supporting decision makers in a highly regulated environment: the case of hungarian public...

Supporting decision makers in a Supporting decision makers in a highly regulated environment: highly regulated environment:

The case of The case of Hungarian public procurementHungarian public procurement

Csaba Csáki

University College Cork

2April 2-3, 2009 - London IFIP 8.3 Learning from cases studies task force – 6th Workshop

Regulations as the way of lifeRegulations as the way of life

• Industry – Pharmaceuticals, freight shipping, ...

• Function – Accounting, marketing, ...

• General (cross-industry, non-functional) – Environmental, ...

• Global, n-lateral – Trade issues (WTO), embargos,

• FundingEU Grants, US minority policies

• Sports – WADA, swimming suits, ...


What is the goal of regulations?What is the goal of regulations?

• Change behaviour or invoke a certain behaviour or deter from it– Through influencing decision making


Results in a complex settings Results in a complex settings

• Several regulatory contexts meet (intersection)

• Law-making vs. applications of the law – Legislation and practice (enforcement)

• Cultural issues

• Difficulties in comparing decision making “with” and “without”


General research objectiveGeneral research objective

• How to support decision makers in highly regulated settings

• How to identify requirements against DSS in such context(s) – May some specific requirements / expectations be

identified against decision support tools intended to be used under regulatory constraints

– ... if yes, what are those specific requirements


An area and an opportunityAn area and an opportunity• Procurement

– Plus: Pure private sector version exists – Issue: PP controls public entities

• Hungary (and others) joined the EU May 1, 2004 – brought major regulatory changes – ‘utility’, energy and postal services sectors affected

• became subject to Public Procurement National Laws

• based on EU Directives

=> private entities meet public regulations– Same private organization following two sets of rules

6


Literature???Literature???

• No discussion of the decision making process – Even in commercial procurement it is very high level

• No report of continuous DSS use – no systems are reported implemented into daily process – despite

• reports of occasional success in the public arena

• abundance of tools and methods available in the commercial arena – Mostly OR-based, focusing on supply, logistics

• Interpretation of procurement is fairly narrow, – focusing on “supplier selection”

– being separate issue from supply strategy

7


Harland et al.’s framework of Harland et al.’s framework of PP decision making factorsPP decision making factors

Political factors Economic factors

Technological factors Societal factors MACRO ENVIRONMENT

SECTOR CONTEXT

Accountability

Regulation

Supply market factors

Recipient factors

Stakeholder influence

Competition factors

GOVERNMENT ACTION

PUBLIC SECTOR

SUPPLY NETWORK

Network features

Nature of sector

Type of action

Level of action

8


Harland et al.’s framework of Harland et al.’s framework of PP decision making factorsPP decision making factors

• As the framework is geared towards general government commissioning actions not all its factors are relevant for this DSS research – Factors of the macro environment

• Political and societal factors

– Sector (specific) factors• Stakeholder influence

– Government action– Supply network

10

April 2-3, 2009 - London IFIP 8.3 Learning from cases studies task force – 6th Workshop

Gelleri’s influence model Gelleri’s influence model

practice of public procurement

regulatory (legal) control

domain content (related to the object of

the purchase) culture and thinking

of procurement professionals

decision support methods and tools

place of procurement function within the organization

(e.g. lack of respect)

11


Holsapple’s “knowledge” model: Holsapple’s “knowledge” model: factors shaping DSS needs factors shaping DSS needs

strategy

contextbased on © Holsapple, 2008

particip

ants’

kn

owled

ge

particip

ants’

actions

problem type

decisiondecision making process

12


Topics to exploreTopics to explore

• The decision making problem as depicted in the law • Contextual (environmental) factors influencing the

decision maker • The decision making strategy followed by the decision

maker under regulatory influence • The decision making process (steps, activities, decision

points), participants, knowledge, methodology • The decision support needs arising

– Including DSS requirements and functionality

13


strategy of the Decision Maker

regulatory (legal) framework

Support individual purchasing decisions: process, roles, methodology

market pressure (technological and economic reality)

decision making context expectations

from the recipients of services

Th

e L

awD

SS

high-level and strategic

policy goals

other factors setting up, determining the context

and influencing the decision maker and his strategy

RQ 4

RQ 3

RQ 1

RQ 2

RQ 2

the decision making problem as viewed by the law

RQ 1

14


MethodologyMethodology• Qualitative research with embedded cases (Ying, 1988)

Context: EU Public Procurement Hungary – Public Procurement

Organization 1

Individual

procurement

projects

(energy sector)Organization 2(energy sector)

Organization 3

procurement

projects

(European grants)

.

.

.

Individual

procurement

projects. . .

15


The law (Act of Public Procurement The law (Act of Public Procurement and EU Directive(s)and EU Directive(s)

• Process – Phases

• with time restrictions

– Tasks

– Limited use of information gathering (evidence that may be used)

– Everything needs to be published in advance • Selection rules and data / evidence to be submitted

• Details of the ranking methodology to be used

• Roles and required knowledge – Final decision maker is to be identified

– Three types of knowledge needs to be “present”: legal, financial, domain

15

16


PP Evaluation MethodologyPP Evaluation Methodology• The Hungarian Act on Public Procurement

– requires the advanced publication of• suitability requirements

• evaluation criteria, weights and utilities

– limits the criteria and mode of checking suitability (filtering bidders)

– defines the scoring mechanism

• Decision Making through a pre-established set of criteria – filtering suitable suppliers incl. meeting formalities

– multiple criteria decision making / MAUT

– w/ optimizing strategy 16

17


Indirect decision making Indirect decision making • Have to set and fix the selection rules (criteria and

preferences) in advance without knowing anything about the alternatives – May not change them

• Bargaining, power, influence, and individual preferences – Commercial procurement (of large projects) may well be

understood based on the political model

– Public rules aimed at restricting these (otherwise “normal” in the public arena – in the name competition and transparency

• Perspectives – Social technical

17

18


Organizational decision-making perspectivesOrganizational decision-making perspectives• goals set by the law are consistent with the

organizational perspective – societal gain

– rules and conditions generated are based on such goals

• the PP law almost fully ignores the personal perspective – aimed at severely restricting potential negative effects of the

elements that form the personal perspective

• the law is codified under the view of the technical perspective – seems to be done without an understanding of the

consequences of methodological options on the decision making outcome

19


DSS requirements based on DSS requirements based on the law itselfthe law itself

20


Other factors Other factors • Lawmaking process

– Potential state capture, political bargaining

• Interpretations of the law – PP Council

• Issues recommendations how to interpret the law

– Bulletin Publisher: Notice Review Board • May reject publication of invitations on formal grounds

– Contracting Authority legal (PP) personnel

– Tenderers’ legal personnel – behaviour of suppliers

– Arbitration Board • Final legal authority • The “case law”

• Interaction with other regulations

21


Interaction with other regulationsInteraction with other regulations

22


Nat. – National Env. – EnvironmentPP – Public Procurement

Colour: External regulatory layers

Bold: Public ProcurementAccepted delivery

Corporate policies

Project (execution)

EU monitoring

Industry (sector) regulations

PP contract (contract law)

PP decision making process

PP Act

Grant Contract

Grant application

Nat. grant programs

Nat. payment policy

EU grant directives

Env. protection policies

23


Specifically… Organization 3Specifically… Organization 3

accepted delivery

corporate policies

project (execution)

EU monitoring

industry regulations

PP contract

PP process

PP Act

Grant Contract

Grant application

Nat. grant programs

Nat. payment policies

EU grant directives

env. protec. policies

???

health and safety; entering and working on factory/plant site etc.

???

124/2003. (VIII. 15.) gov. order

Chemical industry ...

contract with winning bidder - contract law

Directive 2004/17/EC and its national counterpart Act CXXIX of 2003 on PP

Grant Contract # ( KIOP-1.4.0-F.-2005-02-0001/2 )

Grant application under KIOP 1.4.0

15 OPs (2007): Environment (KI)OP 182 projects supported (2004-6)

Gov. order 360/2004 and 54-55/2005 regulating the financial and payment process of EU subsidies

EC 2342/2002 details 1605/2002: 20 EU agencies, 30 supported areas

33/2000. (III. 17.) Gov. order about the protection of underground waters

FIDIC rules, …

24


accepted delivery

corporate policies

project (execution)

industry regulations

PP contract

PP process

PP Act

env. protec. policies

Nat. – National PP – Public Procurement Env. Protec. – Environment Protection

External Regulatory layer

Sector 1: mining

Contract law

Organizatin Organizatin 1 and 21 and 2

Sector 2: energy production and distribution

25


Actual supplier behaviour Actual supplier behaviour

• Not interested

• Unprepared

• (Some success)

• Unfair or poor quality offers

• Some regular suppliers did not enter the PP arena

• New suppliers appeared who specialize in PP

25

26



regulatory (legal) control

domain content (related to the object of

the purchase)

culture and thinking of procurement professionals


place of procurement function within the organization

(e.g. lack of respect)

tactics employed by economic operators who submit tenders

identified distorting effect

potential supporting effect

negative influence

positive influence

27


procuring entity / Decision Maker

framework:

execute individual purchasing decisions

Market:hi

gh-le

vel a

nd

technological and economic reality

Pol

itics

:

domain knowledge

organizational

culture, issues PP

pro

fess

ion

abilities, tricks

of economic op.s

techn

ology

interpretations

of the law

price/quality etc.

expectations

loca

l PP

rule

s,

proc

ess

actors, roles

Polic

y go

als

Decision

Support

respect

Value chain

expertise

influ

ence

Lobbying

strategic goals

Regulatory (legal) lawmaking

28


DSS requirements based on DSS requirements based on the factors other than the lawthe factors other than the law

29


The strategy of the decision makerThe strategy of the decision maker

30


Intended strategy

Intended strategy

Realizedstrategy

Realizedstrategy

Imposedstrategy

Imposedstrategy

Emergent strategy

Emergent strategy

Unrealisedstrategy

Unrealisedstrategy

Cultural and political processes


Learning and logical incrementalism


Organizational strategy modelOrganizational strategy model

© Johnson and Scholes, 2002

31


Intended strategy

Intended strategy

Realizedstrategy

Realizedstrategy

Imposedstrategy

Imposedstrategy

Emergent strategy

Emergent strategy

Unrealisedstrategy

Unrealisedstrategy





Following the lawFollowing the law

Optimizing: Economically most advantageous, Using MAUT and best score

32


Intended strategy

Intended strategy

Realizedstrategy

Realizedstrategy

Imposedstrategy

Imposedstrategy

Emergent strategy

Emergent strategy

Unrealisedstrategy

Unrealisedstrategy





Attempt at non-complianceAttempt at non-compliance

Filtering: Trying to avoid unwanted suppliers even by “pushing” the limits

33


Intended strategy

Intended strategy

Imposedstrategy

Imposedstrategy

Emergent strategy

Emergent strategy

Unrealisedstrategy

Unrealisedstrategy





Formally accepting the lawFormally accepting the law

Satisficing: just get it done within the legal rules – compliance became the goal

Realized

strategy

??? ???

34


Intended strategy

Intended strategy

Imposedstrategy

Imposedstrategy

Emergent strategy

Emergent strategy

Unrealisedstrategy

Unrealisedstrategy





Seemingly accepting the lawSeemingly accepting the law

Cynical: Seemingly accepting legal rules attempting to achieve their own goals under the surface

Realized

strategy

IntendedIntended

35


Surprising?Surprising?

• Creative accounting – Enron, 2002

• Commercial supply corruption – Siemens, 2006 • Suppressing scientific evidence – Faking the drug accreditation process

• Going around advertisement to children restrictions – Tobacco industry, 1990s

35

36


DSS requirements based on DSS requirements based on the decision maker’s strategythe decision maker’s strategy

37


How about actual use of DSS?How about actual use of DSS?

38


asking for outside support

late definition oftender goals

technical conditions are not insured on time

time-pressure

unresolved power issues within the organization

size of „stake” (what is at stake)

protection against outside influence

protection in case of outside audit

self-defence

Gelleri’s “need” (pressure/motivational) profile of Public Procurement Gelleri’s “need” (pressure/motivational) profile of Public Procurement Decision SupportDecision Support

lack of legal knowledge

lack of decision technological knowledge

lack of domain-technical knowledge

lack of market knowledge

lack of knowledge

lack of tender technical knowledge



lack of PP legal knowledge




late definition of tender goals

lack of knowledge


time-pressure




protection in case of outside auditself-defence


(no)(no)

(pressing)

(partially)

(partially)

(not perceived as relevant)

(potential unknown suppliers)


Motivational profile Motivational profile of Organization 1 of Organization 1

at the outset at the outset








lack of knowledge


time-pressure






(no)(no)

(partially)

(mounting)


(unprepared suppliers)

(lack of suppliers)(does this result in time pressure or what else?)

Motivational profile of Motivational profile of Organization 1 after Organization 1 after first few proceduresfirst few procedures








lack of knowledge


time-pressure




protection in case of outside audit

self-defence

(fear of being tricked)lack of tender

technical knowledge

(no)(no)

(need to counter attack)

(no)

(became more prevelant)

(no)

(potential unknown supplier)


(mostly gone)

(no)

Motivational profile of Motivational profile of Organization 1 Organization 1

after tricky suppliers after tricky suppliers








lack of knowledge


time-pressure






technical knowledge

(no)(no)

(friction, misunderstanding)

(no)

(gone)


(stronger: legal challenge)

(no)

(not DSS issue)


after legal challengesafter legal challenges








lack of knowledge






technical knowledge

(no)(no)

(special)

(partially)

(no)


(legal challenge is rarely a concern)

time-pressure


(friction, misunderstanding)(no)

(not DSS issue)

(importance increased)

Opportunistic goals


- final, opportunistic - final, opportunistic








lack of knowledge


time-pressure






technical knowledge

(present)

(no)(no)

(pressing)

(partially)

(no)

(no)

(subsidy contractis being delayed)


(strong: might need to pay subsidy back)

(could loose subsidy)


45


Event Response Strategy Motivation to ask for support

DSS (support) available

First encounter with the regulations

Fully adhere, use sophisticated solutions

Optimizing, sophisticated criteria

The unknown, lack of knowledge

General DSS tool (MAUT model)

Issues with unprepared suppliers

Simplification Lowered expectations

Uncertainty DSS with some legal knowledge

Suppliers used “tricks” to win

Tricks of their own, negotiated w/o notice

Trying to force their own goals (preferred suppliers)

Fear, protection DSS with simulation capabilities

Legal challenges Simplification 2 (no open proc.s, lowest price)

Satisficing: only care about legal compliance

Legally clean procedures

PP DSS with historical DB

Low quality (new suppliers)

Compliance on the surface

Opportunism To look legally good on the surface

(occasional consulting support req.d)

PP DSS with documentation generation

46


Backup slidesBackup slides

47


strategy of the Decision Maker


Support individual purchasing decisions: process, roles, methodology


decision making context expectations


Th

e L

awD

SS


policy goals

interpretations of the law

- incl. Court appeal (judicial) decisions

RQ 4

RQ 3

RQ 1

RQ 2

RQ 2

other factors setting up, determining the context and

influencing the decision maker and his strategy

the decision making problem as viewed by the law

RQ 1

process, roles, methodology required by the law

48

April 2-3, 2009 - London IFIP 8.3 Learning from cases studies task force – 6th Workshop The law



expectations from the

recipients of services

high-level policy and strategic goals



RQ 4

RQ 3

RQ 1

RQ 2

RQ 2 and 4

regulato

ry (le

gal) fra

mework

culture and thinking

of procurement professionals

place of procurement

function within the

organization

Ability of and tactics employed

by economic operators who

submit tenders


decision making environment


domain content

(related to the object of the purchase)


49






decision making environment

expectations from the recipients of

services


policy goals



Influencing Factors of Public Influencing Factors of Public Procurement Decision MakingProcurement Decision Making

50



culture and thinking of procurement professionals

decision making methods and tools available

place of procurement function

within the organization

strategic and high-level policy goals

market pressure (technological

and economic reality)


Internal environment

External environment

Indirect factors of the task environment

51



execute individual PP purchasing decisions

decision making environment expectations


interpretations of the PP law

- incl. Appeal Board (judicial) decisions

domain content (related to the

object of the purchase)

PP knowledge and tendering practice

of economic operators

political influence

Internal environment

External environment

Direct factors of the task environment

decision support tools and techniques

51

supporting decision makers in a highly regulated environment: the case of hungarian public...

Documents

cases studies task force

london ifip

workshop regulations

public regulations

decision makers

workshop results

influencing decision

workshop harland et