Comparative Analysis Between Deterministic And Systemic Management Approach For Improved Effectiveness In Public Investment In Peru

Operations Research and Applications: An International Journal (ORAJ), Vol.6, No.1/2, May 2019
DOI: 10.5121/oraj.2019.6201 1
COMPARATIVE ANALYSIS BETWEEN
DETERMINISTIC AND SYSTEMIC MANAGEMENT
APPROACH FOR IMPROVED EFFECTIVENESS IN
PUBLIC INVESTMENT IN PERU
José Carlos Machicao1
and Yanina Hilario2
1
Applied Artificial Intelligence Engineer, GestioDinámica, Lima, Peru
2
Independent Consultant and Researcher, GestioDinámica, Lima, Peru
ABSTRACT
Public investment effectiveness in Peru remains low for decades, even with investment growth and
technical quality improvement. Management approach is often considered as fixed and is not subject to
study or change. This analysis goes deep in understanding how is the current public investment
management approach, and compares it with deterministic and systemic approaches, concluding with a
precise characterization and generating an improvement agenda in order to suggest changes that increase
effectiveness and therefore contribute to a better quality of life of the population in Peru.
KEYWORDS
System Thinking, Public Investment, Effectiveness, Government, Management Approach
1. INTRODUCTION
Every organization, including any State, aims to fulfil achievements. In order to do this, they
implement actions. An organization that "effectively" reaches its achievements through its actions
is recognized as an effective organization [1]. The concept of effectiveness is so critical that it
was used to create the concept of management, and helped to define the original meaning of
management, as a discipline that increases, beyond the technique, the probability of increasing the
organizational effectiveness [2].
The initial concept of organizational management incorporates both the management of resources
and strategies to optimize the complete management of the organization, as well as its
environment, as far as possible. In the beginning, management was understood as a more or less
stable cycle, which maintained the balance between economic success and technical success, with
the available resources, assuming a rather stable environment [3]. Over time, the concept of
stability, strongly present these definitions, was diluted by the evidence of how the environment
of organizations is far from being stable [4], in addition to understanding management as an
extremely complex instrument, which more beyond its coverage in strategic and operational
issues, it covers above all its human nature, and with it includes all the cultural complexity [5].
From these reflections, and subsequent increasing acceptance of diverse approaches in most
organizations, management is no longer understood as only focusing on the technical-economic
equilibrium, which often took the rest of the issues as accessory variables to obtain achievements.

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Rather, the approaches that understand that the study of the behaviour of reality is a priority
before making decisions, increases its acceptance.
Consequently, effectiveness takes on a new meaning. It ceases to be the ability to obtain what is
wanted and becomes the ability to achieve those achievements that have already been proven
possible in the middle of real scenarios, taking into account their behaviours not necessarily
controllable, which allows distinguishing two “extreme” approaches; more and more precise in its
definition:
• The deterministic approach: one that affirms that management is effective when having
conceived an achievement that bets to obtain, develops strategies and operations that
optimize the probability of obtaining it [1].
• The systemic approach: the one that affirms that management is effective when it studies
in advance the complex behaviour of the systems that surround organizations, in order to
delimit what achievements are possible, and within this margin, proposes a more
attainable achievement [5].
What this study proposes is to evaluate how close is the current management of public investment
in Peru, identifying which aspects could be improved in the short and medium term.
To do this, first estimate how effective is the management of public investment, then describe
how it operates the management of public investment in Peru, taking into account that there is no
specific functional system for this item [6], then describes the deterministic and systemic
approaches in a common language in order to make them comparable, compares the management
operation of public investment with the two reference approaches, to finally identify potential
improvements in said operation.
2. MEASUREMENT OF PUBLIC INVESTMENT EFFECTIVENESS IN PERU
Between the years 2001 and 2017, Peru has increased its gross domestic product (GDP) per capita
from 2.0 thousand to 6.2 thousand US$ [7]. The human development index (HDI) has also
increased from 0.71 to 0.75 [8]. What is striking is the proportion of the increase in each case.
While in the case of GDP has tripled, in the case of the HDI the increase is 5.6%. In other words,
this would mean that an average citizen has tripled their productive capacity, but has only slightly
increased their quality of life.
Additional precision can be found in public investment information, which in the same period
grew from approximately 12 to 44 billion US $ [9], denoting a multiplication of 3.75 times in the
same period. Undoubtedly, it must be presumed that there are many factors that can influence this
disproportion; however, it is evident that it is notorious, not only evident in macroeconomic
figures of the country, but also evident in the entire Latin American region [10]. The World Bank
defines an indicator of government effectiveness as “the perception of the quality of public
services, the quality of the civil service and the degree of its independence from political
pressures, the quality of the formulation and implementation of policies, and the credibility of the
government’s commitment to such policies.” Under this index, Peru remains below -0.1 during
the entire period from 2001 to 2017 [11, 12].
Since this evidence of ineffectiveness of State actions is not new, initiatives to generate efficiency
have been diverse. Some initiatives originated in international organizations and others in a
national scope. From the international level, the creation of the Management for Development
Results (Management for Development Results, MfDR) concept of the Inter-American

3
Development Bank [13, 14], or at the national level in Peru, the attempt to gather in a single
environment available for consultation through the site called “Resulta”, publishing data linked to
the indicators of budget programs by the Ministry of Economy and Finance (MEF) in Peru [15].
Figure 1. Annual HDI Growth compared to Public Investment in Peru, between 1990 and 2017. Source:
World Bank. Elaborated by the authors.
In general, government reactions to low effectiveness are of a different nature. In Peru, the best-
known reactions are [16, 17]:
• A better articulation between plans and operations
• Incentives for budget execution
• Budget increase
• Increase in the professional quality of executors
• Increase in salaries for policy makers
• Supervision of the quality of the products
• Supervision of the alignment with long-term plans, such as sectoral plans, or regional and
local development plans.
Although all these measures may have had a positive effect on the increase in effectiveness, they
have been frequently applied throughout the study period (2001-2017), and as shown before,
effectiveness remained low.
3. DEFINITION OF THE REFERENCE MANAGEMENT APPROACHES AND A
COMMON LANGUAGE FOR COMPARISON
Literature review is performed to record the most precise definitions of management approaches
in order to make them comparable, and then generate an articulated set of criteria that, in addition
to making them comparable to the chosen approaches (deterministic and systemic), allow us to
characterize the current public investment management approach.
Two aspects are taken into account to complete the scope of this review. One addresses the need
to characterize two very representative management approach or models describing the sequence
or decisions, and the other is to identify the influence of each approach in effectiveness.
3.1. The Deterministic Management-Approach
The First Industrial Revolution highlighted the scientific management approach that had begun
with Ford and that Taylor was able to propose a management definition in a more academic way
[3]. The approach basically said that no matter how perfect the technique used to manufacture a

4
product; it was not possible to multiply the production capacity of a particular team if the
scientific management was not applied. In other words, an organization without management had
a more limited production capacity than an organization that applied management. From this
historical point, the Second and Third Industrial Revolution, did not take long to (i) make the
machine relevant to the operator and (ii) then the knowledge and information above the machine,
respectively [18]. Although management quickly adapted to the industrial revolutions of the
1800-2000s, probably due to an aspect of conceptual security, the practitioners of management,
both strategic and operational, kept the intuition of the “machine” as the centre of attention
surprisingly persistent. organizational system [19].
Determinism, although already influenced by the recognition of complexity in reality and in the
actions of organizations, did not stop considering as a management role trying to stabilize the
systems to make them predictable, for which concepts such as standardization are generated and
alignment [20]. In other words, the reaction of strategic and operational management to the
complexity and dynamism of the real variables, both external and internal in the corporation, was
clearly to try to make them less complex and less dynamic.
3.2. The Systemic Management-Approach
System dynamics broke into the world of management, and curiously with greater intensity in the
management of the governments of the countries, calling attention to the limits of economic
growth, stating that growth cannot be infinite because it is systemically conditioned to factors that
interact in a complex way among them [4, 5].
The increasing verification of the impossibility of freezing the variables, to give rise to the
acceptance of volatile, uncertain, complex and ambiguous variables (adopting the acronym
VUCA by the abbreviations in English) took force in the management. The message was
becoming clearer, avoiding the simplification of complex reality, and instead learning to manage
it as such [19].
System dynamics is consolidated as a useful tool for the design of policies from the 1980s to the
present, becoming useful and recognized for both corporate management [21] and public [22].
The practice of systems dynamics opens up the possibility of modelling reality with a different
logic to, for example, econometrics, and instead of proposing modelling as the detection of the
influence of a set of variables on an output one, understands rather the behaviour of several
variables among themselves, as part of a complex system.
Nowadays, the systemic approach, understood as the knowledge and awareness about the
behaviours rather than fixed variables, has managed to provide modelling with other additional
tools, such as automatic computational learning and neural networks, thanks to a notable increase
in computational capacity.
Using the previous archetypes of determinism, the influence of the systemic approach in
management is not only about making the corporate “machine” faster or more automatic based on
programming, but the joint system of machines and human beings reflects an understandable
behaviour [19].
3.3 A Common Language To Facilitate Comparative Analysis
Based on the exploration described in sections 3.1 and 3.2, it is understood that in general, the
State has the responsibility of the citizens to make decisions and then implement actions that

5
guarantee an increase in the level of quality of life. Given this final impact sought and these
actions implemented, it can be defined that, according to the space in which decisions are made,
there are four different performance fields: final impact, action implementation, action design,
and public authority. The definition of each one is shown in Table 1.
Table 1. Definition of Public Investment Performance Fields
3.4 The Influence Of The Management Approach In Effectiveness
As stated before, effectiveness is the degree of success of the whole set of actions in order to
achieve some conditions. Within the public sector these conditions are closely related to
population quality of life in all aspects that nations pursue.
From the technical point of view, effectiveness can be measured by the degree of coverage of
aspects of quality of life for the whole population or a specific segment focused to deliver
benefits. A very common idea is that management approach has no relevant influence in
effectiveness. In other words, the cause of effectiveness is often more understood as aspects
related to the capacity of action implementation and technical quality. For instance, if the
investment seeks to improve primary school students learning capacity, it is rare to find questions
as “what information is important to register first” and it is easier to find questions as “how we
can make more textbooks to arrive early in the year”.
Given certain condition of a segment of the population which needs to be improved, a sequence
of consequences is described for each representative approach.
• If the deterministic approach is used, the hypothesis of how much impact can be achieved
is usually blind, because the deterministic approach does not ask how the context
behaves, but what it needs to be done. Afterwards, the decisions about the action design
and implementation follow the hypothesis, even when it can be wrong. Consequently,
when the impact is deployed, there are a lot of surprises in the impact field because the
implementation and benefit realisation is the first stage in which the government can
notice the distance between the behaviour of the context and the hypothesis. It is
understandable that in real governments, particularly if there is lack of capacities and
budget, the hypothesis simplification is a common resource in order to decrease the
modelling budget.
• When systemic approach is used, the priority of dynamic information is very clear. It is
compulsory for this approach to begin within the impact field, trying to understand
behaviours. This step increases the reliability of the information. Often, information is not
simplified at this stage. On the contrary, complexity and uncertainty are accepted. The

6
systemic approach does not reduce the will to increase complex knowledge. This step
feeds the complete decision process with high quality information. It is not based on
simplified hypothesis. When enough information is gathered, the simulation of action
implementation is easier and is not neglected. Pilot interventions are common at this
stage and enrich the data. Action design increases the quality because of the enriched
information and decisions can be improved. Also, in the authority field, political decision
makers are better informed and tend to take better decisions.
4. DESCRIPTION OF CURRENT PUBLIC INVESTMENT MANAGEMENT
APPROACH IN PERU
In Peru, public management strategy that leads the performance of public investment is the
Budget for Results (PpR, by its name in Spanish), which allows linking the allocation of
budgetary resources goods and services (called “products”) and results in favour of the population
, so that these can be measurable PpR contributes with the improvement of the quality of the
public cost when propitiate that the entities of the State do: (i) efficient and effective use of the
public resources, prioritizing the public expense that, according to the evidence , contribute to the
achievement of results linked to the welfare of the population, (ii) make better decisions in
budgetary and management matters, with results in favour of the population. The PpR is
implemented through four instruments: (i) budget programs, (ii) a system for monitoring budget
programs, (iii) independent evaluations, which are studies that analyse the suitability of budget
programs, and (iv) management incentives, which are specific benefits that executors receive for
implementing budget programs more appropriately [15, 16, 23]
Table 2. Current Public Investment Management Approach in Peru by Public Investment Performance
Fields
Performance
Field
Current Public Investment Management Approach by Performance
Field in Peru
Final Impact
• Define results linked to changes that allow solving problems that affect
the population and generate the commitment to achieve them
• Evaluate if the results are being achieved in favour of the population
Action
Implementation
• Determine those responsible for the achievement of the results, in the
implementation of the PfR instruments and in the accountability of
public expenditure
• Introduce incentives to encourage public entities to work towards
achieving results
Action Design
• Budgeting products (goods and services) that affect the achievement of
results
• Establish mechanisms to generate information about the products
(goods and services), the results and the management carried out to
achieve them
• Use the information to decide on what and how public resources will
be spent, as well as for accountability
Public
Authorization
• In Peru, Regional and Local Governments have the main authority to
decide “what to do”. There are official and formal documents which
contain the long-term goals for every territory, but in practice those are
often not updated with recent information. At a national level, the
Executive Power is the entity leading the multi-year planning and
establishing policies.

7
Throughout the budget process the Entities (central, regional or local government), program
resources to products that benefit the population (public interventions such as the Budget
Programs), contributing in the decision making during the budget allocation process because it
allows to use the information generated about results, products and the cost of producing them,
guaranteeing doing so with transparency towards entities and citizens within the framework of
accountability of public expenditure [13].
5. COMPARATIVE ANALYSIS BETWEEN THE CURRENT PUBLIC INVESTMENT
MANAGEMENT APPROACH AND REFERENTIAL APPROACHES
Deterministic and systemic management approaches are considered referential in order to
describe and characterized the current approach in Peru. It is assumed that the sequence of steps
within each approach moves around the four performance fields defined before. One way of
presenting the sequence followed by both referential approaches is the distribution of the four
fields in a plane, so that it is possible to plot the trajectories of the steps followed in both cases.
Figure 2. Management approaches diagram for deterministic and systemic approaches, around performance
fields. Elaborated by the authors.
While the systemic approach (see Fig. 2a) takes as initial reference the reality of the environment
of the impact, studying it, the deterministic approach (see Fig. 2b) starts from a hypothesis
formulated without taking into account the knowledge of the reality of the impact performance
field.
When the current approach in Peru is analysed, the start is identified it two different fields. It is
true that Peruvian approach studies the impact field first, but only as a source of estimation of
certain parameter that after its register remain fixed [13]. The purpose of collecting information is
not to have a clear understanding of how the contexts behaves, but to inform the political
authority in order to facilitate the decision-making process (see Fig. 3).
The following steps are mainly deterministic. The highest weight of will remains in the political
authority, even when technical parameters have to be decided. Often, the political authority is so
powerful within the approach that the original decision remains the same even when evidence
from reality come from the field, particularly in the action implementation field. This idea is
contained in formal legislation of the approach [13, 14, 20].

8
Figure 3. Current public investment management approach diagram among the performance fields.
Elaborated by the authors.
The importance of characterizing the schematization of the Peruvian real public investment
management approach is supported in the need to make evident the great influence of the
management approach in effectiveness. In Section 3.4, the importance of the influence of the
management approach was highlighted. The consequence can be noticed when the effectiveness
is evaluated.
• The effectiveness of the deterministic approach is severely reduced by the sequence of
steps. The lack of information when designing and implementing actions leads to
frequent failures when the dissociation between real conditions and hypothesis appears.
• The effectiveness of the systemic approach is highly increase because of the knowledge
available when designing or implementing actions. This leads to highly reliable and
adaptable actions, without fixation of parameters but information about dynamic
behaviours.
• For the Peruvian case, it is evident that this approach is much closer to the deterministic
approach. Information about increasing budgets during the implementation of public
investment actions, such as budget programs and interventions support the idea that the
real budgets are wrongly designed because of the excessive simplification of information
and knowledge or the use of simplified hypothesis as a common practice to design
actions.
7. CONCLUSIONS
The study of the management approach demonstrated to be useful because it can be said that,
even with a very limited and conceptual analysis, effectiveness not only depends on technical
performance or the volume of investment, but importantly in the sequence of decisions, which in
time is dependent on the management approach.
It was demonstrated at certain big picture level that the management approach of the public sector
has a significant influence on the capacity to achieve impacts. It was possible to schematise
management approaches, both referential as deterministic and systemic, and real approaches as
the Peruvian current public investment management approach. This schematisation is clearly
useful to improve the capacity to make evident consequences as important as the budget
efficiency or the reliability of design for public actions.
System thinking and therefore systemic management approach, demonstrated to be largely
positive to influence the whole decision-making sequence for public investment in Peru. Since
Peruvian public investment management approach is mainly deterministic, several improvements
can be done such as: (i) increasing the volume, dynamism and complexity of the information
collected before the design of public actions, (ii) increasing the use of complex models under the

9
system thinking management approach in order to improve design of public actions, and (iii) the
ability to implement actions with more complex and dynamic information, using the tools and
sequence of systemic approach can improve the impact achievement. Therefore, improving
impact, effectiveness will increase systemically.
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[18] Rifkin, J. (2011). The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the
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presupuesto-por-resultados
AUTHORS
Jose C. Machicao is an engineer expert in complex modelling. Uses applied artificial
intelligence to develop models for natural language processing and data analysis. Also
uses system dynamics and network science for complex modelling specifically for
management models. Holds a Master of Science in Energy from the University of Wales,
United Kingdom, and a Licence as Mechanical Engineer from the Pontificia Universidad
Católica del Perú. ORCID 0000-0001-8527-7663.
Yanina Hilario is a legal expert in public investment and public-private partnerships
contracts. Has more than 15 years’ experience working in the public sector in fields as
transport, environment and social development, specifically as normative advisor.
Experience developing administrative legal management tools. She holds a Law Degree
from the Pontificia Universidad Católica del Perú.

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