PUBLIC SECTOR INVESTMENT ASSESSMENT

A. PUBLIC INVESTMENT PROGRAM

Before a decision is made to make an investment, to determine the investment needs, an evaluation
which includes:
1. Investment inventory
2. The investment inventory contains a list of names and types of investments, the value of
investments, the condition of existing capital goods, whether good or bad.
3. Service coverage with the current level of investment
4. Additional coverage of services needed now and in the future
5. Inventory investment needs
6. Evaluate investment feasibility
7. The investment eligibility criteria include technical, socio-cultural, financial, economic and
distribution aspects.

B. DETERMINATION OF PUBLIC INVESTMENT NEEDS

Determination of public investment needs related to the amount of the budget to be determined
for each organizational unit. In-depth analysis before investing is very important because public
investment is closely related to issues of transparency and the fairness of the budget. There are several
ways to classify investment proposals. One of the categories is:
a. Replacement investment
b. Investment in additional capacity
c. New investment
Investment expenditure for replacement of capital goods follows the pattern of useful life of
capital goods. Investment in adding capital goods needs to be done if there is a demand to improve service
coverage. Investments can also be in the form of new investments that did not exist before.

C. FEASIBILITY OF INVESTMENT
a. Technical aspects, if an investment proposal is not feasible from the technical aspect, the proposal
takes first priority to be rejected
b. Social and Cultural Aspects, this socio-cultural aspect concerns the distribution of services fairly
and equally, so as to be able to provide great benefits to the community.
 c. Economic and Financial Aspects, economic aspects include the analysis of whether a proposed
project will make a real contribution to overall economic development and whether it has a
significant contribution in determining the use of resources used.
d. Distribution Aspects, investment decisions are decisions that need to be linked to the issue of the
distribution of public services fairly and equally.

D. FACTORS THAT INFLUENCE PUBLIC INVESTMENT

Factors to be considered in a public investment analysis are:
1. The discount rate used
2. Inflation rate
3. Risks and uncertainties
4. Capital rationing

Discount rate, the discount rate reflects the rate of return obtained from a project with a certain
level of risk. If a project does not provide the required rate of return, the project must be rejected.
Calculation of the discount rate is a fairly complex part in investment analysis.

Inflation, the higher the inflation rate, the lower the real value of expected future profits
(expected returns) so that the higher the required profit rate.

Risk and Uncertainty, economic and legal uncertainty, socio-political turmoil, lack of security
guarantees, and inconsistent policies can increase investment risk.

Capital Rationing: a situation when an organization faces an issue with the availability of funds to
make investment expenses. In public sector organizations, in addition to considering the above factors,
the assessment of public investment must also consider the following:
1. The level of government debt
2. The level of social opportunity that is sacrificed (social opportunity cost rate)
3. Social time preference rate
 E. BASIC TECHNIQUES OF PUBLIC INVESTMENT ASSESSMENT
Basically, the principle of investment valuation is very simple. There are four main steps to
evaluating an investment project, namely:
1. Identify possible investment needs
2. Determine all the benefits and costs of the project to be implemented (cost / benefit relationship).
3. Calculate benefits and costs in rupiah.
4. Choose projects that have the greatest benefits and high cost effectiveness
There are several techniques for conducting investment appraisals, which are divided into 2 methods:
1. traditional investment assessment methods
2. discounted cash flow method (DCF)
The steps in carrying out a cost effectiveness analysis are as follows:
1. Determine the amount and time of all capital costs. This includes determining the cost of
buildings, equipment and land. This is important because the resources needed by a project must
be assessed at its full opportunity cost.
2. Make an estimate of the costs that will occur (running cost) for the expected life of a project.
3. Make estimates of measured output over the expected life of a project.

F. UNDERSTANDING PERFORMANCE MEASUREMENT

Public sector performance measurement system is a system that aims to help public sector
managers assess the achievement of a strategy through financial and non-financial measurement tools.
This performance measurement system can be used as an organizational control tool.
The purpose of measuring public sector performance includes:
1. Help improve government performance so that it can focus on the goals and objectives of work
unit programs which will ultimately improve the efficiency and effectiveness of public sector
organizations in providing services to the public.
2. Public sector performance measures are used for resource allocation and decision making.
3. To realize public responsibility and improve institutional communication.
In addition, the legislature uses this performance measure to determine the appropriateness of service
costs (cost of service) that is charged to the public users of public services because they do not want to
always be levied without any increase in the quality and quantity of the service received.
Public sector performance is multidimensional, so there is no single indicator that can be used to show
performance comprehensively. In contrast to the private sector, because the nature of output produced
by the public sector is more intangible output, financial measures alone are not enough to measure public
sector performance.

G. PURPOSE OF PERFORMANCE MEASUREMENT SYSTEMS

The objectives of the performance measurement system include:
1. To communicate the strategy better (top down and bottom up).
2. To measure financial and non-financial performance in a balanced way so that it can be traced to
the development of strategy achievement.
3. To accommodate the understanding of the interests of middle and lower level managers and
motivation to achieve good congruence.
4. As a tool for achieving satisfaction based on an individual approach and rational collective ability.

H. BENEFITS OF PERFORMANCE MEASUREMENT

The following are the benefits of performance measurement:
1. Provide an understanding of the measures used to assess management performance
2. Provide direction to achieve the performance targets set.
3. To monitor and oversee the achievement of performance and compare it with performance
targets and take collective action to improve performance.
4. As a basis for providing rewards and punishment.
5. As a communication tool between subordinates and leaders in order to improve organizational
performance.
6. Help identify whether customer satisfaction has been met.
7. Helps understand the activities of government agencies.
8. Ensuring that decision making is carried out objectively.

I. PRINCIPLES OF SELECTION OF PERFORMANCE SIZE

The following are the things that need to be considered in choosing agency performance
measures in accordance with the indicator scheme:
Re-evaluate existing measures, if the performance indicator scheme is no longer functioning, then
management will develop a new scheme.
Measuring activities that are important, not only results, performance is always results oriented. Yield
measures are often formulated in financial ratios. Achieving results will indicate a problem.
Measurements must encourage work teams that will achieve their goals, the division of the
measurement process creates a work team environment whose activities are directed towards the
achievement of organizational goals.
Measurement must be an integrated device, balanced in its application, measurement system as an
integrated device obtained from the company's strategy.
Measurements must have an external focus if possible, Internal measurements are commonly used in
an organization comparing performance from year to year.

J. MEASUREMENT SCALE
The measurement scale can be divided into four, namely:
a. Nominal Scale (groups or groups are not distinguished by level, because one group cannot be said
to be lower or higher in level than the other groups, but is merely different.)
b. Ordinal Scale (classes or classifications on this ordinal scale can be distinguished level. This means
that one group can be said to be higher or lower than other groups.)
c. Interval Scale (having the same unit of measurement, so the distance between one point and
another, or between one group and another group can be known.)
d. Ratio scale (The ratio scale has an actual zero point which means that if an object is measured by
a ratio scale and is at zero point, then the symptom or trait being measured is completely absent.)

K. PERFORMANCE MEASUREMENT CYCLE

Performance measurement is carried out through the following five stages:
1. Strategic planning: the performance measurement cycle begins with the process of strategic
scaling, which deals with setting a vision, mission, goals and objectives, policies, operational
programs and activities.
2. Creation of performance indicators: the creation of performance indicators is carried out after
the formulation of the strategy. An easy indicator is for activities that can be calculated, for
example the number of claims processed.
3. Develop a performance measurement system: first, ensuring the existence of data needed in the
performance measurement cycle. Second, measure performance with available data and data
collected. Third, the use of collected measurement data must be presented in ways that are
understandable and useful.
4. Improvement of measures: at this stage rethinking the outcome indicators and impact indicators
is more important than rethinking input and output indicators.
5. Integration with management processes: how to use available performance measures effectively
is a further challenge. The use of organizational data can be used as a tool to motivate action in
organizations.

L. INFORMATION USED FOR PERFORMANCE MEASUREMENT

a. Financial Information, the assessment of financial performance reports is measured based on the
budget that has been made. The assessment is carried out by analyzing the variance (difference
or difference) between actual performance and budgeted budget. Analysis of variance outlines
focuses on:
1. Income variance, income variance is all revenue in the form of an increase in assets or a
decrease in debt from various sources in the period of the fiscal year concerned.
2. Expenditures variance, routine shopping variance. Routine budget is a budget provided to
finance activities that are smooth and continuous which are intended to maintain the
weaknesses of the wheels of government and maintain the results of development.
3. Investment / capital expenditure variance (recurrent expenditure variance). Investment /
capital expenditure is expenditure whose benefits tend to exceed one fiscal year and will add
to government assets or wealth, and subsequently will add to the regular budget for
operational and maintenance costs.

b. Non-Financial Information, the Balanced Scorecard Method is a measurement of organizational

performance based on financial and non-financial aspects. The Balanced Scorecard is considered
suitable for public sector organizations because the Balanced Scorecard not only emphasizes the
quantitative-financial aspects, but also qualitative and non-financial aspects. Measurement by
this method involves four aspects, including:
1. Financial perspective (financial perspective)
- Growth (growth): the initial stages of the company's life cycle where the company has the best
growth potential.
- Sustain (survival): the second stage where the company is still investing and reinvesting by hinting
at the best rate of return. At this stage, the company tries to maintain the existing market share,
and even develop it if possible.
- Vest Harvest (harvest): The third stage in which the company actually reaps investment returns in
the previous stages. There is no larger investment, both expansion of new capacity building,
except for expenditure on maintenance and repairs.

2. Customer satisfaction perspective (customer perspective), in this perspective corporate

attention must be aimed at internal capabilities to improve product performance, innovation
and technology by understanding market tastes. In this perspective the role of market
research is very large. The customer perspective has two measurement groups, namely:
- Core measurement group, which has several measurement components, namely: Market share:
This market share represents the proportion of businesses sold by a business unit in a particular
market. This was expressed in terms of the amount of money customers spent or the volume of
units sold.
- Customer Retention: shows the level at which the company can maintain relationships with
customers. Measurements can be made by knowing the magnitude of the percentage of business
growth with customers who are desperate at this time.
- Customer Acquisition: this measurement shows the level at which a business unit is able to attract
new customers to win new business. This acquisition can be measured by comparing the number
of new customers in an existing segment.
- Customer Satisfaction: this measurement serves to measure the level of customer satisfaction
associated with specific criteria in the value proportion.
- Customer Value Proportion which is the trigger for performance found in the Core value
proportion is based on the following attributes:
- Product / service attributes which include product or service functions, price and quality. The
company must identify what the customer wants for the product or service offered.
- Customer relationship is a strategy in which the company makes an approach so that customers
feel satisfied or the products or services offered by the company.
- Image and reputation building image and reputation can be done through advertising and
maintaining quality as promised.
3. Internal process efficiency perspective, in this case the company focuses on three main business
processes, namely:
- The process of innovation
- Measurement of innovation processes that are basic and applied research
 - Measurement of the product development process.

4. Operation Process, in the operational process carried out by each business organization, it is more
focused on the process efficiency, consistency, and timeliness of goods and services provided to
customers.
- After Sales Service, this measurement becomes an important part in internal business processes,
because this after sales service will affect the level of customer satisfaction.

5. Learning and growth perspective (learning and growth perspective), the perspective of learning
and organizational growth is a driving factor for generating exceptional performance in the three
perspectives of the Balanced Scorecard.

Perspectives / Assessed Factors

Mission or Vision, this type of non-financial information can be expressed in terms of key variables. Key
variables are variables that indicate the factors that cause organizational success. Key variable
characteristics, namely:
- Explain the factors that trigger organizational success and failure
- Very volatile (easy to change) and can change quickly
- Changes cannot be predicted
- If changes occur, immediate action needs to be taken
- The variable can be measured, both directly and through an intermediate measure (surrogate). For
example, community satisfaction cannot be measured directly, but measures can be made, for example,
the number of complaints, demands and demonstrations can be used as key variables.

So that performance measurement can be done properly, the following are things that need attention:
a. Make a commitment to measure performance and get started immediately.
The thing that needs to be done by agencies is as soon as possible start the performance measurement
effort and there is no need to expect the performance measurement to be perfect immediately. Later,
improvements to performance measurements will be made.
b. The treatment of performance measurement as an on-going process
c. Performance measurement is an interactive process. This process is a reflection of the organization's
efforts to always improve performance.
d. Adjust the performance measurement process with the organization
The organization must establish performance measures that are appropriate to the size of the
organization, culture, vision, goals and organizational structure.

H. THE ROLE OF PERFORMANCE INDICATORS IN PERFORMANCE MEASUREMENT

Performance Indicators are used as indicators of the implementation of a predetermined strategy. These
performance indicators can take the form of the organization's main success factors (critical success
factors) and key performance indicators (key performance indicators).
The Main Success Factor is an area that indicates the success of the work unit's organizational
performance. This area reflects managerial preferences by taking into account key financial and non-
financial variables at certain time conditions.
Key Performance Indicators are a set of indicators that can be considered as key performance measures
both financial and non-financial in nature to carry out operations and performance of business units. This
indicator is used by managers to detect and monitor performance achievements.
Components used in determining performance indicators:
a. Service fee (cost of service)
Cost indicators are measured in terms of unit costs (unit cost),
b.Usage (utilization)
This indicator compares the number of services offered (supply of service) with public demand (public
demand).
c. Quality and service standards (quality and standards)
This indicator is the most difficult indicator to measure because it involves subjective considerations.
d. Service Coverage
This indicator needs to be considered if there are policies or laws that require providing services with a
minimum level of service that has been set.
e. Satisfaction
Satisfaction indicators are measured through the poll method directly.

I. VALUE FOR MONEY PERFORMANCE AND MEASUREMENT INDICATORS

Public Sector Performance Management states the characteristics of performance indicators as follows:
a. Simple and easy to understand,
b. Can be measured,
c. Can be qualified, for example in the form of a percentage and number ratio,
d. Beaten with performance standards or targets,
e. Focusing on customer service, quality and efficiency,
f. Regularly reviewed.
Value for money is a concept of managing public sector organizations that are based on three main
elements, namely economy, efficiency, and effectiveness.
Value for money is the core of performance measurement in government organizations. The problem that
is often faced by the government in measuring performance is the difficulty of measuring output because
the output produced is not always tangible output but more intangible output. To be able to measure
government performance, it is necessary to know performance indicators as a basis for performance
appraisal. The mechanisms needed to determine performance indicators include:

1) Planning and controlling system

Includes processes, procedures and structures that guarantee that organizational goals are explained and
communicated to all parts of the organization using a clear chain of command based on the specifications
of the main tasks and functions, authorities and responsibilities.
2) Specifications and standardization
The performance of an activity, program, and organization is measured using detailed technical
specifications to provide assurance that the technical specifications are used as an assessment standard.
3) Technical competence and professionalism
To guarantee the fulfillment of established technical specifications and standardization, it is necessary to
have personnel who have technical and professional competence at work.
4) Economic mechanisms and market mechanisms
The economic mechanism is related to financial reward and punishment, while the market mechanism is
related to the use of resources that guarantee the fulfillment of value for money. Performance measures
are used as a basis for giving rewards and punishment (coaching tools).

DEVELOPMENT OF VALUE FOR MONEY INDICATORS

Value for money indicators are divided into two parts, namely: cost allocation indicators (economic and
efficiency), and service quality indicators (Effectiveness
a. Three points in the value for money indicator:
• Economy
Economics is the practice of purchasing goods and service inputs with a certain level of quality at the best
possible price (spending less).
• Efficiency
Efficiency measurements are carried out using a comparison between the output produced against the
input that is used (cosh of output), and can be said to be efficient if a particular product or work can be
achieved by using resources and funds as low as possible (Spending well).
• Effectiveness
Operational activities are said to be effective if the activity process reaches its final policy goals and
objectives (spending wisely).
From the description above, the value for money is very related. Economics discusses input (input),
efficiency discusses input, output, and effectiveness discusses output (output) and impact (outcome).
L. MEASURES OF VALUE FOR MONEY
Economic Measurement
Economic measures only consider the input used and are a relative measure.
Measurement Efficiency
Efficiency can be measured by the ratio between output and input.
Efficiency ratio is not stated in absolute form but in relative form, because efficiency is measured by
comparing outputs and inputs, efficiency improvements can be made by:
- Increase output at the same input level
- Increase output in a proportion greater than the proportion of increased input.
- Reducing inputs at the same level of output.
- Reducing inputs in a proportion greater than the proportion of decreasing output.
Effectiveness Measurement
Effectiveness is a measure of whether or not an organization achieves its goals. If an organization succeeds
in achieving its goals, the organization is said to have run effectively.
Outcome Measurement
Outcome is the impact of a program or activity on the community. Outcome is higher in value than output,
because output only measures results without measuring their impact on society, while outcomes
measure the quality of outputs and the resulting impact (Smith, 1996)
Estimated Performance Indicators
Estimation can be made using:
a. Last year's performance
Used as a basis for estimating performance indicators.
b. Expert Judgment
Expert judgment is used to estimate performance depending on the subjective views of decision makers.
c. Trend
Used in estimating performance indicators because of the influence of time in achieving work unit
performance.
d. Regression
Regression is done to determine how much influence the independent variables can influence the
dependent variable.
Considerations in Making Performance Indicators
There are three types of policy outcomes, namely: output, effect, impact and benefit distribution. The
output produced is expected to have a number of positive effects and impacts on program objectives.
This is called program outcome.