LECTURE 7: DECISION MAKING (6 PG)

 Decision Making: selecting one course of actions from various alternatives. It cannot be divorced from planning process
• Herbert Simon task of deciding spread throughout entire administrative org quite as much as task of doing indeed, it is generally tied up
with the latter
• Process or sequence of activities involving: Stages of problem recognition, Search for info, Definition of alternatives
& Selection of actor of one from 2 or more alts consistent with ranked preferences.
 Theory of Decision Making in Public Sector: Decision-making theory is a theory of how rational individuals should
behave under risk & uncertainty. A rational person is someone who is sensible & able to make decisions based on
intelligent thinking rather than on emotion. Theory suggests that it means the adoption & application of rational choice
for the management of a private, business, or govt org in an efficient manner. Making a decision is choosing b/w
alternative courses of action. Can even mean choosing b/w action & non-action. Theory also considers psychological
aspects that classical economists overlooked. Internal factors like stress & motivations, limit an individual’s capacity to
solve complex problems.
Optimizing Rationality vs. Bounded Rationality
Herbert Simon Model on Decision Making? What is Portmanteau?
Oxymoron: Figure of speech that uses different/opposing terms. Most common form involves 2 words. (Pretty
ugly)
- Decisions are based on bounded rationality—humans behave differently when risks & uncertainties involved.
At core of theory lies ‘satisficing’, which is a combination of satisfying & sufficing. It suggests that one should
pursue objectives or make decisions that involve minimum risks & complications instead of focusing on
maximizing profits. In contrast to classical theorists, Simon suggests that there is never one best course of action or decision, because one
can’t have complete info about something, therefore, there will always be a better course of action or decision.
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 Types Of Decision Making Models:-
• Planning Models:- (We studied before but below 1-4 is decision making models)
– The Rational Planning Model, Logical Incrementalism, Urban and Regional Planning, Contingency Plan, Crisis Management Planning
1. Rational Actor Model: (CBA): derived from economic theory & utilitarianism. Based on idea of “Economic man” who takes all sorts of decision
on basis of rationality & utility, & decides to pursue particular process which thinks in his judgment rational, & which will ensure max utility. So
rationality & utility are 2 important criteria that lie at heart of decision-making process.
• Procedure
(1) The issue or area is identified on which the policy is to be made.
(2) The objective of the policy is decided: The policy maker decides for what purpose the policy is going to be made.
(3) Materials or means are to be collected for making a policy.
(4) It may be that all the means or materials could not be used and then in that case the decision-maker selects only the relevant
materials.
• Key Features: CBA, Objective Evaluation, Assumption of Rationality
2. Incremental Model: Charles E. Lindblom 1970: For a perfect & bold decision, it is necessary that facts & info must be correct & impartial. But
in practice this situation hardly prevails. Consequence is policy/decision becomes faulty. Because of this decision-makers are not interested in
making 1 time policy. They feel that policies are to be formulated in such a way that there will be enough scope of review & change whenever
required. This creates a scope for a new model labelled as incrementalism. It is: “Policy-making is thus a continuous, exploratory process,
lacking overriding goals & clear-cut ends, policy-makers tend to operate within existing pattern or framework adjusting position in light of
feedback in form of info about impact of earlier decisions. Policy is not made once for all, it is remade endlessly. It is a process of successive
approximation to some desired objectives”. If circumstances demand any change or reconsideration of policy, decision maker takes steps in
that direction.
• Key Features: Small Adjustments, Feedback Loop, Focus on Feasibility
• A city govt may implement minor adjustments to its public transportation system based on community feedback rather than overhauling
the entire system at once
3. Bureaucratic Org Model: Large political & other org have their own values, ideas & long cherished & well-guarded inclinations, which create
definite impact upon decision-making processes. Hence, while decision is being made, the org process cannot be neglected (Planning
Commission). In political systems, bureaucrats play a crucial role in various stages of formulation of decision. Head of state, PM, Foreign
Minister, no doubt have a role but important role is generally played by bureaucrats. However, structure & extent of influence of bureaucrats
in all political systems are not identical everywhere. Bureaucrats & related agencies have their own outlook, values & assessment about
incidents & when policymaking process starts, top govt officers & allied agencies release efforts to guide formulation of policies in light they
cherish. Liberal democratic system state does not play an overriding role. State as state exists & it guides, but is not the final voice on any
national/international issue, org structure & bureaucracy are deciding factors. Exponents believe that though ministers have a positive role in
policy-making process, actual function is performed by bureaucrats & during Cuban crisis this came to limelight. Heads of states had a role but
more important role was played by bureaucrats.
• Key Features: SOPs, Hierarchical Authority, Stability & Predictability
4. Belief System Model: termed as ideology/deep-rooted belief. Some scholars believe that in decision-making, beliefs/ ideologies have
influence. Others say, if decision-makers are rational then they should not be influenced by beliefs/ideology. But this argument is not always
the case. If the belief/attachment to ideology is strong, decision-maker may temporarily prioritize it. (Policy makers of communist country will
not formulate a policy that violates communism although rationality demands the violation)
• Key Features: Influence of Values and Norms, Cognitive Biases, Social Context
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  STEPS IN DECISION MAKING:- (4 steps)
How Managers Make Decisions: choosing among 2 or more alts which become the decision. Involves a systematic,
step-by-step process that helps managers make effective choices.
I. Identifying Problem (Opportunity): Knowing what type of problem, we are dealing with can help avoid costly
mistakes. For instance:
1. Is the problem a pressing one or a dispensable one?
– Pressing – Requiring immediate decision
– Dispensable – Deferred (new info, unexpected development, better ideas)
2. Is the "problem" really a symptom masking the underlying problem or a root cause that contributes to
actual problems?
– Many problems are really part of a pattern of problems stemming from one underlying cause. Because this underlying cause is seldom
obvious, tendency is to view symptoms as problem & treat them as such. Thus, administrators often find themselves treating symptoms
A, B, C. & D rather than the root cause, E. Effective administrators know that very few problems or events are isolated. Most are
manifestations of underlying problems. Thus, before attempting a quick fix on problems A - D, they try to discover the basic problem, E.
Once E is solved, A, 8, C. D, and future problems stemming from E arc eliminated. Thus, effective decision makers make few decisions.
3. Is the problem sui generis (one of a kind) or generic (one of a family of quite similar problems)?
• Sui Generis - "of its own kind," a problem that constitutes a class alone. Such
problems require unique solutions. An agency (NASA) probably sui generis
problems because its work involves new tech. U.S. military faces two sui generis
problems: whether women should be in combat units. Y2K. Info revolution has
created a number of such problems throughout the public sector.
• Generis - Most problems facing a manager are part of a class-they arc generic &
occur over & over. Inexperienced detective might treat every case uniquely, while
an experienced one recognizes that most crimes conform to a pattern. Of
approximately 5000 women murdered every year, 30% are killed by current or
former husband/bf. By same token, inexperienced managers tend to treat far too many problems as unique. How do you tell a valuable
employee you can't give her a raise? How do you control someone who monopolizes discussion at every meeting? Experienced managers
do not have to search far for solutions.
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II. Gathering facts
 Framing Decision: With problem accurately defined, administrator then turns to framing response. Careful attention should be given to:-
(1) Upper limits of decision: ever-present limitations that determine how far administrator can go. In PM, it refers to constraints or boundaries
within which decisions must be made. Can be influenced by factors like legal requirements, budgetary constraints, ethical considerations, org
policies, & public opinion:-
– 1. The limits of permissibility (is it legal) Will others accept it·
– 2. The limits of available resources
– 3. The limits of available time
– 4. The limits of previous commitments
– 5. The limits of available info
• Administrators rely on experience in making decisions. Without realizing it, they believe that past mistakes/accomplishments are never wrong
in decision-making situations. Administrators should try to visualize world as a whole & total system in which
personal experiences are a small & inadequate sample. A corrective to tendency to generalize from personal
experience is to use statistical analysis. Modern stats is based on concept of probability; it deals with making a
judgment regarding probability of characteristic occurring in population on basis of info derived from small
sample of population.
(2) Lower limits of a decision - Chester I. Barnard introduced idea quite similar to that of lower limits, which he
called the limiting (strategic) factor in decision making.
• The factor "whose control, in right form, at right place & time, will establish a new system of conditions which
meets purpose. Thus, if we wish to increase yield of grain in a certain field, & we analyze soil, it may appear that
soil lacks potash; potash may be said to be the strategic (or limiting) factor. If an administrator can discover
strategic factor-can exercise control at right times & in right place, right amount, right form-then decision
becomes not only simpler (for other factors tend to work themselves out) but more economical. Solutions in top
section be ruled out as they violate upper limits of a decision. Solutions in bottom section be ruled out as they fail
to satisfy lower limits of a successful decision
 Consulting People
• Bay of Pig Incident - "You're wrong," Goldberg replied. "You're making the mistake of
compartmentalizing your cabinet." The secretary then went on to point out- much to the
president’s surprise- that the 2 men in the cabinet who should have been consulted were
Orville Freeman, the secretary of agriculture, and himself.
• Freeman had been a Marine, made amphibious landings and knew how tough such landings
can be; and Goldberg had been in the Office of Strategic Services (the forerunner of the CIA)
during World War ll and had run guerilla operations.
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III. Making Decision; (Assessing Alts) after gathering facts & suggestions, begin assessing various alts. Analytical method is founded on formal
logic; it seeks to break situations down into component parts & to define problems by isolating them, making them more manageable.
5 ANALYTICAL TECHNIQUES CAN HELP ADMINISTRATOR IN THIS TASK:-
1. (CBA): In era of scarcity, interest in weighing costs against benefits rises. Govt must do more than assess benefits of goals such as a cleaner
environment, safer products, healthier working conditions, better mass transit. It must weigh costs &
side effects of action.
• Most CBA involves familiarity with certain common elements:-
 MEASUREMENT OF COSTS & BENEFITS
• Real benefits: benefits derived by final consumer of public project & represent an addition to
community's total welfare.
– Direct
– Indirect
• Real Cost - must be balanced against real cost of resources withdrawn from other uses to provide that public project. (Clean drinking water)
• Pecuniary (monetary) Benefits & Pecuniary Costs "Come about due to changes in relative prices that occur as the economy adjusts itself
to the provision of the public service. Means benefit in form of money, property, commercial interests or anything else the primary
significance of which is economic gain. Expenses associated with social occasions afforded public servants shall not be deemed a
pecuniary benefit. (increased tax, savings from health care) As a result, gains accrue to some individuals but are offset by losses that
accrue to others.
Real benefits and costs can be either:-
 Direct benefits & costs: closely related to the main project objective.
 Indirect benefits and costs – externalities/ spillovers/ by-products.
 Tangible: applied to benefits and costs that one can measure in dollars;
 Intangible: those one cannot measure, gain in world prestige from space projects
 DISTRIBUTIONAL IMPACTS: In addition to measuring costs & benefits, distribution of costs resulting from public program are important:
– It is sometimes not easy to identify beneficiary groups clearly. Who actually benefits? What groups?
– What is the distribution of program benefits among beneficiaries?
– Who should pay the program costs?
– Who actually does pay the cost of the program?
– How are program costs distributed among the burdened groups?
 DISCOUNT FACTOR: (present value of future cash flows values): discounted at specified rate to reflect time value of money. Crucial in
assessing worth of future benefits or costs when compared to present-day values. Most public projects & programs take place over time, this
time element is critical. Time being divided into years & of future benefits & costs accruing in specific years. Benefits of a project over an
interval of 8 years. Because 2 years are required for construction, no benefits accrue until the third year.
• Discount Factor. Present value of future cash flows or benefits, discounted at a specified rate to reflect time value of money. Crucial in
assessing worth of future benefits/costs when compared to present-day values.
• Time Value of Money: $ received today is worth more than received in future due to potential earning capacity/inflationary effects.
• Discount Rate: interest rate or rate of return (RoR) used to calculate present value of future cash flows. Based on prevailing market rates,
reflecting factors such as inflation, risk, and opportunity costs.
• Calculation of Present Value: To calculate present value of future cash flows or benefits, each future amount is divided by appropriate
discount factor, which is calculated using discount rate & time period.
• Discount Factor = 1 / (1 + i)^t i = Discount rate t = Number of time periods into the future
• Application in PM: in CBA of govt projects, policies, or investments. By discounting future costs & benefits, decision-makers can evaluate
NPV of different alts & determine whether a project or policy is economically viable or provides +ive societal value.
• Decision Making: Projects or policies with positive net present value NPV, where the present value of benefits exceeds the present value
of costs, are typically considered favorable and may be prioritize.
– Column C shows costs, which are initially high but then level off.
– Column D shows net benefits (benefits minus costs) for each year.
– Is $ 1 million net benefit occurring in 4th year really worth $1 million in present $? No,
these future proceeds must be adjusted to allow for the fact that future benefits are
less valuable than present ones. The reason is that today's $1 million could be
invested & certainly return more than that to the investor 4 years later. Cost must be
adjusted in a like manner.
– Discounting- Making these adjustments- i.e., reducing future dollars to be comparable
to today's dollars-. To find value of a dollar in any future year, one need only multiply
by a discount factor.
 DISTRIBUTIONAL IMPACTS: formula: Discount factor = 1/ (1 + i)t
– How much is $1 million 4 years from now worth today?
– Assuming a modest interest rate of 6 %, first calculate discount factor & then multiply the $1 million benefit by it.
– Present value= __1___ x $1.000,000 = 0.792 x $1,000,000 = $792,000
( I + 0.6) 4
– Column E gives discount factors for first 8 years of project but assumes a discount rate of 10%.
– Net benefits in column D are adjusted to reflect present value (Colmn F)
– If Colmn F is totaled (10%), by 8th year the project costs exceed its benefits, by 6% it may not
 Opportunity Cost - value of what certain resources could have produced had they been used in best alternative way
 DECISIONAL RULES: Even if benefits outweigh costs, it doesn’t mean a project should happen. Should depend on decision rules for CBA.
i. Simple projects involving Yes or No:-
– Net Benefits (NB) = (B) – (C) If benefits exceed costs, project is undertaken
ii. Two mutually exclusive projects:- Choose project with greatest net benefits
– Apply benefit-cost ratio (BCR) BCR= B/C
ii. Non-Efficiency Objectives Distributional consequences might of central concern (eco deve/ unempl); pecuniary effects more
pronounced, regional
iii. Select level at which several projects are to be operated under budget constraint
– Push expenditures for each project so that benefit of last $ spent = last $ spent on any similar projects. (Next M $ A- 1.2, B – 1.3)
 Cost-Effectiveness Analysis: closely associated with CBA. Attempts to answer How
much output does one get for a given expenditure? Advantage is that output or
benefits need not be expressed in dollars. Say that no. of lives saved by expenditures on
disease A & B are as follows. & that an administrator wanted to determine preferred mix of
disease-control programs: "If we only knew the effect of spending $1 million, we might opt for
a program where all our money was spent on controlling disease A. Similarly, if we only knew
effects of programs of half a million dollars, we would probably prefer A, as we'd save 360 rather than only 200 lives. But if we knew
the results for expenditures of both half a million and $1 million in each program. we would quickly see that spending half our money
in each program was better than putting it all in one. assuming we have $ 1 million available.
2. Multi-Objective Models: One limitation of CBA is it accounts for only 1 objective, usually an aggregate of all accrued
benefits in dollar terms. Thus, decision makers might want to either replace or
supplement it with a newer technique that emphasizes multiple objectives as in a
multi-objective model - useful in situations in which there are moral goals or when 1
or 2 goals cannot be quantified. Decomposes solution analysis into:
• (1) Select evaluation criteria,
• (2) Decide on relative importance of each criterion selected
• (3) Assess each alternative in terms of how well it achieves criteria.
• Consider a waste treatment plant. Assuming 4 sites are under consideration, experts can be
asked to rank order them by 5 criteria: There has been nothing said about the relative
importance of each criterion. Therefore, decision-makers may assign relative weightage to each
of criteria. Consider how much weight should you accord each of the following criteria in judging
a uni faculty member
3. Decision Tree: Used for decision situations that occur in sequence; Consists of a pictorial
representation of decision alts, states of nature, & outcomes of each course of action. It is a
flow diagram that shows logical structure of a decision problem. It has 4 elements
a. Decision nodes, include all possible courses of action open to decision maker.
b. Chance nodes, shows intervening uncertain advances & all their possible outcomes
c. Probabilities for each possible outcome of a chance event
d. Payoffs, summarize consequences of each possible combination of choice & chance
- 1st step - diagram sequence of decisions & chance events that decision maker faces
- A community is threatened with a landslide sometime during next year before a reforestation program is completed. If landslide occurs, it will be only to be to
property because the population can be evacuated. The property damage will cost $3,000 000. Construction of wall is estimated to be 200,000 $
To understand tree, begin with 1ST decision the community faces:
– Should it build the wall or do nothing? The square, or decision node, at the left indicates that at this point a
decision must be made.
– The 2 lines forking out from decision node show 2 possible choices: build or do nothing.
– What happens if we follow along upper branch-in other words, build wall? Construction cost-$200,000.
– Circle, or chance node, to indicate that uncertainty must be resolved one way or another: landslide
occurs, or it does not.
- To determine whether project should be undertaken, compare expected benefits with costs:
– Cost of Building Wall: $200,000 (0.2 M)
– Potential Damage from Landslide: $3 million
- Expected value of benefits (of building the wall):
Expected Benefit (Potential Damage Avoided): $3 million (Potential Damage) x 20% (Probability of Landslide) = $600,000
- Net benefit: Expected Benefit ($600,000) - Cost of Building the Wall ($200,00) = $400,000
- Since net benefit is positive ($400,000), it indicates that benefits of building wall outweigh costs. Thus, reasonable to
undertake project despite uncertainty of landslide occurring. Hence, we draw 2 branches for those possible results and
label them accordingly. Moreover, for this problem, we know from expert opinion or historical records probability of
possible outcomes. There is a 20 % chance that slide will occur within next year & 80% chance it won’t. Numbers are recorded along appropriate branches.
- Finally, recall that gain from avoiding damage of a landslide is $3 million. That makes payoff from top branch $600,000 ($3 million x 0.2). Because there are
neither gains nor losses if no slide occurs, payoff of lower branch is zero. Clearly, it makes sense to spend $200,000. Expected value of decision to build wall is
$600.000 - $200,000 construction costs. Similarly, possibilities not to build, their probabilities, & payoffs are shown initiating from lower chance node.
- The tree summarizes all essential info available. Note order. Decision must be made before decision maker knows what nature will do.
- Can you see why the decision not to build is tantamount to spending $600,000?
4. System Analysis: more a mosaic than a specific analytical technique. It forces us to look at problems as systems- i.e. assemblies of
interdependent component. Four Basic Steps:
a) Problem Identification. detailed description of task & identification of important variables & their relationship. Consider investigation into some
observed & perceived difficulties in an urban transportation system. In system approach, one begin by deciding whether prime objective is better service, lower
cost, less pollution, or something else. One must also decide what data are necessary; passenger miles by mode of transportation; passenger miles by sex, age,
race, and income; passenger mile by time and place and so forth. Finally, one must identify key decision maker in the urban area and their motivations.
 b) Modeling transition from real world problem to abstract world of modeler. A model is a simpler representation of the real-world problem; it is
supposed to help you. Models can by physical reconstruction of the real thing, scaling down of dams and project to study the effects.
c) Analysis & Optimization. Analyst studies model to find best strategy for resolving the problem. Options include:-
 Simulation: allow users to replicate to a great extent the actual dispatch & patrol
operations of most urban police deptt. Incidents are generated throughout city &
distributed randomly in time & space according to observed statistical patterns. Each
incident has an associated priority number, with the lower numbers designating the
more important incidents. For instance, a priority incident would be an officer in trouble, a
felony in progress, or a seriously injured person; a priority 4 incident could be an open fire
hydrant, a lockout, or a parking violation. As each incident become known, an attempt is made
to assign (dispatched) a patrol unit to the scene. In attempting this assignment, computer is
programmed to duplicate as closely as possible the decision-making logic of an actual police
dispatcher. In certain cases, this assignment cannot be performed because congestion level of
accumulated incidents is too high; then, incident report (which might in actuality be a complaint
ticket) joins a queue of waiting reports. The queue is depleted as incident are assigned to available patrol units. This simulation model is designed to study
the patrol-deployment strategy and the dispatch and re-assignment policy. The model tabulates several important measures of operational effectiveness.
These include statistics on dispatcher queue length, patrol travel time, amount of preventive patrol, workloads of individual patrol unit, amount of inter-
sector dispatches. Simulation provides a tool to assist in answering a wide range of allocation questions.
- Police administrators should find simulation models valuable for the following purposes:
– They facilitate detailed investigations of operations throughout the city (or part of the city).
– They provide a consistent framework for estimating the value of new technologies.
– They serve as training tools to increase awareness of system interactions anti consequences. resulting from everyday policy decisions.
– They suggest new criteria for monitoring and evaluating actual operating system.
 Sensitivity Analysis consists of making very small changes in model to show extent to which result may be importantly altered because
of changes in one or a few factors
d) Implementation. Procedure by which results determined from model are translated as a set of action to real world.
5. Nominal Group Technique: since group decision-making is common in PA, effective manager, must be highly skilled in influencing the process:
• Advantages: Broader perspective. New ways of approaching the problem. Compensate for the weaknesses in one another’s thinking style.
Groups offer more knowledge and info than individual. Diversity of experience and thinking styles, lead to innovative solutions. Easier to
implement due to involvement in decision making
• Disadvantage: Time consuming, expensive, group dynamics may compromise solutions, lack of clear focus for responsibility if things go wrong
• Considerations: Important task is to determine when a specific group should work on a particular problem. Group members should possess
required knowledge & analytical skills. Manager must consider current workload of potential members; Members' expectations about
involvement (do they think they have a “right" to participate? ); & the group’s skills at resolving conflict (can group members exchange ideas
frankly & openly without becoming emotional?) Diversity within crowd-many different disciplines, perspectives, & areas of expertise must be
represented. You have to have decentralization, meaning that crowd has to be dispersed, & people with local & specific knowledge can
contribute. Have an effective way of aggregating all individual judgments. Wiki tech is a powerful way to do that. You must have independence
• When to use: Problem is relatively uncertain or complex & has potential for conflict. Requires interagency or intergroup cooperation and
coordination. Problem and its solution have important personal and organizational
• Consequences: significant but not immediate deadline. Widespread acceptance & commitment are critical to successful implementation.
 Improving Group Decision Making
1. Working alone, each participant writes ideas on problem to be discussed. These ideas usually are suggestions for a solution.
2. Round-robin, in which each group member presents ideas to the group, is set up.
– ideas written down on a blackboard for all members to see.
– No discussion of ideas occurs until every person's ideas have been presented & written down for general viewing.
3. After ideas presented, open discussion of ideas for purpose of clarification happens; evaluative comments not allowed. This part of the
discussion tends to be spontaneous and unstructured.
4. After discussion, secret ballot taken. Each member votes for preferred solutions. It results in a ranking of alternatives in terms of priority.
5. Steps 3 & 4 repeated as desired to add further clarification to the process.
• Devil's Advocate. Someone is assigned role of challenging assumptions & assertions made by group. Forces group to rethink approach to
problem & avoid reaching premature consensus or making unreasonable assumptions before proceeding with problem solutions.
• Dialectal Inquiry Groups assigned to challenge underlying values & assumptions associated with problem definition. State Dept form Red
& Blue Team to critically examine prevailing assumptions in dept regarding particular foreign country.
• Brainstorming To increase creative thinking & generation of solutions by prohibiting criticism. Groups of 5-10 members meet to generate
ideas subject to certain rules. Judgment or evaluation of ideas must be withheld until idea-generation process has been completed.
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IV. Implementing and Evaluating the Decision
A. PROGRAMME EVALUATION: The steps are to:-
1) Define Goals of Program: Programs likely to have multiple goals: To evaluate only one is to evaluate partially. Many areas of
public policy lack standards (benchmarks) by which a goal can be established. (Private - increase sales, Public – poverty
reduction and illiteracy?) Programs do not only move toward official goals. A good evaluator tries to look at all possible
effects of program activity. (increased supply of skilled worker (intended consequence), may result into downward pay
pressure (unintended consequence)
• Divide into multiple goals
• Standardize/ benchmark goals
• Move towards goals (intended vs. Unintended consequences job creation vs. pay drops)
• For purposes of evaluation, sweeping goal of “reduce air pollution" might be broken into components, represented by matrix of 16
 • A – Pollution Types (carbon monoxide, sulfur oxides, hydrocarbons, nitrogen oxides, and particles)
• B – Pollution Sources (automobiles, industry, electric power plants, space heating, and refuse disposal
2) Translate goals into Measurable Indicators of achievement:
• Goal - "To provide access to community services, facilities, & employment in a safe, quick, comfortable, & convenient manner for all
segments of the community without causing harmful side effects. How would one translate those goals into measurable indicators of
achievement? Following 6 criteria along with examples of what might be measured:-
– 1. Convenience. By measuring residents % not within x distance of public transit service & citizen perception of travel convenience.
– 2. Time. By measuring time required to travel between key origin and destination
– 3. Comfort. By measuring “bumpiness" of roads & citizen perception of travel comfort. Transit service & citizen perception of travel
convenience. Points and duration of delays.
– 4. Safety. Measuring transportation-related deaths, injuries, incidents of property damage, no. of crime incidents.
– 5. Cost. By measuring cost per trip to users and program costs to city.
– 6. Environmental quality. By measuring noise level along transportation corridors & air pollution attributable
• Program goals tend to be ambiguous, hazy.
3) Data Collection on indictors for those exposed to program & those not i.e. control group: Data
can come from a variety of sources & research techniques. Interviews, questionnaires,
observations, ratings, institutional records, govt stats, diary records, physical evidence, clinical
examinations, financial records, & docs (minutes of board meetings, newspaper accounts of
policy actions, and transcripts of trials). Data must be collected not only on those who
participated in program but also on those who did not.
4) Data Comparison on program participants & control in terms of goal criteria: classic design for
evaluation is experimental model, which uses experimental & control groups. Out of target
population, units (for example, people, precincts, or cities) are randomly chosen to be in either
group that receives program (experimental group) or control group. Measures taken of relevant
criterion variable (vocabulary scores) before program starts & after it ends.
Implementing & Evaluating Decision Regardless of specific approach taken to evaluation, 2 final points need to
be kept in mind. Evaluation must be viewed as a tool of management. Ideally, evaluators & the administrator
cooperate. When policy decisions about program design are to be made, evaluator should: (a) Ask the manager to
specify the objectives of the program (b) Determine what kind of data would cause manager to act (i.e make
adjustments in management of program). Because most programs that work well usually produce only relatively
small gains in early stages, evaluation should be built into new program; its strengths & weaknesses should be
examined while it goes forward.
B. Decision Making in Real World
 (Strategic Misrepresentation in Estimating Goals) In 2006, the most ambitious public works project in US opened. Boston's Big Dig is an unprecedented
effort to route an unsightly highway deep beneath the central city & replace it with a green ribbon of parks. Back in 1985, officials assigned a $2.5 billion price
tag to the Big Dig. By early 1990s, it had risen to $7.5 billion, & before 2000, it hit billion-dollar mark. Today, Big Dig has cost nearly $16 billion. Because it leaks,
the amount will surely continue to edge upward.
• Underestimation of Costs/ Cost Escalation:-
– Technical (forecasting error)
– Economic (for want of cost cuts)
– Psychological (monument complex)
– Political
 Human Biases
• Bounded rationality - people have limits, or boundaries, on how rational they can be.
• Satisficing (portmanteau) - decision makers choose 1st solution alternative that satisfies minimal decision criteria. Because PAtors lack time &
cognitive ability to process complete info about complex decisions, they must satisfice.
• Awareness of following 7 biases can help administrators make better choices:
– Failing to seek info – Linking 9/11 to Iraq, outside the bounds of awareness
– Giving too much weight to readily available or recent info - 1987 Genentech developed a new blood-clot dissolver, but did not provide the
required data to FDA
– Being overconfident
– Ignoring the laws of randomness (outcome of one event has nothing to do with the outcome of another)
– Being reluctant to audit and improve decision making
– Seeing only one dimension of uncertainty
– Escalating commitment to a course of action in which people have made a substantial prior investment
C. Leaders as Decision Makers- How Managers Make Decisions (Limitations) important to keep in mind that Leaders are human, & while they
can follow decision-making process step-by-step , outcome of decisions depends on many factors, including: Accuracy & timeliness of their
info, Experience, Creativity, Wisdom of person. Warren Buffett, billionaire investor & CEO of Berkshire Hathaway, empowers his managers to make
decisions without his input. Making good decisions is never easy. A decision might: hurt or help sales of a product; it might offend or disappoint a
customer or co-worker; might affect manager’s career or reputation. Managers’ decisions can have complex legal and ethical dimensions.
 LECTURE 8: Organizing (4 PG final)
 Organizing: process of blending human & material resources through a formal structure of tasks & authority;
arranging work, dividing tasks among employees & coordinating them to ensure implementation of plans &
accomplishment of objectives. Once plans have been developed, next step in management process is
organizing. Organization thus becomes grouping of activities necessary to attain a program objectives.
Definition(s)
• Peoples Perspective: Org is a Ralph C. Davis (In terms of people): group of people, who are cooperating
under the direction of leadership for the accomplishment of a common end
• Activities Perspective: Org is Oliver Sheldon (In terms of activities): Process of so combining the work,
Which individuals or group have to perform with facilities necessary for its execution, That the duties so
performed provide the best channels for the efficient, systematic, positive & coordinated application for
the available effort
Org is Needed so that:
• Role and Responsibilities Assignment: Each individual in org is assigned a role, responsibility & necessary authority. Each person must
know his position, role & relation with others. He is responsible for execution of his role & duties and is given the authority to do so.
• Synch of Activities. To achieve org objectives, integration of diverse individual & other activities in a common patter in cohesive manner
• Optimum Use of Human Skill and Efforts. Half work is completed when you know what you have to do & how.
• Seamless Connectivity. helps in smooth operations & smooth flow thus avoiding bottlenecks, idle time & idle right job and this avoids
misapplication of human resources thus machines.
• Efficiency & Effectiveness. good org requires right person for resulting in optimal utilization of employee efforts to ensure efficiency in
the functioning of the enterprise.
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 Fundamentals of Organizing: challenge for public managers is to design an org structure that allows
employees to accomplish agency’s mission—not to “just throw everything together.”
• Org structure is the formal framework by which job tasks are: Divided, Grouped, & Coordinated.
Steps: Traditional approaches to organizing work are questioned & re-evaluated. Manager search out
structural designs that will best support & facilitate employees doing org’s work. Designs that are
efficient but flexible enough for success in today’s dynamic environment. Org structure itself becomes
primary means for achieving technical & economic advantages of specialization & division of labor.
• When managers develop or change an org’s structure, they are engaged in OD, a process that involves
decisions about 4 key elements:
1. Division of Labor (Basis)
• Objective, (Police, Fire Dept., Infrastructure, community development, P&D)
• Geography, (Each Dist. having, Police, health, education, industrial development, mining)
• Process, (Public health agency, dept.- public health process, prevention, intervention, treatment)
• Client: (Social Welfare- Children, families, seniors, disabilities,)
• Critique: (more interest in own sphere, communication & coord, narrow span- cross culture)
2. Hierarchy - Scalar Principle. Authority & responsibilities should flow in a direct line vertically from highest
level of org to lowest level (chain of command). In such an arrangement, a sin is to fail to go through the
proper channels in trying to get a message to the top.
• Chain of Command – Related Concepts:
– Authority- power given to managers to make decisions & direct others. The right to tell people what
to do & expect them to do it. To facilitate decision making & coordination, an org's managers are part
of chain of command & are granted a certain degree of authority to meet their responsibilities.
– Responsibility- obligation of employees to complete assigned tasks. When managers give work, employees are obligated to perform it.
– Unity of command - principle that each person should report to only 1 boss. This prevents confusion from conflicting orders & ensures
clear direction. Helps preserve concept of a continuous line of authority. Without unity of command, conflicting demands & priorities
from multiple bosses can create problems.
- Adam smith began his study of economics, wealth of nations 1776 with discussion of specialization in pin making. 8 men, each
performing simple tsk could turn out for more pins than 8 men each performing all required series of tasks.
3. Span of Control: concerns no. of subordinates a superior can effectively supervise. Traditional theory advocates a narrow span to enable
executive to provide adequate integration of all activities of subordinates. Optimum level -principal subordinates to less than 20. But a
president without a chief of staff could have more than 200 individuals, commissions, depts, agencies & groups reporting directly to him/her.
All things being equal, wider or larger the span, the more efficient the org will be. What matters in determining span of control is not how
many people report to manager but how many people who have to work with e/o report to manager
4. Line and Staff
• Line authority: People in management positions have formal authority to direct & control
immediate subordinates. They can give orders & make decisions for their team. Implements
programs & policies.
• Staff authority: Is narrower & includes right to advise, recommend, & counsel in staff areas
of expertise. Specialists who advise & support but don't give direct orders. They provide
expertise & recommendations to help decision-making. Provides advice & assistance to top
management.
• Military Analogy
 Common ODs
1. Leader-Follower Org: most natural human relationships is b/w leader & followers. Leader's authority can seldom be satisfied with obedience
based merely on common sense or respect. Authority seeks to arouse something else (love, fear, even awe) in followers.
• 3 types of legitimate authority:
– Legal – Constitutional Govt
– Traditional – Kings, parents
– Charismatic (Gift from God). Behavioral tendencies & personal characteristics of leaders that create an exceptionally strong
relationship b/w themselves & their followers
• Charismatic leadership: behavioral tendencies & personal characteristics of leaders that create strong relationship b/w them & followers.
Greek word meaning "gift from God. “ Greeks saw people with charisma as divinely inspired & capable of accomplishments. Weber
viewed charisma as special bond b/w leaders & followers & noted that they tend to emerge in times of crisis & the radical they propose
enhance admiration that followers feel for them. Studies indicate that satisfied followers are generally better
performers & more likely to trust their leaders and work harder
2. Bureaucracy
Weaknesses: Low capability for innovation. A performance structure, not a problem-solving structure. Designed to
carry out standard programs, not to invent new ones. Impedes spread of knowledge. Ideas & commands move up &
down, creation of vertical "silos“with very little communication b/w them. Sophisticated innovation requires a very
different structural configuration, which fuses experts drawn from different disciplines into smoothly functioning ad hoc
groups. A highly structured, formalized & an impersonal org. Org must have a defined
hierarchical structure, clear rules, regulations & lines of authority which govern it.
3. Matrix Approach: Shouldn’t be used when work performed by agency is applied to
standardized services with high volumes. Large number of specialists & coordination is difficult-
matrix approach might be a solution.
Weakness: Difficult for personnel to develop expertise that they could gain from working in
one functional area. Technical personnel who are often shifted back & forth among projects
can feel isolated & rootless. Personnel constantly moving from 1 project to another, an org can
find it difficult to build up a source of accumulated wisdom.
4. Team Approach: team is a small no. of people with complementary skills (technical, problem-
solving & interpersonal) who are committed to a common-purpose performance goal &
approach for which they hold themselves mutually accountable.
– 3 or more people required, 2 is dyad, which is a partnership (high productivity is at 5)
– People in a team share a performance goal
– Teams are not interchangeable, they have shared mission & mutual accountability
– Team has a peculiar way of working together
• Base Ball Team (individual performance)
• Football Team (coach supervised)
• Basketball Teams (cooperative)
• Types: Cross Functional Teams, Permanent Teams, Special Purpose/ Project Teams
Difference b/w Matrix & Cross Functional Team
Matrix Structure: a hybrid org structure that combines aspects of both functional & divisional
structures. Employees report to both a functional manager (based on their expertise or specialization) &
a project or product manager (based on specific project or product they are working on).
• Dual Reporting: Employees report to both a functional manager & a project manager. Allows for
seamless flow of info & resources across functional areas & projects.
• Flexibility: employees can be quickly reassigned to different projects/teams based on changing
priorities or org needs.
• Matrix disadvantage: managing complexity of dual reporting relationships & ensuring clear
communication & coordination b/w functional & project teams.
Cross-Functional Teams: teams composed of individuals from different functional areas or departments
within an org who come together to work on a project, initiative, or task.
• Diverse Expertise: bring together individuals with diverse expertise, perspectives, & skill sets,
enabling them to tackle complex problems and tasks from multiple angles.
• Project Focus: typically formed to address specific projects or initiatives, with a clear goal or
objective to achieve within a defined timeframe.
• Autonomy: often have a degree of autonomy in how they organize & execute their work, allowing
team to collaborate closely & make decisions collectively
5. Network: involve collab b/w govt entities & NGOs/private Company to implement policies / service.
• Features: Govt’s fund NGOs, research labs & private firms to carry out public functions instead
of managing internally. This approach often results in better performance and reputation compared to traditional bureaucracies.
• Business Context: Orgs disaggregate functions into separate units managed by a small central office. Services like training & legal support
are contracted out, leading to a more flexible structure.
• Importance: Understanding network orgs is crucial for future PAtors, as it requires a shift from traditional hierarchical management to
collaborative approaches that tackle complex, unconventional problems.
• Skills Required for Managing Networks: Big picture thinking, Coaching & mediation, Negotiation & risk analysis, Contract management,
Strategic thinking & project management
  Process of Organizational Design (OD): aligning structure of an org with its objectives, with ultimate aim of improving efficiency/effectiveness.
Work can be triggered by need to improve service delivery or specific business processes, or as a result of a new mandate.
• OD is review of: What an org wants & needs, Analysis of gap b/w its current state & where it wants to be in future.
Design of org practices that will bridge that gap.
• Assessment of Current Structure: agency conducts comprehensive review of existing structure (departmental
roles, reporting relationships & workflow processes). This identifies areas of inefficiency & duplication.
• Identification of Objectives: Clear objectives established for org redesign (improving regulatory compliance, increasing
public engagement, and enhancing environmental monitoring capabilities)
• Stakeholder Consultation: Input sought from stakeholders - agency staff, environmental experts, industry
representatives & community orgs to help identify key challenges & opportunities for improvement.
• Design Principles: Guiding principles developed to inform redesign process (promoting collaboration, enhancing
transparency, and empowering frontline staff to make decisions)
• Redesign Options: Different OD options explored, considering factors like functional specialization,
decentralization of decision-making authority, & integration of cross-functional teams. These options evaluated
based on their alignment with agency's objectives & potential impact on performance.
• Implementation Plan: detailed plan developed for implementing chosen OD, including timelines, resource requirements & change
management strategies. Outlines specific steps for restructuring depts., revising job roles & reporting relationships.
• Monitoring & Evaluation: Mechanisms put in place to monitor implementation progress & evaluate effectiveness of redesigned structure. Key
performance indicators (KPIs) established to track improvements in regulatory outcomes, stakeholder satisfaction & operational efficiency.
I. Org Charts: Many PAtors approach OD informally, sketching boxes to create a chart. Serve 2 purposes:
– Work Division: Illustrate how tasks are divided.
– Supervisory Relationships: Show who supervises whom.
• Shows several other things:
– nature of work performed by each component;
– grouping of components on a: Functional, Regional, or Service basis
– levels of management in terms of successive layers of superiors and subordinates.
Limitations: Show size but not degrees of responsibilities. Line & Staff positions difficult to determine. Linear distance from CEO not indicative of
status or importance. Does not show all lines of communications. Does not show informal orgs within org. In sum, one would do well to heed
advice of 1 former secretary of state who said that "org or reorg in govt can often be a trap for the unwary. The relationships involved in division of
labor & responsibility are far more subtle & complex than the little boxes which the graph drawers put on paper with their perpendicular &
horizontal connecting lines.“ In an effort to avoid org chart pitfall, a process for thinking through a new org structure will be given in skeletal form.
This process should facilitate complex task of separating those things that must be taken into account so far as structure is concerned from those
that have less bearing on org performance.
II. Process of OD- 4 Critical Questions
1. Question #1: In What Area Is Excellence Required to Attain the Organization's Objectives? –
- Peter F. Drucker calls "the load-bearing parts of the structure"-that is, the key activities. Identify key activities essential for
achieving organizational objectives, referred to as the "load-bearing parts" of the structure.
2. Question#2: What Activities Belong Together and What Activities Belong Apart?
– Classify activities into:
• Top-management activities
• Results-producing activities
• Results-contributing (staff) activities
• Hygiene and housekeeping activities
– Ensure that results-producing activities are prioritized and not mixed with non-results-producing tasks.
3. Ouestion#3: What Decisions are needed to obtain the Performance Necessary to Attain the Organization's Objectives.
– Determine the level at which decisions should be made based on:
• Futurity: Long-term implications of decisions.
• Reversibility: Ease of reversing decisions.
• Impact: Number of functions affected.
• Rarity: Uniqueness of the situation.
– Aim to make decisions at the lowest possible level, close to where actions occur.
4. Question#4: Where Do Specific Organizational Components Belong?
– Minimize relationships for each activity while ensuring crucial connections are accessible and central to success.
– Focus on maintaining effective communication and collaboration within the organizational structure.

Symptoms of Effective and Ineffective Organizational Structure

• Effective Organizations • Ineffective Organizations
- Clarity - Multiplication of management level- Thickening of Govt
- Economy - Recurrence of organizational problems.
- Direction of vision - Attention of key people on secondary problems.
- Understanding one's task & common task. - Too many meetings attended by too many people
- Decision making - Rely on "coordinators," "assistants," & other such people
- Stability and Adaptability "whose job it is not to have a job.
- Self renewal - Constant reorganization - Especially plagues public sector and,
as such, deserves special consideration
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 Reorganizing, Reinventing, and Reforming Government
Reasons: Recent decades have seen an increase in administrative reform efforts aimed at enhancing efficiency and effectiveness within
government structures.
• Key reforms focus: Scientific management principles and Improved performance through outcomes & employee engagement.
• Rationale includes: Organizational growth, Adapting to new public policies, & Improving responsiveness to pressing issues like Environmental
management & Disaster response.
• Historical Context: Pak's govt relied on centralized bureaucracies modeled after outdated corporate structures, leading to rigidity &
inefficiency. Need for reform is underscored by challenges posed by rapid tech changes & global competition.
• Successful govt reform seeks to emulate efficient public orgs found both domestically & internationally (e.g., Australia, NZ). Successful reforms
characteristics are entrepreneurial spirit, mission-driven focus, decentralization & customer orientation.
• NPM: global movement to transform PA through entrepreneurial practices that enhance productivity. Emphasizes empowering local entities
to make decisions, promoting market-oriented solutions like deposit systems for recycling.
• Community Empowerment: Advocates for shifting control of services from bureaucracies to communities, enhancing local commitment and
creativity in problem-solving.
• Current Initiatives in Pak: Govt is actively pursuing reforms through projects aimed at improving public sector efficiency, transparency &
accountability. Initiatives include collaboration with UNDP for institutional reforms & capacity building among civil servants. 18th
Amendment aimed to devolve power to local govts but has faced challenges in implementation, highlighting need for effective local
governance structures.
Four Pitfalls of Reforms
1. Monetary Illusions –mere shifting of people & programs on an org chart doesn't do much to save money. Reforms incur costs
2. Cultural Conflicts – Merger fail due to clash of org culture
3. Organizational De-specialization - Govt reformers have a penchant for "consolidating" functions into single orgs. This is at the cost of
specialization
4. Redundancy Reduction - Since colonial times Americans have evidenced a preference for having power disbursed among separate units of
govt. Political philosophers might see this as a manifestation of principle of checks & balances. But org theorists would more likely see it as the
principle of redundancy.

New Public Management in Pak: The concept of NPM has been applied in Pak, particularly since 1990s, but its effectiveness has been mixed due to
various contextual challenges. Here’s a summary based on application of NPM in Pakistan:
 Adoption & Implementation: NPM reforms were influenced by international orgs like WB & IMF as part of Structural Adjustment Programs
(SAP). Key reforms: privatization of state-owned enterprises (SOEs), like Pak Telecomm. Company (PTC) & Govt Transport Service (GTS) &
restructuring initiatives in sectors like higher education & disaster management.
 Challenges: Despite intro of NPM, outcomes have been less than satisfactory due to persistent issues like political instability, bureaucratic
resistance & a lack of alignment with local socio-economic conditions. Traditional bureaucratic mindset remains dominant, inhibiting full
realization of NPM principles, which emphasize efficiency, accountability & customer orientation.
 Mixed Results: While some reforms have enhanced public sector performance, many have struggled to produce significant improvements.
(Privatization efforts have not always led to increased efficiency or service quality). The over-politicization of public sector orgs has hindered
effective implementation, with political influences undermining managerial autonomy.
 Need for Contextual Adaptation: implementation of NPM highlights necessity for reforms to be tailored to unique political, cultural &
economic landscape of the country. Future efforts should focus on building capacity within public institutions & fostering a culture of
innovation & responsiveness to better align with NPM principles.
 LECTURE 9: LEADING (6 PG final)
1. Understanding what leadership styles are effective in different situations & how a manager's style fits the circumstances & resources available
2. Understanding human motivation-which involves employee attitude & motives & harnessing it for group & organizational goals
3. Understanding & managing communications-which involves perceptions
4. Understanding what influences patterns of behavior, or norms, that emerge over time in a group & how those affect performance of a group
5. Understanding techniques available for managing the change process
For an org to be successful in managing programs, PAtors must lead & motivate people. Individuals must relate & communicate effectively;
sound decisions must be reached by individuals & groups; & decisions implemented in a way that appropriately involves people & obtains
their active commitment to a course of action. Thus, effective PA requires a knowledge of human motivation & behavior & the personal skills
of working with & for people. Indeed, all other phases of PM (planning, decision making, organizing, implementing) are performed by people
& affect people. Effectiveness with which these tasks are carried out depends on PAtors skills in diagnosing human problems & taking action
to solve them. Leadership is difficult to define, as it involves-more than any other aspect of program management- invisible issues.
• PM as an iceberg has only a fraction of its total mass projecting above water - decisions, org charts to explain division of labor, chain of
command, span of control. Below the surface the unseen aspects that managers must master to lead successfully.
Functions of PM
1. Planning,
2. Organizing,
3. Leading: process of influencing activities of a group in efforts toward goal attainment in a given situation,"
4. Controlling
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 Research Perspective on Leadership
• Traits: distinguishing personal characteristics (loud & quiet, aggressive & passive)
• Personality: combination of traits that classifies an individual’s behavior (developed based on genetics & environmental factors)
Great Man Theory of Leadership (Thomas Carlyle): Great leaders are born, not made. These individuals come into the world
possessing certain characteristics & traits not found in all people, enabling them to lead while shaping history. Prominent
leaders throughout course of history were born to lead & deserved to do so as a result of their natural abilities & talents.
• Theory centers on 2 main assumptions:
– Great leaders are born possessing certain traits that enable them to rise and lead.
– Great leaders can arise when the need for them is great.
• Great leaders are heroes, according to this theory, that accomplish great feats against odds on behalf of followers. The Theory essentially implies that those in
power deserve to lead because of the traits they’ve been endowed with. Early leadership studies were based on assumption that leaders are born, not made.
Leadership trait theories attempt to explain distinctive characteristics accounting for leadership effectiveness. Researchers wanted to identify a set of
characteristics or traits that distinguished leaders from followers, or effective leaders from ineffective leaders. They analyzed physical & psychological traits, or
qualities, in an effort to identify a set of traits that all successful leaders possessed. Extensive research to determine a list of traits/ qualities has not come up
with a universal list of traits that all successful leaders possess, or traits that will guarantee leadership success. Attempt to explain distinctive characteristics
accounting for leadership effectiveness to identify a set of physical and psychological traits that all successful leaders possess
Big 5 Dimensions of Trait: purpose is to categorize, into one of 5 dimensions, most if not all of the traits you would use to describe someone else.
Thus, each dimension includes multiple traits. It categorizes traits into the dimensions of:
- Extraversion: enthusiastic, extroverted, expressive, playful, active, energetic, dominant, assertive, ambitious, courageous
- Agreeableness cooperative, helpful, friendly, empathic, understanding, considerate, generous, easygoing, honest
- Conscientiousness organized, concise, efficient, self-disciplined, precise, cautious, punctual, decisive, economical, logical
- Neuroticism defensive, insecure, emotionally unstable, temperamental, excitable, envious, nervous, anxious, fearful,
- Openness to experience intellectual, insightful, complex, perceptive, bright, smart, curious, creative, innovative
CAN LEADERSHIP TRAITS BE IDENTIFIED? Richard E. Boyatzis studied more than 2000 managers in 41 different
management jobs. They found 10 skills relating to managerial effectiveness that stood out:
1. Concern with impact (concern with symbols of power that have an impact on others)
2. Proactivity (predisposition toward taking action to accomplish something)
3. Efficiency orientation (concern with doing something better)
4. Diagnostic use of concepts (a way of thinking that recognizes patterns in situations through the use of concepts)
5. Conceptualization (ability to see and identify patterns as concepts when given an assortment of information)
6. Self-confidence (decisiveness or presence)
7. Use of oral presentations (effective communication)
8. Managing group process (stimulating others to work together effectively in group settings)
9. Use of socialized power (using forms of influence to build alliances, networks, coalitions, or teams)
10. Perceptual objectivity (ability to be relatively objective; not limited by biases, prejudices, or perspectives)
• This list focuses on middle-level managers. Management knowledge is not stressed because Boyatzis found that such knowledge represents
threshold competency & the successful managers selected were already well grounded
• Greenstein, a poli scientist at Princeton, rates modern presidents on 6 qualities that bear on their effectiveness as leaders: Communication,
Organization, Political skill, Vision, Cognitive style, Emotional intelligence.
• No single president scores high on all those attributes, but most successful US chief executives possessed right combination of ones that
matter. Key presidential quality is emotional intelligence ability to manage emotions & turn them to constructive purposes, rather than being
dominated by them & allowing them to diminish leadership. (EQ) includes 4 basic components:
1. Self-awareness: ability to accurately assess your own strengths & limitations & have healthy sense of self-confidence.
2. Self-management: ability to control disruptive or harmful emotions & balance one’s moods so that worry, anxiety, fear, or anger do not cloud thinking and
interfere with what needs to be done.
3. Social awareness: ability to understand others and practice empathy.
4. Relationship awareness: ability to connect to others, build positive relationships, respond to the emotions of others, and influence others.
BEHAVIORAL THEORIES (STYLE): focuses on how leaders behave & assumes that these traits can be
copied by other leaders. Sometimes called style theory, it suggests that leaders aren't born
successful, but can be created based on learnable behavior. Behavior fall categories:
1. achievement of some group goal – Task Behavior
Task Behavior: extent to which leader is task oriented & directs work of subordinates
toward goal attainment. Leaders exhibiting this behavior typically give instructions, spend
time planning, emphasize deadlines, and provide explicit schedules of work activities.
2. maintenance or strengthening of group itself - Relationship Behavior
Relationship Behavior: extent to which leader is mindful of subordinates, respects their
ideas & feelings, & establishes mutual trust. Relationship-oriented leaders are friendly,
provide open communication, develop teamwork, and are oriented toward
their subordinates' welfare.
- Uni of Michigan Leadership Model: 2 Leadership Styles, 1 Dimension
- Ohio State Uni Leadership Model: 4 Leadership Styles, 2 Dimension
- Blake, Mouton and McCanse Leadership Grid
- William Reddin Model: Using various combinations of the two kinds of
behaviors, Reddin developed 4 basic leadership styles:-
– Delegating, or laissez-faire (‘‘hands off”), style: below average task
orientation and below average relationship orientation.
– Directing, or autocratic, style: above average task orientation & below
average relationship orientation.
– Supporting, or human relations, style: Below average task orientation
and above average relationship orientation.
– Coaching, or participative, style: Above average task orientation &
above average relationship orientation.
• Effectiveness of managers depends on whether the style they use is
appropriate for their situation.
• Paradox: crucial point about these 4 styles is The effectiveness of managers
depends on whether the style they use is appropriate for their situation.
• Appropriateness of Leadership Style Depends Upon:
– Culture or climate of their organizations;
– To nature of work performed (auditing, street repairs, research & development);
– To styles, expectations & maturity of their superiors, subordinates, & coworkers.
All these factors help determine which style is effective and which styles are less so
CONTINGENCY THEORIES
• What Makes Leader/ Manager Insensitive to Situation?:
- Rationalization Tendency – Kidding ourselves (justifying shortcomings)
- Projection (Freud) – Blaming others (we see in others what we do not want to see in ourselves.)
- Mistaking symptoms for cause
- Consumption by a single value- all problems are human ones, all work must be satisfying, or all bigness is bad.
- High Stress Level - likely to distort our perceptions and feelings about others
• Such a view is criticized by theorists who assert that success/effectiveness of leader is determined
by various situational factors apart from qualities & behavior of leader himself. Also called
Universal Theories, Contingency Theories states that effective leadership is contingent upon
situation. There is no "one-size-fits-all" leadership style. It depends on context or situation. Leader
style, task, & environment must align. It depends on whether an individual's leadership style befits
the situation. Leadership should be viewed in terms of a dynamic interaction b/w: Leader, Group
of followers, Task situation & Environment. Someone can be an effective leader in one
circumstance & an ineffective leader in another.
• Contingency theory identifies:-
- Key situational factors (leader, followers, and situation)
- Specifies how they interact:-
• Leadership, is a function of three variables. Symbolically, - L = f (l, f, s)
- Determines best leadership approach.
• By emphasizing behavior & environment, people can increase effectiveness in leadership through
training in adapting their leadership style to situation & followers. Administrators should identify clues
in an environment & be flexible enough to vary their behavior.
• 4 basic styles administrators can adopt: Directing. Coaching, Supporting, Delegating
Each of these styles can be either effective or ineffective-depending on:
• 8 management styles, derived from 4 Basic Styles:
• Coaching - Executive and compromiser;
• Delegating - Bureaucrat and deserter;
• Directing - Benevolent autocrat and autocrat; and
• Supporting - Developer and missionary
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 Leader as Motivator
Motivation-desire to engage in a particular behavior. Process of arousing & sustaining goal-directed behavior.
This behavior may:-
– Meet a specific psychological or physical need or
– Avoid a specific harmful outcome.
Types of Motivation
1. Extrinsic Motivation: motivation based on an external reward. Works through external rewards (money,
food, or possessions). Works through punishments too. Giving child money for doing their homework is
an extrinsic reward. If you take away the reward, the child no longer has the motivation to engage in the
task. This is why this form of motivation is great for short-term tasks, but it does not maintain the long-term
behavior.
2. Intrinsic Motivation: Consists of behavior driven by one’s internal sense of reward for engaging in task. Works by
meeting our fundamental human need for a sense of autonomy, competence, & relatedness. A person may feel a
sense of passion, engagement, & a sense of deep psychological satisfaction when engaging in te task, even without
external reward. Writer may have passion for engaging in task of writing, independent of praise or monetary gain. At
first, psychologists assumed extrinsic rewards could increase intrinsic motivation, but studies later confirmed this is
not true. A 1971 study on The Effects of Externally Mediated Rewards on Intrinsic Motivation demonstrates that
extrinsic rewards decrease intrinsic motivation.
Theories of Motivation: Motivation is an adaptive mechanism, helping us survive. Without motivation, we would have no
drive to eat, drink, procreate, or engage in any other kind of activity that would maintain our survival.
• Autonomy is our need for a sense of independence and control over our lives.
• Competence is our need to feel like we are progressing in life.
• Relatedness is our need for a sense of social connection.
• Although this is a highly simplified breakdown of the psychology of how extrinsic and intrinsic motivation works, it captures the aspects of
motivation required for practical usage in everyday life.
- Internal Theories. variables within individual give rise to motivation & behavior: Maslow’s hierarchy of needs theory
- External Theories. Focus on environmental elements to explain behavior: Herzberg Two-factor theory
- Process Theories. Emphasize the nature of the interaction between the individual and the environment: Expectancy theory
Ways to elicit better performance from people: Motivation & Training.
William James found that employees can maintain their jobs-i.e., avoid being fired-by working at only
20 - 30 % of their ability. But if highly motivated, employees will work at 80 - 90 % of their ability. The
difference that motivation and training can make for a hypothetical individual.
Max Weber’s Theory of Bureaucratic Management- Principles
• Hierarchical Layers Of Authority
• Impersonal (Impersonality And Personal Indifference)
• Rules And Regulations
• Career Orientation
• Task Specialization
• Formal Selection/ Efficiency
Perspectives:
 Classical Perspective on Management: Economic Incentives. Gave managers fundamental new skills for establishing high productivity and
effective treatment of employees:-
– F.W Taylor - Scientific Management (application of science in all components of management. It consists of methods,
procedures, scientific tools to increase org output. 4 principles are: science, not rule of thumb, harmony not discord, cooperation not
individualism & development of workers to their efficiency and prosperity.
– Henri Fayol - Principles of Administration
– Max Weber - Bureaucracy
 Humanistic Perspective on motivation: emphasizes holistic & intrinsic aspects of behavior, focusing on personal growth, self-actualization, &
fulfillment of potential. Challenged multifaceted nature of motivation, not only responding to external stimuli
– Mary Parker Follett - Skillful Leadership
– Chester Barnard - Functions of Executive & Informal Org
– Human Relation Approach. (workplace as a social system, importance of communication, supervisory style)
• Fritz Roethlishberger et al. - Management & Worker (1939) (challenged trad. mechanistic scientific management)
• Elton Mayo - Human Problems of an Industrialized Civilization (1946)
– Human Resource Approach
• Abraham Maslow - Motivation and Personality (1954)
• Frederick Herzberg - The Motivation to Work (1959)
• Douglas McGregor - The Human Side of Enterprise (1960)

Chester Barnard: In contrast to Taylor, who saw workers responding primarily to economic incentives, Barnard recognized complexities of human
motivation. Org studies always imply a certain view of the individual:-
– Sometimes a view that sees the individual as a product of social forces,
– Other times a view that accepts the idea of free wiII.
Barnard does not attempt to reconcile these two positions but instead makes this tension-the tension between dependence and
independence, control and freedom, reason and intuition-the cornerstone of his theory
  Informal Org: occurs in all formal orgs & includes cliques & naturally occurring social
groupings. Orgs are not machines, & informal relationships are powerful forces that can help
the org if properly managed. To see how informal relations might make teams work better,
orgs have begun to look at informal network that employees create outside their orgs
formal structure. Mapping of such networks shows that most people stick together in
clusters of 8-10 like-minded individuals, a group with whom they undertake the vast
majority of their communications and with whom they feel "safe.“ Because of this informal
network, senior executives might not really know what's going on in their orgs.
 Human Relations Approach- Hawthorne Studies -1924: Western Electric efficiency experts
designed a research program to study effects of illumination on productivity. (Test & Con
Gps) Assumptions was that increased illumination in a factory would result in higher output. The output of both groups increased
irrespective of variance in testing conditions. Surprisingly, restoration of original condition also increased performance instead of
expected decrease in performance. Better lighting, more regular breaks improve productivity. When workers see people show concern
for them, productivity increase because the attention lavished on them by the experimenters made them feel that they were
important to the company. No longer did they view themselves as isolated individuals, felt themselves as a group. The general lesson
was patent. The significant factor affecting org productivity was not the physical conditions or monetary rewards derived from work but
the interpersonal relationships developed on the job.
Morale. the essence of human relations approach: Improving relations b/w supervisors & subordinates leads to increased worker
satisfaction (morale), which leads, in turn, to increased productivity. The new goal for management.
 Human Resources Approach: Beginning with landmark Hawthorne studies, economic man of Scientific Management was gradually
replaced by a more sociable being in the minds of managers. Economic rewards seemed more important than incentive pay systems as a
motivator of work. For 1st time, workers studied as people, & concept of social man was born. The approach carries concepts of
economic man & social man further to introduce concept of whole person. Human resources theory suggests that employees are
complex & motivated by many factors. Proponents of the approach, like Abraham Maslow, Douglas McGregor, & Frederick Herzberg
believed that earlier approaches tried to manipulate employees through economic & social rewards. By ensuring that employees are
content & able to make major contributions, they believed managers could enhance performance. Laid groundwork for contemporary
perspectives on employee motivation.
Maslow's Hierarchy of Needs: Individual’s behaviour at a particular moment is determined by his
need. Theory of motivation states 5 categories of needs dictate an individual’s behavior:-
– Physiological needs,
– Safety needs,
– Love and belonging needs,
– Esteem needs, and
– Self-actualization needs.
• Pyramid shape, with basic needs at bottom & high-level, intangible needs at top. A person
can only move on to addressing higher-level needs when basic needs are adequately fulfilled.
Different people require different treatment
• Deficiency needs- If you fail to meet your deficiency needs, you’ll experience harmful or unpleasant results. Conditions
ranging from illness and starvation up through loneliness and self-doubt are the byproducts of unmet deficiency needs.
• Growth need, self-actualization, separate from lower 4 levels on hierarchy, meeting needs can make you happier, but
you are not harmed when these needs go unfulfilled. Self-actualization needs only become priority when 4
foundational needs are met.
• Money would be among the factors motivating people at level 1 in Maslow's hierarchy of needs—which should tell us
something. Salary motivates neither the best people
nor the best in people. Perhaps money can sometimes
move a body or influence a mind, but it cannot move
the spirit; that is reserved for belief in the org, its
people, & purpose or for the principles and values so
important to self-actualizing people.

Frederick Herzberg: 2 Factor Theory: Manager’s job is to

remove dissatisfiers & then increase motivators to achieve
high level needs, propel employees towards greater achievements & satisfaction
Hygiene factors avoid job dissatisfaction: Company policy & administration,
Supervision, Interpersonal relations, Working conditions, Salary, Status & Security
Motivation factors increase job satisfaction
• Achievement
• Achievement recognition
• Work itself
• Responsibility
• Advancement
• Growth Salary?

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 LEADERSHIP COMMUNICATION process by which info & ideas travel from A to B & are then understood by B.
- Leadership means influencing people to bring about change toward a vision, or desirable future for the org. It
cannot happen without effective communication. Motivation depends greatly on a leader’s ability to communicate
effectively. Leaders communicate to share the vision with others, inspire and motivate them to strive toward the
vision, and build the values and trust that enable effective working relationships and goal accomplishment. Essence
of communication is not speaking or writing, rather Sharing
 Mistakes: Communication is not just sending info, for often A intends to motivate or influence the behavior of B.
Once B perceives what A is trying to communicate- is "with" A, so to speak-A has successfully communicated with B.
Managers who fail to keep these distinctions in mind, who continue to view communication simply in terms of speaking &
writing, run the risk of making the following types of mistakes.
1. Gobbledygook: Language that is meaningless or is made unintelligible by excessive use of technical terms. Use of
language characterized by circumlocution & jargon, usually hard to understand. Confusing, meaningless, or hard to understand.
- This practice is so prevalent in bureaucracy that there is even a special term for it: gobbledygook.
- The term originated during WWII when someone fancifully reformed the word gobble-the throaty cry of a male turkey.
Govt Doc on Reforming Local Governance: In alignment with strategic imperatives defined in framework of participatory inclusivity, optimization of
grassroots infrastructural modalities will be operationalized through a multi-stakeholder synergistic approach, leveraging capacity-building mechanisms &
digitized solutions to ensure seamless service delivery.
Simple Version: We will work with all stakeholders to improve local infrastructure & services through training & digital tools, ensuring public participation.
• Old axiom that should be carved on the desk of every PAtor: order that can be misunderstood will be misunderstood.
• Why do administrators engage in gobbledygook? One reason is to avoid unpleasantness:-
– We do not fire employee, we “select them out” or “non-retain them” (Golden Handshake- Right Sizing)
– We do not cut the budget, we make advanced downwards adjustment.
– Unions do not strike, they engage in a “job action”, prions are correctional facilities
Another reason for gobbledygook is the desire to dress up mundane thought and make them sound impressive.
2. Missing Opportunity: Power of Words: real tragedy of using gobbledygook is missed opportunity. Right words can spur
others to action. Quality of speech does make a difference in one’s success in emerging as a leader:
– 1. Getting a message’s meaning across may require the development of innovative approaches. Not only do feelings
and ideas need to be communicated, but messages have to be remembered. Memorable messages tend to be brief.
– 2. The timing of a statement makes a difference in a leader’s influence. Those who state their opinion either early in a
discussion or late in a discussion often are better able to have their opinion accepted than those who state theirs in the middle of a
discussion.
– 3. The medium affects the message. Stationery and signatures still have more impact than electronic mail
and faxes. Who would frame a computer-mailed printout?
– 4. Style also influences the effectiveness of managers.
• Most managers are astonished to learn just how much communication is not verbal; major parts of the shared
understanding come from the nonverbal messages of facial expression, voice, manner, posture, and dress.
Relative weights of:-
– Spoken words (7%),
– Voice (pitch, tone, and timbre) 38%
– Facial expressions (55%).
• When a manager must decide whether to send a written or oral message, both have their advantages and
disadvantages. Written messages can be retained as permanent references from which to work and guide action during implementation.
Additionally, they have the advantage of providing a legal record, although, over time, the retention of voluminous written
communications can be very expensive. As a general rule, memos should be used as seldom as possible and then only to remind, clarify,
or confirm. Of paramount importance in the use of the written message are clarity and simplicity. To ensure that messages leaving his
headquarters met this dual standard, Napoleon, it is said, kept on his staff a captain exceptionally lacking in intelligence. The officer's
responsibility was to read all outgoing messages; if he was able to understand them, then presumably no officer in the Grande Armee
would have any difficulty. Although it is unlikely that any agency head today could get such a position authorized one can at least try to
keep the reader in mind when drafting a memo.
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 Leading Groups and Teams
Stages of Group Development: A group can be defined as 2 or more people who interact regularly to accomplish some goal. Typically, groups go
through a period of evolution or development. Although there is no rigid pattern that all groups follow, they usually go through five stages:
1. Forming. Members of group get acquainted & begin to test which behaviors are acceptable & which are
unacceptable to other members of the group.
2. Storming Members begin to disagree about what needs to be done & how best to do it. Conflict & hostility
characterize this stage. Unless group moves beyond this stage, & some do not, it will never become a high-
performance team. Leader should encourage participation by each member.
3. Norming Conflict is resolved & harmony emerges. Each member takes on certain responsibilities, & everyone
develops a common vision of how the group will function. During this period, leader should emphasize
oneness within group & help clarify group norms and values.
4. Performing- Moving toward accomplishment of goals. Group members confront & resolve problems in
interest of task accomplishment. Without effective leadership productivity may begin to decline as group passes through stages of de-
norming, de-storming, and de-forming.
5. Adjourning
Key Characteristics
 Norms - expectations & guidelines that are shared by group members for how members should behave. Serve an important function for
members in stabilizing their interactions along predictable paths. So when a manager decides that some norms are blocking group
effectiveness, he or she must examine purpose the norms serve before attempting to change them.
 Roles - characteristics & expected social behavior of individuals. Roles may develop so that, in addition to the formally appointed leader of a
group, one or more informal leaders may arise as well.
– Social deviant - a person unwilling to follow an important norm of the group.
– Social isolate a member who fails to follow several norms of a group where other members are less tolerant. At one end of continuum, formal
leaders are likely to adhere closely to group norms; at other extreme, social isolates violate some & perhaps many of the group norms.
 Group Cohesiveness - extent to which group members are attracted to group & its mission & are motivated to remain in it. At least 5 factors
foster group cohesiveness:
1. Interaction: The more people are together, the more cohesive the group will be (retreats).
2. Shared goals: When the group members agree on goals, the group will be more cohesive.
3. Personal attraction: When members have similar attitudes and values, they enjoy being together.
4. Competition: Competing with other groups helps cohesiveness.
5. Success: Winning and praise from outsiders build cohesiveness.
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 Leading Change
Two Approaches: Leading change is one of the most vital topics in PA. Public Service manager cannot issue "clear" orders doesn't work is that these
orders ultimately must be executed by middle managers who are:-
– (a) Concerned with preserving their power bases;
– (b) Worried about whether they will be able to meet the demands of a new task,
procedure, or technology; and
– ( c) Interested in different goals for the organization.
• The role of leader must be to: Get as many people as possible initiating & working on projects
that will effect the desired change. There are at least 2 ways to go about this:-
1. Curt Levin & John P. Kotter Harvard 8-stage model of Planned Organizational Change
– Establish a sense of urgency
– Form a powerful guiding coalition
– Develop a compelling vision and strategy
– Communicate the vision widely
– Empower employees to act on the vision
– Generate short-term wins
– Consolidate gains and create greater change
– Institutionalize change in the organizational culture
2. Organizational Development (OD): Focuses more on bringing about cultural change-which is, after all, the basis
of change in strategy, structure, & tech. Planned systematic process of change that uses behavioral science
knowledge that can be traced back to Hawthorne studies. Field of OD evolved in 1970s as a way to build more
effective interpersonal working relationships, concept has been enlarged to examine how people in groups can
change to a learning org culture in today's turbulent environment. Not a step-by-step procedure to solve a
specific problem but rather a process of fundamental change in the human and social systems of the org,
especially the org culture.
Techniques
- Survey feedback: technique for assessing attitudes & perceptions, identifying discrepancies in these, &
resolving the differences by using survey info in feedback groups
- Sensitivity training: A method of changing behavior through unstructured group interaction
- Team building: Activities that help team members learn how each member thinks and works
- Intergroup development: Changing attitudes, stereotypes, & perceptions that work groups have about e/o.
- Process consultation: An outside consultant helps manager understand how interpersonal processes are
affecting the way work is being done
Action to Reduce Resistance: If some person or group will clearly lose out in a change-& they have considerable
power to resist-then the leader might negotiate a formal or informal agreement before implementing the change. Expensive. If the change must be
done quickly, such as in a crisis, some coercion-such as loss of a promotion or an undesirable transfer-may be necessary. Angry, Sabotage.
Overcome resistance is communication & education. Communication informs employees about need for change & consequences of a proposed
change-thereby preventing false rumors, misunderstandings, & resentment.

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 LECTURE 11: HRM (6 PG)
HR: People behind People: Plans for staffing needs, Recruits and hires employees, Provides for training and
evaluates performance, Determines compensation and benefits, & Oversees employee separation.
3 primary goals are:-
– To attract an effective workforce to the org, (R&S)
– Develop the workforce to its potential, and (T/L&D)
– Maintain it over the long term (Retention)
Most govt & nonprofit orgs employ HR professionals to perform 3 functions:-
– HR Specialists focus on one of the human resources areas, such as recruitment of employees
or administration of wage or benefit programs, whereas;
– HR Generalists have responsibility in more than one area.
– But, in a real sense, every public administrator needs to be an HR generalist.
HRM Mission Integration : Orgs that are truly results oriented whether public, nonprofit, or for-profit-
consistently strive to ensure that their day-to-day HR activities support their org's mission & move them
closer to accomplishing their strategic goals. They strive to ensure that their core processes support
mission-related outcomes. Such orgs rely increasingly on a well-defined mission to form the foundation for
what they do, & how they do it, every day. For example, many successful public & private enterprises
integrate their HR management activity into their org's mission-rather than treat it as an isolated support function. This approach includes:-
– Tying individual performance management,
– Career development programs, and
– Pay and promotion
• Standards to the org's mission and vision.
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 Development of Public Personnel Management
 Early Years
Path Dependency: view of economists that tech change in society depends on its own past. A phenomenon
whereby history matters; what has occurred in past persists because of resistance to change. An example of tech
path dependency is QWERTY keyboard which would not be in use today except that it happened to be chosen 100 years ago.
Arguably development of public personnel management in US has also been path dependent. Historic overview of
personnel management in govt, focusing on changing role of partisan loyalties & job competencies as criteria for
selecting employees:-
1. George Washington (1789-1797) Men of Character (Loyalty to Constitution/ Fitness of Character. 1789 found NYC blossoming temporarily
into a capital. The leadership of Washington was indispensable to the govt, for org new govt was no small task. In forming his administration,
Washington looked for two things:
– Loyalty to Constitution (still a controversial document in some quarters) and
– Fitness of character (as measured by family background, formal education, honor & esteem).
• To help assess "fitness of character," he began tradition of senatorial courtesy, wherein a president doesn't
appoint someone to a position unless senators from appointee's home state approve. Another precedent set in
1789 concerns president's right to unilaterally dismiss someone whose appointment had to be confirmed by
Senate. If confirmation required Senate approval, did dismissal as well? The Congress concluded that removal is a
presidential prerogative.
2. Jackson (1828) –Spoil System. 1828 election was a turning point, with Jacksonians defeating President John Quincy Adams. Jackson's
inauguration marked a new era, emphasizing rapid office rotation. He replaced many appointees, embracing the "spoils system" defined by
William L. Marcy: "To the victor go the spoils."
• Patronage: power vested in political leaders to make partisan appointments & to confer licenses, contracts, franchises, honors, and other
benefits on political supporters, friends, and relatives.
• The era of partisan appointments began with Jackson, who defended "spoils system" as “rotation in office,” The spoilt system is following
the practice of awarding govt jobs to one’s friends & political supporters. He argued it promoted efficiency and prevented arrogance in
public service. The system became entrenched, peaking during the Civil War. Local officials, especially in NYC and Pennsylvania, used
patronage to build political machines, relying on immigrant bloc voting. Reformers opposed these machines, calling for a return to merit-
based governance. In the late 1870s, civil service reform movements emerged, and Senator George Pendleton introduced legislation to
end the spoils system in the 1880s, though it faced strong opposition
from powerful senators benefiting from patronage.
3. Pendleton Act (1882) Merit System (President Grainfield murdered)-
Scientific Mgmt: Then a dramatic event occurred that increased support for
Pendleton & strengthened reformers' case. In 1881, a disappointed office
seeker shot down President Garfield in a Washington railway station.
Spoils system was now linked with evil in minds of voters. Republican
incumbents, closely identified with that system, suffered severe losses in
1882 congressional elections. The following year, Congress passed
Pendleton Act, which replaced spoils system with a merit system of public
personnel administration.
Scientific Management: If spoils system was linked with evil in minds of
voters, concept of a merit system was linked with scientific management in
minds of many reformers. Woodrow Wilson called for a separation of
 politics from administration in his 1887 essay. He considered administration to be all about technique, process, & science-in short, quite
unlike politics. The merit system certainly separated politics from administration & on this foundation the scientific management movement
would be built. Funded by private philanthropy, bureaus of municipal research became the agents outside govt to encourage scientific
management inside. The chief legacy of scientific management era to contemporary personnel management is position classification. The
pioneers of industrial engineering-such as F.W Taylor & Frank & Lillian Gilbreth suggested that orgs define the duties & responsibilities of
positions in accordance with what was determined to be the single most effective way of accomplishing their goals.
 Govt by Shared Power: major developments since 1950s, according to Dennis L. Dresang, "has been emergence of multiple centers & multiple
sources of power and influence affecting management of public employees.“
Among those sources of power, the following five:-
a. Professionals Govt is a major employer of professional & technical people. By end of 1950s, 36% of all professionals worked for govt.
Since 1960, over 1/3 of all govt employees have been professionals or technicians. This increased
professionalization of the public service has 2 implications:-
• First Implication: Public executives and managers have less control over personnel selection.
- Job Analysis: HR specialists do job analysis-that is, systematically collect information on the important
work-related aspects of the job and then develop job descriptions & job specifications.
- Job Description (TDR): a written description of basic tasks, duties, & responsibilities (TDR) required of an
employee holding a particular job.
- Job Specifications (KSA), included as a separate section of a job description, are a summary of the
qualifications needed to successfully perform the job.
- For a public Managers it is difficult to argue with technical manager over these analysis & specifications
• Second Implication: It has revived the political-administration debate.
- Often when public executives question the judgment of a professional, the tendency is for the professional to claim political interference.
“A professional, almost by definition, typically seeks autonomy and a status that commands deference. The mixing in a common arena of
a political official pursuing the mandates of the ballot box and a professional expecting to dominate in the policymaking process is bound
to generate conflict and distrust.
b. Unions Although union membership is just 7.6% in private U.S. workforce, share of govt workers in unions has held steady at around 38%.
c. Minorities and Women Civil Rights Act of 1964 opened opportunities to minorities and women tremendously.
d. Public Managers By mid-1970s, a number of state govts recognized that it was time to perform a comprehensive review of their
personnel systems & make sure various pieces fit together. A consistent theme these reforms was concern for strengthening hand of
public managers. With influence by professions, unions, & groups representing minorities & women came fear that managers' hands
were increasingly becoming tied-thus limiting capacity of agencies to fulfill their missions.
e. Contractors
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 Environment of HRM: An agency's environment can be segmented into its:
– Internal components.
– External (PESTEL): many components-economic, tech, social, political-legal & international trends. Each components can significantly
affect success or failure of agencies & individual PAtors, but scan of the external environment has 4 foci:
1. CIVIL SERVICE REFORMS (closer look at Civil Rights Reform Act of 1978): classified civil service is a bureaucracy in which personnel operate
in a merit system under jurisdiction of a civil service agency. In federal govt, composed mostly of white-collar, nonprofessional, tenured
personnel. Their employment is administered in keeping with traditional civil service practices. Critics long argued that personnel practices
made it difficult for presidents to assemble teams of highly competent officials to implement new programs. To overcome problem, President
Jimmy Carter & head of Civil Service Commission, Alan K. Campbell, developed a package of reform proposals. After a major struggle in
Congress & Carter's expenditure of large amounts of political capital, Civil Service Reform Act of 1978 was passed. Most visible reform in new
law was an organizational one. Civil Service Commission split into 2 units:-
o Office of Personnel Management (OPM)
o Merit Systems Protection Board (MSPB).
– OPM has responsibility for recruitment, training, performance appraisal, and policy leadership in the federal government, although many
personnel functions are decentralized to line agencies.
– MSPB safeguards employees' rights to due process & equitable treatment & protects whistle-blowers against unfair reprisals. Handle appeals
related to adverse personnel actions
– Senior Executive Service: Act created a separate personnel system for highest-ranking civil service officials. It encompasses nearly 8222
executives (2022). 10% of SES personnel are political appointees, selected outside ordinary merit channels & loyal to president; remainder
are career executives, committed more to federal service than to any particular president. The act makes it easier to transfer these executives
from one position to another.
– 3rd important accomplishment was restate & elaborate a fundamental themes of public personnel administration in US: merit principle.
Staffing (recruitment), compensation, advancement, & retention should be based on merit, (employee's ability, education, experience, & job
performance). Merit principle rejects criteria (patronage (political payoffs), friendship, kinship, race, religion)
– Labor Relations Authority (FLRA): Reform Act brought federal labor relations under one comprehensive act. It established an independent
Federal giving collective bargaining for federal employees a firm legal foundation.
Although scholars and practitioners may debate how much difference the establishment of OPM, MSPB, and SES & reinstatement of merit
system have made, no one can doubt importance of this aspect of the act.
2. OTHER MAJOR FEDERAL LAWS (with particular attention to the Civil Rights Act of 1964):
 Proving Discrimination: Discrimination under Title VII means firing, refusing to hire, failing to
promote, or otherwise reducing a person's employment opportunities because of race, color,
religion, gender, or national origin. This protection applies to every stage of the employment
process from job announcements to postemployment references and includes placement,
wages, benefits, and working conditions. Plaintiffs (complaining parties) in Title VII cases can
prove discrimination two different ways:
– (1) Disparate treatment (intentional discrimination) and
– (2) Disparate impact (discrimination as a side effect of some rule).
3. PUBLIC EMPLOYEES' RIGHTS AND RESPONSIBILITIES (Legislation & court decisions affecting
rights of public employees, with an attempt to identify the rights of public employees with
respect to political activities, freedom of speech, and privacy) Courts as well as legislatures &
chief executives have been active in defining restrictions on employee behavior. Starting at
political rights, & then consider how the SC has interpreted the 1st Amendment with regard to
free speech for public employees & the Constitution with regard to privacy.
a. Political Rights (Hatch Act) - 1939 Political Activities Act/Hatch Act, provides basis for restrictions on public employees throughout US. Public
employees were never happy with restrictions &, in 1993, finally succeeded in amending the act. Most federal employees may now hold office
in political party, work for candidates in a partisan campaign, solicit votes, & distribute campaign literature—as long as done outside of work
hours & work facilities. These reforms do not affect, however, the “little Hatch Acts” that states incorporate into their own laws.
b. Free Speech Political activity is not confined to pursuit of party politics such as those covered by Hatch Act. Pickering v. Board of Education
(1968) arose from a conflict in Illinois, when a public-school teacher named Pickering was fired for writing to a local newspaper a letter
criticizing the school board for placing too much emphasis on athletics.
c. Privacy Although there is no mention of privacy in Constitution, in Griswold v. Connecticut ( 1965), the SC pulled together elements of 1, 3, 4,
5 & 14Amendments to recognize that personal privacy is rights protected by Constitution. For govt employees, concerns about privacy revolve
around 4 issues in particular: (1) Drug testing, (2) Searches, (3) Sexual orientation, and (4) Living arrangements.
4. DEMOGRAPHIC TRENDS (with attempt to sort how composition of U.S population is changing w.r.t race & age): HR managers must address
societal trends, particularly workforce diversity in terms of race & age structure. Managing diversity effectively is a key challenge, requiring
skills in listening, conflict resolution, negotiation, & communication. Managers may need to establish support groups & mentorship programs
to ensure employees from minority backgrounds feel valued & remain committed to org. They must monitor behavior, reinforcing actions that
promote tolerance & diversity while addressing inappropriate behavior with constructive feedback. Must consider generational differences in
work values & styles, as it can impact workforce dynamics & org success. Generations are being asked to coexist in workplace:
• Traditionalists (born before 1945),
• baby boomers,
• generation X, and
• millennial - alternatively known as gen-Y, (b/w early 1980s & 2002)
• echo boomers (because their parents were boomers),
• net gen, and
• generation why (because they so often question the status quo).
Millennial should be of keen interest to both public & private-sector managers because of
differences in its expectations, skills & attitudes about work. According to those who track
these things, defining characteristics of millennials include:
– Like structure & want org to give them clear rules to follow
– Do not like to deal with ambiguity they will inevitably face as managers
– Tend to be opinionated & expect to be heard
– Crave feedback and praise for their accomplishments
– Want work to be relevant, have impact, and offer a diversity of experiences
– Demonstrate strong commitment to social responsibility
– Fit well in team-oriented culture but may be so collaborative that they fall short on independent thinking & leadership
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Org Culture: the predominant value system of an org.
• Advantages: When org's underlying values & beliefs are internalized by members, culture eases & economizes communications, Facilitates org
decision making & control, & may generate higher levels of cooperation & commitment. Helps overcome centrifugal tendencies of a large
bureaucracy by instilling in members a sense of unity & common purpose. This process can be encouraged through selection—people hired
because their personal values are already consistent with org culture. It can also be encouraged through socialization—newcomers learn
values & ways of behaving that are consistent with those of the org.
• How to Promote OC: Constantly harping on watershed events in the orgs history that reaffirm importance of its culture. Through role
models—exemplary individuals who convey the traits most valued by culture. Strong org cultures are rooted in strong traditions; but
traditions, do not by themselves ensure a strong org culture. Analysts from McKinsey & Company, looked at 30 companies with reputation
for having strong org cultures that engaged “emotional energy” of employees. Though some companies excelled in this area, analysts found
that Marine Corps outperformed them. While recognizing differences b/w corps & a corporation, team identified 4 Marine Corps managerial
practices that public & private orgs might do well to emulate.
– Core Values. Rather than brief & perfunctory introduction to org's values, marines make a huge investment by inculcating core
values (honor, courage, commitment); assigning best people to be recruiters & drill instructors; & focusing intensely on values
throughout recruitment and training.
– Universal Training. Most orgs identify potential leaders among frontline employees & write off rest as followers. Marines instead
train every frontline person to lead, a practice that has a powerful impact on morale.
 – Attention to Low Performers. Most public & private-sector managers resist devoting time & talent to people in bottom half of org,
assuming that they will either function adequately or leave. Marines find time to attend to poor & mediocre performers, even if it
means personal sacrifice.
– Self-Discipline. marines encourage self-discipline as a part of building a strong org culture; they demand that everyone on the front
line act with honor, courage, and commitment.
OC can have an important effect on its success. By codifying & symbolizing so that everyone can see "the way we do things here," culture can
have a positive influence on employee behavior & working environments. In orgs with strong cultures, everyone knows &supports agency's or
business's objectives; in those with weak cultures-perhaps Peace Corps can serve as example-no clear purpose exists. Thus, org culture
complements not only HRM but also sense of mission,
• How do public managers actually change the culture? Org’s value system cannot be managed in traditional ways. To effect cultural change,
managers must adopt symbolic manager approach, believing that most important part of leader's job is inspiration. Employees likely to
remain loyal to org that has a unique identity & emphasizes significance of their contributions. Symbolic leaders passionate about making org
best & convey this passion. They use dramatic, visible symbols that give sense of org mission, visible & energetic, create slogans, tell stories,
hold rallies, give awards, appear where least expected & manage by wandering around, sensitive to orgs history & culture, seek to use the
best in an org's traditions & values as a base for building a culture that provides cohesiveness & meaning. They articulate vision that
communicates org's unique capabilities & mission.
• Problems with OC: Important shared beliefs & values can interfere with org needs, people who work in it, or public. To extent that content of
an orgs culture leads people to think & act in inappropriate ways, culture will retard attainment of positive results. Because cultures are not
easily or quickly changed, that possibility should not be dismissed lightly.
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 Getting Right People
 Resource Planning HR planning is forecast of HR needs & projected matching of people with expected
vacancies. HR Planning begins with 3 key questions:-
– What new tech are emerging, and how will they affect the work system? AI
– What is the volume of work likely to be in the next five to ten years? And
– What is the turnover rate, and how much, if any, is avoidable?
Answers to these questions help define direction of org's HR strategy. Perhaps org will need to: Redefine
the jobs & skills needed, Begin to hire & train recruiters to look for a new set of skills, or Provide new
training for existing employees.
By anticipating future HR needs, org can prepare itself to meet its objectives more effectively than if it were to
react only when problems hit it in the face
- Demand Data. Org, projects skills & employee numbers (demand data) necessary to reach goals within each business unit.
- Supply Data. Once numbers are in place, planners project current employee numbers (supply data) over “planning horizon” without new
hires & taking into consideration the normal attrition of staff through death, retirement, resignation etc.
- Gap/ Surplus. Comparison of difference b/w supply & demand gives “future gap” or “surplus situation.” That knowledge enables
planners to develop strategies & operational plans. Planners then communicate action plan to employees & continue to evaluate and
update the plan as the organization’s needs change. Determining skill gaps & surplus info helps Org develop a workforce plan to
implement cross-org placement & retraining as alternatives to further employee cutbacks in the individual business units. Thus, planners
provide a greater sense of stability for workers.
 Recruiting means more than just posting an examination announcement on a bulletin board. Every possible source of qualified candidates
within appropriate labor market must be reached. A program of positive recruitment includes elements such as:
– Writing exam announcements in clear, understandable language
– Advertising in publications that circulate to various segments of population, & using other media such as radio and television
– Establishing easy-to-reach job information centers
– Visiting colleges, high schools, and community organizations
– Using mobile or storefront recruiting centers
– Developing continuing contacts with minority and women's organizations
If recruiting efforts have been successful, employer has several qualified applicants. HR professionals may use combination of devices to obtain a
valid prediction of employee job performance. Most frequently used devices for assessing applicant qualifications are:
- Application Form: used to collect info about applicant's education, previous job experience & background characteristics. Research
shows that biographical info inventories can validly predict future job success. One pitfall to avoid is inclusion of questions irrelevant to
job success. In line with affirmative action, it should not ask questions that adversely affect "protected groups" in their bid for
employment. Background questions must be clearly related to job.
- Interview: used to hire persons in almost every job category in virtually every org. Serves as a 2-way
communication channel that allows both org & applicant to collect info that otherwise would be
difficult to obtain. Although widely used, the interview as generally practiced is a poor predictor of
later job performance:-
– Interviewers frequently are unfamiliar with job for which they are supposed to hire an employee.
– They tend to make decisions in first few minutes of interview before all relevant info has been
gathered. (Impression Management)
– They may base questions on personal biases (against minority groups or physically unattractive
persons & in favor of those similar to themselves).
– Interviewer may talk too much & spend time discussing matters irrelevant to the job.
- Paper-&-pencil test. Many orgs use paper-&-pencil tests, like intelligence tests, aptitude & ability tests,
& personality inventories. They are expensive & harder to administer than written tests. Because they
 are scored by people rather machines, often seen as less objective. Most testing experts now recommend a Solomonic compromise:
basing selections & promotions on a mix of written & performance tests. For any testing instrument to be considered useful, it must
have both reliability & validity.
o Test Validity (Accuracy): Validity is the extent to which instruments used measure exactly what u meant. Relationship b/w one's
score on a selection device & one's future job performance. Valid selection will provide high scores corresponding to high job
performance
o Test Reliability (Consistency): Reliability is extent to which outcome is consistent when experiment repeated. Employer can count
on test to measure same factors in same way each time. If 2 people with equal skills take test, they should receive equal scores.
Some tests are reliable but lack validity. 2 candidates for a position could be given a test. It might fairly measure their skills, but
those skills have nothing to do with job. Other tests are valid but lack reliability.
 SELECTION
Certification Once exam completed, employment list based on results established & names of highest-ranking candidates presented to
appointing official for selection. According to merit concept, only limited number of qualified candidates should be certified. To do otherwise,
such as certifying a whole list of eligible candidates, would change basis for hiring from competitive merit to "pass-fail" system. Personnel
systems usually follow rule of 3, which permits appointing official to choose among top 3 individuals certified, without passing over veterans.
Why? To overcome objection that written tests cannot appraise personality factors adequately, that exam process can produce individuals
who may qualify intellectually but have serious personal problems. Second reason is to appease appointing officers by bringing them more
into the process
 Position Classification identifying duties & responsibilities of each position in org & grouping positions according to similarities.
 Compensation – BPS 17-22
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 Global Perspective: 2 Approaches to Civil Service Recruitment: Most countries adopt 1 of 2 approach to recruitment by merit:-
1. "Mandarin system" hierarchical system with entry limited to promising candidates at outset of their careers. Traditionally referred to an elite
group of civil servants in certain East Asian bureaucracies; in more modern sense, it refers to "corps career" system that also includes lower &
middle levels of civil service. Recruitment is centralized & highly selective, generally on basis of an entrance examination. Successful
candidates placed on fast track into best jobs in govt. For most part, these recruits, who are mostly generalists by educational background, are
hired into a career stream or corps rather than for specific jobs. France & in Japan (Pakistan & India) & a no. of leading democracies, entering the
nation's service is most coveted choice of best students. The reason is career civil servants heavily influence policymaking at highest levels. When those top
students look 30 years into the future, they know they have a shot at the top. In Japan best students from best dept of best university- Tokyo Uni Law Dept-
stream into influential ministries of Finance, Post & Telecommunications, Education, & Economy, Trade, & Industry (METI). ‘’Those who retire from civil service
at about age 55 engage in what Japanese call amakudari (the descent from heaven) & take positions in big business. Western European countries are similar to
Japan in this respect. In France very best students pass through one of grades ecoles (especially Ecole Nationale d' Administration) & then may be into one of
the 5 grands corps d'etat-elite divisions of the French civil service. In Britain dominance of Oxford & Cambridge ("Oxbridge") graduates in senior civil service
earns them title of "mandarins," in a conscious echo of prerevolutionary China.
2. Open Recruitment more flexible, decentralized & market-driven approach to civil service recruitment.
• Australian system, like American, permits entry at any point in the hierarchy, without age restrictions, and complements its horizontal recruiting system
with a Senior Executive Service aimed at building an elite group from within the civil service.
• In Pakistan MP (Management Professionals) allow entry of certain professionals at the lateral level
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 Maximizing Performance - Training and Management Development
• Orientation program: most elementary but not unimportant. When well-conceived, it can make employees productive quickly.
• On-the-Job Training: when individual is hired without all needed skills or experience & learns the job from another employee.
• Job Rotation-systematically transferring employees from one job to another to provide them with variety and stimulation as a method of
providing for employee development.
• Management development: training specifically targeted to improve person's knowledge & skill in fundamental of management
• Assessment center: technique for selecting individuals with high managerial potential based on their performance on a series of simulated
managerial tasks.
• Advancement Most govt jurisdictions provide that a new employee must serve a probation period for a limited time, usually 6 months. During
this period, manager should give new employee special attention in matters of instruction, indoctrination, & general adjustment to the job.
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 Maintaining & Effective Workforce
 Retaining Best Employees: Too often best, once attracted to a public service job, do not stay. Key to retaining
good workers is to provide environment that is rewarding & flexible—both financially & personally. National
Academy of PA study found that once reasonable pay compatibility is achieved “nonmonetary issues become
more important. Most factors that cause people to stay or leave an org are under control of their immediate
supervisor. (Hygiene-Motivation Theory) People want training, career development opportunities, open
communication, & flexible work arrangements. They want to be involved in decisions & in setting goals.
Research conducted over 8 years at Boston Consulting Group has shown that some of most successful
companies are also among most enlightened employers. Top performing companies adopted unusually
progressive policies toward their employees. These orgs exhibited 2 traits:
(1) paid exceptional attention to traditional HR issues-recruitment, compensation, training, performance
appraisal, etc.
(2) They had set up HR systems specifically for job satisfaction.
• Rationale for these systems is straightforward: "Satisfied employees not only perform better, but also make
better team members, coworkers, mentors, & colleagues. More cooperative, enthusiastic, energetic,
 innovative, & loyal to employer. For these reasons, it is in best interest of org to pay attention to all factors that determine job satisfaction &
devote resources to them. Including compensation, these factors are:
- Flexibility of work structure: Many countries around world & many state govts in US permit greater flexibility in work & staffing
schedules than federal govt.
- Staffing, and hours;
- Personal benefits such as healthy living, child care, and elder care; and
- Rewards & recognition for individual and team contributions
- Telecommuting. Replacing physical commuting to work with working from a remote location through a telecommunications link
would appear to be an excellent idea for the govt.
 Discipline & Grievances: Two sensitive concerns of public personnel management. Reprimands, suspensions, demotions, reassignments, &
dismissals can have an adverse effect on career of an employee; accordingly, few managers enjoy situations that call for such forms of
discipline. & yet, public expects, quite rightly, efficient service from those paid by its taxes.
• Grievance applies to a circumstance or condition that, in the opinion of those affected, constitutes a wrong and
gives one just grounds for complaint.
• Discipline in an org takes many forms, oral & written reprimands being the most common.
• If the administrator can make it clear: (1) That objective of reprimand is solely to correct employee action and (2)
That mutual respect exists b/w the two, then these forms should work. Still the administrator should not turn to
them too readily.
 Collective Bargaining – 6 Critical Questions: process whereby union & management officials attempt to resolve conflicts
of interests in a manner that will sustain & possibly enrich their continuing relationship.
1. Who Is Going to Bargain for Management?
2. Who Is Going to Bargain for Labor Union?
3. What Will Management and Labor Bargain About?
4. What Happens if the Negotiators Cannot Reach an Agreement?
Impasse: a stalemate in negotiations b/w management & unions over terms & conditions of employment. Often
resolved through:
- Mediation involves a neutral 3rd party-who has no binding authority but assists the parties in reaching an
agreement.
- Fact-finding involve neutral 3rd party who, through quasi-judicial hearing, assesses bargaining positions of union & management.
- Arbitration entails a binding decision by a neutral 3rd party that settles negotiation impasse. A variation of this is final offer
selection arbitration, in which arbitrator either selects best package settlement presented by union or management or resolves
impasse on an issue-by-issue basis.
5. Should Public Employees Be Allowed to Strike? right to strike, considered by many a vital instrument for successful collective
bargaining, is usually prohibited by law in the public sector.
6. How Is a Contract Administered?
Latest Trends in HRM in PM
• Hybrid Work Model: Accommodates diverse employee needs by allowing a mix of remote & in-office work. Orgs save costs on office space
and utilities while providing flexibility to employees.
• Employee Wellness: Prioritizing employee well-being is crucial. Orgs focusing on mental health, stress reduction, work-life balance.
• Diversity, Equity, Inclusion (DEI): Orgs committed to creating inclusive workplaces for women, veterans, people of color, disabled.
• Employee Reskilling & Upskilling: Reskilling/ upskilling programs to keep employee skills relevant. Continuous learning ensures workforce
agility & adaptability.
• Data Literacy: Understanding/interpreting workforce analytics is vital for informed decision-making. Data-driven insights guide talent
management strategies.
Impact of AI on HRM in Public Management
• Efficiency & Automation: Office automation, HR professional on more strategic management. Chatbots to respond to inquiries. Automating
processes like payroll, leave management, and benefits administration.
• Recruitment & Selection: Algorithms based recruitment, streamline recruitment processes and reduces bias by focusing on qualifications and
skills rather than personal characteristics. Predict employee turnover, helping organizations proactively address retention challenges.
• Diversity & Inclusion: Minimize biases in recruitment & promotion decisions. By analyzing historical data, it can identify patterns of bias &
suggest correction..
• Employee Development & Learning: Personalized learning platforms can recommend relevant training & development opportunities based
on an employee’s role, skills, & career aspirations. These platforms can adapt to individual learning styles & preferences, enhancing
professional growth.
• Performance Management: Performance data Real-time feedback to employees. Identify areas for improvement & suggest targeted
development activities. Assist in setting performance goals and tracking progress.
• Predictive Analytics: Historical data to predict workforce trends, such as attrition rates, skill gaps, & succession planning needs. Make
informed decisions about talent management.
• Ethical Considerations: Orgs must address ethical concerns related to privacy, transparency, & fairness. Ensuring that AI systems are
transparent, accountable, and aligned with organizational values is crucial.

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 LECTURE 12: FINANCIAL MNGEMENT (6 PG final)
 Public finance involves study of how govt’s allocate scarce resources over time.
2 features that distinguish financial decisions from many of other decisions are that the costs & benefits are:-
– (1) Spreading. Spread out over a relatively long period of time
– (2) Uncertainty of outcome. Usually not known with certainty in advance.
For example, how much will a tax increase harm business efficiency? No one knows for sure.
• Central to management of govt’s financial resources is budget. Administrators devote time & energy to preparing it. Its adoption represents a
juncture in policy-planning process, as few major programs are conceivable without expenditure of money. Budgeting is important as it is the
means by which public officials allocate & raise resources to achieve social objectives. Budget provides an X-ray of values & priorities of a free
people. & because values & priorities vary, one may safely assume it often involves political battles. The explanation for this has its roots in the
climb of public expenditures & taxes at all levels of govt. Budgeting answers: Who gets how much, for what purpose & who pays for it?
• USA: 1950, federal expenditures 15 .6% of GDP. By 1983, they reached nearly 24 % & then began to slowly drop. In 2007, they
constituted 20 % of GDP. Meanwhile, state & local expenditures rose from 6.1 % of GDP in 1951 to 13.3 % in 2003.
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 Federal Budget Cycle
Budget: a financial plan containing estimated revenues & expenses required over a specified future period of
time. Serves as basis for expenditure decision making & subsequent control. Can be made for person, family,
group of people, business, multinational org, a govt or anything that makes & spends money.
• Govt Budget: annual financial plan of govt; contains financial data for previous year(s), estimated figures of
current year & estimated figures for coming year for both expenditure & revenues.
• Period covered by a budget is usually a year, known as financial or FY.
Govt budgets can seem hard. But one can avoid difficulty by focusing on 4 basic phases of federal budget cycle.
Federal Budget Cycle: strong connection exists b/w govt plans & budget. A plan is no more than a statement of purpose-a piece of paper, until it
appears in budget does it come to life & begin to matter. Budget animates a plan. It must reveal how funds are allocated among programs, it
provides the most clear-cut way of determining national priorities.
a. Executive Preparation: fiscal year is a special 12-month financial period used by govt for
convenience in record keeping, tax collecting, spending & general fiscal management. Can
begin at any time govt chooses. In US, typically begin October 1 & end September 30; this certainly
applies to national govt & state govts. But many states & local units begin their years July 1 & end them
June 30. A few states & local units equate fiscal & calendar years. FY has a title based on calendar
year in which it ends, federal govt's FY2011 begins October, 2010, & ends September,, 2011.
• In Pakistan, FY is from July 1st to June 30th
• India – April 1st to March 31st , UK – April 6th to 5th , Japan - April 1st to March 31st, Germany - 1st
January to 31st December.
In early June, preliminary plans are presented to president for his consideration. At the same
time, the president receives:-
– Projections of estimated receipts, prepared by Treasury Department.
– Projections of economic outlook, prepared jointly by Council of Economic Advisers,
Treasury Dept., & Office of Management & Budget (0MB).
• OMB director is a particularly important player in process. Following a review of both sets
of projections-that is, of expenditures & receipts president establishes general budget &
fiscal policy guidelines for FY that will begin about 15 months later. Tentative policy
determinations & planning ceilings are then given to agencies as guidelines for preparation
of final budget requests during summer.
• Ceiling: the top spending limit imposed by president or OMB.
• Deficit When govt expenditures exceed receipts, a budget deficit occurs.
• Surplus When receipts exceed govt expenditures, you get a surplus
b. Legislative Approval: For decades, president's budget was only comprehensive statement of
priorities & revenue & spending recommendations. But in 1974, Congress, seeking a greater
role in managing govt, passed Congressional Budget & Impoundment Control Act, which
requires it to adopt an annual budget. Budget Act attempted to control impoundment-the
refusal of executive branch to spend money appropriated by Congress-& required Congress to
adopt a resolution that set a floor under revenue & a ceiling on spending. The resolution also includes categories
of spending limits for 13 major federal functions.
c. Execution: Once approved-whether by salesmanship, analysis, or both- budget eventually is passed. President
must either sign or veto entire bill; he cannot choose to approve or veto only some of its provisions. Agencies
may not incur obligations in excess of the amount apportioned.
• Obligations: amount of orders placed, contracts awarded, services rendered, or other commitments made
by agency during a given period. During this period, payment will have to be made, probably by check.
• Apportionment System objective is to ensure effective & orderly use of available authority & to reduce the
need for requesting additional or supplemental authority.
d. Audit - final phase in budget process. Individual agencies responsible for ensuring, through their
review & control systems, that the obligations they incur & the resulting outlays are in accordance
with provisions of authorizing & appropriating legislation & with other laws & regulations relating
obligation & expenditure of funds. Outlays are payments made (usually through issuance of checks,
disbursement of cash, or electronic transfer) to liquidate obligations. OMB reviews program &
financial reports & keeps up with agency programs' progress in attaining program objectives. Govt
Accountability Office (GAO), as agent of Congress, regularly audits, examines, & evaluates govt
programs. Its findings & recommendations for corrective action are made to Congress, to 0MB, & to agencies concerned
• Why audit? To make sure that the budget was executed as it was passed. Do plans, which are reflected in budget, match actual
expenditure patterns at the close of the year-and, if they don't, have appropriate procedures been followed when making the changes?
Audit also determines whether accounting controls: Prevented fraud and waste & Ensured compliance with applicable laws.
METHODS OF STEALING - As federal govt has continued to grow larger and more complex, waste, fraud, and abuse have prospered.
1) Ghosting: theft through phantom resources-that is, receiving payments for resources not actually delivered. One method involves placing on
an agency payroll an individual who does not work for that agency.
2) Bid rigging: procurement fix that involves rigging bids on supply contracts. Suppose a section of highway is to be repaired. Potential suppliers
would establish beforehand bid winner & winning price; other firms would submit non-competitive bids. Firms collude, knowing their turn to
win will come on another project. Collusion increases profits of firms & costs to govt.
3) "Honest" graft uses advance info to produce private profit for the individual employee. Ring Road Scandal
4) Diversion occurs when public assets or service of employees are stolen for private use.
5) Shoddy material or low-quality supplies and materials can be delivered at lower cost than can higher-quality supplies and materials. A
contractor who provides lower than specified quality (shoddy material) can thus profit at public expense.
6) Kickbacks: payments to officials who have power to select who receives contracts, what banks receive public deposits, & who works for govt
agencies. Official may profit by arranging for artificially high contract awards with a portion of that payment kicked back to the govt official.
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 Budget Making In Pak: Budget presented according to policies rules & laws of Govt, w.r.t
articles of constitution. FY starts on 1st of July & ends on 30th of June every year. Budget-
making process starts from Oct every year with issuance & acts making budget of a budget
cell circular (BCC) by MoF. From Nov - Feb, ministries & divisions submit financial statement
or proposal to concerned division. Consideration & approval of these financial statements or
budgets are done in May & June. After completion of financial doc, statement becomes
known as part of annual budget plan. After approval of cabinet, budget presented in NA.
Document of budget presented by finance minister after passage of finance bill in parliament
& then forwarded to President for approval who must give approval within 30 days tenure.
After approval, it becomes a law or policy of Government for the public.
Relevant Articles of Constitution
• Article 77: Tax to be levied by law only— No tax shall be levied for interest, purpose of federation except by or under authority of an act of (Parliament).
• Article 80: Annual budget statement—“federal gov shall in respect of every FY, cause to be laid before NA a statement of estimated receipts & expenditure of
Federal Govt for that year, in this Part referred to as the annual Budget statement”.
• Article 81: It enunciates the expenditure charged upon the federal consolidated fund.
• Article 82: expenditure charged upon Federal consolidated fund may be discussed in, but shall not be submitted to vote of NA.
• Article 83: it is about the authentication of scheduled of the authorized expenditure by PM.
BUDGET CYCLE: consists of 6 phases broadly categorized as follows:
1. Setting of budget policies & priorities: 1ST stage usually covers setting of budget priorities, policies,
& initiatives by federal/provincial cabinet. These are then communicated to ministries & depts
through Finance Division.
2. Budget preparation: preparation & submission of budget estimates of expenditures & receipts by
entities (such as divisions, ministries, and departments) & subsequent review & consolidation of
estimates by Finance Division / Dept.
3. Authorization: submission of Annual Budget Statement before NA/PA. Consists of 2 stages:
approval by NA/PA after debate & discussion; then authentication by PM/CM. The approved
budget is referred to as the "Schedule of Authorized Expenditure."
4. Execution: communication of budgets to spending ministries, administrative departments via
Finance Division / Dept. On implementation of Budget, entity can carry out activities & incur
expenditures, for which funding has been given in that period.
5. Reporting and monitoring: Actual revenues & expenditures (including commitments) are recorded & reported to monitor progress against
budget throughout financial year. Reporting assists managers in decision-making &, in particular, re-allocation of funds where required. This
includes the provision of both internal and external reports.
6. Review: periodical review evaluates financial performance & achievement of policy objectives by spending ministries & depts for external
review bodies. This includes audit activities & review by Public Accounts Committee. At year-end, outstanding commitments are reviewed, &
budget provision is made for the upcoming financial year.
Areas where Parliamentary Budget Process needs improvement: currently 41 NA & 28 Senate standing committees. Each corresponds to a federal ministry/ division.
Period allowed b/w presentation of Budget & its passage is too short for any meaningful debate/input by parliamentarians. No provision & tradition of parliament led
pre-budget consultation with parliamentarians, civil society & citizens at large. Individual parliamentarians & Parliament as an institution, lack infrastructure to give
research & analysis support for an effective Budget debate in Parliament. Budget relating to Defense services lacks details. Even distribution among 3 - Army, Air
Force and Navy is not provided. Standing Committees of NA & Senate, are mostly formed in line with Ministries & Divisions, have not been assigned any role in
Budget process. Even Standing Committees on Finance does not play any role in Budget process.
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 State & Local Budget Process: Most states place budgeting responsibility solely with executive, but some establish a budget commission that
has legislative representation. In Arkansas, budgeting is entirely a legislative function. Federal budget cycle, begins in October. But this is not
the case other jurisdictions in US. All state govts (except Alabama, Michigan, NYC, Texas) start FY in July. FY in Alabama & Michigan coincides
with federal fiscal cycle, but NYC has an April start & Texas a September start. Federal govt collects & then spends over $2 trillion a year. That
is slightly more than total for state & local govt’s.
- Principal sources of funding for state & local govt’s, in decreasing order of importance: sales tax, intergovernmental revenue, property taxes,
individual income taxes, and corporation income tax.
- 7 major areas of expenditure, decreasing order: education, welfare, highways, health, interest on debt, general ad & police.
- Budget calendar: The requirement that certain steps be followed in the budget process for
cities & towns, state law or local ordinance & may prescribe dates by which each step must
be completed. For a budget calendar for a small city, all local budgets are prepared by
executive, although this distinction is blurred under commission form of municipal govt.
 Process- Nuts & Bolts: During budget execution phase, just as in federal cycle,
administrators at state & local levels try to attain program goals within monetary
limitations. The steps they follow cover entire FY. Whatever the politics of jurisdiction or
peculiar structural impediments, state & local finance officers have the same mission. Must
plan, manage & account for public's money. For most finance officers, that means
overseeing the accounting system, managing cash flows,
 Accounting system of recording, classifying & reporting financial transactions in orderly way.
• Cash Accounting oldest type of accounting. Receipt transactions are recorded at the
time funds are received, and disbursements are recorded when checks are issued.
• Accrual Accounting records expenditures when an obligation is incurred (as one records
a check when it is written, not when the bank actually makes payment) and records
revenues when earned (when taxes are due, not when the taxpayer actually pays).
• Cost Accounting, also known as activity-based costing, concentrates on reporting the cost of providing goods and services (for example,
how much did it cost to repair one mile of city streets last year?).
• Funds . In business accounting all the available resources are, in effect, in one cookie jar. But in a public-sector organization, the
resources may be accounted for in several separate cookie jars, each of which is called a fund.
• Each fund has its own set of accounts therefore each is a separate entity. The purpose of this device is to ensure that org uses resources
made available to each fund only for purpose designated.
 Cash Management cash flow of state & local govt’s, taken as a whole, is close to a trillion dollars a year- hence, cash management is vital.
Money comes slashing in as taxes & charges. Then, it is shifted among govt’s as grants & reimbursements or stored somewhere-in checking
accounts, in short-term investments, or in long-term investments. Where money is stored depends on when govt needs it. Finally, it is paid to
employees, contractors, vendors, bondholders, pensioners, & grant recipients. Distinction b/w short-term & long-term investments:
• Short Term Investments. Typically carried on as part of the daily operations of govt;
• Long Term Investments. Finance trust-fund activities.
 Purchasing. To attain their programs' objectives, state & local govts spent over $1.9 trillion in 2007. 31% was for salaries & wages; remainder
to purchase structures, equipment, supplies, & services. The list of items purchased ranges from power plants to paper clips.
 Debt Administration Because largest cities & counties are financial giants & even small govts are multimillion-dollar enterprises, it is fair to say
that govt finance is "high finance." When raising capital, state & local govts have their own market, that for tax-exempt securities.
• Tax Exempt Financing. the interest income on these securities is not subject to federal (nor, frequently, to state or local) income tax. As a
result, the interest rates that govts pay are the lowest in the financial markets.
• Debt Management Consider: States & most local govts do not use current revenues to pay for capital projects. Objective of debt
management is to raise money necessary for govt's operations at least cost to taxpayer & in manner that will minimize effects of those
operations on financial markets & economy. Such projects are usually financed from bond revenues. Bond purchasers in effect provide
states & local govts with funds necessary to finance construction. Govt’s, in tum, pledge to pay the bondholders the principal of the loan
plus a stipulated rate of return
• Debt Management States & local govts commonly offer two kinds of bonds:
1. General Obligation bonds have the "full faith and credit" of general treasury behind the promise that bondholders will be repaid.
Not only do issues of these bonds commit general-purpose revenues to retire their indebtedness, but they also promise that
bondholders will have "1ST claim" to available revenues. Because of high degree of security that this commitment affords, bond
purchasers willing to accept lower rates of return than they could get from less secure investments.
2. Revenue Bonds for which govts pledge specified revenues, to extent that they are expected to be available, as source of
repayment. Unlike general obligation bonds, it does not have resources of general treasury behind them.
• Short Term Debt: govt’s may take on short-term debt, usually for 1 year or less. Financial managers resort to short term borrowing to
cover emergencies or temporary inability to meet payments required by law because of cash flow problems. It is considered bad practice
for PAtors to need to turn regularly to short-term borrowing to balance operating budgets.
 Capital Budget: separates long-term investments in buildings, bridges, roads, vehicles, computers, from current operating expenses. Although
federal govt separates budget items by categories (defense, energy, and income-security programs), it combines all capital & operating
expenses; thus, construction of a new dam is treated same way as purchase of potatoes for White House.
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 Purposes of Budgeting
1) Control: legislative concern for tight control over executive expenditures. Most
prevalent means of exerting such expenditure control has been to appropriate by
object of expenditure. Felt-tip pens, half-ton trucks, salaries, and unleaded gasoline.
Financial audits are used to ensure that money has been spent for items
authorized for purchase. This focuses info for budgetary decision making on the
things govt buys, such as travel, rather than on accomplishments of govt activities.
2) Management orientation emphasizes efficiency with which ongoing activities are
conducted. Emphasis placed on holding administrators accountable for efficiency
of their activities through such methods as work-performance measurement (how
many forms typed does the agency get for X dollars spent?).
3) Planning reflected in budget message for FY: “A federal budget lays out a 2-part
plan of action:
– Proposes particular programs, military & civilian, designed to promote national security, international cooperation, & domestic progress.
– Proposes total expenditures & revenues designed to help maintain stable economic prosperity & growth.”
• Here one sees an emphasis on programs & relationship b/w revenues & expenditures to accomplish objectives of programs.
 How the purpose of a budget shapes its format.
1. Line Item: individual financial statement items are grouped by category. Shows comparison b/w financial
data for past accounting/budgeting periods & estimated for current/future period. It is designed to keep
spending within limits set by legislative body. Cost categories are established for recording of all
expenditures, & backup bookkeeping systems contain sufficient detail to ensure that all disbursements
(expenditures) are made in accordance with law. Makers & keepers rely on accounting skills- ability to keep
track of revenues & expenses in a systematic way. They answer, How was money spent? Unfortunately, line-
item budgets can become straitjackets, requiring people to follow detailed rules when buying anything. Until
only recently, budgets for military bases were drawn up 3 years in advance & included hundreds of specific
line items. Say that a steam trap, which costs $100, begins to leak. Because a week's worth of lost steam costs the govt
$50, it makes sense to replace it quickly. But because of regulations, process might take months- losing many times the cost of replacement trap. However, if a
commander were allowed to ignore line items & shift resources to meet this sudden need, money would be saved.
2. Performance Budgeting: practice of developing budgets based on relationship b/w program funding
levels & expected results from that program. A tool that program ads can use to manage more cost-
efficient & effective budgeting outlays. Traditional performance budgeting, attempts to budget
according to direct outputs or activities of govt agencies. But govt agencies exist not for outputs but for
outcomes. Public health agencies do not exist to get high vaccination counts but to reduce infant mortality;
manpower development agencies do not exist to run people through training programs but to place people in
better jobs that they can keep; environmental protection agencies do not exist to get high plant inspection
rates but to improve environmental conditions. It attempts to let real performance influence budget
decisions. The underpinning for building support for performance budgeting is presence of
credible performance info & measures, which should focus not on activities of agency but on
broader societal consequences of those activities. Budget processes tend to focus on inputs
(resources purchased by agency) or direct outputs (agency's activities or tasks). In contrast, the
performance budget measures outcomes (results or extent to which agency activities have their
intended effect).
3. Program Budgeting: Developed by U.S. President Lyndon Johnson, it provides detailed costs for every
activity/program within a given budget. It uses CBA to allocate expenditures by program & evaluate results against
objectives. In 1960s, Robert McNamara introduced Planning-Programming-Budgeting System (PPBS), expanding
budgeting to include allocation decisions across agencies and programs. While LIB focuses on accountability &
performance budgeting on efficiency, program budgeting emphasizes rational planning by setting goals, developing
programs, & allocating resources accordingly.
4. Zero Based Budgeting (ZBB): budgeting method where all expenses must be justified & approved in each new budget
period. Developed by Peter Pyhrr in 1970s, org's needs & costs are analyzed by starting from "0 base" at beginning of every
period. It’s a more recent variation of PPBS. Here basic objectives of program are examined by taking an if-we-start-all-
over-again attitude. Each program is challenged for its very existence each budget cycle. 3 steps:
1) All current & proposed programs must be described & analyzed in docs called decision packages,
designed to help top management evaluate programs in terms of purpose, consequences, &
measures of performance, alts, costs & benefits.
2) Program packages are ranked through CBA.
3) Resources are allocated in accordance with this ranking.
– ZBB forces top managers to pay more attention to everyday ops, as they must rank specific expenditure
items. But it is too burdensome & detailed for normal budgeting purposes. In any event, good managers
should be well acquainted with programs in orgs. ZBB can be useful as a resource allocation device to
flag programs needing particularly close attention. Remaining activities can be budgeted in an
incremental fashion or through use of a
format similar to:
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 The Politics of Budgeting
 Are Cuts Really Cuts: Democrats, accuse Republicans of slashing aid to hungry children & pregnant women, & Republicans, brandishing their
own numbers, claim to be increasing aid to the same groups. Even more confusing, both arguments are accurate. But neither is the whole
truth. The fact is that any spending proposal can be judged only against a yardstick: what future federal spending would be if the proposal is
not enacted into law. Without such a measure, it is nearly impossible to say what effect any spending change could have. Accountants call
such yardsticks baselines. When Congress acts on entitlement legislation, it must take account of factors, such as condition of economy &
behavior of those affected by its decisions. Cost of entitlement legislation depends on variables like inflation, unemployment rates,
demographic & income trend & extent to which eligible persons avail themselves of services. Future conditions can only be assumed at time
Congress acts on such legislation. Assumptions about future expenditures are incorporated in baseline projections prepared by CBO or OMB.
Baseline incorporates assumptions about inflation as well as projected workload changes mandated by law, such as an increase in no. of
persons receiving Social Security payments. Once baseline has been projected, any executive or legislative action that would cause spending to
deviate from the baseline is measured as a policy change; say baseline spending would increase from $100 million in current year to $141 million 5 years
later. Senator Foghorn, in an effort to "control runaway spending," suggests a policy change that would reduce projected spending below the baseline level to
$125 million. This reduction results in spending higher than the current level but less than the baseline. When this occurs, politicians can portray their actions
both as a spending cut and as a spending increase
 Budgets & Political Strategies: budget process political strategies are transferable to other govts. 2 strategies are ubiquitous:
– Cultivation of an active clientele for help in dealing with both legislature & the chief executive. Clientele may be those directly served
(farmers in particular programs provided by Dept of Agriculture) or those selling services to particular agency (highway contractors doing business
with a state dept of highways). Agencies unable to identify & cultivate such clientele will find budget hearings difficult because active
support may be difficult to mobilize.
– Development of confidence of other govt officials. Agency administrators must avoid being surprised in hearings or by requests for info.
Officials must show results in reports they make & tailor their message's complexity to their audience.
• Another group of strategies-call them contingent strategies-depends on budget circumstances,
particularly on whether discussion concerns:-
– (1) reduction in agency programs below present level of expenditures (budget base),
– (2) an increase in the scope of agency programs, or
– (3) an expansion of agency programs to new areas
 Defending Base If legislators decide to reduce a program's funding from existing levels, program ads
can respond in several ways. Among response strategies are the following:
 Expanding Base : A different group of strategies applies when the agency seeks to continue or
augment operations of its existing program:
1. Round up. Rounding program estimates-workload, prices, costs, and so on-upward to the next-
highest hundred, thousand, or million creates substantial slack.
2. "If it don't run, chrome it." budget presentation sparkles with data, charts, graphs & other state-
of-the-art management trappings. Quality of show is intended to overpower its weak substance.
3. Sprinkling. Budget items are slightly increased, either in hard-to-detect general categories or across the board, after the basic request has
been prepared. The thin layer of excess is spread so thin that it cannot be clearly identified as padding.
4. Numbers game. To divert attention from spending increases, agency administrators may discuss physical units-facilities operated, grants
initiated, acres maintained, and so on-rather than the funds requested
5. Workload or backlog: Administrators can often base their request on greater client demands or of a backlog of unfilled requests. This
argument is frequently reasonability
 Proposing New Programmes: Programs/agencies develop an institutional momentum. To propose a new program that expands the scope of
agency operations entails special challenges because the new program lack momentum. Some strategies are characteristics of a new program;
1. Old Stuff. Administrator may disguise a new program as simple extension of existing program, as growth & nothing new for the agency.
2. Foot-in- -door Financing. project starts with a small amount of funding, possibly as a pilot or demonstration program or as a feasibility
study. Modest amounts build each year until the program is operational and has developed a constituency.
3. It pays for itself. Supporters of a new program sometimes argue that the program will produce more revenue than it will cost. This may
or may not be true.
4. Spend to save. Expenditure on the proposal would cause cost reduction somewhere else in the government. Whether the claimed
spending reduction actually would occur is another argument. (Khaqan Abbasi argument of refinery)
5. Crisis. proposal may be linked to a catastrophe or overwhelming problem AIDS, economic development, homelessness, energy crisis,
even though link may be tenuous, simply because agency perceives that such proposals are less likely to be reduced.
6. Mislabeling. Actual nature of a program may be hidden by mixing it with another, more politically attractive program. Examples abound:
military installations may have blast-suppression areas that look strangely like golf courses; uni dorms or office buildings may have roofs
that have seats convenient for viewing events on the football field; and so on.
7. What they did makes us do it. An action taken by another entity may place demands on the agency beyond what could be
accommodated by normal management of existing programs. If school libraries are closed and teachers continue to assign reference
work, local public libraries might argue for new programs to accommodate student requests for assistance.
8. Mandates. Some external entity (courts, a federal agency, state,) may legally require an agency action that entails greater expenditure.
Rather than rearrange operations to accommodate the new requirement, an agency may seek new funds.
9. Matching the competition. Agencies often compare programs with others & use the comparison as a basis for adding new programs.
(Seldom does the comparison lead to a proposal that some programs be eliminated because similar agencies do not have them.)
10. It's so small. Program proponents may argue that a request is not large enough to require full review, that its trivial budgetary
consequences do not make the review a reasonable use of time.
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 Taxation
CRITERIA FOR EVALUATING REVIEW OPTIONS: 3 concepts with which a financial manager in the
public sector should be acquainted when developing a tax system:
1) Equity Tax: fair tax (tax equity) would be:-
a. Horizontal Equity: One that treats equally people in equal economic circumstances.
Taxpayers with equal income should pay equal tax
b. Vertical Equity. Principle that fair tax should also treat un-equals unequally. It requires
that tax obligations vary in proportion to income such that if A has a greater income
than B, A will owe more income tax than B. Justification. Taxes should be distributed
among taxpayers in relation to their ability to pay.
c. Progressive Tax. Ability-to-pay principle. Those with higher incomes should pay a higher
proportion of their income in taxes. If they do, then tax is progressive.
d. Regressive Tax. the ratio of tax payments to income declines as income rises: the more
one earns, the less one pays proportionally.
e. Proportional Tax. Tax on income that takes the same proportion of taxes at each income level.
f. Flat Tax. everyone would pay 30% of their income in taxes, regardless of what the income might be;
2) Tax Efficiency: This concept involves basically 2 things:
• Economic efficiency concerns effect the tax has on the private sector-that is, does it disturb the relative prices of private goods, the
pattern of consumption and saving, and the pattern of leisure? Ideally, all these effects would be minimal.
• Administrative efficiency concerns how easy tax is to collect. In some cities, it is necessary for city agents to raid those businesses that
have been remiss in paying selected sales tax. The efforts feature unveiling photographic blowups of prominent citizens who owe taxes,
publishing past-due tax rolls & locking doors of businesses that have not paid taxes.
3) Tax Overlapping: concepts of tax overlapping & tax coordination are not difficult. In a
federal system US, 2 or more levels of govt frequently use the same tax base. In NYC, all 3
levels tax personal income. At the same time, in a relatively mobile society like US, it is not
uncommon for businesses & individuals to carry out economic activities that make them
liable for taxes in many different taxing jurisdictions at the same level of govt; in different
cities. Coordination b/w jurisdictions at same levels can also be important. Different tax
rates on cigarettes sometimes result in wholesale smuggling of cigarettes across state
lines.

SOURCES OF REVENUE: Taxes

are not the only source of
revenue. Actually, nontax
revenue of cities in recent years
increased in relative importance, reaching close to one-half the general revenue of cities by the end of the 1960s. In general, municipal nontax
revenue is composed of user charges and state and federal aid. The use of the price system offers significant advantages in terms of both resource
allocation and equity. If prices are closely related to costs, there are "substantial possibilities for better utilization of resources, reduced levels of
charges on the average, and improved service, all of which are inherent in pricing policies that are imaginatively concerned in terms of economic
efficiency. A few examples serve to illustrate :
- Imposition of user charges can prevent excessive wasteful use of electric power or water within an urban area.
- Imposition of a price charge can ration facilities among users. A park or outdoor concert has a limited capacity; excessive demand
therefore can be brought into line with supply when users must pay a fee.
- * Imposition of fees & charges can help control activities that damage air, landscape or cause pollution/congestion. This is rationale for
“excessive taxes” on downtown parking lots. User charges also have advantages in terms of fairness.
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What Ails the Federal Budget Process?
- Earmarks refers to insertion of a specific funding provision for a specific named project into legislation. Faces criticism as these are directly
requested by individual members of Congress & are often added without scrutiny of other lawmakers.
- Uncontrollable Expenditures Budget Enforcement Act 1990 created 2 legal categories of federal spending:
– mandatory (uncontrollable): outlays made according to definitions of eligibility & establishment of benefits or payment rules, rather
than directly through appropriation process. Much of the spending comes from entitlement programs (Medicare)
– discretionary (controllable)
- Budget Deficit: economist John Maynard Keynes stressed importance of public budget in regulating effective demand & stated that if govt wants
to stabilize economy, it should run a budget deficit. Such a deficit places in circulation more money than govt has removed from circulation,
generating greater demand for goods/services by citizens who have more money to spend. Conversely, if govt wants to reduce inflation, it should
run budget surplus, removing money from circulation in taxes than it puts in with public expenditures. This leaves citizens with less money than
they had before govt's actions & so would lessen total demand.