Step 6: Detailed Diagnosis

Step 6: Detailed Diagnosis

The detailed diagnosis explores the deeper causes of financial distress. Understanding root causes is needed for creating lasting solutions.


There are two dimensions to consider in the detailed diagnosis:

  • Internal vs. external: Does the cause arise from forces inside or outside the organization?
  • Economic/technical vs. political: Are political or technical issues behind distress?

These two dimensions translate into four categories of potential causes. Examples of deeper causes are available in each category. Use these examples to determine what causes of financial distress might apply to your organization and then use those to develop customized solutions to financial distress. Step 8 of the recovery process provides examples of solutions that correspond to the causes. 





Category 1: Political / Internal Causes of Financial Disasters


  • Government Crisis
  • Excessive Personnel Costs
  • Past Awards for Unsustainable Retirement Benefits
  • Poor Morale and Commitment
  • Overexpansion


Category 2: Internal, Economic / Technical Causes of Financial Disasters


  • Management Challenges
  • Weak Budget Development Practices
  • Lack of Innovation and Adaptability
  • Poor Performance
  • Poor Task-Related Communication
  • Ineffective Management Information Systems
  • Failure to Fund & Manage Retirement Benefits Prudently
  • Deteriorating Infrastructure


Category 3: External, Political Causes of Financial Diasasters


  • Public Unwillingness to Pay Taxes
  • Decline in Intergovernment Revenue
  • Ineffective Communication with the Public
  • Interest Groups
  • Decline in Local Fiscal Autonomy
  • Unfunded Mandates
  • Reduced Demand for Services
  • Change in State of Federal Policy


 Category 4: External, Economic / Technical


  • Economic Recession
  • Pension Investment Losses Require Catch-Up Contributions
  • Change in the Base of the Local Economy
  • Shifting Demographics
  • Inflation