The Criterion of Efficiency: Factual elements in decision

We have seen that the criterion which the administrator applies to factual problems is one of efficiency. The resources, the input, at the disposal of the administrator are strictly limited. It is not his function to establish a utopia. It is his function to maximize the attainment of the governmental objectives (assuming they have been agreed upon), by the efficient employment of the limited resources that are available to him. A “good” public library, from the administrative standpoint, is not one that owns all the books that have ever been published, but one that has used the limited funds which are allowed it to build up as good a collection as possible under the circumstances.

When a decision is made in terms of the criterion of efficiency, it is necessary to have empirical knowledge of the results that will be associated with each alternative possibility. Let us consider a specific municipal function, the fire department. Its objective is the reduction of the total fire loss, and results will be measured in terms of this loss.

The extent of the fire loss will be determined by a large number of factors. Among these are natural factors (frequency of high winds, heavy snowfall, severe cold weather, hot dry weather, tornadoes, hurricanes and cyclones, earthquakes, and floods), structural and occupancy factors (exposure hazards, physical barriers, density of structures, type of building construction, roof construction, contents, and risk of occupancy), the moral hazard (carelessness and incendiarism), and finally the effectiveness of the fire department itself. The loss, then, will be a function of all these variables, including the performance of the fire department itself. The fire chief must know how the activities of his department affect the loss if he is to make intelligent decisions.

How does the fire department perform its task? It inspects buildings to eliminate fire hazards, it carries on campaigns of education against carelessness, it fights fires, it trains firemen, it investigates and prosecutes incendiaries.

But we can carry the analysis a step farther. Of what does fire-fighting consist? A piece of apparatus must be brought to the scene of action, hose laid, water pumped and directed upon the flames, ladders raised, and covers spread over goods to reduce water damage. Again, each of these activities can be analyzed into its component parts. What does laying a hose involve? The hose must be acquired and maintained. Equipment for carrying it must be acquired and maintained. Firemen must be recruited and trained. The firemen must spend a certain amount of time and energy in laying the hose.

A final level of analysis is reached by determining the cost of each of these elements of the task. Thus, the whole process of fire-fighting can be translated into a set of entries in the city’s books of accounts.

The problem of efficiency is to determine, at any one of these levels of analysis, the cost of any particular element of performance, and the contribution which that element of performance makes to the accom- plishment of the department’s objectives. When these costs and contri- butions are known, the elements of performance can be combined in such a way as to achieve a maximum reduction in fire loss.

There are at least four rather distinct levels at which the analysis of the administrative situation may be carried out. At the highest level is the measurement of results, of the accomplishment of agency objectives. Contributing to these results are the elements of administrative perfor- mance. The first equation expresses the results of government as a function of the per- formance of certain activities. Further equations express these performance units as functions of less immediate performance units, the latter in terms of units of effort; and finally effort is expressed as a function of expenditures. The problem of efficiency is to find the maximum of a production function, with the constraint that total expenditure is fixed.

1. The Determination of Social Production Functions

It follows from the considerations which have been advanced that that portion of the decision-making process which is factual, which is amenable to scientific treatment, resolves itself into the determination of the production functions of administrative activities. This is a research task of the first magnitude, and one which as yet has hardly been touched.

Progress toward an understanding of these functions involves a series of well defined steps:

  1. The values, or objectives, affected by each activity must be defined in terms that permit their observation and measurement.
  2. The variables, extra-administrative as well as administrative, that determine the degree of attainment of these functions must be enu-merated.
  3. Concrete, empirical investigations must be made of the way in which results change when the extra-administrative and administrative variables are altered.

The necessary scope and difficulty of a research program which would make a substantial contribution to our knowledge of these functions can hardly be exaggerated. The principal progress to date has been in the first step,77 and, as yet, empirical studies involving steps 2 and 3 are almost nonexistent.14

But if such research is difficult it is also indispensable. It is hard to see how rationality can play any significant role in the formulation of administrative decisions unless these production functions are at least approximately known. Nor can the problem be avoided by falling back on the “common sense” of administrators—their “intuition” and “practical insight” in dealing with situations for which “long experience” has qualified them. Anyone who has had close contact with administrative situations can testify that there is no correlation between the ability of administrators and their confidence in the decisions they make—if anything the correlation is an inverse one. The ablest administrators are the first to admit that their decisions are, in general, the sheerest guesswork; that any confidence they evidence is the protective shield with which the practical man armors himself and his subordinates from his doubts.

The fact of the matter is that momentous decisions are made every day as to the allocation of resources to one or another competing purpose, and that, particularly in noncommercial organizations, the decisions are made in an almost complete absence of the evidence which would be necessary to validate them. The principal reason for this, of course, is the difficulty, except in enterprises that have a relatively tangible product, of determining the actual production functions.

To recognize how far actual decisions fall short of rationality is no criticism of the administrator, who must act whether or not he possesses the information that would be necessary for the complete rationality of his decisions. It is, however, a criticism of apologies that would make his ignorance a virtue, and would question the need for extensive programs of research in this direction.

Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.

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