Financial Cutbacks and Public Sector

The recent global economic financial crisis is responsible for a new era of cutbacks that have a significant effect on public spending. In the last few years, public manager sectors have been forced to innovate and find new means of survival as governments intensify financial cutbacks on various sectors of public spending. Public administration in Europe and other Western countries has remained steady for the most part of the last one century. However, the financial crisis that has hit most countries in the last few years has confronted public managers with new management challenges. In some countries, cutbacks have been made on a large-scale basis and they have been accompanied by political undertones. Financial cutbacks have prompted a wave of reforms in the public sector. Most of these reforms are a direct reaction to the financial cutbacks that have been instituted by most governments. Some public sector managers have found their rhythm when it comes to reactions on public-spending cutbacks. However, other managers are struggling to adjust their operations and ensure their survival in an era of financial cutbacks. Ordinarily, public sector managers often face the pressure of managing resources ‘that belong to the people. Nevertheless, this pressure intensifies in periods of financial austerity. Public sector management has come under close scrutiny in various episodes of financial austerity and managers must ensure that their organizations remain afloat in eras of financial cutbacks. The public also expects public sector managers to be sensitive to negative economic developments without interfering with public service delivery. This paper explores ways in which public sector managers address the main issues that confront them in an era of financial cutbacks.

In the era of financial cutbacks, it is important for managers to be sensitive to both the internal and external business environments. In some instances, the business environment in the public sector might differ from the one in private sector. Consequently, the activities of public sector managers might be expected to go against those of their counterparts in the private sector. In other instances, public sector managers might be expected to ignore a deteriorating business environment in the private sector while they continue with their normal operations. For managers to concentrate on the internal and external financial environments of their operations, they have to consider the issue of centralization/decentralization of their decisions. Most cutback eras are considered to be periods of crisis management. Consequently, public sector managers are expected to act as the central figures when dealing with financial cutbacks.

Managers are expected to adopt a top-down approach while dealing with financial cutbacks. During periods of financial cutbacks, most organizations tend to think that their operations are ‘very important’ and hence they should be exempted from budget cuts. In addition, most organizations often hesitate to be the first in line when financial cutbacks are being distributed across the board. This external environment is replicated in the internal operations of public organizations. For instance, when an organization is subjected to financial cutbacks, most departments within the organization feel that their operations are important to the wellbeing of the establishment and hence they should be exempted from spending cuts. Therefore, it is the responsibility of the manager to lead the way when he/she is instituting financial cuts. For example, the manager should make sure that the decisions and modalities of effecting budget cuts follow the top-down approach. Experts have observed that “top-down processes are virtually indispensable for the achievement of systematic spending cuts” (Peters, 2011). The top-down processes should include spending cuts decisions that affect different departments within an organization. For example, if a manager resolves to reduce expense accounts for the organization, he/she should start with the top most departments. The bottom-up approach of instituting financial cutback decisions is known for increasing the “communication between top management and employees to clarify the cutback process, demystify the decisions to be taken, explain what the future holds for the organization and diffuse rumors and resulting tensions” (Maher & Deller, 2007). Furthermore, public sector managers should engage their employees in the process of effecting financial cutbacks. This approach exempts the employees from the feeling that they are victims of the cutback process and instead makes them understand that the cutbacks are in their best interests. In addition, some cutback decisions translate into long-term decisions and thus require the support of the employees.

Public sector managers can also confront the issue of financial cutbacks “through standardization of procedures, empowering the central budgetary departments, setting limits and ceilings to organizational spending, borrowing and activities, or by general priority-setting of the government” (Peters, 2011). A manager’s ability to deal with financial cuts is also restricted to the need to align his/her decisions with the political atmosphere. Financial cuts are often accompanied by the need to make difficult and often political decisions for top-level public sector managers. A manager’s ability to be in control of the activities of the entire organization is the most important aspect of managing an era of financial cutbacks. In some instances, it is important for managers to seek outside influences while communicating budget cut decisions to employees. For instance, managers can seek the input of principal secretaries of public sectors in the decision-making process. It is also important to note that in periods of financial cutbacks the public sector “is treated as part of the problem resistant to changes, but not part of the solution” (Dougherty & Klase, 2009).

Financial cutbacks introduce the issue of limited budgets and strained cash flows in organizations. Consequently, it is the responsibility of the manager to lessen the effects of the budgetary strains that are often accompanied by financial cutbacks. A public sector manager has several available options when dealing with monetary strains that come with cutbacks including “repetitive budgeting, sequestering, and cash-flow budgeting” (Keele, 2007). These strategies are some of the most common ones when dealing with the issue of fiscal stress in a public entity. In times of financial cutbacks, the manager can address the issue by altering the budget a number of times during a financial period. Consequently, a manager can end up preparing more than two budgets a year depending on the nature and intensity of the financial cutbacks. Most of the other budgetary manipulations that can be beneficial to public institutions involve lessening the constraints that are common in an era of financial cutbacks (Rubin & Willoughby, 2009). Furthermore, it is common for public sector managers to improvise and randomize their organizations’ budgets. Budgetary decisions that assume a top-down approach are easy to implement and cause less conflict than the ones that start from the bottom.

Public sector managers can address the issue of financial cutbacks by ensuring that they adhere to the fiscal guidelines that are often set by the central governing organs. In periods of financial constraints, the government outlines some fiscal guidelines that apply to all public sectors. The fiscal rules are an important guide for managers when they are outlining the guidelines that apply to their own organizations. For example, “various countries announce constrictive fiscal norms before the start of their budget preparation… giving line ministries and agencies targets or spending ceilings before they start formulating their budget requests for the following fiscal year” (Bideleux, 2011). The spirit of these fiscal restraints should be adopted by public sector managers who should ensure that public interest precedes organizational interests during budgetary planning. For instance, a manager should mainly focus on the need to reduce budget deficits whilst stabilizing his/her organization’s expenditure. In addition, the manager should also commit to a closer surveillance of the spending habits of his/her organization. Overall, it is important for the manager to align the interests of his/her organization with those of the public.

One of the most major issues in periods of financial cutbacks is the impact that this trend has on employees and other aspects of human-resource. The manager should be able to handle the personnel-related issues whilst managing to keep his/her organization afloat. An era of financial cutbacks is synonymous with disgruntled employees. For instance, some periods of financial cutbacks have witnessed mass layoffs and retrenchments of public personnel. The manager should be able to carry out all the necessary personnel-related decisions without losing his/her grip on the value of human organization. Another way of dealing with the personnel-related issues in an era of financial cutbacks is by ensuring that the morale of employees remains high during this period. Financial cutbacks introduce an air of uncertainty among employees. The morale of employees drops significantly when they are associated with an organization that has grim future prospects. Studies have shown that “organizational commitment and public-service loyalty are negatively associated with individuals being affiliated with a program that is being cut drastically or abolished” (Bach, 2012). During periods of financial cutbacks, individuals become insecure about their association with the affected sectors of the economy. The manager is left to deal with issues of mass exodus of employees, mistrust, fear, and negative attitudes. Managers should implement new structures in respect to personnel management. For instance, employees should be given more autonomy in periods of financial cutbacks. Levin proposes an amendment of “personnel rules and regulations in order to allow the use of part-time employees and volunteers alongside full-time professional public servants and to encourage working on a project-basis” (Levine, 1984). Mixing long-term employees with short term ones is likely to supplement the personnel strains that are often accompanied by financial cutbacks. A manager can also outline the creation and re-alignment of employee positions with the view of reducing costs whilst being mindful of the organization’s personnel (Austin, 2004). For example, a manager can source labor from a few highly trained individuals and supplement them with less trained workers thus reducing the cost of human resource significantly.

Evaluating performance management issues is another way for public sector managers to deal with financial cutbacks. Managers should ensure that periodical employee performance appraisals are conducted. These performance appraisals come in handy during financial cutbacks because they present the manager with a useful outline of how to sustain productivity in the organization. Performance management also allows employees to safeguard the tenure of the best performing employees during layoffs. Furthermore, managers can be able to develop a fair salary-metric systems for employees during periods of financial cutbacks. Managers have to deal with the quagmire that results from the notion that “seniority is considered more important than performance in the cutback policy and thus the need for the amendment of personnel rules and regulations to increase the importance of performance criteria vis-à-vis seniority in carrying out reductions” (Levine, 1984). The managers’ ability to manage changes that result from financial cutbacks is one of the most effective strategies that can be used when dealing with the issue of public spending. Experts have argued that “Successful management of change requires political backing, strong leadership, a supportive organizational climate including cross-unit cooperation, and necessary resources for designing, testing and implementing changes” (Kickert, 2012). Therefore, a manager’s priority should be the re-alignment of the organization’s activities.

In the history of the modern world, the public sector has been tried and tested by the institution of financial cutbacks. Public sector managers are expected to confront and address the issues that arise from financial cutbacks to ensure the survival of their organizations. One method of tackling financial cutbacks is by ensuring that decisions that are made in this era are centralized. In addition, it is the responsibility of the manager to ensure that change is managed in an appropriate manner and the interests of the employees are taken into account when dealing with financial cutbacks.

References

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Dougherty, M.J. & Klase, K.A. (2009). Fiscal retrenchment in state budgeting. revisiting cutback management in a new era. International Journal of Public Administration, 32(7), 593-619.

Keele, L. (2007). Social capital and the dynamics of trust in government. American Journal of Political Science, 51(2), 241-254.

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Levine, C.H. (1984). Retrenchment, human resource erosion, and the role of the personnel manager. Public Personnel Management Journal, 13(3), 249-263.

Maher, C.S. & Deller, S.D. (2007). Municipal responses to fiscal stress. International Journal of Public Administration, 30(12-14), 1549-1572.

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Rubin, M.M. & Willoughby, K. (2009). Financial management grades for the states: A prospective use. Public Budgeting & Finance, 29(1), 49-67.