topic six: managing relationships in a network environment topic 6.pdf · t o p i c s i x: m a n a...

267t o p i c S i x : m a n a g i n g r e l a t i o n s h i p s i n a n e t w o r k e n v i r o n m e n t

topic Six: Managing Relationships in a Network Environment

overviewThis topic explores why there is a ‘return to community’ in public sector management. It examines three approaches that are relevant to an understanding of the role of communities, in particular ideas about social capital, place management and social inclusion/exclusion. Further, it indicates how governments have tried to strengthen communities, and identifies the implications for the skills and capacities required of public sector managers. In this topic we explore new and emerging relationships between the public and the private sector, noting the extent to which the boundary between the two has become blurred. This blurring is due to the involvement of a range of sectors in public activities, and in ventures such as public–private partnerships. By offering an assessment of the opportunities and problems associated with this, we explore techniques and resources available for managing out in this context, focusing on outsourcing, contracting-in and risk management.

Learning objectiveson successful completion of this topic you will be able to:

1. explain why there is a ‘return to community’ in public sector management.

2. Briefly outline the approaches relevant to an understanding of the role of government in relation to communities, including social capital, place management, social inclusion/exclusion and capacity building.

3. Describe some of the ways in which governments are attempting to strengthen communities.

4. identify the skills and capacities that will enable public sector workers to participate effectively in community-strengthening initiatives.

5. explore changing relationships between government and other sectors.

6. review the concepts and practices of outsourcing, contract management and risk management.

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6.1 Managing the community

Public sector managers are increasingly being asked to develop and implement approaches to strengthening communities, both as specific initiatives and as an integral part of public sector management. Australian governments use a range of terms to encapsulate this new emphasis on community, including ‘community building’, ‘community strengthening’, ‘community renewal’, and ‘healthy’ and ‘sustainable’ communities. Public sector managers are being asked to engage with communities to a degree not seen since the mid-1970s, before the advent of the new managerialism. Often the objectives of community strengthening are not clearly articulated, the nature of the relationship between communities and government is fluid and uncertain, and the capabilities required of public sector managers are not made explicit. This topic aims to provide a clearer understanding of managing out with the intent of strengthening communities.

6.2 Reasons for the ‘Return to community’

As you will recall from earlier topics, it is clear that different models of public sector management over the past decades stemmed from broad changes in prevailing views about the role and capacity of governments in relation to both markets and civil society. Civil society is a contested concept, but here we take it quite broadly to mean the range of voluntary (non-coercive) activities that take place both in the home and outside it (Cox & Caldwell 2000:47). These activities include both those with a degree of organisation (e.g. participation in voluntary organisations such as playgroups, sports groups or senior citizens’ clubs), and those which are fairly informal, such as relationships with family, friends and neighbours.

In the post-war years (from about 1945 to the early 1970s), there was relative consensus around the view that it was the role of governments to provide public infrastructure and to deliver a fairly standardised set of services to meet the needs of most people. This consensus has been one of the bases of the so-called ‘welfare state’, with a limited role for either markets or civil society.

In the mid-1970s, as we saw in Unit 1, both the role and the capacity of governments were called into question, in view of their apparent failure to deal with volatile economic conditions and greater social diversity, such as changes in the role of women and more diverse communities. There was a loss of confidence in the effectiveness of ‘one size fits all’ solutions and services provided by governments, often called the ‘crisis of the welfare state’ (Esping-Andersen 1996). Politicians and others disagreed on the way forward. The Right began to promote smaller government and more reliance on markets to inject greater flexibility and diversity. The Left promoted a mixture of better government planning and a stronger role for communities to achieve much the same ends. The short-lived Australian Assistance Plan of the Whitlam Labor government (1972–75) was a prime example of the latter. For a brief period, public sector managers were asked to facilitate ‘community development’ (Tierney 1979).


By the mid-1980s, a new political settlement had developed, based on a reduced and changed role for government, an enhanced role for markets and a more limited role for civil society, including community. Public sector management in Australia was transformed by a New Public Management (NPM) approach that took principles and practices derived from private business and applied them to government. This approach was driven by a belief in the inherent superiority of markets in delivering consumer choice, flexibility and diversity in the supply of goods and services, and efficiency in resource allocation (Lane 1997). Public sector managers were encouraged to use the conceptual and terminological framework of private business and to regard individuals and households as customers who acted to maximise their own financial self-interest. Put simply, there was a focus on markets rather than on social relationships of various types.

In an earlier topic we looked briefly at the trend in the past decade to take a narrow business focus on public sector activity. This occurred to the neglect of issues and problems with more complex causes, which required a high level of problem-solving and coordination before any effective response could be expected.

In the last few years, there has been a re-emphasis on civil society relative to governments and markets, and in particular on the importance of families and communities. All Australian governments have developed strategies and programs for strengthening communities. Adams and Hess (2001) suggest three reasons for this renewed emphasis on community:

1. Theoretical convergence – economic and political theories are converging around the importance of social ties and social networks to economic growth. Communities that are successful become wealthy, rather than the other way around (Adams & Hess 2001:16).

2. Political convergence – community as a concept appeals to a wide spectrum of political views. The idea of community appeals both to neo-liberals as a means of promoting self-reliance and self-help, and to social democrats as a means of promoting cooperation and trust. Community also figures highly in the rhetoric of ‘third way’ politicians who emphasise social capability, partnerships and social entrepreneurship (e.g. Latham 1998; Tanner 1999).

3. Failure of economic rationalism – there is increasing recognition that economic rationalism has contributed to, or reinforced, greater inequalities between groups in society and between localities. This has led to some questioning of the legitimacy of market-driven policies in ensuring a cohesive and socially sustainable society. Adams and Hess suggest that this has created ‘the political space for the (re-)emergence of community-based ideas’ (Adams & Hess 2001:17).

Want to know more?mowbray m, 2004, ‘the new communitarianism – Building great communities or Brigadoonery?

Just Policy, 22 pp 11–20.


6.3 Approaches to Understanding the Role of community

How do public sector managers make sense of the different concepts of community strengthening being bandied about? Before looking at some specific approaches, some general points should be noted:

• Communityinthissenseisusuallybasedonlocality/placeratherthananon-spatial commonality of interests (such ‘the arts community’, ‘the disabled community’).

• Communityisoftenusedinanormativesense,tocapturesomedesirablequalities from the past which are thought to have disappeared and need to be renewed, rebuilt or redeveloped. Alternatively, it can be used to indicate that some communities are unsustainable and require assistance with building, strengthening, or developing themselves.

• Communityisoftenusedasasurrogateforaclusterofdesirablevalues,suchas trust, reciprocal relations and mutual support.

A number of ideas about strengthening communities have influenced governments and public sector management practices in Australia. Here we look at some of the more significant ones, namely social capital, social inclusion/exclusion, place management and capital building.

6.3.1 Social Capital

The term ‘social capital’ has been used sporadically for almost a century and has been defined in a number of ways (Winter 2000). In the 1980s, it was used to convey the idea of people’s capacity to draw on a range of economic and cultural resources through participation in social networks (Bourdieu 1986). The popularity of the concept really took off in the 1990s with work by Robert Putnam and colleagues on the link between civic participation and economic growth in Italy (Putnam et al. 1993). This work concluded that the economic growth of communities in northern Italy was associated with high levels of civic participation, as demonstrated by factors such as high levels of engagement with neighbours, participation in voluntary organisations, and high levels of readership of daily newspapers. In contrast, the economically depressed communities of southern Italy exhibited low levels of civic participation, with people putting family ahead of the wider community.

Putnam contended that economic growth was based on high levels of social capital, which he detected in northern Italy, defined as:

Features of social organization, such as networks, norms and trust that facilitate co-ordination and co-operation for mutual benefit. (Putnam et al. 1993:41)

Communities in southern Italy, in contrast, were seen to lack these features of social organisation and instead were characterised by distrust and suspicion of non-family members, including elected office-bearers. This did not provide a good foundation


for economic development. Following on from his work in Italy, Putnam shifted his analysis to the United States, where he found a persistent decline in American citizens’ levels of social capital as measured through participation in voluntary activities, church attendance, interest in political affairs, and involvement in local issues and events (Putnam 1995). Putnam’s later work has suggested a revival of community in the United States (Putnam 2000).

The idea of social capital, although not entirely new in Australia, was taken up and developed by social commentator Eva Cox in the 1995 Boyer Lectures, prompting much further debate and discussion. Cox pointed to the importance of building social capital as much as other types of capital – financial, physical and human. Social capital is, according to this view:

… the social glue, the weft and warp of the social fabric which comprises the myriad of interactions that make up our public and private lives – our vita activa. Distrust, loss of social cohesion and short-term self-interest breed conflict and social isolation, demands for law and order and a contempt for power and authority. (Cox 1995:18)

Cox’s idea of social capital is broader than Putnam’s in that it includes ‘private lives’ along with the more explicit forms of social organisation. Social capital is generated through neighbourliness and community support, such as looking after neighbours’ children or informal activities based on trust, such as people gathering in a local coffee shop or park (Cox 1995:22).

Over the ensuing years, there has been much debate in Australia and elsewhere about social capital (see Winter 2000 for a series of contributions about social capital in the Australian public policy context). Although there is general agreement on its importance, there is no consensus about what it means in practical terms, which poses difficulties for public sector managers who are being asked to develop policies and programs to ‘develop social capital’. Some of the main areas being debated are:

• Doessocialcapitalexistasthepropertyofindividualsorgroups?

• Doessocialnetworkingimproveanindividual’ssocialcapitalbyenablingthem to draw on the collective resources of others, or is social capital the collective product of social relations between people? This has implications for the debate about community strengthening.

• Isitaboutenhancingpeople’sskillsandnetworkingcapacitiestoimprovetheir social capital? Or is it about developing networks and processes to create interactions between people so as to generate social capital?

• Cansocialcapitalbegeneratedthroughanytypeofsocialinteractions,orisit limited to social interactions that have beneficial outcomes?

• Whodecideswhatare‘beneficialoutcomes’?

• Issocialcapitalincreasedorlessenedwhentherearebeneficialoutcomesfor participants but not for the wider community, such as a residents’ group which acts to protect existing housing forms, but which may adversely affect those who cannot afford such housing? To overcome this difficulty, it has been suggested that there can be both ‘bonding capital’ (social interactions in which members provide mutual support and reinforce social solidarity) and ‘bridging capital’ (in which groups may encourage members to seek or establish relationships with others outside the group) (Woolcock 1998).


• Cangovernmentshelpcreatetheconditionsinwhichsocialcapitalflourishes?

• Dogovernmentssometimescreatesocialcapitalastheunintendedoutcomeof their policies? For example, local protests about the location of a prison or a toxic waste dump may create social capital and strengthen a community, but are a perverse outcome of a government policy.

There have also been particular difficulties when governments try to measure social capital. Putnam’s work monitored factors such as declining membership of organisations, voter turnout, volunteering and religious participation. But these factors may well be caused by something other than declining social capital. For example, a decline in membership of playgroups and babysitting clubs may be due to an increase in paid employment among women. It is unclear whether one form of participation (unpaid) creates more social capital than participation in the paid workforceandthewell-documentedsocialrelationsinherentinwork.Despitethesedifficulties, the Australian Bureau of Statistics is working on incorporating measures of social capital into its community surveys. Similarly, the Australian Institute of Family Studies has published measures of social capital within the Australian communities (Stone 2001).

Whatever the conceptual and measurement difficulties, the concept of social capital has been highly influential on governments. There appear to be two major advantages to the concept:

1. It challenges the view that policies supporting social development are a drain on economic growth and wealth creation. Organisations such as the World Bank are now foremost among those who assert that sustainable economic growth cannot take place without social capital (see <http://www.worldbank.org/poverty.scapital> which provides links to a wealth of material on social capital – accessed 21 August 2008).

2. It encourages governments to move beyond the ‘hardware’ view of people implied by economic analysis of consumers and markets, to a more holistic view of people and their relationship with governments. It recognises the importance of the ‘software’ of social relationships, networks and mutual obligations.

Want to know more?read stewart-weeks, m 2000, ‘trick or treat? social capital, leadership and the new public policy’, in i winter (ed.) Social capital and public policy in Australia, australian institute of Family studies, melbourne, pp. 276–309.

this article offers six propositions about social capital and the ‘new public policy’. consider these propositions. what would be the implications in your public sector agency if these were adopted? in practical terms, what would the agency need to do differently?


6.3.2 Social Inclusion/Exclusion

One of the concerns about the concept of social capital is whether government programs to encourage social interactions and networks as a means of revitalising disadvantaged communities might not divert attention from structural changes that have created such disadvantage in the first place. Such structural changes could, for example, have taken place in the labour market or in patterns of investment. Is the social capital debate therefore a distraction from the main game? Are government policies reinforcing economic and social disadvantage in some local areas?

The concept of social exclusion addresses some of these broader structural issues. The term originated in France (l’exclusion sociale) to refer to people at the margins of society who were excluded from the social insurance system. It was adopted and broadened by the European Union (EU) in order to rebrand controversial EU anti-poverty programs as a new approach to entrenched poverty and social disadvantage (see Peace 2001 for an interesting discussion). Over time, there has been a tendency to use the term ‘social inclusion’ rather than ‘social exclusion’.

Social inclusion has continued to be a very important part of EU policy processes. The EU approach particularly emphasises an inclusive labour market as a means of promoting a socially cohesive society. It recognises the importance of regeneration of areas of multiple deprivation, but locality-based approaches are only one component of the overall strategy (Commission of the European Communities 2001:21). All EU members have committed to produce national action plans to combat poverty and social exclusion in their countries. The significance of the European concept is in that it recognises broad structural causes of social exclusion – that is, that the lack of capacity of local communities is a result of broader economic and other changes, not a cause of poor economic and social outcomes.

Want to know more?Browse through the european union (eu) site (follow the link from the psm program national website) to get the flavour of social inclusion in the european context. Find the common objectives agreed to by the eu council in nice in December 2000, expressed in terms of combating poverty and social exclusion. have a look at one of the national action plans for promoting social inclusion prepared by an eu country.

While there is awareness in public policy circles of this broader European use of social inclusion/exclusion, the approach developed by the Blair Government in the United Kingdom (UK) has had the most influence on the policy context in Australia. For example, the South Australian Government launched a Social Inclusion Initiative in 2004. It is from the UK Government that the most widely quoted definition of social exclusion comes:

Social exclusion is a shorthand label for what can happen when individuals or areas suffer from a combination of linked problems such as unemployment, poor skills, low incomes, poor housing, high crime environments, bad health and family breakdown. (UK Social Exclusion Task Force website 2008)


This definition refers to both individuals and areas. The role of government, through the Social Exclusion Task Force which is run through the Cabinet Office Unit (whichreportstotheDeputyPrimeMinisterandcoversonlyEngland)istoensurethat there are ‘joined-up solutions to joined-up problems’ and that there are similar approaches in other parts of the UK. In practice, a very important part of the Blair Government’s social inclusion/exclusion strategy focused on disadvantaged areas, mainly those with large public housing estates, through a national strategy on neighbourhood renewal (UK Social Exclusion Task Force 2007). Responsibility for implementing this national strategy was given to a new Neighbourhood Renewal Unit,intendedtocross-cutgovernment,butlocatedintheDepartmentofTransport,Local Government and the Regions, which has portfolio responsibility for housing and urban and regional planning. The renewal strategy focused on eighty-eight deprived areas and involved:

• departmental‘floortargets’formajordepartmentssuchashealthandpoliceto assess their performance in the most disadvantaged areas rather than against national averages

• localstrategicpartnershipscombiningpublic,privateandvoluntaryserviceproviders, business representatives and the local community to coordinate national and local initiatives

• somespecificfunding,includingamountstosupportcommunityandvoluntary sector involvement, with a larger amount to boost government departments’ main spending programs in these areas

• developingbetterinformation(DepartmentofTransport,LocalGovernmentand the Regions 2005).

Required Reading 6.1randolph, B 2004, ‘social inclusion and place-focused initiatives in western sydney: a review of

current practice’ Australian Journal of Social Issues, vol. 30, no. 1, February, pp. 63–78.

Activity 6.1 – comparing social strategies

1. go to the uk social exclusion task Force website <http://www.cabinetoffice.gov.uk/social_exclusion_task_force> accessed 18 sept 2008

2. Find some of this unit’s work on an area relevant to your agency (e.g. health, transport, criminal activity and re-offending, homelessness etc). how does that work compare with the approach of your agency in terms of articulation of problems and strategic approach?

3. then go to the uk Department of communities and local government web site <http://www.communities.gov.uk/corporate> accessed 18th sept 2008

4. Do strategies outlined there have any parallels in the jurisdiction you work in? what are these?


The neighbourhood renewal component of the UK approach to social inclusion has influenced governments in Australia, particularly those that have developed community renewal strategies for disadvantaged areas.

Neighbourhood and community renewal programs and activities have proliferated around Australia since the late 1990s. The PSM Program National website has links to various examples around the jurisdictions.

6.3.3 Place Management

One approach to disadvantaged communities in Australia is place management (which has some parallels with neighbourhood management in the UK). Place management ideas are based on an analysis which suggests that the way in which government is organised and delivers services is a key part of the problem facing such communities:

Government has been laid out like a series of stove-pipes or silos, with the public moving between each guild-based function to access services. This structure makes improbable the optimal allocation of public resources once departmental budgets have been allocated to a local level. This is how public housing estates end up with wonderful community arts projects but no employment or transport services. (Latham 1998:214)

There is some evidence for such a view. One good example is a comparative study by Bryson and Winter, which charts the economic and social conditions in one old industrial area of Melbourne in the late 1990s (Bryson & Winter 1999) and compares it to a previous study of the same area in the mid-1970s (Bryson & Thompson 1972). The later study found that the area had been adversely affected by a combination of broader structural changes, such as a decline in skilled manufacturing jobs, compounded by the effects of government policies and programs.

The concept of place management has been developed to suggest how the business of government can be improved to focus on locality, in particular to reform the delivery of government services to disadvantaged local communities (Stewart-Weeks 1998).

What does place management mean in practical terms? Walsh (2001:8) suggests that place management has the following characteristics:

• Itaimstoredresssignificantsocialandeconomicdisadvantageexperiencedby people in some localities (communities).

• Itaimstodesignateoneresponsible‘placemanager’(usuallyaninstitution)responsible for achieving defined outcomes within an area.

• Itisaboutcoordinationandintegrationinservicedelivery.

• Itrequiresareorientationofpublicsectormanagementtoensureflexibilityin funding, decision-making and accountability and to ensure that communities to have an appropriate role.

While there is general agreement on these principles of place management, their application varies considerably. Place management ideas can be applied in


very practical and specific ways. For example, in New South Wales some local governments have place managers whose role is to address a range of issues affecting a local retail centre, such as pedestrianisation, traffic patterns, parking and local amenities.

At a different level, place management ideas have been used to address the complex problems of specific local areas. In this case, place management is akin to case management, where the same approach is taken but the client is a community rather than an individual. A lead agency may be appointed as a place manager and coordinating mechanisms established between government agencies to try to ensure a whole-of-government approach and joined-up solutions. Individual government agencies have to work together and may commit specific funds to the area, but these still come from separate departmental budgets, although there may be additional specific funding. There is consultation with local communities about both problems and solutions.

Place management ideas have also been used to mean much more than a whole-of-government approach, inter-agency cooperation and the appointment of a place manager. They have also been a key part of the debate about ‘the new public policy’. In this sense, place management is part of a strategy for removing silos of government funding and, instead, pooling the funding to maximise the beneficial effects on a community. Mant (1998) sees the place manager as the purchaser of services, which are then delivered by specific government providers. In this sense, place management builds on some of the principles of public sector reform of the 1980s and 1990s (the funder/purchaser/provider) split. Others, such as Latham, envisage a move beyond consulting with local communities, to giving ownership and control to communities, including that over pooled funding (Latham 1998). In this sense, ideas about place management are about fundamental changes to the role and processes of governments relative to communities, as encapsulated in the concept of the ‘enabling state’, used by proponents of third way politics:

The enabling state positions civil society as the primary agency of social democracy. It is more interested in the relations between people than controlling economic or bureaucratic relationships. This is the first principle for policy makers of the Third Way: look to community-led solutions in preference to markets and states. (Latham 2001:250)

The required reading by Randolph (2004) provides a useful overview of initiatives in NSW and an assessment of how these impacted at the place level. Informed by this analysis, it presents a critique of current approaches and some recommendations for how these might be better focused.

Want to know more?read mcshane i., 2006, ‘social value and the management of community infrastructure’ Australian

Journal of Public Administration, vol 65 (4) pp 82 – 96.


Activity 6.2 – place management and your own agency

list the key elements of a place management approach. then answer the following:

1. what role could your agency play in such an approach?

2. what would your agency have to do differently in order to play an effective role?

you can answer either in terms of a specific place project or an overall approach to governance.

While place management focuses on how governments can deliver services, the broader ideas raise questions about how communities themselves can initiate and develop solutions to the problems they face. This leads us to another set of ideas about community strengthening: building capacity.

6.3.4 Capacity Building

Capacity building is essentially a ‘bottom up’ approach to community strengthening. It has been used extensively in the United States and in development projects in Third World countries. One of the best-known examples which has had some influence in Australia is an approach called Community Builders.

Community Builders originates from the United States and the original process was evolved in the context or rural communities (Community Builders Nebraska). Community builders do not themselves hold formal office but are interested in improving their community. They are people who can develop partnerships with others, are entrepreneurial and risk-taking. A key to developing capacity is to identify potential community builders who can work with more formal community leaders, local communities, businesses, voluntary organisations and governments to develop capacities within a community.

Community builders work with their own community but also develop links with nearby communities in clusters to promote regional growth and development. The role of government is to facilitate this process and support the community builders, through training, practical assistance or financial resources. The approach is not essentially about reconfiguring government service delivery, although this may well be an outcome. There is a strong emphasis on encouraging and empowering local people to build both local community and local economy, promoting self-reliance and cooperation.

case Study: the victorian government’s Building stronger communities project

go to the victorian government Department of planning and community Development website <http://www.dpcd.vic.gov.au>. Follow the links to Building stronger communities and examples of community strengthening.

For an analysis of this program then read:

tittensor D., 2007, ‘social capital and public policy – the current challenge Facing the victorian government’ in Australian Journal of Public Administration, vol. 66 no. 4, pp. 512 – 518.


electronic networking plays a key role in capacity building approaches to community building (see Topics Four and Nine). there is an emphasis on sharing information, particularly about practical examples of successes in building communities. For example, the commonwealth government maintains a community portal internet site to encourage people to get involved in their local communities and to share information, which can be found on <http://www.community.gov.au> accessed 21 august 2008. some other governments have similar portals for community building.

case Study: communitybuilders.nsw

the nsw government has an interactive clearinghouse on the internet which provides a wide range of resources on community building <http://www.communitybuilders.nsw.gov.au> accessed 21 aug. 2008. the premier of nsw launched the site in 1998, in the context of strengthening regional communities, and the site is coordinated by the nsw government. the emphasis is on practical resources and case studies of community strengthening, mainly in australia but with some overseas examples. it is essentially an electronic network of those interested in community building, whether they work in government, business or community sectors.

communitybuilders.nsw has its origins in the community Builders (capacity building) approach outlined above. the nsw government received permission from the Bank of i.D.e.a.s, a private consultancy company which holds the australian trademark for the name ‘community Builders’, to use this title for its clearinghouse and also the leadership training methodology developed in the united states by community Builders. while the idea of an electronic clearinghouse derives from a us model of capacity building in rural areas, the site also provides much information on the concept of place management and specific place management projects involving the nsw government.

The capacity building approach is a more organic model than any of the others addressing community strengthening. It asserts the ability of a few people (community builders and social entrepreneurs) to make a difference and to start an outward ripple movement that will embrace others and bring about real improvements to local communities. In this sense, it differs significantly from the European social inclusion/social exclusion model that focuses on structural inequalities in society.

Want to know more?head B 2007, ‘community engagement: participation on whose terms?’ Australian Journal of Political

Science, vol. 42 (3) pp. 441 – 454..

In summary, approaches to community strengthening have different origins, but the ideas overlap with each other to some extent. Specific Commonwealth Government community strengthening strategies have been based on either a place management


or a capacity building approach, with an overlay of ideas about social capital. The wider European use of social inclusion/exclusion has had limited impact in Australia, although the more specific UK approach to social inclusion/exclusion has had some impact on community renewal strategies.

6.4 Skills and capacities Needed for community Strengthening initiatives

The approaches to community strengthening outlined in this topic suggest a number of key skills and capacities that will enable public sector managers to participate effectively in community strengthening. Below are some of the key skills and capacities, although this is in no way an exhaustive list:

1. Developing a community focus. This means looking at problems, issues and potential solutions from the point of view of communities, rather than from that of government departments and agencies. It is about listening rather than telling, getting out there rather than sitting in offices, and engaging with people with a range of different views and perspectives. It is about understanding what works and what doesn’t, from the point of view of local communities. This requires good interpersonal skills, including effective communication and an openness to the views of others.

2. Developing and using networks. Community strengthening requires skills in developing and using networks, both within governments and outside. Within government, this means establishing networks across departmental or agency boundaries and working with people with different professional and skill backgrounds. Working with community networks involves identifying formal and informal leaders, encouraging a range of people to become involved and accepting that levels of involvement are likely to vary considerably. Network management requires proactivity, effective communication and the ability to negotiate to achieve specific outcomes.

3. Using creativity in developing solutions. Community strengthening requires the capacity to develop specific rather than ‘one size fits all’ solutions. What works in one community may or may not work in another. Public sector managers may need to move beyond precedent and procedure and look at issues anew. This may be difficult in the context of established program areas and budgets. It may require teams working across departments with local communities and at least some specific funds.

4. Managing effective partnership arrangements. Attempts at community strengthening may elicit responses ranging from cynicism to a great deal of enthusiasm. Public sector managers will need to work to clarify expectations of all parties, including on timelines, process, resources and a range of other important matters.

5. Focusing on outcomes. The essence of all the approaches to community strengthening outlined above is about what works in terms of local communities, and about outcomes instead of inputs (budgets, staff) or


outputs (units of service produced, number of people assisted). Public sector managers need to look broadly at outcomes for local communities, counterbalancing statistical and departmental information with the views of service providers and community members. It is essential that performance management targets are outcome-based to support this type of approach.

Activity 6.3 – skills and capacities in your own agency

list the skills and capacities that you think are required if your department or agency is to play an effective role in strengthening communities (do not restrict your answer to the examples above). how could these skills and capacities be developed in your department/ agency?

6.5 Managing Relationships between Governments and other Sectors

Hughes (2003) tells us that under a traditional administrative system we didn’t have to worry much about the outside world. Relationships with independent organisations were to be managed by the political leadership; similarly, dealings with the press and the public were left for the politicians to deal with. We know from previous topics that this is no longer the case.

The relationship between the government and private and other sectors has been a longstanding one. The strength of the relationship has waxed and waned over past eras as the role of government extended or contracted into different aspects of public and commercial life. The key change in the past two decades, in response to shifting views about what activities governments need to be involved in, has been the increasing role of external partners in the delivery of public services.

In this section, we deal with the ‘hybridisation’ of public sector activities – that is, the involvement of a range of sectors in public activities. This might take the form of contracting-out and outsourcing, strategic partnerships and joint ventures. The term ‘public–private partnerships’ (PPPs) is now widely used to cover the range of relationships being conducted between public and other sectors, and the issues that arise from these relationships. The key issues arise in the blurring of private and public sector roles, the implications for governance and for those working in the public sector. In this topic, we investigate ways in which public sector managers can become more effective in managing such relationships.

6.5.1 The Convergence of Public and Private Sectors

The emerging Australian public sector model, it has been said, ‘defines the public sector more as an adjunct to the private sector. Functions that can be performed outside are to be transferred and internal operations should be comparable with the private sector’ (Halligan 2001:188).


It would be hard to name many aspects of public life that do not involve a convergence of private and public sector roles. The sectors have blended for a long time, but the new public management environment has reinforced trends to remove delivery roles from government. Halligan (2001) noted that the scope of the public sector is now being defined in three ways: by the Yellow pages test (if a supplier is listed in the commercial directory, the public sector role should be questioned), by the emphasis on choice, and by contestability.

A United Kingdom report on public–private partnerships (IPPR 2001) noted the following rationales for using such arrangements:

• improvingservicequalitythroughgreaterdiversityandcontestability

• focusingonoutcomes

• gettingmorefrompublicassetsovertheirlifecycle

• accessingprivatesectormanagementskillsandexpertise

• engagingcitizensandcivicgroupsingovernanceandmonitoring.

The report also outlines conditions required to ensure that public–private partnerships make a ‘significant improvement’ to the quality of public services:

• adequatefundingforpublicservices

• aconsistentrationaleforusingPPPs

• astrongpublicsectorpartner

• responsibleprivateandthird-sectorproviderswillingtoembracehighstandards of transparency and accountability

• legitimacyamongthegeneralpublicandpublicsectorworkforce

• anevidence-basedapproachtopolicy.

Wright (2000) summarises the different forms of the ‘blending of the sectors’, including:

• Personnel – the movement of officials between the sectors.

• Service delivery – ‘banks delivering guaranteed loans … cabin attendants enforcing safety regulations’.

• Finance – the use of private financing for public programs, as well as some use of public funds to assist private enterprise, including indirect support (e.g. loan guarantees, tax waivers).

• Policy leverage – government encouraging private activity through incentives.

• Regulation – when not directly participating in the market, government exerts a powerful influence through its regulatory role.

• Objectives pursued – closely correlated objectives, the best example being economic growth.

A particularly interesting point of public–private convergence lies in the operation and accountability of government business enterprises (GBEs). These entities put government in the role of shareholder with a high stake in the business’s economic performance while remaining accountable to the wider public interest. Much of the debate concerning the final sale of Telstra focused on the implications of the final crossing into the private divide, and the implications for ‘core’ services (despite


the new competitive environment Telstra now operates within). Edwards (2002:53) notes that ‘new considerations arise here which could represent the beginnings of an altogether new form of corporate governance. Obviously clarification is required’.

Public management closely resembles private management in many ways, but core public sector functions remain defining features for public sector management:

• publicnessandpoliticalcontext

• constitutionalenvironment

• politicalenvironment.(seeHalligan2001)

Activity 6.4 – public management and your own organisation

consider the role and functions of your organisation over the past decade.

1. to what extent have activities been moved out of public management into other sectors? (hint: if you haven’t worked there for long, annual reports can provide a succinct record of functional changes).

2. what core functions remain?

3. Do you think there is further scope for moving functions out of the organisation to private or non-government sectors?

4. Do you think there is scope for moving functions out of the private or non-government sectors into the public sector?

Activity 6.5 – critical reflection

there have been a number of cases where functions or activities outsourced to the private sector have been returned to public management, or where the government has had to step in to address service delivery problems in alternative management arrangements. For example, the privately designed, funded, constructed and managed public hospital at port macquarie in nsw was purchased back by the nsw government (see wainwright 2004). in victoria, problems with the privately managed tram network in 2004 required government intervention in the form of a substantial additional public subsidy (see webb 2004).

Do some research on one of these cases. having done so, consider whether you think the case indicates that some services are more suitable to being managed by the public sector.

6.5.1.1 What happens to public accountability?

Mechanisms for external scrutiny of the actions and behaviour of departments and of their public servants are not new, but public sector management reform has certainly altered and expanded them. The Auditor-General’s role has expanded: it now spreads well beyond traditional financial management interests, venturing into departments and agencies to undertake efficiency and performance audits, amongst other review functions and powers exercised by this office. There has also been a


significant expansion in the number of parliamentary committees (such as Estimates Committees), commissions and other review bodies and processes – program evaluation being a case in point.

The range of partnerships which is now part of the way public sector services are developed and delivered presents challenges for public governance processes. Former Auditor-General, Pat Barrett (2001) noted that notions of partnership and networked government are becoming increasingly important elements of the public sector environment. He observes the ‘increasing complexity of relationships to deliver services traditionally delivered by the public sector’, including:

• CommonwealthagenciesundertakingactivitieswithotherCommonwealthagencies

• cross-governmentcooperation(Commonwealth/state/local)

• public–privatearrangements,includingcontracting-out,governmentasashareholder (majority or minority), and other partnership approaches such as alliances.

Barrett sees a clear governance framework as being essential (not surprisingly for the Auditor-General!). He sees also that it requires, among other things:

• identificationandarticulationofresponsibilitiesandrelationships

• identificationofwhoisresponsibleforwhat,towhomandbywhen

• settingofunambiguoustargetsandperformancemeasures

• periodicevaluations.

6.5.2 Purchaser–Provider Arrangements within Government

By perusing annual reports you can see the extent to which the purchaser–provider model of service delivery has been adopted by agencies. You are likely to be familiar with the concept and perhaps the practice. This model, which emerged in the 1980s, involves the separation of the owner–funder, purchaser–provider roles and is aimed at improving efficiency through competition, enhanced accountability, greater transparency and clearer reporting.

The term is not exclusive to government-to-government relationships and arrangements manifest themselves in a variety of ways:

• betweendifferentpartsofoneagency(i.e.internalpurchaserandinternalprovider)

• betweendifferentagencies

• betweendifferenttiersofgovernment

• betweengovernmentandtheprivatesector(whichforthepurposeofdifferentiation we will call outsourcing).

While there is no single administrative model, it is not uncommon for relationships to be formalised through a contract specifying responsibilities, resources (usually money) and outputs.


Aulich et al. (1999) give six arguments in favour of the adoption of this model:

1. It minimises conflict and tension between the multiple and conflicting roles of agencies.

2. The purchaser is concerned with quality, while the provider is concerned with achieving outputs.

3. In-house providers are more likely to operate more competitively if separated from the purchaser.

4. It is a statement about equal and fair treatment to all contractors.

5. Separation allows the agency to focus more on key strategic issues.

6. It provides an opportunity for an agency to better clarify user needs, by reducing the possibility of client capture.

Like all frameworks and strategies, the purchaser–provider model has its critics. Below are arguments on why caution needs to be exercised in adopting the model:

• Deliveryofservicesisspecifiedbythepurchaserandinvolvesnoconsultationwith the provider.

• Thereisalackofcollaboration,althoughthisisadeliberatereasonforadoption of the model.

• Itleadstoorganisationalfragmentation.

• Fragmentationdownplaysthecoordinationcosts.

• Fragmentationsegmentsknowledgetransmissionandlearningcapacityintheorganisation.

• Itcommodifiesknowledgesothatintellectualpropertyissharedorwithheldfor commercial reasons. (Muetzelfeldt 2001)

Another major issue is the separation of the policy formulation from the actual provision. Much policy derives from the practical interface with clients – the actual domain of the provider. Consider how this information flows back to the purchaser. This has been one of the major problems within Centrelink where the front line saw the implementation dilemmas of multiple benefits, multiple programs and income estimation but little of this message was able to come through to the actual purchasers.

The effects of an organisation adopting purchaser–provider arrangements can be costly. These sorts of arrangements create new layers of administration which are required to sustain the formal relationships, particularly between internal purchasers and providers. As suggested above, fragmentation is also damaging to the effective operation of an organisation, creating unnecessary internal tensions, turf wars and strengthening silo-like behaviour.

Want to know more?hodge g & greve c 2007, ‘public-private partnerships: a comparative perspective on victoria and

Denmark’ Transcending New Public Management christensen t & laegreid p (eds) ashgate.

Jones r & noble g 2008, ‘managing the implementation of public-private partnerships’ Public Money & Management vol. 28 (2) pp. 109 – 114.


6.5.3 Managing Outsourcing

A useful definition of outsourcing (or contracting-out, which is basically the same thing) is the use of and payment to an external source to provide services or undertake functions required by an organisation. In the public sector, this is sometimes also described as competitive tendering, which is best understood as the process by which private contracts are awarded.

Government services can be delivered to the community in many ways, ‘outsourcing’ being only one of them. Others include:

• providingtheservicesdirectly

• managingandfundingexternalprovidersoftheservicesthroughgrantsorthe purchase of services from external providers

• subsidisingusers(throughvouchersorcashpayments),whothenpurchaseservices from external providers

• creatingcommunityserviceobligationsonpublicandprivateproviders

• reducingtaxobligationsinparticularcircumstances(knownastaxexpenditures)

• usingamixofthesedeliverymethods.

Large corporations and government departments have traditionally relied on in-house corporate service units to provide all the support functions and services required by their various business areas (e.g. legal, property and accommodation, copying and printing, fleet services, distribution, information technology, and training and development). Outsourcing means that, instead of employing staff and resources to provide such services internally, an organisation enters into contracts with private providers outside the organisation, and concentrates its own efforts on those activities that directly contribute to the achievement of the organisation’s business goals – that is, its core business.

Organisations divest themselves of the responsibility for managing how a service is delivered, transferring the entire process to the contractor. They specify what they require, the quality they expect, and negotiate the price they are prepared to pay for it. Overall control is maintained by monitoring performance against a clearly specified legal and binding contract.

Outsourcing, like competition theory, is based on a belief in the ability of the market to function always at an optimal level of efficiency and performance. There are, of course, instances where the market fails or is distorted and has required a degree of intervention by government. For example, market distortions such as concentration of ownership (monopolies) and restrictive trade practices have led to governments playing a regulatory role. Even in an era of deregulation and a downsizing public sector, the Commonwealth Government continues to support the legitimacy of the watchdog roles played by agencies such as the Australian Competition and Consumer Commission (ACCC) and the Australian Securities Commission (ASC). Governments also intervene to address specific instances of market failure, where markets for particular goods or services have not developed.

Outsourcing is not a new phenomenon, having long been used by governments (examples include the sixteenth-century Spanish Armada and the eighteenth-


century First Fleet, both of which were services provided to governments from the private sector). Aulich et al. (2001) list circumstances where the use of outsourcing can indicate prudent management:

• tobetterdealwithpeaksandtroughsinworkloads

• toobtainexpertisewhichisunavailableintheorganisation

• asinputstotheorganisation’sproductionprocesses

• asacomplementtotheorganisation’sproducts.

Outsourcing has generated considerable interest in both the private and public sectors. A range of arguments for and against the use of the practice has been generated from the literature as shown in Table 6.1.

table 6.1 Arguments for and against outsourcing

Verspaandonk (2001) concludes that there is evidence that outsourcing could benefit from a framework of safeguards which might include:

• anextensionofadministrativelawtocontractors

• ethicalandaccountabilityrequirementssimilartothoseapplyingtothepublic service

• restrictionsontheemploymentofformerseniorpublicservantsbycompanies that had benefited from the decisions of those officials

• demonstratedexpertiseincontractmanagementbyrelevantstaff.

Required Reading 6.2macDermott k 2008, ‘to market to market: outsourcing the public service’, in Whatever Happened

to ‘Frank and Fearless’? The Impact of New Public Management on the Australian Public Service, anZsog publication, anu e-press ch 6.

in this chapter macDermott presents a balanced and current debate on the subject. read and reflect on this article.

For

• Specialisation

• Lower costs and risks

• Better management practices

• Access to expertise

• One-off generation of cash flow

• Technological innovation and change

• Better customer service

• Appropriateness of the contractor

• The human cost

• Industrial relations concerns

Against

• Transaction costs

• Loss of economies of scale

• Cost shifting

• Client capture

• Potential for fraud and corruption

• Loss of skills and control

• Privacy and accountability


Some commentators describe outsourcing as a partnership arrangement, rather than just a client–supplier relationship. It can be a means by which external parties become actively involved in the organisation’s business, contributing valuable specialist skills, technology, experience and, sometimes, an independent point of view. A good example of this is advertising and public relations services, which have long been outsourced.

The Contract Culture in the Public Service (Perri 6 & Kendall 1997) comprises a series of readings concentrating on the outsourcing of welfare services to the not-for-profit sector. One of the main assertions is that this change in delivery mechanisms is not trivial and is not merely a technical matter, but is a basic reconfiguration of societal power relationships, which has turned community development into a legal matter of service delivery at a price. The motives for contracting-out to the voluntary sector, it is noted, are typically those of achieving cost-effectiveness, greater choice, diversity, flexibility and innovation, the development of specialisation, and the pursuit of community or social cohesion. But often the logic is one of ‘see if you can do better’, which has the effect of ‘decentralising blame’. Voluntary organisations, it is noted, have motives of their own – such as creating income streams and gaining greater influence. On the other hand, the contracting-out culture has assisted to professionalise the voluntary sector.

Other points made in the same publication include the observation that even though liaisons between the voluntary sector and the government are not new, the act of contracting puts the relationship in a new light. Also, the ‘sheer scale of the phenomenon’ and the increasing tendency for the voluntary sector to take on mainstream social service delivery responsibilities makes it more subject to scrutiny. Consequently, the voluntary sector has been caught up in the ‘contract culture’, which displays the following features:

• tightlyspecifiedfinancialrelationships

• increasinglylegalisticagreements

• increaseincompetitionforstatefundsbetweenprivateandnot-for-profitsectors

• theturbulentreinventionofpoliticalandfiscalrelationships

• pressuresofassimilatingprivateandnot-for-profitvalues.

The authors conclude that the evidence supports the finding that contracting-out welfare services to the not-for-profit sector has not ‘unambiguously’ achieved public policy goals of efficiency, innovation, accountability and improved distribution or targeting of services.

The competitive tendering process, the tender evaluation and the contractor selection process that follows the decision to outsource have been the cause of some controversy in the public sector. Concerns about probity and fairness are frequently expressed, often by unsuccessful private sector tenderers. It is therefore of paramount importance that the decision-making process is scrupulously documented and able to withstand external scrutiny. For example, the New South Wales Independent Commission Against Corruption (ICAC) and the Australian National Audit Office (ANAO) have both kept a watchful eye on the conduct of public sector tendering processes.


An often-overlooked aspect of outsourcing (and purchaser–provider) arrangements is the transitional costs associated with its introduction. Transitional costs need to be taken into account as part of any analysis of the impact of commercialisation or other reform initiatives. Major elements of transitional costs might include:

• directandindirectlabourcostsofstaffworkingonaprojectorimplementation team, including any backfilling of positions that might become necessary

• consultancies

• stafftraininganddevelopment

• redundanciesintheeventofdownsizing

• costsassociatedwithnewinformationmanagementsystemsandtechnologies

• newfinancialmanagementarrangementsandsystems,revisedchartsofaccounts, financial reporting arrangements

• reprintingoftheorganisation’sletterhead,businesscards,signage,promotionaland other information

• costsassociatedwithconsultationandothercommunicationswithclients

• costsassociatedwithdevelopmentandnegotiationofservicelevelagreements

• costsofrelocatingand/orco-locatingofficesandstaff.

It is reasonable to conclude that, if greater emphasis was given to collecting and analysing information about the costs of restructuring, politicians and others might reconsider the frequency with which it is deemed necessary.

6.5.4 Contract Management

As we have already discussed in earlier topics, ‘contracting-in’ refers to a situation where a public sector entity enters into commercial contracts to provide services to users in either the public or private sectors. Such contracting raises questions about why government would be involved in a business activity where the market is functioning effectively. There is a view that governments should restrict their role in commercial areas to:

• providingpolicyadvice

• coordinatingactivitiesatalllevelsofgovernment

• monitoringandregulating

• providingspecialisedservicesthattheprivatesectorisnotequippedtooffer,such as for defence purposes

• fosteringemergingmarketsbutwithdrawingfromthemastheprivatesectordevelops the necessary skills to take over

• facilitatingtheprivatesector’sworkthroughactivitiessuchastechnologytransfer, joint ventures and export enhancement.

In recognition of some of these concerns, the Commonwealth Government has developed an extensive program of asset sales, with government business enterprises


(GBEs) such as the Commonwealth Bank and Telstra being either wholly or partially sold into private ownership. To deal with other business units, some governments have established a policy that commercialised entities should not compete for private sector work, except where the entity is an expert provider (such as the CSIRO, which often contracts to do research on behalf of private companies, or the Australian Bureau of Statistics). In human service areas such as public housing, such a move might actually produce better outcomes than could a transfer of activities to the private sector, because of the particular skills and philosophy of providing services to low-income clients.

Contract management is a much broader activity than outsourcing: for example, the decision to engage a consultant will result in a contract, as will the decision to award a grant or provide a sponsorship. To get to this stage you might, for example, have forged new relationships, kept stakeholders informed, considered the outcomes you want, thought about how to measure the activity and have considered alternative uses for this money. After all the work you have done to get this far, preparing and executing the contract may seems like a very mechanistic task. This is what a Senate Committee had to say:

Despite volumes of advice on best practice which emphasise the need to approach contracting out cautiously, to invest heavily in all aspects of the process and to prepare carefully for the actual implementation, and the substantial body of comment in reports from the Auditor-General indicating that Commonwealth agencies have a very mixed record as project and contract managers, the prevailing ethos still seems to promote contracting out as a management option that will yield inevitable benefits. Resources must be made available to ensure that contract managers have the skills to carry out that task. (ANAO 2000)

In addition to receiving assistance from your own department, you can approach the ANAO as a source of help and advice – for example, standard contract clauses are to be found on its website. Of additional assistance is their Developing and Managing Contracts guide. It provides detailed information on six stages of contract management. These are:

• Contractinginthepublicsector.

• DevelopingtheContract.

• FormalisingtheContract.

• EntityarrangementsformanagingContracts.

• ManagingindividualContracts.

• EndingtheContract.

Activity 6.6 – contract management

the australian national audit office’s (anao’s) Developing and Managing Contracts: Getting the Right Outcome Paying the Right Price published in February 2007, and available at <http://www.anao.gov.au/uploads/documents/Developing_and_managing_contracts.pdf > (accessed 16 september 2008), is a ‘how to’ for contract management. it offers constructive advice on what not to do. read it and consider the following questions:


1. Do you carry out risk management in relation to all contracts?

2. Do you liaise with your legal area?

3. Does contract development in your jurisdiction follow the six steps shown in the guide?

4. if not, why not?

6.5.4.1 Unsatisfactory contract relationships

Even when you think you have done everything right, and with the best will in the world, contracts can still go wrong. Seeking advice and guidance from the legal section of your department is usually your first action. Then, depending upon the nature of the issue, specialist legal advice might be sought.

Contracts usually include clauses that set out procedures for settling disagreements and might, for example, take the form of a hierarchy of actions commencing with an internal review, followed by options for mediation or arbitration. Continued dissatisfaction might, as a last resort, result in court action.

Where contracts are in place, and organisations have reduced their in-house staff to enter into outsourcing arrangements, the expense and disruption of unsuccessful relationships can have wide-ranging implications. It isn’t in the interests of either party to become engaged in a protracted wrangle over performance, and both stand to lose substantially from contract termination while incurring costs (possibly high costs), not to mention the resources that are applied to such an exercise.

The other side of the coin is where a contractor or customer – perhaps a consultant or an organisation that has received a grant – is not satisfied with administrative decisions and seeks avenues of redress. The process might be set out in the relevant legislation. In the first instance, departments and agencies will often have an internal review process where dissatisfied customers are able to have decisions reviewed independently.

As we saw in PSM Program Unit 1, states, territories and Commonwealth governments all have agencies for dealing with customers unhappy with administrative decisions. Within their jurisdiction, each of these organisations can review the merits of an administrative decision, and may have the power to change a decision:

• Commonwealthandstatesombudsmen

• SocialSecurityTribunal(SSAT)

• RefugeeReviewTribunal(RRT)

• HumanRightsandEqualOpportunityCommission(HREOC)

• AdministrativeAppealsTribunal(AAT).

Additionally, there is the Privacy Commission and a set of industry-sponsored ombudsman schemes that provide complaint-handling services:

• TelecommunicationsIndustryOmbudsman

• PrivateHealthInsuranceIndustryOmbudsman


• SuperannuationComplaintsTribunal

• AustralianBankingIndustryOmbudsman

• ElectricityandWaterOmbudsmanofNSWAppealsTribunal(SSAT)

• MigrationReviewTribunalandRefugeeReviewTribunal.

Want to know more?read rogers c 2007, ‘the impact of the australian government Job network contracting on not-for-profit service providers’, The Australian Journal of Public Administration vol. 66, no. 4, pp. 395−405.

6.5.5 Risk Management

Writing about the money market, Cagan (1999) lists the following types of risk: credit, liquidity, interest rate, legal, reputational, volatility, documentation, political, default, regulatory, currency, netting, trading, operating, human error, fraud, weather, personnel, and systems. The article includes an impressive list of private sector ‘risk management failures’ (including the famous 1637 Tulip Bulb Craze).

It is a truism that public sectors everywhere are renowned for being conservative and risk-averse. In liberal democracies some of the policing attitudes and actions to risk are being reassessed as departments and agencies develop and implement ‘risk management strategies’.

Risk management involves recognising and managing the inevitable uncertainties of the work environment. It is a formal approach that has its origins in the insurance and manufacturing sectors, and in many ways derives from motives similar to those organising the quality movement. Like insurance, risk management is about making judgments on the potential risks and likely consequences of a particular set of circumstances, against the cost premium associated with avoiding such a situation. The major elements of a risk management approach are common to the public and private sectors, although the context is somewhat different.

Risk management has been raised as an issue for public sector managers mainly as a consequence of the greater degree of flexibility and responsibility that has accompanied many other reform initiatives. It is also consistent with the managerialist belief that private sector management systems and strategies can be successfully co-opted for use in the public sector. Generically, risk management requires organisations to:

• identifytheinherentrisks

• determinetheimplicationsofsuchasituationdevelopinganddeviseappropriate strategies to minimise them

• assesstheresidualrisk

• monitorresidualrisk.

The risk management process can be applied to a policy, program, process or activity. We examine its applications to managing projects in PSM Program Unit 4,


Managing Down. The risk management process has several distinct stages.

Stage 1. Establishing the context

At this stage, managers need to review risk in a particular area, allocating resources for research that will identify criteria to determine what constitutes an acceptable level of risk in the area.

Stage 2. identifying the risks

Next, managers must determine exactly what the risks are in the area under consideration, what are the possible sources and what are the possible impacts.

Stage 3. Analysing the risks

This step is about establishing the level of risk for each risk identified – what is the likelihood of occurrence and what are the possible consequences. Very low-level risks can be screened out at this stage.

Stage 4. Assessing and prioritising the risks

Having analysed the risks, in this step managers will decide whether identified risks are acceptable or unacceptable. To do this they compare the level of risk obtained from Stage 3 with the level of acceptable risk obtained from Stage 1. The risks are then ranked according to management priorities for dealing with them.

Stage 5. treating the risks

Managers treat risks appropriately to their significance and according to the importance of the program, policy, process or activity under review. Generally low-level risks are accepted, significant level ones are treated and high-level ones receive close management (often the development of a formal plan).

The risk management process needs to be conducted with the fullest participation and consultation of all who are involved as stakeholders or implementers of the policy, program etc. Once plans have been put in place to manage risks, they must of course be continually monitored and reviewed to determine their effectiveness. This is especially important since risk priorities can change with circumstances. Identifying and managing risk is a way of making processes more transparent to scrutiny and thus increasing accountability.

CPA Australia, following the risk management process outlined in the standard AS/NZS 4360:1999, graphically depicts the risk management process in the following


manner. This standard has been recognised as leading edge thinking in the area:

Figure 6.1 the risk management process

Risk management is particularly relevant in a public sector that is undergoing significant and almost constant change, and that is subject to ongoing external scrutiny. It is increasingly seen as an element of good management practice. Most agencies require formal risk analyses to be conducted when the agency:

• undertakesamajorproject,suchasanewconstructionorothercapitalworks

• implementsanewgovernmentprogram,suchasindustryassistanceprograms

• isconsideringamajoracquisition,suchasanewfinancialmanagementsystem

• isevaluatingtheadoptionofalternativeservicedeliveryarrangements,suchas the outsourcing of a particular activity.

Much is made of formalising risk management approaches, and many departments and agencies send staff on risk management and fraud control courses. There is a danger that such exercises can become mechanistic. Emphasis needs to remain on developing a culture within which managers and their teams are able to make considered and educated judgments based on the risk analyses they undertake. The focus on creating an organisational approach to risk management is encapsulated in

Establish the context

Identify Risks

Analyse Risks

Evaluate Risks

Treat Risks

Mon

itor a

nd R

evie

w

Com

mun

icat

e an

d Co

nsul

t

Assessment Phase


a contemporary embrace of the notion of ‘enterprise-wide’ risk management.

There is a final warning to be made about risk management. Sunstein (2002) is sympathetic to the arguments in favour of cost–benefit techniques that are associated with a large element of risk management theory, and his book seeks to reclaim the rationality of decision-making that accompanies ‘pure’ risk management calculations. However, he is alert to the intricacies associated with putting the theory into practice, especially when it comes to public sector activities. For example, he cites the Hatfield train crash disaster that occurred in Britain in 2000 where dozens of passengers were injured and several killed. After the crash, railway travel became considered ‘unsafe’ by the general public and more than one-third of rail passengers began using the highway instead. This was despite the statistically proven fact that British roads are more than ten times more dangerous as its railways. The result, according to estimates, was that the increase in automobile traffic led to five additional deaths in the first thirty days after the Hatfield incident. This equalled the total number of deaths from train accidents in the previous thirty years!

Sunstein is in fact pointing out the significance of the psychological and cultural theories of risk and what risk theorists Kasperson and Kasperson call ‘the social amplification theory’ which recognises that people, especially given the complex, interconnected nature of societal contexts, do not always respond to risk scenarios in ‘objective’ or ‘rational’ ways. Sensitivity to the malleable nature of risk is thus important to take into account when making risk management assessments.

There are a number of peculiar responses to risk that can be used to illuminate risk management calculations. Lupton (1999) summarises the key findings of the psychological studies on risk as being:

• Laypeoplearemorelikelytocalculatethatriskwilloccurifinformationrelated to it is available and easily recalled, and they tend to overestimate risk related to circumstances where it can be easily imagined as happening to oneself.

• Peoplearemoreconcernedaboutriskstheyseeasbeingclosetothem.

• Risksseentoberarebutmemorableareoverestimated,whilethoseconsidered common and less serious are underestimated.

• Risksperceivedasfamiliarorvoluntaryaremoreacceptableandlesslikelytohappen than those perceived to be new or imposed.

• Peopletendtoberisk-aversewhenfacedwithgainsandrisk-seekingwhenfaced with losses.

• Risksthatreceiveahighlevelofmediaattention(eveniftheyarerelativelyrare occurrences) arouse more concern than those that do not.

• Risksthatareseentooccurinclustersaremoreseriousthanequivalentnumbers that happen over a longer period.

• Consequencesofcatastrophesthatoccurimmediatelyarousemoreconcernthan those that are delayed.

Attention to the possibilities and potentialities of government action must be incorporated into the risk management arena. Risk management does not necessarily provide a neat solution to any given problem. Without some recognition


of the intricacies of translating risk management calculations into the practical reality of service delivery, it is likely that the benefits afforded by risk management will be lost and a program doomed to failure. As Sunstein (2002:4) indicates in a United States case concerning reformulated gasoline to decrease hazardous emissions, sometimes ‘the very steps chosen by government were also responsible for the creation of a health risk, one probably more serious than the one that the government was seeking to solve’. While risk management can be a useful tool, it is not a failsafe panacea. We return to the issue of risk management in PSM Program Unit 4.

Review and conclusionsin this topic, we have begun to explore the conceptual and practical complexities of building relationships with outside groups: here, with community agencies. in the next two topics, we shall explore relationship building with the media and with industry.

we have reviewed some of the circumstances shaping a renaissance of interest in community development, and in governing through community. we have explored some case studies of community renewal schemes, place management strategies and capacity building. on this basis, we reviewed some new pressures for public service managers to develop the capacities required to negotiate with different parties: developing a community focus, using networks, using creative solutions, managing partnership arrangements and focusing on outcomes.

we have also explored some of the problems and potential solutions associated with managing old and new relationships between public and private organisations and between government and the not-for-profit sector. we have examined a variety of elements in managing new processes of outsourcing and contracting-in; these include estimating the costs and benefits of outsourcing, identifying what can and what cannot be outsourced, managing contractual relationships, anticipating problems and monitoring risk.

By this stage of the Managing Out unit, you should be able to:

1. explain why there is a ‘return to community’ in public sector management.

2. Briefly outline the approaches relevant to an understanding of the role of government in relation to communities, including social capital, place management, social inclusion/exclusion and capacity building.

3. Describe some of the ways in which governments are attempting to strengthen communities.

4. explore changing relationships between government and other sectors.

5. review the concept and practice of outsourcing.

6. review the principles of contract management.

in Topic Seven, we shall turn to a further aspect of network approaches by looking at network delivery and e-government. most importantly, it will explore the centrality of e-government as a vital component when managing relationships in a network environment.


Required ReadingReading 6.1 Randolph, B 2004, ‘Social inclusion and place-focused initiatives in

Western Sydney: a review of current practice’ Australian Journal of Social Issues, vol. 30, no. 1, February, pp. 63–78.

Reading 6.2 MacDermottK2008,‘ToMarketToMarket:OutsourcingthePublicService’, in Whatever Happened to ‘Frank and Fearless’? The Impact of New Public Management on the Australian Public Service, ANZSOG publication, ANU e-press Ch 6.

Further ReadingSocial capital and community strengthening

Adams,D&Hess,M2001,‘Communityinpublicpolicy:fadorfoundation?’,Australian Journal of Public Administration, vol. 60, no. 2, pp. 13–23.

Boxelaar L, Paine M & Beilin R 2006, ‘Community Engagement and public administration: Of Silos, overlays and technologies of government; Australian Journal of Public Administration, Vol. 65 (1) pp. 113–126.

DepartmentofFamilyandCommunityServices, Stronger Families and Communities Strategy, Canberra 2004–2009, AGPS, viewed 16 September 2008 <http://www.facs.gov.au/internet/facsinternet.nsf/aboutfacs/programs/sfsc-sfcs.htm>.

DepartmentofTransport,LocalGovernmentandtheRegions2005,Making it Happen in Neighbourhoods: The National Strategy for Neighbourhood Renewal − Four Years On , viewed 16 September 2008 <http://www.neighbourhood.gov.uk/publications.asp?did=1193>.

Mawson, A 2001, ‘Making dinosaurs dance’, Chapter 10 in P Botsman & M Latham (eds) The enabling state, Annandale, Pluto Press.

QueenslandDepartmentofHousing2005,The Art of Renewal: A Guide to Thinking Culturally About Strengthening Communities, viewed 16 September 2008 <http://www.communityrenewal.qld.gov.au/resources/publications/art.shtm>.

UK Social Exclusion Task Force 2008: website viewed at 16 September 2008 <http://www.cabinetoffice.gov.uk/social_exclusion_task_force>

UK Social Exclusion Task Force 2007, Reaching Out: Progress on Social Exclusion, viewed on 26 September 2008 <http://www.cabinetoffice.gov.uk/~/media/assets/www.cabinetoffice.gov.uk/social_exclusion_task_force/reaching_out/reaching_out_progress_report_2007%20pdf.ashx>


outsourcing, contracting and relationship management

Barrett, P 2001, ‘Trends in public sector contracting – some issues and better practices’, presentation to Australian Corporate Lawyers Association, Old Parliament House, Canberra, Wednesday, 21 March, viewed 16 September 2008 <http://www.anao.gov.au/uploads/documents/Trends_in_Public_Sector_Contracting.pdf >.

Edwards, M 2002, ‘Public sector governance – future issues for Australia’, AJPA, vol. 61, no. 2, pp. 51–61.

Hale K & Slaton C 2008, ‘Building Capacity in Election Administration: Local Responses to Complexity and Interdependence’ Public Administration Review, Sept. Oct. pp. 839–849.

Hodge G & Greve C 2007, ‘Public-Private Partnerships: An International Performance Review’ Public Administration Review, May/June pp. 545–558.

Institute for Public Policy Research (IPPR) 2005, Public Private Partnerships, viewed 16 September 2008 <http://www.ippr.org/research/teams/project.asp?id=962 >.

Verspaandonk, R 2001, ‘Outsourcing – for and against’, Current Issues Brief, 18, 2000–01, Politics and Public Administration Group, Parliamentary Library

Risk management

CPA Australia has compiled a literature survey of public sector risk management practices across Australia, viewed 16 September 2008, available on a fee-for-servicebasisat:<http://www.cpaaustralia.com.au/cps/rde/xchg/SID-3F57FEDE-79438421/cpa/hs.xsl/990_3938_ENA_HTML.htm>.

Its website also has many cases in risk management as well as information and updates on risk management practices of relevance to public sector activities.


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