Managers are continually challenged to make effective decisions in the face of often incomplete or contradictory facts. Decisions are made on the move, and are often wrong or only partially correct. Where hard facts are scarce, managers rely on reserves of opinion and experience to fill in the knowledge gaps by using a variety of tools including their actual experiences in past similar situations, observations made by educators, mentors or peers that they accept as fact, or, as a last resort, their own personal bias coupled with an intuitive understanding of the matter at hand. These "soft facts" work to shape the decision-maker's understanding of the possible outcomes of any range of decision options applicable to solving a specific problem. Realizing the risks inherent in this process, the proficient manager continually monitors outcomes of the decision-making process and changes, or refines, the initial decision until desired outcomes are achieved. This process is inherent in all decision-making, and takes place to some degree at all levels of management and across all business sectors, including both public and private organizations. But determining what is hard fact becomes more difficult as organizations grow larger and variables affecting decisions become more complex. Studies of variables such as size, task, and technology in government agencies show that those variables may influence government organizations more than anything related to their governmental auspices. These findings agree with the common sense observation that an organization becomes bureaucratic not because it is in government or business but because of its large size. (Rainey, 1991).
Authorities almost unanimously agree on four urban service goals: efficiency, effectiveness, equity, and responsiveness. Efficiency involves maximizing output from a given amount of input or resources. Efficiency is a process-oriented concept that assesses how inputs are converted into outputs; it says nothing about the degree to which goals are achieved or about citizen reaction to the service being provided. Effectiveness, in contrast, is concerned with objectives; it reflects the extent to which goals are being met. It is a result-oriented concept focusing on how nearly the wanted outcome is being fulfilled without regard for the cost involved or resources used. Equity is comprised of equal opportunity and market equity, in which citizens receive services roughly proportional to the amount of taxes they pay and equal results, in which an agency allocates its resources so that people are in an equal condition after the money is spent. Unquestionably the equity standard people adopt plays a crucial role in their judgment of agency performance. Responsiveness, the fourth issue in service delivery, concerns the degree to which citizens' preferences and demands are met (England and Morgan, 1999).
Efficiency and responsiveness were factors in identifying the need for this research project as it has been established that public sector water utilities have failed to perform with the efficiency of their private sector peers. A study of 250 water and wastewater utilities by the BTI Consulting Group found that private, investor-owned water utilities operate at significantly higher levels of efficiency than public sector water utilities. Specifically, that only approximately 6% of all municipal utilities had delivered a return on assets of 5.35%, or twice the average return of 2.48%, and concluded that municipal utilities could save $25 Billion per year if they adopted the best management practices of privately owned systems instead of cutting staff to lower budgets. (Public Works Finance Vol. 127, (1999). Recent industry studies reflect that the top twenty U.S. water providers remain municipalities, while the private water industry has experienced a period of consolidation and capital infusion which has resulted in substantial European-controlled companies such as Veolia Environement's U.S. Filter Corporation (France), Suez's United Water (France), Severn-Trent Environmental Services (Great Britain) or RWE Group's Thames Water Subsidiary American Water Works (Germany) competing with a cadre of American-owned firms such as CH2M Hill's Operations Management International (OMI) and Southwest Water Company's Southwest Water Services Group to convert these public systems to public-private partnerships using options ranging from three to five year contract operations through complete transfer of utility ownership. This competition constitutes a broad-based attempt to respond to a perceived public need by applying private resources and expertise to bridge the projected gap between capital required for public water utility infrastructure improvement and available public resources. In early 2000, this gap was estimated at $5.7 Billion annually in wastewater treatment alone (Price, Waterhouse, Coopers, 2000). In December 2002 the Water Infrastructure Coalition forecast a shortage of $460 Billion in water and wastewater infrastructure resources over the next twenty years (WIN Coalition, 2003). And in August 2003 the Environmental Protection Agency's Office of Water predicted that the current pace of spending falls $263 Billion short of what's needed over the next twenty years for drinking water infrastructure only (Gillies, 2003). Obviously, the need for management systems improvement and significant additional capital appears obvious; however, the public sector has been slow to utilize private-sector options, and the annual number of public-private projects initiated actually shrank as recently as 1999. (Public Works Financing, April 2000).
While there may be other reasons for this slow growth, the resistance to seeking private expertise and access to private capital in the face of such need points to the possibility that there exist some basic problems leading to a decision bias amongst public sector managers against the use of private sector resources. Therefore, in an effort to shed light on these critical issues, this research questioned the utilization of opinions, bias and intuition as "soft facts" applied as part of the decision-making process. More specifically, the research sought to determine if there is significant differentiation in the underlying assumptions regarding basic values applied to goal setting among managers within the public and private sector. Given the worldwide significance of the topic of how public sector management differs from private sector management and how public organizations can be managed effectively, this contention is open to controversy; it needs clarification (Rainey, 1991). In an effort to assure an accurate comparison, the sample groups utilized for this study were drawn from the ranks of senior career city management personnel and senior management of major water utility companies marketing services to municipalities; two management groups competing in many ways for the same business. The survey groups contained managers with similar tasks to perform but separated by the divide between public and private sector organizations, competing to provide similar utility services with the knowledge that the private sector may gain a contract through direct competition, but the public sector managers involved can never be totally released from the public responsibility for the successful performance of the contract.
Much of the resistance to use of private-sector options comes from within public sector management, and ranges from leaders of government-employee unions to middle and upper level managers who claim that contracting is ultimately more expensive because of discrepancies such as corrupt practices in awarding contracts, the cost of layoffs and unemployment for government workers, the shortage of qualified suppliers and the resulting lack of competition, the cost of managing the contract and monitoring contractor performance, and the low marginal cost of expanding government services (Savas, 2000). However, proponents of private-sector participation counter that the government has a duty to ensure that citizens receive certain services, but that responsibility does not necessarily dictate that the government must produce those services itself, and government and those they serve stand to benefit as competition drives private firms to constantly seek ways to reduce costs and improve service. (Goldsmith, 1997).