Establishing a Baseline for Running Cost Potential Methodology

Presented by Michael Hunter Budget Advisor, Australian Department of Finance and Deregulation

Example of a Baseline
Baseline is the cost of implementing the current Government policy over the Budget year and forward years.
It is the starting point for an MTEF. For Example, the baseline for an aid program is ($m): 2008 43.2 2009 62.6 2010 186.3 2011 248.2

National Literacy program

(i) Running Cost

Definition:

Are those costs that could be under the control of managers to allow flexibility in the use of inputs in order to get more efficient program delivery (e.g personnel and materials expenditure)

Running Cost Steps for Establishing the Baseline

1. Identify running cost versus non-running cost 2. Identify length of program 3. Enter Input Costs Items & Volumes for the Budget Year and Forward Years 4. Map account codes of inputs into Expense Groups that have similar cost drivers (used for projecting prices, external control under PBB) 5. Ministry of Finance to apply parameters to the prices over the forward years.
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1. Identify running cost versus non-running cost

Identify whether the program and all its elements are running cost or non-running cost. If there are multiple elements, than each element needs to have the baseline established separately.

2. Identify length of program

Identify Government policy to determine if the program is either terminating in a particular year or ongoing policy. MTEF is based on budgeting for the Budget Year and over the four forward years.

3. Enter Input Costs & Volumes for the Budget Year and Forward Years

Volume over the Forward Years will usually be constant. If the Government wants to undertake additional work during the Forward Years, than that will be New Policy. MTEF is based on Existing Policy only.

4. Map account codes of inputs into Expense Groups that have similar cost drivers (used for projecting prices and external control under PBB) As an example, Expense Groups can include (but not limited to):
Salary & Allowance Honorarium Goods Services Maintenance Travel

For example: Under Goods you could group the following inputs:
BELANJA KEPERLUAN PERKANTORAN/ Expenditure for office supplies

BELANJA PENGIRIMAN SURAT DINAS POS PUSAT / Expenditure for letter shipping by mail

BELANJA BARANG OPERASIONAL LAINNYA / Expenditure for Other operational goods

BELANJA BARANG NON OPERASIONAL LAINNYA / Expenditure for other non-operational goods

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For example: Under Services you could group the following inputs:
BELANJA SEWA/ Expenditure for Rentals BELANJA JASA PROFESI / Expenditure for Professional Services BELANJA JASA LAINNYA / Expenditure for Other Services

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Mapping Inputs to Expense Groups

For Example:

MAK Code 511XX 512XX 521XX 522XX 523XX

Expense Group Salary

Goods Expenditure

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5. Ministry of Finance to apply parameters to the prices for the forward years. Expense Group Goods Services Travel Maintenance Parameter C.P.I (inflation) C.P.I C.P.I C.P.I

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Application of Parameters C.P.I

2009 8.50%

2010 8.50%

2011 9.00%

2012 9.00%

2013 8.50%

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Total Expenses Salary & Allowance Honorarium Goods Services Maintenance Travel Application of Parameters Salary & Allowance Honorarium Goods Services Maintenance Travel TOTAL

2009 29,368,010 1,223,980 8,091,555 8,307,455 3,192,239 27,862,854 2009 29,368,010 1,223,980 8,091,555 8,307,455 3,192,239 27,862,854 78,046,093

2010

2011

2012

2013

2010 29,368,010 1,223,980 8,779,337 9,013,589 3,463,579 30,231,197 82,079,692

2011 29,368,010 1,223,980 9,569,478 9,824,812 3,775,301 32,952,004 86,713,585

2012 29,368,010 1,223,980 10,430,730 10,709,045 4,115,079 35,917,685 91,764,529

2013 29,368,010 1,223,980 11,317,343 11,619,314 4,464,860 38,970,688 96,964,195

2009 MTEF Baseline 78,046,093

2010 82,079,692

2011 86,713,585

2012 91,764,529

2013 96,964,195

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Important Features of this Methodology

The key features required for Indonesia to implement this methodology is: * Classify running cost or non-running cost * Agree on Expense Groups (also for PBB) * Develop and assign parameters for the Expense Groups * Calculate parameters for the Budget Year and Forward Years