What should a government do to distinguish operational costs in planning for privatization?

Evaluating avoidable versus unavoidable costs is essential for government planning when considering privatization. This approach allows the government to understand what expenses it would no longer incur if a service is privatized. Avoidable costs are those that can be eliminated if the service is outsourced, while unavoidable costs would remain regardless of the decision to privatize.

By identifying these costs, government officials can make more informed decisions about the financial implications of privatization. This distinction aids in accurately calculating the potential savings and determining whether privatization would be financially beneficial. Additionally, this evaluation supports comprehensive budgeting and strategic planning by helping to align costs with the intended outcomes of the privatization process.

In contrast, assessing general revenues, using cash basis accounting, and classifying all costs as fixed do not directly support the necessary analysis for decision-making around privatization. Thus, focusing on the nature of the costs—specifically, which can be avoided—provides clearer insight into the true financial effects of privatizing government services.