Financial Management for Oxfordshire Country Council - Case Study Example

Content Introduction 2 Operational Boundary 2 Formula 3 Consideration for FRS 3 Calculation of Safety Margin 5 Result 7 Characteristics of FRS 7 Risk Involved 7 Risk Considered 9 Opinion 12 Conclusion 13 References 14 Introduction Finance has become an important part for management. Every company needs to manage it. It eases the pressure from other department. It helps to take decision accordingly. It helps to build strategies. It also decides the marketing procedure. This is required everywhere. Every decision has money involved in it. Financial management forms an important task. It helps to manage finance. It is important that Oxfordshire Country Council maintains it. It will help to “check the inflow and outflow of funds which will be achieved through financial planning, control and decision making”. (James, 2005) 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. It helps Fire and Rescue Services decide their budget. It helps them to operate under the operational boundary. This makes them procure equipments. It helps them use latest techniques. This reduces casualties. Also disclosing information helps. It builds reputation and makes people prefer the company. This dwells in long relationship. The Fire and Rescue Services on this basis achieves better results. Operational Boundary Operational Boundary is “calculating both the direct and indirect earnings associated with the operations owned or controlled by the company”. (Mohan, 2003) “It is calculated after into taking into consideration the inflows and outflows”. This helps to measure the boundary correctly. The operational boundary is “calculated during the planning process of what needs to be done in the future”. (Mohan, 2003) It is calculated by “considering the payments, the provisions and long term which is decided after the capital and revenue receipts”. (Williams, 2003) 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 This is ascertained beforehand. The operation boundary helps to calculate the authorised capital. “It is a certain percentage over and above the operational boundary so that the unexpected expenses which might arise due to unfavourable circumstances are taken care off”. (Williams, 2003) A rate of 5% is normally set. Consideration for FRS The Fire and Rescue Services considers various factors. This helps them to plan properly. It also helps them to decide whether they will be able to grow. The Oxfordshire County Council needs to consider various factors. They are Look that they “comply with the rules and code practise”. (Williams, 2003) and Oxfordshire County Council has looked into it. Setting the operational boundary correctly. This ensures that “the spending pattern matches the income set for that which is decided in the planning phase so that contingencies don’t arise”. (Williams, 2003) Seeing that the authorised capital is set correctly. The department sees that “they set the limits a bit higher so that any expenses which has not been accounted for if it arises is managed in a proper way so that the department is able to meet its expenses easily”. (Williams, 2003) See that the “changes in the fixed and variable interest rate is accounted for because a change in these interest rate can bring about a change in the estimated expenses so to reduce the chances of an credit crunch it needs to be accounted for”. (Williams, 2003) The Oxfordshire County Council has accounted for it. It has taken into consideration this. See that the “both the upper and lower limit is set for the borrowing which will mature as it will help to check the fluctuations and also help to manage the requirement in a better way; thereby strengthening the forecast” (Williams, 2003) Oxfordshire County Council has followed this and is looking to do that. The authority also needs to get “proper approval from the required authority in relation to the safety of the funds which are invested for more than 364 days by getting a proper process in place”. (Williams, 2003) Oxfordshire County Council has been considering this and has been accounted. 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% Oxfordshire County Council is 6.5% - 5% = 1.5% well above the recommended limit. Thus for the year 2008 Oxfordshire County Council 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% Oxfordshire County Council is 5.62% - 5% = 0.62% well above the recommended limit. Thus for the year 2008 Oxfordshire County Council operates within the safety margin and is safe Safety Margin for 2010-01-10 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% Oxfordshire County Council is 6.18% - 5% = 1.18% well above the recommended limit. Thus for the year 2008 Oxfordshire County Council operates within the safety margin and is safe Result Thus, for all the years we see that Oxfordshire County Council is operating above the safety level. This is a good sign suggesting that “they have been able to have sound policies and their implementation for all this has been good”. (Graham, 2007) Characteristics of FRS Fire rescue service has certain characteristics. It considers all the rural and urban both while imparting service. Their characteristics which Oxfordshire County Councils also comply are Considering “equality between rural and urban population” (Even, 2004) while imparting service ensures that services matches. Having “a system in place which looks at delivery, scrutiny and review of priorities and diversity”. (Even, 2004) Carrying out both “retrospective and prospective assessment” (Even, 2004) for urban and rural All “data on services are accessed with standards” (Even, 2004) which is same for rural and urban Risk Involved The FRS has many risk involved. Care need to be taken to counter those. The risks involved in FRS are Business risk: It is a circumstance “that has a negative impact on the operation of the company and maybe due to internal or external factor”. (Tatum, 2009) Oxfordshire County Council needs to reduce this. This can be managed by “calculating the various ratios which help to manage cash, having proper debt financing options and insuring against the various risk involved”. (Filisko, 2009) This risk plays a huge role. FRS decides the budget. Any changes in the business risk will affect it. It will also affect the service rendered. Financial Risk: It is defined as “the risk associated due to the inability to meet the financial obligation”. (Green, 2007) This affects the services of FRS. This needs to be checked. This risk can be reduced by calculating the Net Present Value. Since, they are rendering services for the community its importance is high. Also different cash flows calculations will help. FRS needs to manage it. They need fund for their service. Shortage of funds will affect them. They need to be largely prepared to meet it. They need to manage and proper strategy based on it. Physical Risk: The risk here for the “fire service tender man are their life which they might lose while rendering service so they need to be careful and see that proper precautionary measures for safety are in ace so that physical life doesn’t get hampered”. (Mohan, 2003) Economic Risk: It is “the danger that economy can turn against investment” (Little, 2009) raising alarms for FRS. They need to manage it to get funds. They need various objects. Not having one can hamper. Safety could be at risk. Thus it makes it a raising concern. Political Risk: This is the “risk associated with a change in government” (Mohan, 2003). This plays little part. No government makes rules which hamper the safety. Rules are infact made to help. This has helped FRS to perform better as they get proper help. Environmental Risk: FRS has to face it. They need to perform their duties seeing that environment is not hampered. They need to ensure safety. Like, forest fire affects environment. FRS takes measure to bring this risk under control. Risk Considered The FRS has considered this risk. This has helped as by doing so the department was able to come up with service. Provisions: Provisions have been made. It amounts to 9,456 million (annual report, 2008-09). This also helps to meet the insurance expenses of service man. This is done to meet contingencies. It has resulted in ease. Service men are more focussed. Their fear has reduced. They are able to save more lives and deliver service that will help society. Reserves: reserves have been properly maintained. FRS has ensured that they have reserves for “capital adjustment, pension, general and revaluation” (Statement of account, 2008-09). This has ensured funds for the present and future. It has also looked in service men who sustain injuries. This also looks into the fact that the salaries levels are maintained. Economic Recession: With recession engulfing the entire globe this risk is huge. Measures have been taken to tackle it. Meeting have been held for it. It has been seen that this doesn’t affect their services. They have worked to tackle it. This has resulted in good service. Disclosure of transactions: FRS has disclosed transaction. This has ensured transparency. It has resulted in getting higher operational boundary. This has ensured that people have confidence. This has also resulted in getting funds. People are more satisfied. Even the fire tenders are satisfied. Credit Risk: “It arises from deposit with bank and financial institutions as well as other sources like customers”. (Statement of account, 2008-09) They have managed it well. The credit risk has been diversified. FRS has also been able to get good rating for it. “A limit has been set which has ensured that funds are invested in different varied fields so that the credit risk gets diversified”. (Statement of account, 2008-09) The accounting statement also reflects that by doing so they have been able to control well. This has ensured that service man gets proper equipments. It has ensured that the quality is good. Also, diversifying has made them concentrate harder. Safety has been ensured and it has improved shareholders return. Liquidity Risk: This is under control. The statement also shows that there is no concern in relation to it. 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, 2008-09) This has ensured liquidity. For this, the trade payables have been well maintained. The receivable are under control. This all has been due to good policy. Tightening measures and transparency has ensured it. Interest risk: The movement has been kept under control. 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%o of the borrowing is in the form of variable rate”. (Statement of account, 200-09) Even management team has been built. It has ensured that they are on their feet and the work is done in the correct way. This has a huge role to play in fire rescue services. This could also affect the operational boundary. Having proper measure has also helped in safety margin. It has ensured that the interest is within achievable limits. Price Risk: This risk has also been well managed. “Not investing in equity shares have ensured that the fluctuation of the capital is reduced and since their task is to render service it is done without any failure”. (Statement of account, 2008-09) Insurance Arrangement: This forms a very important part in FRS. Having insurance of fire men is essential. It makes their family secure. This has ensured that fire men can work towards saving more life knowing they are safe. This has also ensured more safety equipments and looking for safety. Thus, we see that this risk has been accounted for. It has been done from the view point of everyone. Even the fire fighters have been considered. The statement of accounts also suggests that it has ensured that conditions improve. This has resulted in taking more fierce jobs. The safety of life has been given priority. With insurance even the family has been considered. Having equipments to fight and save has been a priority. It is also highlighted that all the accounting rules has been complied with and Financial Reporting Standard has been maintained. Opinion Oxfordshire County Council has done well. I feel that they have ensured proper strategy. There financial management has been sound. They have ensured that they work within the operational limit. The risk factors have also been considered. They have been able to diversify. They have taken care of their fire fighters. Having pension and insurance has helped. Even a strong provision has supported them. Oxfordshire County Council has also looked into the disclosure principle. They have ensured that risk has been looked from various angles. This has made them craft better policies. Oxfordshire County Council due to disclosure has won confidence. People look towards it as reliable. Also conforming to the requirements has added. This has ensured complying with all the norms. It has ensured that they have sufficient reserves. This is helping to meet the contingencies. Also using the latest technology has helped. Oxfordshire County Council has also ensured safety of environment. Having better tools have ensured it. They have also maintained pensions. This is helping them to ensure safety. It has made fire fighters work hard. This has seen that they get income after retirement. Oxfordshire County Council has also ensured that the deceased gets funds. This helps the family. Oxfordshire County Council due to clarity has better management. Their strategies are bearing fruit. They know areas to work on. This is making Oxfordshire County Council implement changes. The projects they have taken also fall in line with this. This has ensured that his growth accounts for it. This has made Oxfordshire County Council look into future prospects. Thus, overall the performance of Oxfordshire County Council seems satisfactory. They have also ensured that this continues so that they have sufficient funds for future growth. Conclusion Financial management is thus helping Oxfordshire. They are able to manage well. It has helped them decide on the expenses. Budgeting has been possible. Fire fighters are able to devote time. This has ensured more life is saved. It has ensured that best equipments are available. This has ensured safety. Thus, we see that planning in advance has helped. It has made planning better. It has ensured that planning is better. It has also ensured safety margins, thus we see that all risk has been cared for. It has also been disclosed. This has helped to bring good service References Even S, 2004, “Fire and rescue service: local, regional and national responsibility”, Improvement and development agency Filisko G, 2009, “ways to reduce business risk”, Bankarte.com Graham B, 2007, “The margin of safety”, Berkshire Hath way and Value Investing James N, 2005, “what is financial management”, Tata McGraw Hill Little K, 2009, “Economic Risk”, the New York Times Company Mohan J, 2003, “Fire and rescue services”, Report on fire services Williams C, 2003, “The future of fire services: reducing risk, saving lives”, Independent review of fire services Tatum W, 2009, “what is business risk”, retrieved from http://www.wisegeek.com/what-is-a-business-risk.htm, on January 14, 2010 Read More