Second, at a tactical level, privatization is a means of reducing costs by ensuring that work activities are performed by the most productive, cost-effective means. For governmental activities, application of privatization as a management tool requires active and continual examination of functions to determine whether they are necessary and, if so, whether they are more appropriately or more effectively performed by private parties at some level of the activity. Privatization is a means used to achieve the important objectives of removing the Department from those activities that are not inherently governmental functions or core business lines, improving the management of remaining activities, reducing the costs of doing business, and shifting greater performance and financial risk to the private sector. This important fact is often lost in rhetoric surrounding the appropriate role of government, which tends to obscure the more practical question of how to adapt government to changing needs. It is important to understand that privatization is not an objective itself.
Privatization can take many forms.
In the Department of Energy context, it can range from selling off surplus inventories or contracting out relatively simple services, to transferring to the private sector functions traditionally performed by the Department or its management and operating contractors. Whatever the form that privatization takes, it represents an attempt by the Department to take advantage of the benefits of competitive markets. Market incentives can help minimize costs, spur innovation, and reward successful adaptation to change. When harnessed by government managers, competitive markets can become useful tools to accomplish missions at reduced costs to taxpayers. Managers can use privatization to optimize the in-house and contract workload mix and more effectively focus management attention on core functions.