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Glossary

The glossary in this Portal provides definitions of core terms closely related to the medium-term expenditure framework; and links to other online glossaries.

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Word

Definition

Ratchet effect

The ratchet effect the commonly observed phenomenon that some processes cannot go backwards once certain things have happened, by analogy with the mechanical ratchet that holds the spring tight as a clock is wound up.

The ratchet effect is referred to in many disciplines, from politics to management to evolutionary theory. In terms of politics, the "ratchet effect" was used to describe the government's inability to scale back the huge bureaucratic organizations that were once needed. Often, these machines were created in times of war to fuel the needs of their troops abroad. The "ratchet effect" can also be viewed through the lens of international organizations that have trouble with reforms due to the myriad layers of bureaucracy that were previously created.

The ratchet effect is also used as a term for the results of an economic strategy arising in an environment where incentive depends on both current and past production, such as in a competitive industry employing piece rates. The producers observe that since incentive is readjusted based on their production, any increase in production confers only a temporary increase in incentive while requiring a permanent greater expenditure of work, and thus decide not to reveal hidden production capacity unless forced to do so.

Rationalization

Rationalization in psychology is the process of constructing a logical justification for a decision that was originally arrived at through a different mental process. Rationalization in economics is an attempt to change a pre-existing ad-hoc workflow into one that is based on a set of published rules. Rationalization in sociology is the means of transition from a traditional society into a rationalized one. Rationalization in politics is justification of power by means of rationality (rationality and power). Rationalization in organization is the strategy of assigning activities to those parts of the organization, regardless of their location, that are best suited to produce the desired results and then selling the finished products where they are likely to yield the best profits.

Rationalization agreement

A rationalization agreement is an agreement (generally approved or authorized by government) between firms in an industry to close down inefficient plants, reduce excess capacity and realign production in order to increase overall industry efficiency and performance.

Redistribution of wealth

Redistribution of wealth (see income redistribution)

Regulatory framework

A regulation is a legal restriction promulgated by government administrative agencies through rulemaking supported by a threat of sanction or a fine. This administrative law or regulatory law is in contrast to statutory or case law. Regulation mandated by the government or state attempts to produce outcomes which might not otherwise occur, produce or prevent outcomes in different places to what might otherwise occur, or produce or prevent outcomes in different timescales than would otherwise occur. Common examples of regulation include attempts to control market entries, prices, wages, pollution effects, employment for certain people in certain industries, standards of production for certain goods and services. The economics of imposing or removing regulations relating to markets is analysed in regulatory economics.

Resource allocation

In strategic planning, a resource allocation decision is a plan for using available resources, for example human resources, especially in the near term, to achieve goals for the future. It is the process of allocating resources among the various projects or business units.

The plan has two parts:. Firstly, there is the basic allocation decision and secondly there are contingency mechanisms. The basic allocation decision is the choice of which items to fund in the plan, and what level of funding it should receive, and which to leave unfunded: the resources are allocated to some items, not to others.

There are two contingency mechanisms. There is a priority ranking of items excluded from the plan, showing which items to fund if more resources should become available; and there is a priority ranking of some items included in the plan, showing which items should be sacrificed if total funding must be reduced.

Resource dependence

An approach to controls that argues that managers need to consider controls mainly in areas in which they depend on others for resources necessary to reach organizational goals.

Resource dependence model

A view of the organization-environment interface that highlights organizational dependence on the environment for resources and argues that organizations attemp to manipulate the environment to reduce that dependence.

Results-based management (RBM)

Results-based management (RBM) is a participatory and - ideally - team-based approach to management designed to improve programme and management effectiveness, efficiency and accountability that focuses on achieving defined results.

Retrenchment

Retrenchment means the reduction of expenditures in order to become financially stable (e.g., by cutting jobs). It is a tactical concept similar to downsizing. This strategy is often used by corporations under pressure to raise profits, or who are failing in certain sectors and wish to concentrate in higher-gain areas. Retrenchment of the state, accompanied by lowering taxes, is frequently advocated by capitalist, neo-liberal, and libertarian groups.

Revenues

Revenues (or total revenue) refer to the value of output sold, that is the number of units times the price per unit. Average revenue is revenue per unit that is total revenue divided by the amount of output sold. Average revenue is therefore equal to price per unit. Marginal revenue is the increment in total revenue resulting from the sale of an additional unit. The term "revenue" is often used interchangeably with "sales" and "turnover".

Risk analysis/assessment

A systematic process for assessing and integrating judgments about possible adverse conditions and/or events, as a basis for the appropriate budgetary treatment of those conditions or events. Examples include the risk of war, bank failures, floods and other natural disasters, epidemics of virulent disease, etc. See also contingent liability.

Risk management

Risk management is the process of evaluating alternative regulatory and non-regulatory responses to risk and selecting among them. The selection process necessarily requires the consideration of legal, economic and social factors.