Best in Class Finance Functions For Police Forces

Background

Police funding has risen by £4.8 billion and 77 per cent (39 per cent in real terms) since 1997. However the days where forces have enjoyed such levels of funding are over.

Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable, and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high quality policing to the public.

The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships and people.

The finance function has an essential role to play in addressing these challenges and supporting Forces’ objectives economically and efficiently.

Challenge

Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is in part the result of over a decade of devolving functions from the center to the.divisions.

In order to reduce costs, improve efficiency and mitigate against the threat of “top down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.

Developing a Best in Class Finance Function

Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. With a renewed focus on efficiencies, there is now a pressing need for finance departments to transform in order to add greater value to the force but with minimal costs.

1) Aligning to Force Strategy

As Police Forces need finance to function, it is imperative that finance and operations are closely aligned. This collaboration can be very powerful and help deliver significant improvements to a Force, but in order to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.

Finance requires a clear vision that centers around its role as a balanced business partner. However to achieve this vision a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and to devise a way forward that can work for that particular organization.

The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers as was the case a few years ago) many have progressed within the Public Sector with limited opportunities for learning from and interaction with best in class methodologies. In addition cultural issues around self-preservation can present barriers to change.

Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change and even where they are of exceptional quality senior police officers often lack the commercial awareness to trust them.

2) Supporting Force Decisions

Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.

Maintaining Financial Controls and Managing Risk

Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II and Individual Capital Assessments (ICA) have all put financial controls and reporting under the spotlight in the private sector. This in turn is increasing the spotlight on financial controls in the public sector.

A ‘Best in Class’ Police Force finance function will not just have the minimum controls to meet the regulatory requirements but will evaluate how the legislation and regulations that the finance function are required to comply with, can be leveraged to provide value to the organization. Providing strategic information that will enable the force to meet its objectives is a key task for a leading finance function.

3) Value to the Force

The drive for development over the last decade or so, has moved decision making to the Divisions and has led to an increase in costs in the finance function. Through utilizing a number of initiatives in a program of transformation, a Force can leverage up to 40% of savings on the cost of finance together with improving the responsiveness of finance teams and the quality of financial information. These initiatives include:

Centralization

By centralizing the finance function, a Police Force can create centers of excellence where industry best practice can be developed and shared. This will not only re-empower the department, creating greater independence and objectivity in assessing projects and performance, but also lead to more consistent management information and a higher degree of control. A Police Force can also develop a business partner group to act as strategic liaisons to departments and divisions. The business partners would, for example, advise on how the departmental and divisional commanders can meet the budget in future months instead of merely advising that the budget has been missed for the previous month.

With the mundane number crunching being performed in a shared service center, finance professionals will find they now have time to act as business partners to divisions and departments and focus on the strategic issues.

The cultural impact on the departments and divisional commanders should not be underestimated. Commanders will be concerned that:

o Their budgets will be centralized
o Workloads would increase
o There will be limited access to finance individuals
o There will not be on site support

However, if the centralized shared service center is designed appropriately none of the above should apply. In fact from centralization under a best practice model, leaders should accrue the following benefits:

o Strategic advice provided by business partners
o Increased flexibility
o Improved management information
o Faster transactions
o Reduced number of unresolved queries
o Greater clarity on service and cost of provision
o Forum for finance to be strategically aligned to the needs of the Force

A Force that moves from a de-centralized to a centralized system should try and ensure that the finance function does not lose touch with the Chief Constable and Divisional Commanders. Forces need to have a robust business case for finance transformation combined with a governance structure that spans operational, tactical and strategic requirements. There is a risk that potential benefits of implementing such a change may not be realized if the program is not carefully managed. Investment is needed to create a successful centralized finance function. Typically the future potential benefits of greater visibility and control, consistent processes, standardized management information, economies of scale, long-term cost savings and an empowered group of proud finance professionals, should outweigh those initial costs.

To reduce the commercial, operational and capability risks, the finance functions can be completely outsourced or partially outsourced to third parties. This will provide guaranteed cost benefits and may provide the opportunity to leverage relationships with vendors that provide best practice processes.

Process Efficiencies

Typically for Police Forces the focus on development has developed a silo based culture with disparate processes. As a result significant opportunities exist for standardization and simplification of processes which provide scalability, reduce manual effort and deliver business benefit. From simply rationalizing processes, a force can typically accrue a 40% reduction in the number of processes. An example of this is the use of electronic bank statements instead of using the manual bank statement for bank reconciliation and accounts receivable processes. This would save considerable effort that is involved in analyzing the data, moving the data onto different spreadsheet and inputting the data into the financial systems.

Organizations that possess a silo operating model tend to have significant inefficiencies and duplication in their processes, for example in HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning to the corporate objectives of an organization. Police Forces have a number of independent teams that are reliant on one another for data with finance in departments, divisions and headquarters sending and receiving information from each other as well as from the rest of the Force. The silo model leads to ineffective data being received by the teams that then have to carry out additional work to obtain the information required.

Whilst the argument for development has been well made in the context of moving decision making closer to operational service delivery, the added cost in terms of resources, duplication and misaligned processes has rarely featured in the debate. In the current financial climate these costs need to be recognized.

Culture

Within transactional processes, a leading finance function will set up targets for staff members on a daily basis. This target setting is an element of the metric based culture that leading finance functions develop. If the appropriate metrics of productivity and quality are applied and when these targets are challenging but not impossible, this is proven to result in improvements to productivity and quality.

A ‘Best in Class’ finance function in Police Forces will have a service focused culture, with the primary objectives of providing a high level of satisfaction for its customers (departments, divisions, employees & suppliers). A ‘Best in Class’ finance function will measure customer satisfaction on a timely basis through a metric based approach. This will be combined with a team wide focus on process improvement, with process owners, that will not necessarily be the team leads, owning force-wide improvement to each of the finance processes.

Organizational Improvements

Organizational structures within Police Forces are typically made up of supervisors leading teams of one to four team members. Through centralizing and consolidating the finance function, an opportunity exists to increase the span of control to best practice levels of 6 to 8 team members to one team lead / supervisor. By adjusting the organizational structure and increasing the span of control, Police Forces can accrue significant cashable benefit from a reduction in the number of team leads and team leads can accrue better management experience from managing larger teams.

Technology Enabled Improvements

There are a significant number of technology improvements that a Police Force could implement to help develop a ‘Best in Class’ finance function.

These include:

A) Scanning and workflow

Through adopting a scanning and workflow solution to replace manual processes, improved visibility, transparency and efficiencies can be reaped.

B) Call logging, tracking and workflow tool

Police Forces generally have a number of individuals responding to internal and supplier queries. These queries are neither logged nor tracked. The consequence of this is dual:

o Queries consume considerable effort within a particular finance team. There is a high risk of duplicated effort from the lack of logging of queries. For example, a query could be responded to for 30 minutes by person A in the finance team. Due to this query not being logged, if the individual that raised the query called up again and spoke to a different person then just for one additional question, this could take up to 20 minutes to ensure that the background was appropriately explained.

o Queries can have numerous interfaces with the business. An unresolved query can be responded against by up to four separate teams with considerable delay in providing a clear answer for the supplier.

The implementation of a call logging, tracking and workflow tool to document, measure and close internal and supplier queries combined with the set up of a central queries team, would significantly reduce the effort involved in responding to queries within the finance departments and divisions, as well as within the actual divisions and departments, and procurement.

C) Database solution

Throughout finance departments there are a significant number of spreadsheets utilized prior to input into the financial system. There is a tendency to transfer information manually from one spreadsheet to another to meet the needs of different teams.

Replacing the spreadsheets with a database solution would rationalize the number of inputs and lead to effort savings for the front line Police Officers as well as Police Staff.

D) Customize reports

In obtaining management information from the financial systems, police staff run a series of reports, import these into excel, use lookups to match the data and implement pivots to illustrate the data as required. There is significant manual effort that is involved in carrying out this work. Through customizing reports the outputs from the financial system can be set up to provide the data in the formats required through the click of a button. This would have the benefit of reduced effort and improved motivation for team members that previously carried out these mundane tasks.

In designing, procuring and implementing new technology enabling tools, a Police Force will face a number of challenges including investment approval; IT capacity; capability; and procurement.

These challenges can be mitigated through partnering with a third party service company with whom the investment can be shared, the skills can be provided and the procurement cycle can be minimized.

Conclusion

It is clear that cultural, process and technology change is required if police forces are to deliver both sustainable efficiencies and high quality services. In an environment where for the first time forces face real cash deficits and face having to reduce police officer and support staff numbers whilst maintaining current performance levels the current finance delivery models requires new thinking.

While there a number of barriers to be overcome in achieving a best in class finance function, it won’t be long before such a decision becomes mandatory. Those who are ahead of the curve will inevitably find themselves in a stronger position.

Managing Your Boss for Finance Professionals

Vive la difference!

Finance people (and this is a sweeping generalisation) tend to be disciplined, structured, organised and concerned with rules & procedure. CEOs (and it’s even harder to generalise here) are normally commercial people with an action focus, often extroverted, impulsive and uninterested in routine or procedure. Quite often, they wouldn’t have got into their positions if they weren’t able to push against the boundaries a little.

How then, do you make this relationship of opposites succeed? Like any relationship, it needs to be worked on. Every situation is different, but there are some ideas you can follow to give yourself the best possible chance

(I refer to the CEO as ‘he’ in this guide for brevity, but am well aware that CEOs can also be female!)

Speak the language

Put yourself in the position of your CEO & think how your communication will sound to him. Your CEO is concerned with markets, sales, profits & cash flow. His financial understanding is likely to be quite strong, but he’ll have no interest in the detail of your work. If you talk to him about Annual Returns or IFRSs, he will soon lose interest in what you are saying.

So, whenever you’re talking to your CEO, talk in business language and stop yourself whenever you lapse into financial jargon. A few examples will help illustrate the point.

What you mean

We have accelerated our depreciation rate from 20% to 25%

What you say

We have decided to write computers off over 4 years rather than 5.

What you mean

We are adopting IFRS 75 which requires additional disclosures, but has no impact on earnings.

What you say

There’s a change in the accounting rules, but it only concerns what appears in the notes and doesn’t affect profit.

What you mean

We should apply full absorption costing.

What you say

When looking at product margins, we should take overheads into account.

At the same time, you should be checking your CEO’s understanding and be careful not to be seen to talk down to him if he does understand financial concepts.

You need to get his views on what the business requires from your department. The closer you can work with him the better.

Convince him he needs you

You need to demonstrate to your CEO that you are an essential part of his team.

Take workload from him. Look for things that he does that you could do for him. Examples might be shareholder relations, meetings with the bank, writing monthly reports.

Delight him. Under promise and over deliver. If you think you can deliver the monthly results in 8 days, offer to do them in 12, and then actually deliver in 10.

Find ways to demonstrate your competence so that he can be satisfied he doesn’t need to intervene in your area. Ensure tax returns are made on time, update staff appraisals, improve debt collection and ensure you publicise what you have achieved. You need to be known as someone who can get things done.

Work closely with him in developing business plans and forecasts.

Deliver insights using your financial expertise. You may get the chance to do this during your normal interactions. If not, find a problem within the business; analyse it in an original way and propose a solution.

A common problem in many businesses it that they don’t fully understand their cost structure and therefore the margins they are making on different product lines. This could be fertile ground for you.

Earn respect

The actions described so far will enhance the respect in which you are held by your CEO. Beyond this, you need to show integrity and strength.

As a professional person, ethics and integrity are important to you. You may be faced with an ethical issue which allows you to demonstrate this, but if not, you should take any opportunity to display your strong ethical code. Eg:

– ‘We could just add fifty thousand to inventory value, but professionally I couldn’t do that.’

– ‘Obviously, we can’t tell lies to our customers’.

– ‘That won’t happen as long as I am CFO of this business.’

This article talks about strengthening your relationship with the CEO but, paradoxically, one step towards doing this is opposing him on something. Find an issue on which you disagree. It should be important, but not a resigning matter. Put your case forcefully and cogently, but politely. Stick to your views in the face of opposition. You may end up being overruled, but your CEO will respect you more if he sees you are strong enough to fight your corner.

Timing is important for this. If you argue at your first meeting, the relationship may never recover. You need to have built some credibility by other means first.

Set and meet expectations

You need to be clear about what the CEO is expecting from you. Ask him about this at an early meeting. If he doesn’t have a clear or complete view, you should give him a statement of what you are planning to deliver. Eg

Ensure all tax, reporting and regulatory requirements are completely met.
Provide management accounts and board reports within 10 working days of each month end.
Within 3 months of appointment perform a complete review of business processes and make recommendations for improvements.
Improve management of the finance team by performing regular appraisals and monitoring customer satisfaction.
Provide financial and commercial support to the board as required.
Take responsibility for relationships with shareholders and banks.

Get this statement agreed in writing. As you deliver against it, ensure that your CEO is aware of what you have achieved.

Conclusion

The relationship between CEO & CFO can make or break both careers and businesses. There is no accounting for the personal chemistry of each relationship. But by behaving in a professional, business-like and respectful way you can give yourself the best chance of success.

Key Points

Finance people tend to have different temperaments from General Managers
You need to talk like an CEO
Convince him that he needs you
Earn his respect
Set and meet expectations

Steve Lloyd qualified as a Chartered Accountant and as a Finance Director he has experience running the finances of a huge variety of organisations. He believes that the discipline of financial management is essential to any business but is insufficiently understood.
Steve leads the Prospero network of Finance Directors, supporting businesses on an on-demand basis. The part time finance director service is a brilliant solution for businesses that need expert financial management, but don’t need a full time person.
He is based in Solihull in the UK.

Senior Finance Executives: Are You Struggling to Convince Your Boss in Your Presentations?

Learn how to turn your technical presentations into engaging message-based presentations that get your boss’ attention and will cut your presentation time in half

Technical ability alone will not help senior finance executive’s get promoted

Many senior finance executives in China have risen the corporate ladder on the back of their solid technical ability and operational skills. They have been able to ride the massive growth in China over the past decade by combining a strong technical grasp and an aptitude to understand their client’s needs in compliance and financing.

These senior executives are often held up as future country or regional Chief Financial Officers (CFOs). However, one significant obstacle awaits many finances executives – their strength in technical issues. Many senior finance executives are too focused on the details, the process and procedures. So when presenting to CEOs, board of directors or overseas directors, they are frustrated by their inability to get their point across without being bombarded by direct questions, interrupted constantly in their presentation and feeling of being harassed by senior management. While technical skills got them to where they are today, they can’t take them any further in their careers.

It doesn’t have to be that way. They don’t need to be stuck here forever.

Senior finance executives who can present effectively are highly marketable

Presentations to senior management often cause nerves and tension in any presenter. Many technical presenters – especially in finance – are naturally introverted and when faced with A-type personalities they are often talked-over or easily interrupted. However, by learning some important skills in presentation creation and delivery, even shy and quiet presenters can learn how to get their point across to their CEO in a concise, crisp and engaging way. Importantly, their presentations can be delivered in a much shorter time – which both the senior finance executive and the CEO and directors appreciate! Having a reputation as a CFO who both understands the business and can deliver sharp presentations is a great asset to career promotion. Once learned, these skills deliver a fantastic return-on-investment year-in, year-out.

So if you are currently stuck by delivering overly detailed technical presentations to a group of frustrated senior managers, you are not alone.

Too much information often kills the effectiveness of your presentation

If any of the above sounds familiar, don’t worry, you are not alone. In fact, you are in good company. Most senior finance people have similar issues. Being technical experts means you are focused on process, procedure, the small nitty gritty details of data. All of which is essential – and desirable – in finance executives. However, when you reach the C-level, these technical skills become less important as the core task of an executive is to make decisions and communicate them throughout the organisation. All highly effective executives are superb communicators and presenters. Today, when hiring decisions are made on the CFO or CEO role -the ability to engage with internal and external stakeholders is one of the most important competencies.

However, as a finance expert, you can’t be expected to automatically know what it takes to create message based presentations that engage your audience in the shortest possible time – you are not an advertising company. The good news is that help is here and you can learn these skills.

Advice from The One Minute Presenter

To take a step away from being a technical expert and learning the craft of an effective executive communicator, you first need to understand taglines.

What is a tagline?

Taglines are short catchy marketing phrases which sum up the promise of a brand (or product or movie), and are designed to be memorable and easily passed through a target audience. A good tagline can stand the test of time and become synonymous with a company or product. The 1975-2005 “Don’t leave home without it” from American Express and the 1988 “Just do it” from Nike taglines show how the power of taglines can carry over into building the world’s most valuable brands.

What is your tagline?

Take a look at your next presentation. Use these steps to form your tagline:

1. Write down your happy ending in 25-50 words.

In other words what do you want to achieve at the end of the presentation. What do you want the audience to think, feel and do. Be as specific as you can.

2. Take a break and come back to this paragraph.

Highlight key words or phrases. Now imagine you only had time to deliver one sentence to your audience. Keep the value and meaning of your message. Rewrite it in 10 words or less.

3. Put this aside for several hours or longer.

Come back and see which words really sum up the essence of your message. Pick out your key words or phrases.

For The One Minute Presenter, our nine word tagline is “successful business presentations for a short attention span world”. We use two key phrases: successful business presentations and short attention spans.

You now have focus in your presentation. This will help you structure your presentation framework. You can check your supporting points, and choice of visuals (charts, graphs, statistics) against your key words. Ask yourself, “How does this support my key words?”

With practice, you will be able to quickly get to your key words(s) in a shorter time. It will be a challenge the first few times you try this exercise. Stick with it. You need the focus to capture and engage today’s audiences. The clearer your message, the more effective your presentations.

Be aware when you present your ideas

Make your message tangible. Don’t make your audience work it out. If you make them think during a presentation, then while they are thinking, they cannot be listening to your subsequent words. Dr. John Medina, author of Brain Rules, vividly demonstrates how the human brain is ill equipped to handle two processing tasks simultaneously. “Driving while talking on a cell phone is worse than driving drunk.” This is because the human brain uses something called the attentional spotlight. The attentional spotlight, according to Dr. Medina, cannot multitask which means cellphone-talking car drivers have the same reaction time (when stopping) as a drunk driver. So don’t make your audiences think! Do the thinking for them. Know where you want to take them, shape a clear concept of your overall message, use stories to engage and bite-size your content with slogans, soundbites and taglines. Puzzles are great for long train and plane journeys, but not for successful business presentations.

Many CFOs have benefited from The One Minute Presenter coaching

I work with many CFOs from multinationals around Greater China. Just recently, after helping one senior executive to understand how to create a message-based presentation from their technical data, she told me that her presentation to the board of directors went much more smoothly and took less time than previous years. Importantly, she was interrupted much less with sharp questions. She is now able to apply these skills in other areas of her work, such as conference calls, client meetings and internal senior manager briefings.

So what now?

If you are ready to take a step up in your career, and want to learn how to be a more powerful communicator, then visit http://www.oneminutepresenter.com and download a free chapter on how The One Minute Presenter system works to help you develop more executive presence.

Warwick John Fahy is author of The One Minute Presenter: 8 steps to successful business presentations in a short attention span world.

Warwick is Asia’s leading business presentation coach working with senior executives, business leaders and entrepreneurs who need to influence clients, investors, shareholders and team members. His down-to-earth practical approach and deep cross cultural understanding have made him a sought after business presentation coach throughout Asia.

Finance Transformation: Key Facts To Compare Your Operation

1. Employee Costs

I have been amazed by the strength of the business cases for the F&A outsourcing deals I’ve led over the last few years. A number of things have happened to make them look so good.

First, the suppliers have really got their acts into gear. They provide clear, all inclusive pricing that makes a comparison very clear.

The market is not fully comfortable with transaction based pricing, but that is as much the issue of the Buyers as the Supplier. At an FTE/employee basis, the comparison is a lot easier for everyone, given the level of data required to price at a transaction level.

Second, what has happened on the Buyer side of things is that Shared Service Centers have experienced wage creep over the years, sometimes adding 1-2 layers of operation. Most Shared Service Centers have countered this in part by improved productivity, but this has not matched the similar gains made by the outsourcers.

Combined, these facts make the business case strong for most F&A outsourcing projects.

Key Fact 1. The average, fully laden cost of an outsourced finance team member is $34,000/£22,000 per year. This is the fully loaded cost, of staff who are fully trained, including all overheads and leadership costs.

From any Shared Service Centre I’ve seen in the US, UK and Europe, those are pretty much entry level salaries, regardless of all the additional employment taxes, operating costs, and management costs attached to every position.

These numbers translate into a very strong business case, and it is the main reason why CFOs push for a deeper investigation.

2. Amounts At Risk

Is your Shared Services Operation willing to risk its own money to underwrite delivery levels? Away from financially-based business cases, this is the most under-valued differentiator between an internal delivery model and an outsourced delivery model.

I have not yet seen an internal delivery model that creates any alternative to this. Yes, I’ve seen bonuses unpaid due to performance issues, but nothing that repays the business for failings that have impacted their own performance.

The chasm between the Internal and External model is only going to widen further as the Outsource Suppliers choose to adopt targets for business-critical areas such as Days Sales Outstanding. Failure there has a lot greater impact than in something like Customer Support, but it is an area that the Suppliers are stepping up to the mark on.

Key Fact 2. On a monthly basis, will the Shared Service team offer, from their own funds, rebates to the business of up to 15% of the cost of the services they deliver? While the exact amount at risk will vary between suppliers, they will offer significant discounts where service levels are not met. It is essential to note that a well constructed contract will lead to constantly improving service levels, so the bar will be raised quarterly, if not monthly.

3. The Cost Of Transformation

For many years, the outsourcers played a cost-only card. Regardless of whether the delivery was onshore or offshore, it was relatively easy to offer lower costs than most internal organizations. Come 2012 (and probably since 2010) the value proposition has moved on significantly.

Now the Suppliers come with a toolset – technology, people, and methodology – that drives “Big T” Transformation and “Little t” transformation. “Little t” brings the day-to-day change; “Big T” brings the headline-grabbing changes. Often this gives access to changes that were unlikely to be funded in any other way.

As an example, the biggest area of opportunity is in leveraging the Supplier’s investment in technology. One client had recently expected to invest a minimum of $500,000 to implement a automated reconciliation tool. Getting approval for that spend had taken almost 12 months, and was high on the list of programs that was likely to be cut from the Investment Plan. So delivering it at all was highly unlikely.

The deal that they were able to strike with the Supplier delivered their operational tools and also embedded it in the pricing, removing the road-bump that was preventing access to the improved, automated process.

To be honest, some of the home-built technology are not the prettiest of things, but they come at a price and an operational improvement that will make you focus on the value they drive, not how they look. Other suppliers, however, have bought third party technology companies that come with world class technologies that will be as good as or better than the ERP competitors.

Key Fact 3. You can work to build an outsourcing deal and delivery model that cuts the investment that you have to make to address key, process-improving projects.

Key Fact 3a. Please note – I always emphasise to clients that they still need to invest in their service going forward. It is a myth that all investment goes away, but you can certainly be creative in how to get the best service quality and a pricing structure that helps the Buyer and Supplier.

4. “Flash To Bang”

When referring to Flash to Bang” I mean the time between taking the decision to move to a new delivery model and reaching optimum delivery and efficiency levels in the chosen model.

One of the “Lost Costs” that we dwell on in projects is the time difference between a “build yourself” option and a “buy it in” option. Like most things that we choose to do ourselves, timescales are more fluid than those that are commercially underwritten. Having an outside party responsible for delivery does not guarantee success and we can all share horror stories about projects that have gone wrong. However, the penalties attached to failure are a lot more transparent when external parties are involved.

Where the greatest impact is felt is in the time it takes to reach optimum delivery/efficiency levels. As an example look at a greenfield environment, where nothing has been centralized. Given a standing start, an internal Shared Services Center will take around 6 months longer just to be established. At that stage the Outsourced model will have been operating at full efficiency levels for 6 months. There is a clear opportunity cost within that.

Key Fact 4. Commercially contracted projects are 75% more likely to deliver on time, and nearly 100% of them are promised to be delivered sooner than any internal, equivalent project. The financial impact of this is hard to generalize about, but having a project completed sooner, leads to benefits earlier.

5. Staff Skills – what percentage of your staff are Six Sigma Trained?

The growth of Six Sigma training within the workplace has been impressive over the last 10 years. For many organizations there will be some staff with these skills, though further investment is always dependent upon the budget being available. The question – and the opportunity – is what percentage of your staff have this kind of training. More prescient, it is also worth asking how frequently their skills are drawn on.

One of the revelations of site visits to the Outsourcers is the sheer passion that the delivery teams bring to every client. The prospective clients who take floor walks of existing operations always comment on the drive, engagement, and hard, proven business improvement case studies that are discussed on the tours.

Really what the outsourcers are doing is encouraging their staff to cut their customers’ costs. While that will lead to short term revenue losses to the Outsourcer, they bank on the fact that it will lead to even more work in the future. From most deals I’ve seen this is exactly what has resulted.

Key Fact 5. For most specialists in Finance Outsourcing, almost 100% of their delivery staff will have some kind of Six Sigma or Lean training. More importantly, they will be incentivized and rewarded to identify and implement projects on a daily basis. For even the basic online Six Sigma training, $2000 per person is a starting point – that is investment that you no longer have t make. Outsourcing gives you access to a skills base that has made that investment already.

6. The Price of Flexibility

Often the feeling of Outsourcing is that it is “More For Less”. Taking almost a Supply Chain approach to meeting your future delivery needs means you have to ask the following questions:

How much will it cost to reduce delivery capacity?
What fixed costs will you be left with, even after reducing headcount?
What will the cost be of increasing capacity, whether to deal with an acquisition or just increased volumes?
How quickly can you get the headcount sign off to increase volumes?
What are the onboarding costs (e.g. recruitment, training etc) of adding new staff?
What is the time between recognising the need for increased volumes and having the resources in place to deliver them?

In the modern employment world, temporary resources can give much upside flexibility. Employed for longer, they can also provide the downside flexibility. Until then, they come at a premium that will blow the $34,000/£22,000 fully loaded cost comparison out of the water.

From a 2012-2017 planning perspective I always challenge clients to map out the widest possible range of events that could impact their business. We then carry out an exercise to ensure that their delivery operations – whether insourced or outsourced – are able to address those scenarios at a cost and speed that is proximate to the event.

This is all based on a lot of tough learnings from the last four years. One client, who I recently advised on renegotiating their arrangement, had only factored in upward growth in their contracted volumes. The concept of their business shrinking had seemed alien when negotiating their first arrangement in 2007. Their new contract takes as its starting point the need for a delivery model that adapts operationally and commercially to all future volume scenarios.

Within the certainty of zero or low economic growth, it is the strategic attraction of outsourcing that should provide confidence. Suppliers should be able to react to upturns in your volumes within a matter of weeks. Most events causing this can be foreseen and planned via the normal Service Management procedures.

Planned reductions in volumes can occur on a timeline determined by the client. Unplanned reductions may take 8 or more weeks to filter through to the monthly invoice. Suppliers take differing views on how they recoup their investment in deals, so scenario planning should be taken early on with the down-selected Suppliers.

Key Fact 6. Suppliers offer a significantly more flexible delivery model than any internal function can offer. They have the ability to bring on resources faster, at a lower cost, and reaching a faster level of efficiency than an internal delivery model. With proper account planning they also offer a model that more easily “breathes in, breathes out” to match actual business volumes.

Key Fact 6a. I always warn clients that they are investing in their Supplier, so losing key resources when volumes shrink is a risk. However, the knowledge in an outsourced environment will be more heavily documented and captured in an educational process that can deal with both natural and forced attrition.

7. When Did You Set Up Your Shared Services Operation?

The most common determinant affecting the strength of the Outsourcing business case is the age of the operation. It is worth looking at the business case for any Shared Service Center set up before 2009. The older it is, my experience is that the better the business case is.

A number of the points raised above drive this. Typically, the last serious comparison between outsourcing and insourcing, whether a Benchmark study or a full blown assessment, will have been done several years ago. Since then, limited spending on benchmarking and consulting has reduced the focus on the external world and increased it on the internal operations.

It is worth dusting off those old Shared Service Center business plans. When organizations set up Shared Service Centers in the 1990s and through to the late 2000s, most paid lip service to Outsourcing. It was usually mentioned as a likely future option, but that they would be able to deliver most of the savings internally, by themselves, via Shared Services.

Fast forward to 2012 and I can honestly say that every client I’ve had in the last 2 years has been shocked at the strength of their business case for Finance Outsourcing, even after years of operating a SSC environment.

In the “new normal” world of zero or low economic growth, and with little investment available for back office services, Finance Departments are now taking a fresh and more sophisticated look at what Outsourcing can deliver.

Key Fact 7. If your internal operations are more than 3 years old then there is an 80% chance (based on my experience on over $5bn worth of deals) of there being a strong business case for outsourcing. The costs of investigating it are now lower than ever, and the results give you a clear confidence.

Fire Truck Financing – Your Banker Should Not Be Asking You This!

The following 10 questions are sure signs that your banker is inexperienced in the unique business of financing fire trucks. Don’t get caught accepting these typical banker mistakes because they will cost you thousands of hidden dollars.

Question #1: Are volunteer fire departments eligible for tax-exempt financing? We’ll need your local government to borrow the money instead of you.

Answer: Yes. The IRS code designates volunteer fire departments as “qualified” tax-exempt borrowers just like cities, townships, counties, villages, towns, and states. Bankers who don’t specialize in tax-exempt financing won’t know that volunteer fire departments can and do borrow tax-exempt. Don’t accept this requirement from the bank unless you want the local government to borrow the money.

Also, your interest rate should not be any higher than your local government. Volunteer fire departments are treated exactly the same and there is no premium to be paid.

Question #2: We can’t finance a truck longer than 5 (or some other low number) years. What short term would you like?

Answer: Common fire truck financing is for terms of up to 15 years. A fire truck is a major purchase with a long life cycle. It makes sense to finance this major purchase with the expected useful life and your budget in mind. Don’t get caught financing a long lived asset with short term financing (unless you want).

Question #3: We only offer a variable rate or only fix the rate for 3 or 5 years. Is that acceptable?

Answer: No. Most fire trucks are financed on fixed rates. Fire departments should not be in business of accepting interest rate risk or hedging interest rate futures. When a bank tells you that they won’t provide a long term fixed rate, find another bank who understands how fire truck financing is handled in the U.S.

Question #4: We only offer monthly payments and they begin right now. Is that OK?

Answer: No. Fire trucks can be financed with several types of payments such as monthly, quarterly, semi-annually, or even once a year. Payments should be based on when you receive your revenues, not based on some arbitrary calendar item such as one month after the loan or one year from delivery. Your payments should match when you receive your money in your budget, not anything else. A banker who is experienced with financing fire trucks will know this and schedule your payments accordingly.

Question #5: The truck can not be delivered until 6 (or some other number of) months. Will your truck deliver before that?

Answer: Knowledgeable bankers will not impose any sanctions on when your truck can deliver. They understand that you need your truck when you need your truck.

Question #6: Are you aware that financing your new truck is always a good deal? That way you keep your savings high.

Answer: Not necessarily. Each department’s situation is different and should be examined by its own goals, situation, and future prospects. Having a large savings account for no purpose and borrowing money is ALWAYS a more expensive method of paying for trucks. No matter what return you think you’re earning on your investments. If you’re consistently earning more on your investments than the loan interest rate, you are taking on a lot of financial risk.

Question #7: Does our rate look the lowest to you?

Answer: Not without some examination. There are several different ways of presenting a “legal” interest rate. Some methods of calculating interest can appear the same but, in fact, be as much as 1/4% higher. Also, by focusing on only the interest rate, you miss the other 6 Factors that control how much total interest you pay. Don’t stop your review at the stated interest rate, there is much more to complex financing than that.

Question #8: We’d like to give you a loan instead of leasing your new fire truck. Is that OK?

Answer: Maybe. Leasing a fire truck is far different than the typical leasing that comes to mind ( think auto leases where you use the car for a period of time and then give it back as long as the miles are low). Fire truck leasing is designed by the tax laws for you to own the vehicle and you will get a lower tax-exempt interest rate because it is structured correctly. There are specific state laws about getting a loan – you might have to get voter approval or some other type of authorization for the loan to be legal. By leasing, in 48 states, you do not have to get outside approval because the way a tax-exempt lease is structured.

Question #9: You are a volunteer fire department, we will need some personal guaranties. Who is guaranteeing this lease?

Answer: Nobody. Reputable and knowledgeable fire truck financing companies understand the nature of volunteer fire departments. They can assess the department only and won’t require anyone to personally be responsible to repay the lease.

Question #10: Who do I send the bill for our attorney and our closing costs to?

Answer: Keep them. A knowledgeable bank will not need to get their attorney involved. They should do enough of these type of transactions to have the paperwork ready without the added costs of their attorney preparing it each time. Also, you should not have to pay any closing costs. You should only be liable to pay for the payments, period.

When you hear any or all of these questions, it’s very likely you are trusting a major financial decision with someone who is inexperienced. You will probably pay much more costs and have a lot more hassle. Don’t accept any of these questions for your department. Find a reputable and knowledgeable bank to help you with the biggest financial decision you’re department will ever make.