Following the elections, there has been a lot of pressure to reduce government spending. “The treasury management strategy demands that the council authorities must set prudential indicators annually to demonstrate that their capital investment plans are affordable and sustainable” (McDermott 4). The fire department and other council departments are also supposed to work on their financial management strategies, on how and where they will borrow and how they will invest their resources. Among the things that treasury requires them to address in their planning includes their capital expenditure, their debt limits, financial management strategies, affordable spending measures and their financing requirements. They must also prove that all the above-mentioned processes are conducted following the acceptable code of conduct.
Financial Reporting Standards
Good financial reporting standards require comparable financial statements that allow the organization and analysts compare what is going on in their organization with performances by other organizations in the same industry. Several indicators have been set to help compare between different firefighting companies and fire stations. The comparison makes it possible to point out areas of error in different stations.
The organization is required to ensure the development of an integrated financial analysis. To protect investors, financial records and information must be comprehensive and easy to understand. Financial information must be confidential and only enough information should be released to stakeholders. This protects the organization from being over-exposed to competitors.
Proper financial reporting standards demand that financial strategies should reveal a proper approach to the future which should involve examining the current and anticipated factors. The factors have also to be associated with customers who make the external and internal environment, and the department itself, which makes the internal environment (Allen 14). Proper financial planning is supposed to envision new and effective strategies for the department, while exercising its creativity and aligning its practices, resources and policies, to realize its vision and goals. It involves utilizing the new and latest methodologies for running an organization and implementing strategies that work.
When drafting financial reports, participants explore specific concepts and tasks to ensure the success of their suggestions and recommendations. The responsible team has to come up with a strategy fit for the present environment and a world class strategy with a perfect fit into the ever expanding market and firefighters responsibilities. They have to identify the department’s culture and how it relates to the strategies they are formulating. It is also important for the team to recognize technology as a major variable if the recommended strategies have to work and remain relevant. Financial reporting and its functionality are also supposed to take into consideration uncertainties, complexities and constant changes.
Greater Manchester Fire and Rescue Authority’s internal controls
- A high-level vision is enclosed firmly in their service planning, performance management and their risk management strategies.
- A monitoring system and performance measure to ensure that authority actions are both legal and are up to acceptable standards.
- Research and a development program and committee to ensure that improvement is continuous and the level of conduct in every level of authority is acceptable.
- A responsible financial department fully supported by proper statute, to ensure that the organization’s financial aspect is effectively managed and planned for.
- A comprehensive budgeting process, which clearly defines the organization’s expectations in terms of financial developments. It also defines responsibilities and guidelines and ensures frequent follow up and reporting to the relevant authorities.
- An internal audit to ensure consistent professional standards. Auditing should be done to support the authority in its improvements, achievements and intentions. External auditing must be conducted to support the internal auditing process and help review the organization’s major internal financial control. “Auditing should also include a well organized and coordinated local code of corporate governance” (Greater Manchester Fire and Rescue Authority 54).
- The other important tool is a risk management policy, demonstrating robust arrangements in the decision-making process.
- A well-established ICT department to ensure defined timescales are set for important systems in the organization. Application and management systems are today very dependent on efficient technology to operate optimally. ICT also makes monitoring an easier task and helps keep track of finished projects as well as those in progress.
- A value improvement and monitoring program to help implement the organization’s strategy when they are needed and promptly.
Cost cutting measures will include strategic management and planning of the revenues and expenses. “Strategic management is the process of drafting, implementing and evaluating decisions which will enable an organization to achieve medium and long term objectives” (Allen 21). The firefighting department involves a proper consideration of the strategic planning process which includes different strategy formulations, as well as their control. “The organization’s vision and mission are used in strategic management to describe the components of the strategies being developed including core purposes, values and visionary goals” (Allen 27). Other tools that can help the department identify areas where they need to add or cut investments include the SWOT analysis, which will enable the department to identify their strengths and weaknesses and use them to their financial planning advantage.
For Greater Manchester Fire and Rescue Authority, functional strategies will be important in their cost cutting strategies. “These include those strategies which are implemented and activated by functional areas, which support services and products development” (Greater Manchester Fire and Rescue Authority 55). They could cover areas such as marketing, human resources, research and development. Since cost cutting measures may be hard to implement at the field level, such areas may be important points to target when slashing expenses. Functional strategies are supposed to be customized and fit the organization’s requirements if they have to succeed. “The effectiveness of functional strategies are measured by their ability to develop a competitive advantage for an organization” (Allen 54). In this case, GM Fire and Rescue Authority can use them in their investments and revenue strategies. They, therefore, are supposed to support the overall strategy and have to be outlined flexibly to enable an organization to keep pace with the constant changes in the external environment today.
One of the suggestions put across to reduce spending is increasing the percentage of volunteers in the fire department. The fire department should carry a feasibility study of how possible it would be to have a smaller percentage of their team on the fire fighting department payroll and have the rest as volunteers. The amount of money given to volunteers as compensation is much less than that paid to full-time employees. Since the department does not have to give major benefits to volunteers, the program allows a reduced budget on salaries, benefits and compensations. According to GM fire and rescue’s expense account, a volunteer’s allowances is 70% less than the total salary and allowances are given to full-time employees. For every full-time employee replaced by a volunteer, the company will save 70% on the total salary of one person.
Another area in which the fire fighting department can consider during cost-cutting is the electrical and lighting area. This area largely affects the department’s operations and yet its costs are hard to evaluate depending on the level of activity in different periods and the number of stations. When the department chooses to cut costs in this area, it should focus on the area of lighting. “One way to do this is to replace the incandescent bulbs with compact fluorescent lights or lighting emitting diodes (LED’s)” (Hall 12). The replacement will not only reduce costs but will also increase efficiency. It is estimated that fluorescent lights cost four times less than incandescent bulbs, meaning the department can save up to 40% on their bulbs purchases. Since the company spends 11% of their income on purchases, such a cut on one item will go along the way in cutting the overall purchasing costs.
Greater Manchester Fire and Rescue Authority can also save by purchasing their equipment in bulk to get good price offers. The department also needs to get more affordable equipment, but do so without compromising the quality of service. Minimized spending can be done on office equipment rather than field equipment to ensure that the quality and safety of the firefighters remains intact. The department can save up to 50% of its expenses on office equipment by having firefighters share desks since they spend most of their time in the field, and by buying second-hand office equipment. There are things whose performance is not affected by how long they have been used. Such things include filing cabinets and other types of furniture. From the company’s expenditure account, new office equipment accounts for 6% of the business’ expenses every year. Cutting the budget by 50% will help the business cut its total expenses by 3%.
Investing in recent technology will also reduce the number of equipment and employees needed in the offices and fields, as well as allow the department more effective ways of achieving results. Among the most recent inventions that could help the business save money are early fire detection systems, fire suppression systems and impulse water mist fire extinguishing systems. Since purchases and other running costs account for 11% of the business’ expenses, these measures can help the business cut expenses by 2% of their total budget, by utilizing modern technology and taking less time to fight the fire more effectively.
The area of safety still poses a challenge in the firefighting department’s expenses. The amount of money spent on medical bills and treating injuries of their teams can be minimized if safety measures were well established. When the risk involved in firefighting is minimized, it will be easier for the company to reduce the amount of money spent on insurance and other health related expenses. Minimized risks will also attract more volunteers, saving the department money spent on full-time employees and their benefits. According to the fire department statistics, allowances given to volunteers amount to around 30% of the total salary given to full-time employees. For every full-time employee replaced by a volunteer, the company will save 70% on the total salary of one person. The organization spends 68% of their money on salaries and another 11% on employees contributions such as a pension. Since there are no contributions for volunteers, the 11% spent on pension and other forms of employees contributions will be eliminated for every full-time employee replaced by a volunteer.
Risks increased by proposed budget cuts
The firefighting department gets called to do many other things other than firefighting. In the case where the department has a big percentage of volunteers as compared to full-time employees, this may pose a challenge. Volunteers may not be able to do as much as well experienced and trained employees. Cost-cutting by reducing the number of employees may also lower the quality of service offered by GM Fire and Rescue Authority. The confidence in their service will go down and a lack of professionals in the field may result in more casualties.
Cost-cutting in the area of electrical and lighting may reduce their technical ability and cost the authority a lot during night operations. Quality of work at night may be compromised when there is no proper lighting. In an attempt to save on the area, the authority may end up getting very low standard electrical products, which will result in more risks during operations and a decreased quality of firefighting. Cheap products may end up being more expensive in the long run as they may require constant replacements as opposed to original products.
Minimized spending in the offices and other areas of operation should be done without compromising quality. Replacing employees with technology, for example, may deny the department the experience offered by employees during emergencies. The rigidity of technology can cause safety challenges, especially when procedures have to be adjusted a bit to suit a particular situation.
For the fire fighting department to reduce its costs without comprising quality, there need to be certain measures put in place. Out of the amount saved due to a large number of volunteers, a small percentage can be directed to training volunteers. The department can also divide its employees into groups and have them work as groups as well. In this case, each group must be led by a fully qualified and trained firefighter. Such steps will ensure proper directions when incidents arise and the volunteers will continue to learn in the process.
Cost analysis information must be available to all the people at the senior level of management and shareholders, to allow informed decision-making processes and a realistic approach when formulating cost saving frameworks. Information will be very important when making decisions about buying cheaper products and types of equipment. The quality of equipment must be researched and confirmed before any purchases are made. Cost reduction and control exercises can have adverse consequences on any business’ operations. They should therefore be done with proper consultations and considerations.
A link between the costs of quality, marketing and strategy, must balance well with the company’s revenues. Businesses should only spend what they can pay and work at minimizing debt. “The authority should also adopt the prudential indicators put in place and limits in their spending” (Allen 44). Such measures will allow them to compare what they are doing with other fire stations and examine the results of similar strategies in other fire authorities in different areas.
Another important measure is to approve proper management and spending strategies and ensure they are in line with the set indicators. The set indicators must be used as internal tools and not as comparison tools between one fire station and the other because different stations will have different needs and requirements. Available options must be analyzed and costs of implementing and sustaining them compared before any decisions are made.
The department needs to focus on purpose authority and create an affordable financial vision for their operations. The sustainability of projects must be scrutinized before they are approved. The partnership board and other concerned authorities, with the help of the accounting committee, must ensure that before projects are commissioned, there is enough money to complete them. The result of such an initiative will be better financial organization, which will reduce cases where reserve money has to be used to complete projects.
Members and firefighting officers must work together to achieve a common goal with perfection. Improved performance reduces cases where tasks have to be revisited, costing the department a lot of money in the process. Auditing and follow-up committees are instrumental in making sure this happens. Proper and strategic planning will allow the organization to use funds for intended purposes and minimize reckless and unplanned spending.
The other measure includes making informed decisions, transparent enough to ensure scrutiny and risk management (McDermott 6). The fire department needs to invest in research of major issues and concerns before making decisions. Information availability makes risk management easier and reduces uncertainties. It is clear from the GM Fire and Rescue Authority’s results that their financial reports do not include comments and analysis of risks and their implications. This denies them the chance to assess alternative options and establish beneficial recommendations. Risk monitoring must be part of considerations being introduced to the board at any particular time. Assessment toolkit should be a priority anytime new projects are being considered or implemented. The monitoring process must also include engaging local people to ensure accountability is maintained (Hall, 32).
Strategic financial management is very important in ensuring balanced books of account. It is the level under which goals and objectives are set and an overall direction of an organization provided. Its formulation is a combination of three processes namely, “performing situation analysis, setting objectives which should be concurrent with the assessment and finally suggesting a strategic plan based on the first two steps” (Allen 26). Evaluation, which follows formulation, involves measuring the strategy’s effectiveness and at this point, strengths, weaknesses, opportunities and threats analysis is very important. Three key success criteria for Greater Manchester Fire and Rescue Authority when evaluating financial strategies would include sustainability, feasibility and acceptability. Another important factor in the process would be functional strategies, which would be developed based on the micro interests of the authority. “The authority must stress the different business units’ lines and take an overview picture of the parent strategy to ensure that the organization is on the right track” (Hall 16). Collectively, the cost cutting strategies must ensure that the unit can minimize spending, increase its effectiveness and at the same time remain in its overall corporate strategy. In particular, the strategies must include clearly defined products and a financial plan, which selects the main sources and development of funds and works on them to get the desired results.
From the financial statements, it is clear that GM Fire and Rescue Authority has demonstrated a high-level vision enclosed firmly in their service planning, performance management and their risk management strategies. The authority has a monitoring system and a performance measure to ensure that the authority actions are both legal and are up to acceptable standards. Their research and development program and committee ensures that improvement is continuous and the level of conduct in every level of authority is acceptable. A responsible financial department, which is fully supported by proper statute, ensures that the organization’s financial strategies are effectively managed and planned for. These factors among others demonstrate that the company’s financial planning has met the required standards put in place by the government to ensure that the firefighting department can show accountability and manage its resources well.
Replacing incandescent bulbs with more affordable options will save the company a total of 40% on their bulbs purchases. For every full-time employer replaced with a volunteer, the department will be able to save a total of 70% of the cost of hiring one person per volunteer. From the company’s statements of accounts, salary and wages account for 68% of their budget, while pensions and other employee contributions account for another 11%. Purchases and other running expenses account for 11% of the company’s budget. Saving 40% on bulbs purchases and another 70% for every volunteer on employees salaries and contributions will help the organization cut more than 5% of their budget. Another 3% and 2% cuts are possible through buying second hand and fewer office equipment and using modern technology respectively.
A comprehensive budgeting process, which clearly defines the organization’s expectations in terms of financial developments, defines financial responsibilities and guidelines and ensures frequent monitoring and reporting to the relevant authorities. In an attempt to cut costs and utilize revenues well, the first step, which is to ensure accountability and proper financial planning, is already in place. Other measures and steps put in place will therefore have a proper foundation to run on.
Allen, David. Strategic Financial Management: Building Long-Term Economic Success. New York: Routledge Publishers, 2000. Print.
Greater Manchester Fire and Rescue Authority. Statement of Accounts 2007/08. Millgate, Wigan: Business Support Center, 2008. Print.
Hall, John. The Total Cost of Fire in the United States. New York: National Fire Protection Association, 2010. Print.
McDermott, Meaghan. Firefighting Costs and Consolidating Services, 2010. Web.