality of PBB implementation
• The regulation should not always change. We need to
implement it then evaluate the result, after that change
Regulation can be done if some improvement is needed..
• reward and punishment, work contract, high commitment, the
System & firmness of headman consistency to obey the rule. After that, there
pre- should be an evaluation for the implementation of performance
based budgeting and decision about what will be done to make
condition everything in PBB is getting better.
Chapter V. Conclusion

19. Limitation of research
Chapter V. Conclusion

20. THANK YOU FOR
YOUR ATTENTION