Public Management PDF

**[What are Public Institutions?]** Any organisation which the community has directly or indirectly granted superior powers to for the promotion and protection of interests deemed relevant to the community: - ***Territorial PI*** -- EU, national government, regions, local municipalities -...

**[What are Public Institutions?]** Any organisation which the community has directly or indirectly granted superior powers to for the promotion and protection of interests deemed relevant to the community: - ***Territorial PI*** -- EU, national government, regions, local municipalities - ***Specialised PI*** -- CNR, public health institutes, foundations, Teatro de Scala The system of public institutions is not a single, undifferentiated organic body, but rather a series of autonomous institutions, each endowed with its own specificities, history and distinctive competencies. Improvement of the public system is achieved through improvements in each individual institution. ***Main objectives/mission***: A diagram of a company Description automatically generated with medium confidence ***What do governments do?*** - Providing economic infrastructure -- (*institutions, rules of the game and arrangements*) - Provision of collective goods and services -- (*public goods, typically non-excludable and indivisible*) - Resolution or adjustment of group conflicts -- (*assumption of heterogeneous interests*) - Maintenance of competition -- (*avoiding business cartels, restricted access or fixed prices*) - Protection of natural resources -- (*negative externalities, interest of future generations*) - Minimum access by individuals to goods and services -- (*alleviating poverty or unemployment* - Stabilisation of the economy -- (*monetary policies, control of wage, taxes, prices*) **[What are the Main Instruments of Government Activities]** ***Provision*** -- government provides goods or services through its ***budget*** ***Subsidies*** -- government ***assist companies*** to provide government-required goods or services ***Production*** -- government produces goods and services for ***sale in the market*** ***Regulation*** -- using the coercive powers of the state to ***allow or prohibit*** certain activities in the private economy (economic and social regulation) **[Incident Discussion ]** (*see blackboard for more detail*) ***100 word summary***: The Municipality of Milan pioneered car sharing in Italy, investing in infrastructure and pairing it with public transport to make it convenient for users. Car sharing benefits several stakeholders: users seek low rates and availability, providers aim for economic sustainability, the city focuses on reducing car numbers and pollution, and the Municipality wants to recoup infrastructure investments. The Municipality can distribute the value generated by adjusting provider fees, rate regulation, and vehicle type requirements. Low fees benefit users, high fees help recover costs, and promoting electric vehicles benefits the city. Each decision affects who ultimately gains the most value. [Lecture 3 -- Public Institutions] **[What Makes PI Distinctive]** The complex functions that characterise the actions of public institutions determine some distinctive characteristics. These can be qualified as the specificity of public institutions: 1. ***Heterogeneity*** of services/products 2. ***Absence of a sale price*** for products or services 3. ***Formalisation*** of administrative activities 4. ***Political-institutional*** cycles vs. ***management*** timelines 5. ***Announcement*** effect **[(1) Heterogeneity of Services/Products]** Deeply heterogenous nature of functions, products and areas of activity of public institutions: - Multiple consequences that decisively influence public management systems: - Strong heterogeneity in the operational nature of the activities carried out - Heterogeneity in the type of expertise required of personnel - Heterogeneity of organisational models - Extremely differentiated need for management systems - Evaluation criteria for public institutions are affected by their heterogeneity - Despite this variety, the search for homogeneity still prevails because public institutions are considered a unified and undifferentiated entity **[(2) Absence of Price]** The products of public institutions' activities are, in whole or in part, provided without a direct economic compensation (price) or with compensation (fees) that are lower than the production costs and determined based on social and economic considerations, rather than the free dynamics or supply and demand. This leads to the following: 1. ***The quality of management is not reflected in financial balance*** - A well-managed institution may be in deficit (if public funding is insufficient relative to the organisation's mandate) - A poorly managed institution may be balanced (if citizens received low-quality services but the organisation is generously funded) - The absence of pricing does not allow for an explicit and shared measure of public value to be compared with costs (unlike the market exchange value -- revenues -- for a business) 2. ***A different meaning is attached to revenues for most public institutions (often transfers rather than payments made by users for services)*** 3. ***The mechanism of self-selection of demand are weakened or absent*** - This facilitates access to public services for low-income individuals (a positive effect), but it also creates pressure on the provision of public services by all citizens, leading to the need for demand control systems that are alternatives to the sale price - Alternative systems try to balance supply and demand include: - Contributions to costs (tickets, fixed fees etc) - Selection and guidance from the supply side (definition of priority criteria, e.g. for allocating public housing) - Awareness and responsibility for the demand side (information and communication) **[(3) Formalisation]** Administrative activities must be carried out according to predetermined and transparent procedures, aimed at protecting the community against the risk of misuse of superior powers and collective resources. Why? 1. Assignment of superior powers to public institutions 2. The need for control systems over their actions that are different from market mechanisms **[(4) Political vs Management Timelines]** Political-institutional timelines (elections, government formation, institutional appointments) influence the management of public institutions: - In general, public institutions are affected by political cycles - The system of rules is imposed to prevent public institutions from being exploited for political gain in the pursuit of consensus often defines constraints on activities and initiatives during pre-election periods, causing distortions in administrative functionality - Election deadlines create a timeline that the political system often regards as significant for garnering public support **[(5) Announcement Effect]** The dynamics of public consensus appear to be strongly influenced by the so called announcement effect, that is, by the ***expectations generated following the presentation of programs, intentions and promises made to various social interest groups***. Two main consequences: 1. The moment of the announcement becomes more important than the moment of realisation, which tends to foster dissatisfaction with the results achieved by public institutions 2. Groups do not agree with the programs have time to organise to oppose and possibly block public decisions, making the implementation more uncertain and difficult **[Complexity of Public Management]** Public institution management is particularly complex because it requires: - Balancing political, legal and economic models - Simultaneously managing the distinctive and specific characteristics of public institutions (heterogeneity, absence of pricing, formalisation, political rhythms, announcement effect) - Reconciling legitimate but conflicting objectives present in society and public opinion, without the possibility of having a simple and unified objective function **[Three Paradigms for Public Administration ]**  **[New Public Management ]** ***New public management*** is a label which refers to the market-oriented principles that characterised public sector reform since the early 1980s and throughout the 1990s, especially in the UK, US, Canada, New Zealand and Australia. ***Economic and social preconditions***: - Budget deficits vs rising demand for public services - Rising expectations about quality and effectiveness of public services - Widespread negative prejudices on the public sector This has ***three*** facets. **[Redefining the Boundaries Between the State and The Market]** ***Downsizing***: - Key aspect in the reform process has been to take a closer look at what the government does, its role in the economy and society - Advocates of NPM reforms, armed with some insights of economic theories, argued that there are things a government should just NOT do - E.g. the rationale test in Canada in the mid 1990s led to the cutting of many state programs and activities: - Public interest test -- is the activity still useful for society? - Role of government test -- should any government be involved in this activity? - Federalism test -- is the federal government the appropriate level for this activity? - Partnership test -- could this activity be done by another group in the society? - Efficiency test -- could this activity be carried out with less costs - Affordability test -- if the other tests are met, can society pay for the program? ***Privatisation***: - ***Public enterprise*** was for a long time an important part of the public sector in most developed and developing economies - Privatisation of public enterprises was the ***1^st^ target*** of those aiming to reduce the size of government activities - The most significant of the early privatisation programs was in the UK: nationalised industries fell from 11% to 2% of GDP between 1979-1993 - From early 1980s to 1990s more than 7000 enterprises were privatised in developed countries ***Externalisation (contracting out)***: - Introducing market and quasi-market type mechanisms to stimulate competition between service providing agencies, in the belief that this will promote cost savings and responsiveness: - Internal markets (i.e. healthcare) - Vouchers (i.e. social care services) - User charges/fees (i.e. co-payments) **[Reshaping the Macro-Structure]** ***Devolution/Decentralisation/Federalism***: - Replacement of highly centralised hierarchical organisational structure with decentralised management environments - Decentralising management authority within public agencies -- giving management freedom to manage with clear responsibility and reducing the management role of the centre - Developing budgets and financial control to decentralised units, creating budget centres/spending units **[Redefining the Micro-Structure and Operational Systems]** ***More Focus on Results, Less on Processes***: - Discussions over the performance of government have existed as long as government itself - Definitions of '***performance***' - The action or process of performing a task or function - The accomplishment of a given task measured against the preset known standards of accuracy, completeness, cost and speed. In a contract, performance is deemed to be the fulfilment of an obligation, in a manner that releases the performer from all liabilities under the contract - ***Performance measurement*** is the process of collecting, analysing and/or reporting information regarding the performance of an individual, group, organisation, system or component. It can involve studying processes/strategies within organisations, to see whether outputs are in line with what was intended or should have been achieved ***Leadership and Management, Not Administration***: - Public managers -- leaders and promoters of organisational change - Leadership is a critical component of good public governance - The most important role of public sector leaders has been to solve the problems and challenges faced in a specific environment - Leadership is an important and crucial variable that leads to enhanced management capacity, as well as organisational performance - Leaders set and pursue objectives, educate, persuade, motivate, experiment with strategies and tactics - Leadership as a ***personal*** attribute or ***positional*** ***Flexibility in Staffing***: - Traditional notions of a career service, stable and lifelong employment and service-wide employment conditions were challenged by New Public Management principles and practices - ***Administration*** -- neutral civil servant applying the right rule at the right time, but not questioning the rule and certainly not exercising the discretion whether a rule should be applied - ***Management*** -- connotes considerable authority but applies discretion in its use, and accountability for outcomes and product rather than to rules and regulations - NPM principles allow a more flexible and responsive approach to questions of ***recruitment, selection, retention, training and development*** of public sector employees ***Improved Financial Management***: - Financial management is the most important management activity in the public sector at any level of government - Increasing pressure to produce results while cutting costs - Financial management closely linked to performance and personnel management - Subject to dramatic reform in the past decade in almost every country in the world: - Accounting reforms - Fiscal decentralisation - Budget balancing: contracting out - Output and outcome budgeting ***Competition and Contractualism***: - The contracting out of government services on the grounds of competition has often been considered one of the big changes in the reform process - Competition for provision through contracting is seen as reducing costs compared to bureaucratic provision - ***Contractualism*** -- any conceivable government service can be provided by contract, either through private or voluntary sector providers or internally with other parts of government ***Revised Relationship with Politicians and The Public***: - The relationship is ***more fluid***, with higher interaction in comparison to the traditional model both with politicians and the public - The major challenge/skill needed of a public manager is to be able to interact with politicians and with the outside world - The traditional model tried to depersonalise and depoliticise what was essentially political (working with people) - Unrealistic separation of policy-making (politics) and administration has finally been discarded - Direct accountability between managers and public (citizenry, clients and other stakeholders) **[Strategic Management in Public Organisations]** Strategy as the ***main function of general management***: 1. Establishing objectives and priorities for the organisation (*on the basis of forecasts of the external environment and the organisation's capacities*) 2. Devising operational plan to achieve these objectives ***Strategy in the different paradigms of PA***: A diagram of a diagram of a model Description automatically generated What is ***strategy***?  ***Design school*** -- strategy formulation as a rational process: - Strategy is a set of guidelines meant to assure consistency in decision-making, so as to move an organisation from where it is today to a desired future state ***Learning school*** -- strategy formulation as a social process: - Strategy is a pattern emerging in a stream of decisions concerning the positioning of the organisation within its environment ***Key factors for strategy implementation***: 1. Vision -- understanding the strategy 2. People -- incentives 3. Management -- time dedicated 4. Resources -- linking budget ***Why is strategizing more challenging in public sector organisations?*** - Belief that the responsibility for strategy formulation lies with the political level - Autonomy and space for decision-making of single units ("professional bureaucracies") or entities - Relative weakness and short-term orientation of the strategic apex - Convergence of multiple conflicting interests - Lack of shared measures of performance [\ ] [Lecture 5 -- Measuring Performance in the Public Sector] **[The Scope of Performance in the Public Sector]** - Performance measures are ***objective, quantitative indicators*** of various aspects of the performance of public programs or agencies (accountability!) - Performance measurement is intended to produce objective, relevant information on program or organizational performance that can be ***used to strengthen management and inform decision making,*** achieve results and improve overall performance. - Performance measurement tends to have ***an impact on behavior and decisions***. - Performance measurement tends to focus attention ***on what is being measured*** and on performance itself, and to motivate people and organizations to work to improve performance, at least ***on those dimensions that are being monitored***. **[What is Performance Measurement]** - ***Performance management (PM)*** includes activities which ensure that goals are consistently being met in an efficient and effective manner - PM is management style that ***incorporates and uses performance related information for decision making***. (i.e. management by objectives, strategic management, performance budgeting) ***New Public Management (NPM)*** = more emphasis on "professional" management, the introduction of ***explicit measures of performance***, a focus on ***outputs and results*** and an ever greater role played by "private sector styles" of management practice. Central to (almost) all measures of performance in the private sector is an understanding of the relationship between economic ***inputs and outputs***. A diagram of a quality of action Description automatically generated with medium confidence Performance and ***accountability*** in the public sector:  Another classification of accountability: ***conformance vs performance*** - ***To conform*** = to comply, to be adherent to rules, to focus on the right behaviour to obtain results, to prescribe how results should be achieved and to control adherence to these prescriptions; also: to act on value, ethics of conduct - ***To perform*** = to achieve results, to be kept accountable through targets; to give autonomy of action and then strengthen ex‐post evaluation (based on achievement of targets) ***Performance Measurement and Management*** **[Why Promote Performance Management in the Public Sector?]** 1. Democratic control (performance as means for ensuring ***accountability***) 2. Orient consumer choice 3. Promote efficiency and effectiveness 4. Decide on resource allocation (i.e. performance-based funding) 5. Performance as realization of Public Values (product, process, "regime" values) Diagram of a diagram of production and production Description automatically generated **[Multidimensions]** In the public sector multiple criteria to measure performance. The ***4 E's***: 1. ***Effectiveness*** -- satisfaction of needs 2. ***Efficiency*** -- best use of resources for given outputs 3. ***Economy*** -- financial viability of organisations 4. ***Equity*** -- equality, fairness, justice At what levels? - Performance of the entire systems - Performance of the single activities, programmes and policies - evidence-based policies (***cost benefit analysis***) - Performance of the institutions (***public administrations***) or organizational units - Performance of individuals (***human resource management***) ***OECD: Government at a Glance***: - In 2005, the OECD launched the 'Government at a Glance' project to collect data and develop indicators describing government activities and performance. - The goal of the project is to help countries better understand their practices and assess, plan and measure public sector reforms.  **[From Objectives to Indicators]** A screenshot of a medical survey Description automatically generated  **[Take Home Message]** - The systems of accountability are the hallmark of NPM application of performance management - Performance measurement has been crucial in public sector reforms, public management and policy domain - Performance measurement in the public sector is done at different levels (from system to individual [Lecture 6 -- Resource Management ] **[The Role of Public Institutions in the Allocation and Redistribution of Resources]** Public institutions ***collect and reallocate wealth*** \"from and in favor of\" businesses, households, and individuals in order to promote widespread economic development, equal opportunities among individuals, and the protection of social needs. Sources of resources: 1. Public institutions reallocate resources ***from private consumption to public goods*.** 2. Public institutions reallocate ***from wealthier households to poorer ones*.** 3. Public institutions reallocate resources by ***ensuring support during life stages*** with high social protection or educational needs (for students, the sick, the elderly, the disabled). 4. Public institutions ***reallocate people\'s resources throughout their life cycle*** (pensions, unemployment, work-related accidents). 5. Public institutions reallocate resources ***between different territories*.** 6. Public institutions reallocate resources between those who ***generate negative and positive externalities*.** 7. Public institutions reallocate resources ***from mature businesses to young ones*** to support research and innovation. **[Key Decisions in the Acquisition and Use of Public Resources]** ***What level of public intervention?*** - High tax and tariff pressure that ensures extensive welfare and broad support for socio-economic development (e.g., Scandinavian model). - Low taxes and limited public services (e.g., minimal state, South Korea with less than 30% public spending). ***What revenue mix?*** - Transfers from higher-level entities -- e.g., EU to States and Regions (revenues that are difficult to adjust). - Taxes (solidarity-based contributions) - Tariffs and prices (users pay based on their consumption). **What mix between services with positive and negative profitability?** - Services that generate revenues exceeding costs: public utilities (ENI, ACEA Roma, etc.), airport companies, museum bookshops, national lotteries, etc. vs - services with high social benefits but costs that exceed revenues (universities, natural parks, research centres, healthcare, etc.). ***What is the composition of current expenses (resource allocation)?*** - Public resources must be distributed among alternative purposes (structurally, resources are insufficient compared to public needs, which are practically infinite). - There are high fixed costs (e.g., personnel), historically determined, which reduce the discretion in allocative choices. - For many public institutions, there are mandatory services to be provided as defined by higher-level entities (e.g., preschools for local authorities). ***What level of debt should be sustained?*** - Debt can be used for different purposes: - Infrastructure investments - Acquisition of assets - Financing of current imbalances (prohibited for all public institutions, except for the State) - Public debt results in an intergenerational transfer of benefits and costs. - Debt is fair between generations if the benefits produced by the investments are at least equivalent to the costs of repaying loans and paying interest. ***What investments should be prioritised?*** - When resources are limited, the alternative arises between investments of the following types: - Social (e.g. new multimedia library) - Economic (e.g. equipped areas for industrial settlement) - Environmental (e.g. metro to reduce car traffic) - Heritage (e.g. restoration of historical and artistic heritage) **[Levels of Autonomy and Decision Making Criteria]** - Influence of the amount of fixed costs (i.e. public employees), level of accumulated previous debt, and presence of multi-year programs decided in the past. - Autonomy granted by higher levels of government. - Decision-making alternatives: - Short-term perspective OR budget policies with strategic impact - Services directly provided to citizens OR infrastructure investments - Progressive and gradual adjustment of historical allocations (incremental approach) OR more radical and rapid reallocation. [\ ] [Lecture 7 -- Public Management Reforms in Transitional and Developing Economies] **[Two Main Features of Public Sector in Developing Economies]** 1. Developing economies followed a ***traditional model of PA*** after the independence *(inheriting model of colonial governance)* - Colonial governments used bureaucratic means to administer their colonies - Popularity of bureaucratic model in Western countries 2. Most developing economies adopted the principle of ***strong state sector*** in the economy *(aligned with dominant ideas of socialism and Marxism, and following the apparent success of the Soviet Union and China)* **[NPM Reforms in Developing Countries ]** Redefinition of boundaries between the state and the market: - Downsizing - Substantial privatisation - Externalisation Redefinition of the operational rules and microstructure: - Public enterprises - Focus on results - Improved financial management (performance and budgeting systems) Two of the more commonly adopted elements of the NPM agenda are: 1. Downsizing -- (retrenchment in Africa) such initiatives are part of the economic structural adjustment programmes 2. Corporation -- (transforming state assets into a corporation, as a means to achieve greater efficiency /a way of freeing a particular public function from the constraints of civil service red tape) **[Role of State in the Economy: Public Enterprise]** In the post-independence period, the governments are the **primary agents of economic development**: infrastructure, goods and services **Public enterprises** used to much larger extent in developing than in developed economies: - Government departmental enterprises (NITEL, NIPOST) - Municipal enterprises - State-owned companies **[Public Enterprises: Pros and Cons]** ***Advantages***: - Provision of essential services to the public. - The enterprise has greater access to capital (especially from government). - The enterprise is not easily threatened by business competitors who provide similar services. - The enterprise produces in large quantities and enjoys the benefits of large-scale production. - Services are offered at cheaper prices to the public.            - There is a decrease in the cost of living as such essential services are provided to the public at cheaper prices. ***Disadvantages***: - Excessive interference of government. - The little or no threat from business competitors could cause management to be less effective - Poor management of the enterprise by managers who are mostly corrupt and fraudulent. - Political intervention in the appointment of board members and the award of contracts. **[Challenges of NPM Reforms in Developing Economies]** 1. Weak and immature institutional arrangements (unable to effectively cope with market economy, including but not limited to contracting and property laws) A graph on a white background Description automatically generated 2. Privatisation of public enterprises (foreign ownership, administrative capacity) 3. Public funding through foreign aid (a one-size-fits-all approach 4. Corruption (not the same as rent seeking behaviour: interested groups adopt lawful means to secure competitive advantages from the political process) [Lecture 8 -- Public Sector Employment] **[Public Employment]** ***Public employment system***: the body of public employees and the specific rules governing public sector work. Principles underlying public employment regulations: - Impartiality in the selection process - Neutrality of public employees concerning stakeholders to be served - Independence from politics - Transparency and accountability in the actions of public employees **[Who Are Public Employees?]** - Some public employees are also ***public officials***. - A public official is someone who exercises superior authority (a police officer making an arrest, a judge, a teacher when passing or failing a student...) - The exercise of superior authority requires independence of judgment and strict adherence to the procedures governing the exercise of such powers. *This has historically been the foundation for the design of public employment regulations*. - Historically, most public employees were public officials because, until 1950, the limited functions of public institutions were primarily regulatory. - The expansion of public functions, particularly in welfare, has reduced the proportion of public employees who are also public officials.  A graph of a graph with numbers and text Description automatically generated with medium confidence  **[Traditional Model: Civil Service]** Civil servants are not simply employees of the government, they often have a constitutional role. The purpose of civil-servants is two-fold: 1. Provide assistance and guidance to the political leadership 2. Provide services, to implement what the governments have passed legislation for The ***Weberian model of bureaucracy***: public officials considered as distinctive elite in society. Particular set of working conditions: - Entry at the base level (neutral, merit-based) - Appointment for life - Career within hierarchical model - Old age security (pension) **[Managerial Model]** In the NPM framework: public managers (unlike bureaucrats and administrators) are accountable/responsible for delivering results. Three main implications of this radical shift: 1. ***Human resource management*** (instead of Personal Administration/Management) 2. ***Performance measurement*** (pay for performance) 3. ***Leadership*** ***Management reforms in public employment***: - Creation of more Creation of more flexible structures and processes (for recruitment and retention)- short term contracts, part time, linked to specific projects - Greater responsibility and autonomy accorded to line managers and supervisors in the management of employees (within the limits of national legislation) - Flatter management structures of decentralization and devolution - At the job level, broader and multi-skilled jobs were introduced (base-grade appointment is becoming rare). - A greater concentration on performance and output measures (pay for performance) A screenshot of a diagram Description automatically generated **[Public Sector Employment and Compensation]** Effective management of public sector employment and compensation is a vital activity of governments with broad implications for: - Fiscal sustainability - Public sector productivity - The competitiveness of the overall labour market ***Does the public sector pay too little/too much?***  A graph with blue dots and a red line Description automatically generated ***Public service motivation*** - "Individual predisposition to respond to motives grounded primarily or uniquely in public institutions and organizations" (Perry & Wise 1990)" Three dimensions: 1. Utilitarian (maximising utility) 2. Value-based (achieving the common good) 3. Altruism (desire to help others) Usually, people who choose a profession in service of the community are more motivated by the nature of the work itself than by earning opportunities [Lecture 9 -- Cost Benefit Analysis] **[Performance Measurement and Policy Evaluation]** Performance measurement and policy evaluation are neighbouring fields and complementary evaluation strategies. Performance measurement may be seen as an approach to evaluation of public policies and programmes. However, there are several differences: - Timeless (ongoing vs episodic) - Scope (general vs specific issue) - Integration (routinised vs customized approach) - Attribution (taken for granted vs core issue) - Resources (part of vs targeted) - Actors (managers vs evaluators) - Users (evolve over time vs negotiated up front) **[Cost-Benefit Analysis (CBA)]** ***CBA*** is an evaluation method; a tool that provides support for informed judgement and decision making. The main objective of CBA is to identify, measure and evaluate costs and benefits of specific projects/programmes/policies and ***compare them***. The main feature is both cost and consequences are expressed in ***monetary terms***. ***Ex-ante*** and ex-post evaluation. ***Definition of CBA***: - ***Cost-benefit analysis*** is an analytical tool to evaluate the feasibility and social desirability of an investment decision by comparing its cost and benefits - It supports the decision making on resource allocation, estimating the convenience for society of a particular intervention - Support to public decision makers by a straightforward decision rule: - Net Benefit = Benefits -- Costs - Benefit/Cost Ratio Under the EU Cohesion Policy, a CBA must be performed for ***major projects***; that is projects with a total cost above €50m. There are ***two approaches*** to cost-benefit analysis: 1. Financial Cost-Benefit Analysis 2. Economic Cost-Benefit Analysis **[Financial Cost-Benefit Analysis ]** *What is the project's financial profitability?* *Will the project be financially sustainable?*  Methodology includes a ***discounted cash flow (DCF)***: - Cash flows are only considered over a given reference period - Cash flows are discounted to present time - Reference period = number of years for which forecasts are provided in the CBA and it should reflect the economic useful life of the project assets A blank table with blue text Description automatically generated with medium confidence Details: - A 5% financial discount rate in real terms is recommended as a benchmark for public investment projects co-financed by the Funds - Financial analysis consists of a system of accounting tables that show cash inflows and outflows - The main purpose of financial analysis is to assess the financial performance of the project through two indicators: - ***Financial Net Present Value (FNPV)*** - ***Financial Internal Rate of Return (FRR)*** - Respectively in terms of return on the investment cost, FNPV (C) and FRR (C) and return on national capital, FNPV (K) and FRR (K)  **[Economic Approach to Cost-Benefit Analysis]** Cost-benefit analysis is a full economic evaluation technique, rooted in welfare economics. It aims to assess the project's ***economic desirability***. It differs from financial analysis because: - It is carried out from the ***point of view of the whole society***, while the financial analysis is done from the point of view of the investor (project owner/operator) - It also ***considers non-market impacts*** (e.g. savings in travel times, changes in externalities, etc.) Rationale of economic analysis: 1. Projects inputs (costs) should be valued at their ***opportunity cost*** (shadow prices) 2. The benefits should reflect the "***public value***" **[Measuring Program Costs]** A screenshot of a computer Description automatically generated ***Example***:  **[Measuring Benefits in CBA]** ***Human Capital Approach***: - Value of Time = Value of Earnings (wages) - Value of Life = Present Value of Lifetime Earnings (= lifetime productivity in competition) - Several practical challenges: imperfect market (discrimination; people with higher wages have higher social value?); unemployed; jobs that are not valued on the market (housewife) - Critics(theory): not underpinned by welfare economics; loss of health/life is measured according to their economic impact only ***Measuring Public Value***: - Main assumptions: - Results of public policies/programmes should be valued by individuals - Utility that citizens attach to goods and services cannot be measured directly by observing their choices - Welfare economics: consumers are the best judges of their own welfare, their preferences are the best indicator of individual welfare - Most common method for eliciting preferences ***Willingness to Pay (WTP)*** Two methods to measure ***WTP***: 1. ***Revealed Preferences*** -- by observing consumer behaviour in reality (not possible in all sectors of public intervention) 2. ***Stated Preferences*** -- also known as contingent evaluation, and is done by estimating consumer behaviour in hypothetical marketplaces ***Revealed Preferences***: - Method by which it is possible to discern the best possible option based on consumer behaviour: the preferences if consumers can be revealed by their choices and purchasing habits (for private goods) - Examples for public goods: - Health risk and occupation - Safety and real-estate markets - Advantage based on real consumer choices - Disadvantages: - Not possible for the goods that are not on the market - Numerous confounding variables ***Stated Preference/Contingent Evaluation***: - Method for evaluating good for which, due to their intrinsic characteristics, there is no market exchange or there are relevant market failures (externalities) - Objective estimate a value people attach to a good not available on the market - Method: - Hypothetical (contingent) scenarios are presented to the interviewed to estimate their preferences for goods and services - Allows you to estimate "***true***" ***public value*** How to do ***contingent evaluation***: - References population (sample: must include all persons whose utility is affected by the introduction of the programme) - Questionnaire: - Detailed description of hypothetical scenario - Question to estimate the WTP amount - Data on respondents' socio-demographic characteristics ***Example***: A white sheet with black text Description automatically generated ***Limitations of WTP***: 1. Survey results are highly dependent on the method used and the framing of the question 2. Hypothetical nature (difficult to impossible to validate results) 3. Costs and timelines for conducting the study 4. Equity implications to be considered Several US Agencies approved the use of WTP method for evaluating benefits of different projects: - 1979: US Water Resources Council - 1986: US Department of Interior (projects to face natural disasters) - 1993: US Federal Govt. National Oceanic and Atmospheric Administration (NOAA) Panel Report -- guidelines for WTP (by Kannet Arrow et al; following the ecological disaster caused by oil platform Exxon Valdez) - The Environmental Protection Agency (EPA) regularly employs cost-benefit analysis in making policy decisions. **[Take Home Messages]** - CBA is a technique/tool to estimate public value generated by public programmes and policies - Expresses value in monetary terms analogously to value measurements fir private enterprises and private choices at the market - CBA allows us to respond to the question: is this policy worthwhile? Overall, at society level, does its benefits exceed the costs - CBA can provide support in public decision-making in allocation scarce resources - Financial and economic approaches ***are complementary*** [Lecture 10 -- The Shift from Government to Governance and Mapping the Actors] **[Public, Private and the Sectors In Between]** Unions: - A union is an organisation formed by workers who join together and use their strength to obtain significant bargaining's power and have a voice in their workplace - Unions are democratic organisations, and their leaders are elected by the membership - Through their union, workers have the ability to negotiate from a position of strength with employers over wages, benefits, workplace health and safety, job training and other work-related issues Private Foundations: - A private foundation is a type of charitable organisation that is typically established by an individual, family or corporation to support philanthropic activities - A board of directors or trustees oversees a private foundation and is responsible for receiving charitable contributions, managing and investing charitable assets and making grants to other charitable organisations - Benefits: create a legacy beyond the lifetime and potential immediate tax deduction, e.g. a certain percentage of adjusted gross income for cash gift or appreciated assets Think-tanks: - Think-tanks are research institutes that seek to play a key role in making and influencing global, regional and national policy - Think-tanks engage in research and advocacy in a range of areas such as social policy, politics, economics, security, the environment, science and technology - They can initiate their own work and seek funding for it or can conduct research on behalf of a third party - They are generally funded from charitable and/or corporate source Industry Associations: - Industry associations provide a collective voice for individual businesses within an industry, i.e. they exert a lobbying or public affairs function. They also engage in collective bargaining - Associations and their members have obligations under competition and consumer protection laws - Association members regularly share information, discuss issues, develop standards and establish rules for best practices within their industry Social Movements: - A social movement can be defined as a collective attempt to further a common interest or secure a common goal through structurally informal collective informal collective action outside the sphere of established institutions (Giddens 1993) - While movements often target the government and seek legislative change, they also challenge the institutional policies and practices outside the government, for example corporate practices as well as popular beliefs and common behaviours ***Which actors should we care about?*** - Governments at different levels - Companies - Public-private partnerships - NGOs - Unions - Private foundations - Think-tanks ***Civil Society*** - Industry association - Social movements *And many others... faith-based organisations, research centres and universities, the media, political parties, criminal organisation* A ***civil society*** refers to uncoerced associational life distinct from the family, the institutions of the state and the economy. It is never mandatory (i.e. non-coercive) voluntary to adhere and don't have any coercive powers. ***Governance*** refers to a non-coercive way of governing where private actives (for profit and non-profit) participate to the formulation and implementation of public policy. Multiple stakeholders scenario where collective problems can no longer be solved only by public authorities but require the cooperation of other players (citizens, businesses, NGOs, media). **[Possible Modes of Governance (Mayntz)]**  ***Tripartite Agreements:*** - Direct collaboration of public authorities and private corporate actors takes place through tripartite negotiations about macro-economic and industrial policy issues involving the state, organised business and organised labour: - E.g. framework labour contracts; salary indexation/de-indexation; pension reform - E.g. Sweden, Norway, Austria, Germany, Ireland, Italy, the Netherlands, Singapore ***PPPs and Mixed Networks***: - Formal or informal public-private networks are typically found in "strategic" industries such as energy, defence, pharmaceuticals, biotech, agriculture, finance and telecommunications ***Self-Regulation***: - Private organisations (either individual firms or organised interest groups) undertake and fulfil quasi-regulatory functions setting voluntary standards that are ultimately expected to be in the public interest: - E.g. voluntary environmental agreements, eco-labelling systems, corporate codes of conduct and certification schemes, "good corporate governance" standards - E.g. rainforest alliance, fairtrade etc ***Private Governments***: - Private organisations (usually organised interest groups) set and ensure the enforcement of norms and standards on their members that do not only serve their own but also certain public interests - E.g. UK, US and Italian Advertising Associations that define and enforce ethical norms applicable also to non-members - Risks of self-regulation seen in rise in child obesity due to increased advertising of unhealthy food products **[Wrapping Things Up]** - It is important to go beyond 'public and private' by mapping the variety of 'actors in between', such as social movements, NGOs, unions, industry associations, think tanks, private foundations, and PPPs (Public Private Partnerships). - We have witnessed a shift from traditional government (relying predominantly on coercive powers) to governance. - Governance is based on more participation from other stakeholders such as companies and NGOs and includes also informal rules. - Possible types of governance include direct and indirect collaboration between government and other stakeholders. - There are risks associated to governance [Lecture 11-12 - NGOs] **[Working Definition of NGOs]** ***Stable organisation*** (stated goals, structure, selective criteria to become a member, periodic meetings, continuous activities, etc). Pursuing a public purpose, typically aimed at tackling poverty, social injustice, exclusion and degradation of natural world. ***Voluntary*** (membership and contribution of time and money are not legally required or compulsory). They are a private entity (don't have political mandate nor the coercive power of government. ***Not for profit*** (don't have the financial strength of companies). They're subject to non-distribution constraint (profit may be generated but not distributed, not even indirectly -- no \$ incentives) May be operating at: - Local level (grassroots organisation) - National level (countrywide) - International level (from one country towards other countries) - Global level (from many countries to many countries) **[Roots in Social Movements]** Many civil society organisations have their roots in movements: - Movement for women's suffrage - Anti-apartheid movement - Anti-globalisation movement But also: - Pro-life vs pro-choice movement - Movement for gun ownership vs gun control - Gay rights movement vs "religious rights" **[Range of NGO Activities]** Advocacy: - Towards the state or some business firms or citizens - No production of services - Typically, associations - They address an individual need or the needs of a group Direct production of public merit goods **[Managerial Challenges for NGOs]** Different types of workers: employees, volunteers, external consultants need for integration and nature of incentives. Employees: - High intrinsic motivation - On average lower wages Volunteers: they might be: - Generic or specialised skills - Core or peripheral role - Long-term or short-term engagement Awareness vs Fidelization Risk of mission creep or compromise in values Definition of: - Targets - Benefits (e.g. membership, access to special events) - Means (e.g. word-of-mouth, mass media, direct mail, new media/online fundraising) **[Advocacy and Campaigning Public and Non-Profit Organisations]** A diagram of social outcomes Description automatically generated **[Public Will (Change) Campaigns]** Attempts to ***legitimise or raise the importance of a social problem*** in the public eye as the motivation for policy action or change. Less focused on the individual who is performing the behaviour. More focused on the ***public's responsibility to do something that will create the environment*** needed to support that behaviour change/to support public policy change (also referred to as a public engagement campaign) Examples: - Campaign to bank landmines - Stop whaling - United against the death penalty Strategies for public will campaigns: - All public engagement campaigns have to figure out is what it is that they want the public to do - Legislation is often a piece of that - It can mean encouraging individuals to behave in a way that creates the necessary ***social context*** for change and to create the necessary rationale for policy change **[Individual Behaviour (Change) Campaigns]** What are leading interventions? - ***High Prices*** with a focus on raising the minimum cost of being a smoker rather than increasing the premium on prices - ***Denormalization of tobacco use*** through the control of smoking in public places and at work and information campaigns that encourage self-control of smoking at home - ***Public communication programmes*** including ***paid mass-media and social media campaigns*** that contribute to denormalization and create an emotional response in smokers and the deliberate use of unpaid publicity Things to consider: 1. ***Which targets?*** 2. ***How to frame the message*** The organised activity of raising funds, typically financial resources for a specific purpose: - Know your competition and set realistic goals - Communicate your goals - Form a strong brand - Create a clear brand (NGO brand and campaign brand) - Reach individuals - Building relationships with corporate partners