Greater Manchester Fire and Rescue Authority Financial Management - Essay Example

Content Introduction 2 Operational Boundary 2 Formula 3 Consideration for FRS 3 Calculation of Safety Margin 4 Result 6 Characteristics of FRS 7 Risk Involved 7 Risk Considered 9 Impact of Reduction in expenses 11 Opinion 12 Conclusion 13 References 14 Introduction Finance is an integral part for every organization and companies spend millions to ensure that the process passes smoothly. Each and every company takes steps to manage finance so that it doesn’t get trapped in the liquidity trap. Strategies are built around it. Since every decision has some financial aspect associated with it so it becomes important that every step taken by the management has some financial angle looked into it. The importance of financial management can be seen in Greater Manchester Fire and Rescue Authority where steps are being taken to keep cost under control. Steps are also being taken to ensure that there is smooth inflow and outflow of cash which will help in financial planning, control and decision making. (Financial Management, 2010) This will help to reduce burden. Every process needs money. It will help to meet those. Fire and Rescue Service is largely dependent on it. This will remove the constraints. It will ease pressure. Management will be better. The importance of it can be seen from the budget prepared by Greater Manchester Fire and Rescue Authority. The fire and rescue team has set an operational boundary and takes measures to ensure that they operate within the limits. This is done on the backdrop of using the latest technology. Using this helps the company to build long lasting relationship. This is helping the Greater Manchester Fire and Rescue Authority to build a better relationship and develop them for the future. Operational Boundary Operational Boundary is “finding all the earnings which includes direct and indirect which arises due to the operations of the company”. (Gram, 2007) To calculate it stress is laid on both inflows and outflows thereby magnifying the importance of operational boundary. Calculating this helps to prepare for the expenses in future and makes the management to be prepared for the future contingencies. It is calculated after “considering the payments, the provisions and long term which is decided after the capital and revenue receipts”. It is calculated through the following formula Formula Calculating the maturity loans + the loans which will be replaced by payment and new taken + the fund for capital usage + the revenue balance which is (earned-spend) + the financing required for capital investment + the statutory and voluntary requirements The operational boundary is calculated before the actual process set in. This helps in determining the authorised capital. “Usually it is set some percentage higher than the operational boundary to facilitate the contingency program. A rate of 5% is normally set. Considerations for FRS The rescue operations need to consider many factors which help in proper execution of their duties. This helps to improve planning and guides the authority in the future. The Greater Manchester Fire and Rescue Authority considers the following factors Greater Manchester Fire and Rescue Authority ensure that they look after the code of practices and the rules which govern them so that they are able to execute their responsibilities easily. (UK Fire service, 2011) Greater Manchester Fire and Rescue Authority take special care while deciding the operational boundary. This is done after taking into considerations the inflows and outflows so that a pattern is developed and it doesn’t make them face a liquidity crunch. (UK Fire service, 2011) Greater Manchester Fire and Rescue Authority ensure that they have a higher authorized capital than the operational boundary. This is done as a precautionary measure to ensure that expenses if they grow are being met easily. (UK Fire service, 2011) Greater Manchester Fire and Rescue Authority look to use both the fixed and floating interest rates. This is done to estimate the cash inflows and outflows correctly as a false or incorrect estimation will affect the fire and rescue operations. The other fact being that doing so take care of the liquidity crunch and helps Greater Manchester Fire and Rescue Authority to take steps in that direction. (UK Fire service, 2011) Greater Manchester Fire and Rescue Authority have a upper and lower limit set before hand. The authority takes all measures to ensure that they work within these limits as it helps them plan accordingly. This enables them to plan accordingly and doing so strengthens their forecast for the future. (UK Fire service, 2011) Greater Manchester Fire and Rescue Authority have taken steps to compile with the legal requirements. It is seen that the authority has got the permission from the responsible authority in relation to investment in funds over 364 days. (Williams, 2003) This helps to ensure that they are able to deliver as per the requirements. Calculation of Safety Margin This can also be seen from the safety margin calculated. Safety Margin for 2008 Operational Boundary = 11.698 million Authorised Limit = 12.5 million Proportion of authorised limit = 11.698 / 12.5 = .935 So, safety margin = 100 – 93.5 = 6.5% Recommended Limit = 5% Greater Manchester Fire and Rescue Authority is 6.5% - 5% = 1.5% well above the recommended limit. Thus for the year 2008 Greater Manchester Fire and Rescue Authority operates within the safety margin and is safe. Safety Margin for 2009 Operational Boundary = 14.157 million Authorised Limit = 15 million Proportion of authorised limit = 14.157 / 15 = .9438 So, safety margin = 100 – 94.38 = 5.62% Recommended Limit = 5% Greater Manchester Fire and Rescue Authority is 5.62% - 5% = 0.62% well above the recommended limit. Thus for the year 2009 Greater Manchester Fire and Rescue Authority operates within the safety margin and is safe Safety Margin for 2010 Operational Boundary = 16.419 million Authorised Limit = 17.5 million Proportion of authorised limit = 16.419 / 17.5 = .9382 So, safety margin = 100 – 93.82 = 6.18% Recommended Limit = 5% Greater Manchester Fire and Rescue Authority is 6.18% - 5% = 1.18% well above the recommended limit. Thus for the year 2010 Greater Manchester Fire and Rescue Authority operates within the safety margin and is safe Result Thus, for all the years we see that Greater Manchester Fire and Rescue Authority is performing well above the safety margin. It shows the efficiency in estimating the future inflows and outflows. This also demonstrates the soundness in policies in relation to forecasting. Continuing similarly will help Greater Manchester Fire and Rescue Authority to ensure better management and control over cost. Characteristics of FRS The characteristics demonstrated by Greater Manchester Fire and Rescue Authority in imparting services both to the rural and urban population is as follows Having equality in services irrespective whether it is imparted to the urban or rural population (Thomas, 2003) Developing a system which ensures that delivery, scrutiny and review of priorities are set before hand thereby enabling them to deliver better services. (Thomas, 2003) Having a retrospective and prospective assessment for the urban and rural population thereby building trust among all. (Thomas, 2003) Having uniformity in operations and ensuring that things are measured on similar standards both for the urban and rural population. (Thomas, 2003) Risk Involved The operation of fire and rescue services has all type of risk as found in a business unit. The risk magnifies as it involves saving the life of people. The risk involved in fire and rescue operations are as follows Business Risk: This is a risk which is inherent part of every organization and arises both due to internal and external factors. Greater Manchester Fire and Rescue Authority needs to have a policy which looks after it. The magnitude of risk can be found by calculating different ratios, proper debt financing options and insuring against the various risk involved will be measures which will help to reduce the impact. (Business Risk, 2010) Financial Risk: This risk arises due to financial incapability. This makes the business face a liquidity crunch and can affect the operations is a big way. This needs to be calculated at regular interval of time. This risk can be reduced by calculating the Net Present Value. Since, they are rendering services for the community its importance is high. The authority should ensure smooth cash flows to bring down the risk involved and ensure efficient functioning. (Risk, 2010) Physical Risk: This is the risk associated with life of fire man who tenders the rescue operations. Greater Manchester Fire and Rescue Authority needs to develop a system which ensure that the life of firefighters is safe guarded. This can be ensured by having the latest gadgets, using the latest technology and having all equipments ready which will help to prevent accidents. (Risk, 2010) Economic Risk: This risk arises due to downturn in the economy. A recession like scenario might make it difficult for the economy to ensure sufficient investments. Greater Manchester Fire and Rescue Authority needs to watch it out and develop policies which look into it and take immediate steps to prevent themselves from falling into this trap. (Economic Risk, 2010) Political Risk: This is the risk associated with changes in the political structure. This plays little part. No government makes rules which hamper the safety. Rules are in fact made to help. Greater Manchester Fire and Rescue Authority thus can take help from this and ensure that they have a system which uses the policies to develop better services for mankind. (Risk, 2010) Environment Risk: This is the risk associated due to changes in environment. Fire and rescue operators need to ensure that it is looked after. They face thereat from forest fire so every steps in this direction needs to be taken to prevent the environment. Risk Considered Greater Manchester Fire and Rescue Authority has considered a lot of this risk and taken steps in this direction to ensure that they are able to deliver better services. The risk considered by Greater Manchester Fire and Rescue Authority are as follows Provisions: Greater Manchester Fire and Rescue Authority have a provision which looks after the fire man. The authority has ensured that by having a provision the expenses of fire fighter in relation their insurance is taken care off. This has enabled to improve the service as the firefighters are able to take the extra risk due to precautionary measures which will help them to ensure that they are looked after in case of any contingencies. (Manchester, 2011) Reserves: Greater Manchester Fire and Rescue Authority have a reserve in the form of capital adjustment, pension, general and revaluation. (Manchester, 2011) This has enabled the fire man to ensure safety equipments and look towards delivering services which are of high standards. Economic Recession: Greater Manchester Fire and Rescue Authority have ensured that the economic recession doesn’t affect their services. (Manchester, 2011) They look towards their reserves and policies to ensure that the impact of economic recession is little on their operations thereby enabling proper services. Disclosure: Greater Manchester Fire and Rescue Authority have disclosed their transaction in the financial statement. This has ensured transparency and resulted in winning the hearts of the people in relation to the services. (Manchester, 2011) This has helped the rescue operation to be carried out with ease and has helped them improve their working. Credit Risk: Greater Manchester Fire and Rescue Authority have managed their risk efficiently. They have diversified their funds into varied fields which has reduced the credit risk. This fact is substantiated from the financial statements which highlight that Greater Manchester Fire and Rescue Authority has diversified their credit risk by investing in different instruments. (Manchester, 2011) Liquidity Risk: Greater Manchester Fire and Rescue Authority have taken all steps to ensure liquidity. The strategy hare has been to “ensure that no more than 40% of loans mature within three years through a combination of careful planning and repayments”. (Statement of account, 2009-10) This has enabled to ensure that the payables are managed well thereby enabling them to ensure sufficient liquidity. Interest Risk: Greater Manchester Fire and Rescue Authority have ensured proper measures to ensure liquidity. It is seen that measures have been taken to ensure that “borrowings are not carried at fair value so that the gains from this are not reflected and it is also ensured that not more than 50% of the borrowing is in the form of variable rate”. (Statement of account, 2009-10) This has helped in determining the operational boundary and has helped Greater Manchester Fire and Rescue Authority to ensure that risk is kept under control. Price Risk: Greater Manchester Fire and Rescue Authority have taken steps to reduce it by ensuing that their investments are not diverted into equity funds. This has saved them from the fluctuation of equity shares and enabled them to reduce the price risk to a large extent. Impact of reduction in expenses Greater Manchester Fire and Rescue Authority are looking towards reducing expenses by cutting it down on staff, premises and equipment by 5%. This will help the authority in proper management and ensuring sufficient liquidity but will also have an effect on the operations as it will lead towards a situation where certain operations will get hampered. The impact the reduction of 55 will have on the fire rescue operation of Greater Manchester Fire and Rescue Authority are as follows Reducing Staff expenses: Cutting the expense on staff by 5% would mean a reduction in staff. This will put extra burden on the remaining staff to execute the responsibilities. This will affect the operations as the extra burden will force the staff to lose focus and thereby hamper the operations. On the other hand this will also help to improve the management as it will ensure that the work force is used to the optimum level thereby enabling them to ensure that there is no wastage of resources. An important aspect here is that Greater Manchester Fire and Rescue Authority needs to reduce manpower to the extent that it doesn’t affect their operations. Reducing Equipment Expenses: Cutting down equipment expenses by 5% will have an effect on the daily operation of Greater Manchester Fire and Rescue Authority as it will make them use the equipment optimally. Cutting expenses will force the authority to cut down the unnecessary expenses. This will be on the backdrop that all the necessary equipments are purchase which will help in successful operation. This will make them use the equipments optimally and will help the firefighters to improve their operations. Reducing Premises Expenses: Cutting down the expenses on premises will benefit will help Greater Manchester Fire and Rescue Authority as the amount can be sued elsewhere. This will help them to purchase the latest gadgets and helps them build their operations which support those technologies. This will also help to improve efficiency as the premises will be sued optimally thereby developing the service process. This will help them to bring a change in service and help to render better services. Opinion Greater Manchester Fire and Rescue Authority are doing well. Their strategies are sound which has ensured sufficient liquidity and ensured that they operate within the operational limit. The risk factors have also been considered. They have been able to diversify. This has helped in successful operation and delivery of services. Even a strong provision has supported them. Greater Manchester Fire and Rescue Authority has won people confidence by proper services and ensured that all the policies and norms are adhered to. Even the environment is looked after and ensured that the fire fighters are prevented from injury. Having pension and schemes which look after the well being of the fire fighter have ensure proper services and enabled them to grow. Greater Manchester Fire and Rescue Authority has strategies which supports development and owing clarity has ensured that they are able to grow. Thus, overall the performance of Greater Manchester Fire and Rescue Authority seems satisfactory. Conclusion Greater Manchester Fire and Rescue Authority thus has a sound financial management policy. They have been able to bank on their inflows and outflows and ensure that they are able to use their funds efficiently. This has helped to ensure proper services and helped them to deliver proper services in relation to fire fighting. With better planning and a more toughened process Greater Manchester Fire and Rescue Authority can improve their service and ensure that they are able to save more life at the same time ensure safety for their fire fighters. 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