Part 2. Workshop. Cost Containment

Transcription

1 17 Part 2 Workshop Cost Containment

2 18 Training for Finance Managers

3 WORKSHOP 19 Purpose Cost containment is a process to be used systematically to find opportunities for reducing the cost of government programs and services while maintaining or increasing service quality. Cost containment is different from cutback management by which managers resort to drastic measures to lower cost dramatically including hiring freezes and painful force reductions. Cost containment strives to trim avoidable costs while retaining service outcomes. It is carried out through rigorous management analysis and can lead to the consideration of alternative service delivery strategies. This workshop is designed to broaden the understanding of finance managers about the practical use of cost containment to analyze the way government services are performed and to investigate alternative service delivery strategies with potential for retaining quality at a lower cost. Contents A brief description of each learning activity is shown below with an approximation of the amount of time required. If you wish to change the order, to omit something, or to add training material of your own, feel free to do so Exercise: Trainer presentation Brief concept presentation based on the preceding essay that provides participants with information and perspectives on cost containment. (30 minutes) 10.3 Case study: The outsourcing decision Participants read and discuss a case that illustrates the factors to be considered by a local government in choosing a service delivery alternative. (90 minutes) 10.4 Exercise: Management analysis Participants review the seven forms of analysis discussed in the presentation and choose the one that seems the most appropriate for analyzing the cost containment opportunity identified in the first exercise. (75 minutes) 10.5 Exercise: Learning Transfer Participants reflect individually on what they have learned and make commitments to put it to use back home after the workshop. (30-45 minutes) 10.l Warm-up Exercise: Opportunities for cost containment Participants use hypothetical examples to identify opportunities for cost containment in their own organizations. (45 minutes) Cost Containment

4 Warm-up Exercise: OPPORTUNITIES FOR COST CONTAINMENT Time required 45 minutes Purpose This exercise is to help participants identify oppornities in their own organizations to practice cost containment. Process Introduce the exercise by telling participants that opportunities exist in every organization for containing costs without jeopardizing the quality of services. Divide participants into small groups of about five participants. Handout the worksheet on the next page and tell participants that it contains examples of common opportunities for cost containment. Tell participants that they are to read the examples and then to identify at least three service areas within their own organizations where improvements could be made that could result in lower costs. Mention that space is provided on the worksheet for writing their results. Give the small groups about 30 minutes to complete the task. Then reconvene the small groups and ask each for a report. Compare the results and ask participants what their organizations are already doing to contain costs. Training for Finance Managers

5 10.1 (cont.) Worksheet Opportunities for Cost Containment and Service Improvement A starting place is needed for establishing a local government cost containment program. There are a number of ways to look for these starting places. They include: Operations and departments where visible problems already have been documented by citizen and employee complaints. Operations and departments where employees perform a series of repetitive tasks or where their tasks are duplicated by another department later (e.g., data entry). Operations and departments where there is an availability of new technologies, especially technology that has been proven successful already in other local governments. Operations and departments that seem always to have backlogs of work or that always miss assigned deadlines. Operations and departments that use the greatest share of available government resources because the return can be greatest. Ideas and approaches that have been used successfully by other organizations, especially other local governments. Examples (enter below) of places within our organizations where we might look for cost containment opportunities include the following: 21 Cost Containment

6 Exercise: TRAINER PRESENTATION Time required 30 minutes Purpose This presentation is to provide participants with information and perspectives on the principles, methods and benefits of practicing cost containment in a local government. Process Prepare the presentation based on information covered by the preceding essay on cost containment. Explain the essential capacity that must exist within a local government before attempting to establish a cost containment program. Review the manage- ment analysis techniques described in the essay and how they can be used by a local government to measure the cost and quality of services. Describe and use examples to explain the most important alternatives to direct service delivery that should be considered by any local government when exploring ways to contain costs. Outlined information on note cards may help you cover the information systematically and stay on schedule. Ask questions from time to time during the presentation as a check on participant comprehension and to hold their attention. Augment the presentation with visual aids including pre-printed newsprint sheets and overhead transparencies as a further aid to comprehension. Training for Finance Managers

7 10.3 Case study: THE OUTSOURCING DECISION 23 Time required: 90 minutes Purpose This exercise uses a case study to illustrate some of the factors to be considered by a local government in choosing a service delivery alternative. Process Divide participants into small groups. Tell participants they are to read a case about a city manager who is considering the merits of outsourcing a function to a private contractor that is currently being performed by the local government. Provide each participant with a copy of the case Outsourcing Vehicle Maintenance (see next page). Ask participants to read the case and, in their small groups, to discuss the case and answer the questions about it. Tell participants that, after 45 minutes, they are to return to the general session with their group s answers to each question printed on chart pad sheets and be ready to discuss their results with other participants. Cost Containment

8 (cont.) Outsourcing Vehicle Maintenance 1 Peter Braun is the newly appointed city manager of Nicosa, a small community that is growing rapidly owing to an influx of homeowners who commute to and from jobs in the nearby central city. Since the fall elections, Nicosa s city council is dominated by business owners who want their local government, as they describe it, to be run more like a business. Accordingly, the council has directed its new manager to improve the efficiency of municipal operations in every way possible. While in agreement with the council publicly, the mayor, now in her third term as mayor, has cautioned Braun in private that she would oppose any proposal for improving efficiency that might jeopardize service quality or that would require hiring freezes or employee layoffs. Taking to heart the council s interest in a more businesslike local government, Braun was committed to find every way possible to reduce operating costs without the unpleasant side effects the mayor had warned him to avoid. But, where to start! A few weeks later, at a meeting of the city management association, Braun heard a fellow city manager speak of a cost containment concept called outsourcing. The manager described how his city had improved the efficiency of fleet maintenance by more than 40% by contracting out this service to a private garage. This, thought Braun, is just what I ve been looking for as a starting place for a cost containment program in Nicosa. Nicosa municipality has a small fleet services operation organized as a division of the department of public works. The cost for maintenance and repair of public works vehicles is paid for from the public works budget. Other departments that bring in their vehicles for maintenance or repair are billed for the parts and labor required. There are two full-time mechanics on duty, and limited supervision is provided by a public works supervisor. With little knowledge of the fleet service operation in Nicosa, Braun decided to conduct a preliminary operation s analysis. Short on staff support, Braun was able to obtain an intern from a nearby university to do the analysis under his supervision. As part of the analysis, the intern was to compare the division s cost for brake jobs over a 12 month period with a cost estimate for the same service furnished at the city manager s request by a private garage that already was doing routine oil changes for city vehicles. On his desk two weeks later, the intern s report provided Braun with some useful information about the fleet service operation. 1. The cost for parts and labor to perform brake repairs on city vehicles would have been approximately 30% more had the work been outsourced to the private garage used for the comparison. 2. There is an added cost for the private garage to pick up and deliver inoperative municipal vehicles. This cost could vary substantially depending upon the distance and whether or not a truck trailer is needed for hauling. The private garage also included a charge for each work order and other shop charges that were not included in the repair cost calculated by the division. 3. The private garage s cost estimate contained an overhead calculation that was not included in division s cost figures (i.e., the division s proportional share of utility usage, secretarial cost, accounting, leave time, sick time, health benefits and cost of replacing and maintaining shop equipment). 1 Adapted with permission from an unpublished report prepared by Jennifer Susan Beckerley in partial fulfillment of requirements for a graduate degree in public administration at the School of Urban and Public Affairs, The University of Texas at Arlington (1998). Training for Finance Managers

9 (cont.) 4. The average time for returning a vehicle to service after delivery for a brake repair was one-third less, on average, for the private garage than for the division shop. Several inefficiencies in the city division s shop practices that might account for the longer out of service time were noted in the intern s report. One is lack of an on-site parts inventory that results in delay when one of the mechanics must drive across town to purchase parts. Another is frequent interruption of repair work in progress when mechanics are called away to accept new jobs, discuss the work to be done and take time to fill out work orders. 5. An added complication in completing work on schedule is the division s practice of giving priority to emergency vehicles in need of repair, increasing the out of service time for other, low priority vehicles. 6. The wage scale for mechanics in the private sector is better than in the public sector. A decision to outsource the vehicle maintenance and repair function to a private garage would not cause layoffs, but it would result in a shift in work site and employer for city mechanics. Questions 1. From the facts presented, what appear to be the principal advantages of outsourcing Nicosa s fleet maintenance function? Disadvantages? 2. What seem to be the chief reasons for retaining the in-house fleet maintenance function? If it were to be retained, what might be done to improve operating efficiency? 3. What other information would be helpful to Braun in preparing a recommendation to the city council? How might this information be obtained? Who else might be asked by the city manager to help in obtaining it? 4. If a decision is made by the city council to outsource the fleet maintenance function, what is likely to be Braun s next move? Cost Containment

10 Exercise: MANAGEMENT ANALYSIS Time required 75 minutes Purpose Give participants an opportunity to choose an appropriate form of analysis for containing the cost of a service. Process Ask participants to join the same small groups as in the first exercise. Give each participant a copy of the handout on the next page. Tell participants they are to recall the three service areas from the first exercise where it was believed that service improvements could be made to lower cost and retain or improve service quality. Then, tell them that the task is to analyze one of the three service areas and answer the questions on the handout about it. Ask participants to answer the questions on a sheet of flip chart paper and be prepared to rejoin the other groups and report in one hour. When the small groups reconvene, ask for someone from each group to answer the questions. After all of the groups have reported, close the exercise with a discussion of the feasibility of using management analysis techniques to contain costs and improve the efficiency of their local government services. Training for Finance Managers

11 27 Management Analysis Options 10.4 (cont.) The following checklist contains seven management analysis techniques that can be used by a local government to measure the cost of a municipal service for the purpose of reducing cost, eliminating inefficiency and improving the quality of service delivery. Review the information below on each of the seven techniques before continuing with this exercise. 1. Re-engineering a long-range strategy aimed at changing the work procedures in a particular service area, e.g., financial management, by redesigning the procedures from scratch and by using modern information technology in the redesigning process. Re-engineering has been used successfully to increase work quality and customer satisfaction but is time intensive and costly. 2. Management audits a formal and systematic review by trained experts to determine the extent to which n organization or one of its components is achieving the goals prescribed by management and to identify conditions for improvement. The auditing may involved the use of checklists to compare actual operations with accepted management standards or principles. Employee or citizen surveys are sometimes employed to identify levels of satisfaction and future expectations. Audits may be conducted by trained internal staff to reduce cost, but some degree of credibility may be lost in doing so. 3. Value analysis a process that attempts to identify more economical, costeffective or resource conserving ways to perform a service without sacrificing quality. It almost always involves before and after cost and performance analysis and is most useful for functions in which there are measurable performance standards, e.g., procurement, space utilization, refuse removal, readily identifiable and predictable functions and measurable costs for different levels of service provision. 4. Life cycle costing a purchasing technique used to determine the expense of owning and operating of a produce or service over its entire useful life. It is intended to furnish data for making better purchasing decisions and to help provide information for future budgeting since lifetime costs can be established at the outset. It is particularly in evaluating bids for the procurement of government property and equipment in comparing lifetime costs as opposed to the initial purchase price along. 5. Cost benchmarking a technique used to compare similar processes among organizations, public and private, to determine those that rank highest according to reputable information sources. Rather than a random sample, only those practices that have been rated as best-in-class are used for comparison and improvement. Data for benchmarks can be developed through surveys conducted by mail or telephone. For example, to improve cash management, a local government might survey other local governments that have a distinguished record of performance to find out how they are running this operation and the procedures they rely upon. Cost Containment 6. Total quality management a management process that identifies and corrects performance problems using employees in work teams who have been trained in statistical process control techniques like brainstorming, Pareto analysis, flow charts, histograms, surveys, etc. Normally, a service is selected for examination, customers are identified and work process analyzed to determine the where changes need to be made. Improvement strategies are determined and the most promising is implemented on a small scale, evaluated and modified before being adopted.

12 (cont.) 7. Technology/capital substitution a technique that examines the potential for cutting costs or improving efficiency by the introduction of labor saving equipment and technologies. The most common example is the office and field use of computers. Historically, the widespread use of capital substitution has not practiced extensive in local government. One reason is the high capital cost coupled with the general absence of methods for justifying high up front costs on the basis of lifetime cost efficiencies. Another reason is the reluctance of local governments to introduce technologies that might call for the elimination or radical adjustment of existing jobs. Questions 1. Which of the seven techniques, or combination of techniques, would you choose to identify possible ways to contain costs and retain or restore service quality in the service area your group has selected for this exercise? 2. Explain why you have selected this method and how, in general, you would proceed to use it? 3. What would you accept as evidence of improvement in the cost of this service and in the improved or continued quality of the service? Training for Finance Managers

13 10.5 Closing Exercise: LEARNING TRANSFER 29 Time required minutes Purpose This exercise is to help participants transfer the learning experiences of the workshop into their real-world activities as finance directors. The focus of this exercise is on raising expectations, engaging in realistic planning and making personal commitments. Most of the work is done on a personal basis with some interpersonal sharing. Process Spend at least half an hour at the end of the workshop to focus the attention of participants on important learnings and encourage them to continue experimenting with these learnings in their management activities. Begin by giving participants about fifteen minutes to work independently on a simple learning transfer questionnaire. When participants have completed the questionnaire, ask them to share quickly with the group two or three things they intend to do differently in their roles with respect to revenue maximization to close the workshop. Trainer s note. It is generally agreed that the purpose of training is to improve the way people do things by showing them a better way. In fact, the success of a training experience can be measured by the amount of personal growth and change that takes place both during training and after the training is over. Commitments to learning and change made at the close of a workshop can help participants overcome learning resistance in themselves and in the work environment. A trainer can help learners make a successful transition from the world of learning to the world of doing through a few simple planning exercises. Cost Containment

14 30 A Learning Transfer Questionnaire 10.5 (cont.) Take a few minutes to reflect on cost containment, the new ideas you encountered in this workshop, and how you feel about them. Then, in the space below, write a sentence or two to describe something interesting you have learned about yourself during this workshop. Based on what you have learned about yourself and the many possibilities for change presented by this workshop, what two or three things do you intend to do differently in efforts to contain the costs of local government operations and services? Training for Finance Managers

15 31 A Learning Transfer Questionnaire (cont.) 10.5 (cont.) Finally, what obstacles in yourself or in your work environment do you expect to experience during your efforts to implement these changes? What will you do to remove or minimize these obstacles? Expected Obstacle 1. Action to Remove It Cost Containment 3. 3.

16 32 Training for Finance Managers