MANAGEMENT BY COMMON SENSE

According to Thomas Jefferson, "the art of governing consists simply of being honest, exercising common sense, following principle, and doing what is right and just." It is good advice for all levels of management, from the office of U.S. President to the president of the smallest water utility.

Emphasis can be on the element of "common sense." As Jefferson also said, +common sense is the foundation of all authorities, of the laws themselves, and of their construction." So, exactly what is "common sense?" Can it be defined? How does it play in management of a water utility, for example?

Recently, I attended a lecture by Yale Professor John Gaddis on the decision-making strategy of "common sense". In particular, he discussed the importance of using common sense to achieve ultimate goals by explaining the classic comparison of foxes and hedgehogs. A fox tends to run in several different directions, without ever reaching a specific goal or objective. On the other hand, a hedgehog tends to stubbornly pursue a goal but cannot change direction when confronted with an obstacle to that goal.

Professor Gaddis cited Lincoln as using common sense to achieve the end to slavery in the United States. Like a hedgehog, Lincoln's single-minded goal, often disguised, was to end slavery. But he was as a fox in pursing that goal by employing smaller steps and necessary modifications of direction.

Professor Gaddis also pointed out that common sense in management, whether on the Presidential level or otherwise, is to have a goal or objective, and to have a plan which anticipates likely obstacles to that goal and provides proposed actions to circumvent those obstacles. Part of such a strategy will include the employment of compromise.

Clearly, common sense is relevant to water utility management. I will give an example. Years ago, a water utility initiated a rate case with the regulatory agency. The utility had not sought a rate increase for many years. In the meantime, inflation had caused a substantial increase in operating expenses and the utility had made a large addition to its infrastructure. As a result, the utility sought a 100% increase in its rates. Customers and agency staff objected to such an increase and attacked the quality of service. Even though the 100% rate increase could be justified by the numbers, a negative perception of the utility resulted in the regulatory agency denying any increase in rates. Common sense should have dictated that the delay in seeking rate relief was a mistake; that a much lower increase should have been requested; and the utility should have offered to compromise by proposing steps such as a phase-in of higher rates or a lesser increase.

In contrast, another water utility annually performed a review of its revenue requirements and filed a rate case with the regulatory agency every two years. As a result, despite the effects of inflation and increased plant, rate relief requested generally was in the 5% to 10% levels. The utility's goal was to recover revenue requirements and its plan was to avoid rate shock and customer objections. The utility also met with media, public officials and customer groups in advance of a rate filing to explain the reasons for a rate increase. Consequently, the perception of that utility by both the regulatory agency and the customers was positive.

So, what is common sense in management? It seems to be: to have a goal; to have a plan that anticipates obstacles to that goal and provides steps to overcome those obstacles to the goal; to employ compromise as part of that plan; and to be aware of how others perceive management as a potential obstacle or aid to reaching the goal.