Authored by Caitlin Humrickhouse, Rory Vale and Kyle O’Rourke
Governments and not-for-profit organizations are the bedrock of stable communities during uncertain times. Due to the COVID-19 crisis, public servants and civil leaders around the country have quickly mobilized to maintain essential services, ensure the safety of citizens, protect their workforce and jumpstart programs to mitigate negative local economic impacts. New challenges requiring immediate responses emerge daily and public sector leaders are increasingly focusing on planning for long-term effects and the subsequent recovery.
In order to insulate your organization from financial hardship, consider the following six proactive measures. These recommendations are based on lessons learned from the Great Recession as well as the current actions being taken by public leadership.
Conduct a revenue stream analysis
Revenue projections across all sectors are rapidly evolving due to the COVID-19 emergency response efforts. Immediate and sustained revenue shortfalls are now a reality. Tough decisions may have to be made regarding expenditures, or alternative funding sources may need to be sought. Regardless, organizations should develop a new forecast before engaging in any long-term response planning. Consider the following:
- Review existing projections to determine what areas might be most significantly impacted, for instance, sales tax revenue that will be impacted by growing unemployment
- Proactively consider increasing user fees and other revenue sources, particularly where fees do not cover cost of service provision. Explore federal and state funding opportunities related to the COVID-19 emergency response efforts.
- Seek philanthropy related to emergency response efforts and expenses
- Establish an internal system for monthly departmental revenue forecasting
Analyze future expenditures
Emergency costs can quickly become unmanageable without adequate planning and analysis. Difficult decisions have already arisen and will continue to as leadership traverses an uncertain expense and supply chain landscape. When navigating uncertain expenditure streams and rising long-term costs, you should:
- Revisit all expenditure plans, including your capital improvement plan, and consider the “necessary” or “essential” nature of each expense
- Catalog and create a plan to keep intact any expenditures tied to federal, state or local grant funding and/or performance funding
- Update expenditure models to reflect new service delivery realities
- Proactively consider eliminating – temporarily or permanently – services for which user fees do not cover costs and where there may be limited community support
- Consider the implications and potential increase of personnel and benefit expenditures
- Evaluate licenses and software usage to identify opportunities to reduce costs
- Establish an internal system for monthly departmental expenditure forecasting
Complete a strategic sourcing analysis
In addition to evaluating future expenditures, every government should analyze existing contracts and agreements to determine any opportunities for savings. Supply chains across the globe have broken down. There has been a worldwide scramble for personal protective equipment (PPE), cleaning products and, of course, toilet paper. Procurement professionals will see this impact every level of their business from construction to professional services, to even the most insignificant consumable product. Consider taking the below steps to protect supply chain integrity:
- Identify cost savings through the use of: purchasing groups or consortiums; available statewide, community or local agreements; and/or strategic forward buying critical materials to meet current or future need.
- Evaluate service-level agreements for opportunities to “right size” service levels and reduce costs
- Strategically asses, re-prioritize and utilize current stores and stock levels
- Focus on regular needs, not just current emergent needs, to ensure a smooth return to business as usual
Conduct a workforce and succession planning exercise
The Great Recession was tumultuous for public sector staffing levels and organizational models. The current crisis will likely be similar. Now is a good time to conduct at least a cursory workforce and succession planning (WSP) effort. More information on conducting a full WSP can be found here. If you do not have the resources to conduct a full effort, we recommend the following at a minimum:
- Develop a plan B for crucial positions. In the event that a critical staff member retires earlier than expected, how will that work be completed? Can it be outsourced? Have staff been adequately cross-trained? Do you have documentation in place to help guide those new to the process?
- Categorize positions as foundational to operations, tied to specific strategies or other. If you are forced to reduce staffing levels, these categorizations will help put some context around tough discussions.
- Understand your retirement eligibility outlook and your average non-retirement attrition rate. Who is eligible to retire in the next one to three years? On average, how many people leave your organization annually for non-termination and non-retirement reasons? This will help give you a realistic outlook on how you can manage potential workforce reductions through attrition.
Consider options for alternative service delivery
Public entities are asked to be “all things to all people,” which, even in a healthy economy, puts a strain on limited resources. As sales taxes, user fees and other revenues decline, the services governments provide and corresponding service levels will be impacted. It is critical to consider whether service delivery can be altered to reduce costs while maintaining or improving the quality of service provision.
- Prioritize services based on their necessity to the community and alignment with your strategic priorities. Consider reducing or eliminating low-priority services
- For revenue-generating services, complete a cost-of-service analysis to ensure you are adequately covering costs (make sure you include all costs!). Consider eliminating services that are not self-sustaining
- Assess the fiscal impact of outsourcing/insourcing certain services, sharing services with another local government or reducing service levels (i.e. frequency of facility maintenance, snow removal, etc.)
- Review key business processes for potential elimination of unnecessary steps
- Consider using artificial intelligence and robotic process automation for routine processes.
Consider IT investment and initiatives
The sudden transition to remote work likely highlighted your organization’s strengths and weaknesses related to information technology (IT) infrastructure, leadership and agility. Conducting an IT assessment can provide the following insights:
- Immediate action to improve remote work capabilities, community member access to services, communications, etc. and to put key policies in place, such as remote work, including cybersecurity.
- Ability to leverage existing technology to expedite and automate business processes
- Opportunities to deliver IT through a shared service arrangement with another public sector entity to lower delivery costs and improve service quality
- Improvement to overall IT governance, including organizational structure, key competencies, decision-making authorities and capital investment prioritization guidelines
For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.