In an article that was featured on the Public Finance website, Robert Allison, Managing Director of Expense Reduction Analysts discusses the need for greater transparency across all public sector departments in order to monitor where every penny is going. As part of the government’s review of spending in the public sector, it has called for greater transparency across all departments. In a quote reported by the BBC last week, the prime minister said he couldn’t promise that people won’t make bad spending decisions in future, but that he could promise that ‘you will find out about them and that will be the best way of ensuring we get better value for money.’

Last week’s announcement by Eric Pickles that the Department for Communities and Local Government will publish details of all spending of more than £500 during Labour’s last year in power was billed as an opportunity to allow taxpayers to ‘go through the books and hold ministers to account’. Pickles added that the department ‘needs to look at where every penny is going, and getting this data out in the open will help that process’. While it’s certainly encouraging to see government departments publishing such information, this is just the first step that is needed for a thorough cost, purchase and supply review – and spend analysis is at the core of this.

Spend analysis is about collecting and analysing expenditure data.  The goal is to reduce procurement costs, improve efficiency and check for compliance. In the private sector, a thorough data collection exercise is the first step for any debt reduction programme. The more transparent the information — who’s spending what and where — the better poised the department is to manage future spend.

As with the private sector, the public sector’s greatest challenge is how to work in a multi-supplier environment, with data everywhere. Once organisations have established what they are buying and where, they must then consider whether their suppliers are fit for purpose and if they actually need what is being purchased. Suppliers often use ‘bait-and-switch’ tactics to move clients onto higher margin items – or will try their version of the fast food pitch, ‘would you like fries with that?’

Large public sector organisations are filled with individual budget holders, empowered to make budgetary decisions outside of the procurement department.  Many of these employees have limited purchasing experience or training when it comes to making buying decisions.  You only trust a very few people to manage your own finances — trained and experienced individuals — so why should it be any different when it comes to your organisation’s finances?

The goal should be to create a cost culture throughout the organisation.  This must start at the top.  If the chief executive is flying first class on short-haul flights, it shouldn’t be a secret.  It must also trickle down to every department and every employee and be a part of the organisation’s ethos and individual job objectives. 

Organisations must also be aware of the constantly changing supplier market for the costs they are examining and any developments they may be able to capitalise on. However, reducing costs is not just about going to a cheaper supplier. By working in partnership with suppliers to identify cost cutting strategies, public sector bodies can generate savings without affecting or disrupting standards of service.

To read Rob’s article click here

 If you would like to speak with one of our representatives click here

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To watch Part 3 in this series click here

If you would like to speak with one of our representatives click here

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To watch Part 2 in this series click here

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In response to the question: What is likely to be your strategy to offset the costs of the Government’s emergency budget? The majority of respondents (46%) felt that it was too early to tell; whilst 18% said that they would be renegotiating existing contracts. A further 18% said that they planned to reduce headcount.

Just 13% said that they would review suppliers and a miniscule 5% felt they would opt for centralised purchasing.

The next survey, which can be found at www.financialdirector.co.uk, looks at what area of spend do organisations believe hold the greatest opportunity for cost reductions in the next 12 months for their business?

What’s the issue ?

EU Directive 2009/30/EC introduces a requirement that, from 1^st January 2011, all gas oil (commonly known in the UK as ‘red diesel’) marketed for use in non-road mobile machinery (NRMM) must contain no more than 10 milligrams of sulphur per kilogram of fuel (virtually ‘sulphur free’). NRMM includes tractors, other agricultural equipment, forestry equipment, construction equipment, forklifts, portable generators, railway engines, and inland waterway vessels. In the case of gas oil for use in rail vehicles the introduction of sulphur free gas oil will be one year later (1^st January 2012).

Why will this cause confusion?

The new specification applies to NRMM, and not other Gasoil uses such as heating boiler-fuel, static plant, etc. Therefore companies who currently use the existing specification Gasoil will have to decide on how to order their fuel after 1^st January. Their consideration will need to take into account what the intentions are of their incumbent suppliers. Some suppliers have already stated that in order to meet the NRMM requirement, they will supply Road-specification diesel (which already meets the requirement) as Gasoil, after adding red dye in order for it to have Gasoil duty rates applied. Moreover, some have also indicated that they will discontinue supply of non-NRMM.

However, Road-specification diesel has by law to include a proportion of bio-diesel (min 3.5%, and up to 7%) This has a serious impact both for the storage of the product, and potentially its use in older equipment and associated maintenance regimes. We have also had anecdotal evidence of firing problems when bio-diesel or bio-gasoil has been used in older boilers.

“Bio” fuels present particular problems for storage and fuel-lines and filters, because of a tendency for algae growth. They are also reportedly more aggressive in degrading seals, gaskets, etc.

What are the effects on my fuel pricing?

On the international markets, Road-specification diesel is currently about 1 pence per litre more expensive than Gasoil (before duty is applied). We can therefore assume that NRMM Gasoil will be at least 1 pence per litre more than current supply, irrespective of any commodity market price variations. Users will also need to budget for increased costs of service and maintenance.

What should we be doing now?

Users of older equipment would be well advised to test whether it can operate successfully with a bio-blend. If not, a plan needs to be in place to ensure that supply of the older specification Gasoil will be available from either their current supplier or alternatives.

Where maintenance is undertaken in-house, consideration needs to be given to reviewing service and inspection intervals, and additional maintenance action that may be needed to discourage, and if necessary, flush algae development in fuel tanks, lines and filters.

Mixed application users (ie a combination of mobile plant, static plant, and/or heating boilers), may wish to give consideration to having two sets of storage equipment for the different uses, especially if they have older equipment with reasonable economic life left.

Where equipment is in use, which is found to be unsuitable for a bio blend, processes need to be in place to ensure that all staff who order fuel understand the differences in Gasoil, and which specification needs to be delivered.

It seems the energy companies chose to do this as it was the cheapest option for them to comply with their legal obligation under the Carbon Emissions Reduction Target.

The scheme has added £50 per annum to the average household bill.

• Companies claim immediate carbon saving on the basis each bulb is heavily used.
• Unsolicited bulbs were removed from the scheme in January.
• Low flow shower heads and eco-kettles can give rise to claims for savings – but evidence of proof is not required.
• Ministers have claimed the scheme will deliver £9m of benefit to society.
• A value for money review will be undertaken in 2013.

Above are just some bald facts from a longer and thought provoking article by Ben Webster in The Times edition of Eureka: Issue 11 August 2010, Science. Life. The Planet.

Incisive Media is one of the world’s leading B2B information providers, serving the financial and professional services markets globally. Bringing product provider and purchaser business communities together in print, in person or online, Incisive Media has an unquestioned reputation for delivering high quality, timely information in whatever format best suits its customers.

Incisive Media had used Expense Reduction Analysts’ expertise in various categories of their expenditure previously, in projects that had helped to build mutual respect and trust between the companies. In 2009, as the group was restructuring, CFO Jamie Campbell-Harris recognised the benefit in asking an external consultancy to review their insurance cover, policies and price points. Jamie was introduced to Scott Ingham and Robin Hobbs of Expense Reduction Analysts’ specialist insurance team, ERA Insurance Cost Management (ERAICM). “We wanted the reassurance of an external health check” Jamie Campbell-Harris comments on ERAICM’s brief: “Insurance is unlike most other categories of expenditure, because you have a broker sitting between you and the suppliers. Our incumbent broker had been performing well, but we wanted the reassurance of an external health check.

This was at a time when the business was looking carefully at all of its cost lines, and it was important to make sure that we were buying insurance in the best possible way. That is what I hoped ERAICM would provide.” Ingham and Hobbs were confidentially briefed by Campbell-Harris and built a strategy to fulfil Incisive’s needs. This included analysing the profile of the company’s insurance mix, surveying the market and recommending an alternative broker who would be a good fit for Incisive in terms of insurance expertise, sector experience and culture.

“ERAICM’s approach is excellent for this market” Jamie Campbell-Harris describes his experience of the project: “ERAICM’s approach is excellent for this market. Scott Ingham and Robin Hobbs did an enormous amount of work in analysing what we needed, and the alternative broker that they put forward was a very sensible choice and had been very well briefed.”  In the end, having compared the two, Incisive decided to remain with their existing broker. What, then, was the value of the exercise? Campbell-Harris explains: “The decision was actually much more difficult than I had thought it would be. However, our historical relationship with the existing broker counted
for a lot. That is not to say that the projectwas a waste of time. Far from it!

“Performing an exercise like this naturally has the effect of keeping the incumbent broker on their toes. It is only human for them to pull out all the stops when they realise that there is competition around – and that’s healthy. In addition, there were areas that we were not as clued up on as we could have been, and ERAICM helped us to tighten up on costs or to adjust the cover that we had.” Improved cover at an improved price” “Let me give you some examples.  Event cancellation is obviously a key risk to our business and this project has enabled us to obtain improved event cancellation cover at an improved price. “Our media liability insurance is another area that was positively affected by the project. The knowledge that we gained from ERAICM enabled us to go back to the incumbent broker and ask them to look again at the cost of the cover. They were not a million miles away, but they were able to find further savings for us.

“We were also able to tweak other specific cover, and our internal policies and procedures as appropriate, where we thought that we were perhaps more exposed than we wanted to be. For example, we realised that the area of
employees driving on company business was a potential exposure that needed attention, so that has now been reviewed and sorted out.”

How would Jamie Campbell-Harris sum up the benefit of ERAICM’s intervention? “It was quite a delicate project, given the way in which the insurance market works, but Scott and Robin and their colleagueswere diligent and discreet, and they indirectly delivered great benefit to Incisive Media – not only improved cover and reduced premiums, but also, of course, the confidence that comes from knowing that we are getting the best deal on our
insurance that we can.”

The Royal Academy of Dance (RAD) was founded in 1920 to re-invigorate dance teaching within the UK and is now one of the world’s most influential dance education and training organisations. Today the RAD counts more than 13,000 members and the RAD examination syllabus is taught to more than 225,000 students in 79 countries.

In August 2009 the RAD initiated a spending review to validate budgeted expenditure for the coming year and contacted Neill Summerfield of Expense Reduction Analysts to help the RAD to obtain best market value to reduce the impact on the organisation of rising costs and falling incomes expected from the global recession. Importantly the decision to engage Neill Summerfield and his team of cost management consultants was supported by the Executive Management Board and the Board of Trustees. Progress in findingsustainable extra profits for the RAD is reported to both teams on a monthly basis.

“We would recommend to other charitable organisations that they meet with Expense Reduction Analysts to explore the opportunity to find extra significant and sustainable savings.”

“We have to date engaged Expense Reduction Analysts on ten categories of expenditure with travel and hotels our next target for review as this forms a large part of our spend. Our experience to date of working with Expense Reduction Analysts has been excellent. Each consultant has been professional and very thorough in their reporting and recommendations” said Richard Slatford, Financial Controller.

“Apart from the financial rewards of reducing expenditure, our work with Neill Summerfield and his team in securing service level agreements and key performance indicators from suppliers has encouraged people within the Academy to be more focused on working pro-actively to ensure that we receive the best possible service from our supplier base” “We would recommend to other charitable organisations that they meet with Expense Reduction Analysts to explore the opportunity to find extra significant and sustainable savings.”

Most organisations will now be rolling out more sophisticated devices or “smartphones” which effectively act  as mini computers. These devices can contain sensitive contact and business data that is used in the field and additionally increasingly remote access into an company’s central computer system for matters such as stock availability, order updates etc.

What happens when one of these devices is lost or stolen or indeed if subject to a virus attack or infection?

1. Is access secure, if so how easy would it be to crack passwords etc?

2. Is the device protected with antivirus and firewall software for the same reasons as the main corporate network; if not the corporate network may be at risk.

3. Are you able to track your devices and monitor the use to which they are being put eg social networking, other non business-productive use ?

4. Does the business have the ability to remotely wipe the device to protect sensitive business data and prevent access to unauthorised users?

Simply put every organisation, no matter how small, must have a policy and tools that protect it from unauthorised access and also unpredicted costs from misuse. The cost of not following some simple practices could be very significant in terms of direct damage to the business and its intellectual property. Even at the smaller end of the scale it may not be that cost prohibitive, indeed there are some excellent free tools already available such as “mylookout.com” for example, which can provide some basic (and even more sophisitcated like tracking) safeguards.

There is no “one size fits all”; solutions and product selection should only be made after careful examination and critical analysis of an organisation’s requirements and operational processes which will all differ. Neither is the matter a static one off examination. Mobility security should be as much an endemic business process as other computer based security.

Please note the writer does not endorse any particular products which are mentioned in this article.