Risks of Greater Manchester Fire Rescue Operation - Case Study Example

Table of contents Abstract……………………………………………………………………………2 Introduction……………………………………………………………………….3 Discussion………………………………………………………………………...4&9 The impact on the proposals to cut the overall spend by 5% The aggregate expenditure The interest rate Aggregate demand Social welfare Areas for possible cut Management structure Training cost Firefighters Areas of risk caused by implementation of budget cut and their control measures Deflation risk Economic risk Pension risk Conclusion………………………………………………………………………..10&11 References……………………………………………………………………….12 Abstract The move by the government to cut the expenditure budget has an implication on the general economy. This can be demonstrated in the case of Greater Manchester Fire Rescue operation. A number of activities should be altered to reflect the move by the government to cut the expenditure. The most appropriate areas that it is appropriate for the Greater Manchester Fire Rescue is to reduce expenses on management structure, training and on firefighters. The move by the UK government to cut the expenditure also come a certain number of risk that Greater Manchester Fire Rescue must be ware of. Introduction Budget cut refers to the reduction of the budgeted expenditure on all or some of the sectors. It is an action that is designed to help the government in particular the UK government to pay its huge debts. However, this may put the country’s fragile economy at risk since it may tip it back into recession. Implementation of a budget cut strategy is a very sensitive exercise that requires prior planning. Any country or management of any organization should first analyze critically the possible outcomes of the budget cut before its implementation. This paper present the impact of the government budget cut on the Greater Manchester Fire Rescue. Discussion The impact on the proposals to cut the overall spend by 5% All government payment to factors of production in return for factor services rendered is counted as part of the GDP. These expenditures are called government direct expenditures, or sometimes exhaustive expenditures. The major fiscal tools of stabilization policy are government expenditure and tax rates. Changes in this will affect the government budget balance, the differences between its expenditure and its receipts. Fiscal policy is an attempt to influence aggregate demand curve by altering government expenditure and government revenues. Though use of fiscal policy to stabilize economy has fallen into disfavors in the UK the impact that government spending have on the economy cannot be denied as it evidence in the Greater Manchester Fire Rescue. Fiscal policy that alters government expenditure can exert an expansionary or contractionary pressure on the entire economy (Greater Manchester Fire Rescue). This can be a shift in aggregate desired expenditure E, the interest rate and aggregate demand, AD (Bender, R. and Ward, K., 2002). The aggregate expenditure Aggregate desired expenditure in the private sector (Greater Manchester Fire Rescue) is positively related to government expenditure on final goods, transfer payment, and negatively related to the tax rate. The proposal for the government to cut the budged implies that there will be a decrease in the government expenditure. The overall expenditure will also experience a decrease since it positively relates to government expenditure. Companies and private (Greater Manchester Fire Rescue) firm are force to cut their expenditure by the government moves to cut the budget. Similarly individual will also follow suit since their income will be limited. There will be decline in the employment and reduction in benefit received by the individuals. The overall outcome is a decrease in aggregate cut in the expenditure on the private and individual level. The interest rate The equilibrium level of national income associated with any given interest rate is negatively related to government expenditure on final goods and transfer payment and negatively relates to the tax rate. The proposal to cut on the expenditure implies the reduction on money in circulation and this outcome is reflected in the private sector (Greater Manchester Fire Rescue). Limited supply of money in circulation raises the demand and this will in turn raises the interest rate. Rise in interest rate make the money expensive for the companies, organization and individuals. The overall outcome on budget cut by the government is downturn in the economy. High interest rate increase the cost of acquiring money needed for investment. The management of Greater Manchester Fire Rescue may decide to avoid the cost of borrowing money needed for investment. Such moves will denied the Greater Manchester Fire Rescue available opportunities in the market because of limited source of money in the economy. There will be also unemployment resulting in decline in GDP. Aggregate demand The equilibrium value of national income associated with any given price level is positively related with government expenditure on final goods and transfer payments and negatively related associated with tax rate. Budget cut on spending by the government during downturn reduces the overall demand and makes downturn deeper. Budget cut on the spending involves elimination or lowering payment to Greater Manchester Fire Rescue that is direct service providers; lay off employees, cancellation of contract to vendors and cutting benefit payment to individuals. The payment from the government that would have ended up in the hands of Greater Manchester Fire Rescue is curtailed. The company would not be able to pay salaries and benefit to employees. On the other end employees would have less money for consumption and these would remove demand from the economy. Corporate social responsibility Corporate social responsibility spending is an obligation to strive to promote the wellbeing of individuals or society. Corporate social responsibility may be provided directly or their agencies. It may be funded by the government from its general revenue by way of redistributive taxation. The government thus protects and supports both the economic and social wellbeing of its citizens through private firm which Greater Manchester Rescue is a player. Social welfare benefits are normally provided to those who are unable to get access to the minimal provisions of life. It is based on several ideologies such as equitable distribution of wealth, equality of opportunity and public responsibility. Social welfare can take several forms which include health benefits, unemployment benefits, education, pension, child benefit and free housing. The employees of the Greater Manchester are the beneficial of the social corporate responsibility but the government budget cut will force them curtail these services. Areas for possible cut Management structure Huge and complex management structure is costly for Greater Manchester Fire Rescue. The unnecessary cost of executive labor can be reduced by streamline the size of management. Management structure of Greater Manchester Fire Rescue should be made sizable to reflect the needs of the company. There is no need to have separate management team with separate chief executive and expensive, well-paid officers to fill every position in the company. The duties and roles that can be done by one person at a time should be put together. This sharing can prevent the cut from falling on the most vulnerable and the needy employees and the members of the society. Training cost Training cost which Greater Manchester Fire Rescue is incurring can easily be cut by engaging in alternative mode of training. It is also equally important to appreciate the fact that morel and productivity to company is essential in the time of slowdown in the economy. Competitive edge can alternatively be sharpened by developing cost effective strategies. However, budget cuts mean that essential training gets put on the back burner, just when people are crying out for additional skills to cope more effectively with difficult conditions. It may very well be that the company is facing training budget cuts just at the time when employees most need a boost to keep up momentum. Whatever the situation cut on training can help. Impact on Greater Manchester Fire Rescue is not cheap, but there is a variety of ways to make a limited budget very effective (Corby &White, 1999). Firefighters The Greater Manchester Fire Rescue can retrench 200 firefighter employees on pensionable basis. This strategy is in line with already plans of the company to lay-off aged employees in three years period. This give the company a lee way to implement the budget cut without necessarily making other employees feel intimidated by the budget cut. Areas of risk caused by implementation of budget cut and their control measures Deflation risk Deflation is the persistent decline in the general level of prices due to reduction in the supply of money or credit. Whenever there is a prolonged economic slump, the value of the company’s asset consequently decline. Falling prices, if they persists result to fall in profits, increasing default on loans by companies, shrinking employment and incomes and even closure of industries. Deflation risk is mainly caused by a decrease in government, investment or personal spending. Government spending is a responsibility of the state to its citizens to provide for public services like, social security, defense, health, and education among others. Any budget cut or reduction in government spending policies will have a major impact on the economy. Deflation risk affects the level of employment in the country making more individuals jobless. There is going to be a decrease in income and an increasing demand for money. When the government reduces its spending, it means that the companies that are funded or supported by them will definitely shrink and this will eventually result to the closure of these companies (McLaney, 2009). Economic risk This refers to the risk that the company’s output will not generate enough revenues to cover operating costs and to settle its obligations. Economic risk is a very significant factor, upon which the progress of the organization depends. It is the investment risk that is associated with the locality of the investment or the overall health of the economy. This risk is caused by variations in rates of interest, sales prices, earnings and other financial variables. A reduction in the government spending or the implementation of the budget cut will cause a negative impact on the economy. The companies that provide public services like the health and safety will cease to be in operation due to low amounts of revenue generated. The revenue is unable to cover the company’s debt and sustain it operations (Merna, &Thani, 2008). Pension risk This type of risk takes several forms. One form is for the government to reduce the amount of the pension received by individuals in the old age. From an investor’s point of view, the risk may be defined as a risk to the organizations’ earnings per share (EPS) and financial conditions emanating from a defined pension plan that is under funded. A defined pension plan promises to pay a defined benefit to the employees who have retired. To achieve this, a company must make a very wise and planned investment so that they have the funds to settle the promised benefits. Many countries like UK offer retirement benefits that are fully sponsored by the state beyond those offered by the employers. This is normally funded by either payroll through income tax or other taxes. Pension arrangements take several forms which include employment-based pensions, disability pensions and social and state pensions. The government must provide individuals with income when the have ceased to work and are not earning income from employment (Miles &Preston, 2003). Conclusion Greater Manchester fire and Rescue Service is the largest UK Fire and Rescue Service. It deals with approximately 64,000 emergency cases annually with 41 fire stations and employs over 2,500 people. The moves by the UK government to cut the budget will have a great impact on the operation of Greater Manchester fire and Rescue Service. It latest program of modernization on its framework which the Fire and Rescue Service operates are implementing will suffer. There has been an introduction of the concept of the Integrated Risk Management Plan (IRMP) and has also mandated each Authority to generate a plan. The strategies of modernization to develop its workforce, improve its service delivery and restructure its organization culture will much affected by reduction in the spending(McNutt, P., 2002). Within the service, risk management principles have been employed. Through the application of corporate governance principles, the risks are identified, prioritized and mitigation techniques adopted. The risk area is properly identified followed by an assessment of that particular area. Each risk area is approached differently with the objective of controlling and minimizing the impact that the implementation of the budget cut or any strategy adopted to reduce government spending. Firstly, it is obvious that the economic risk cannot be ignored by any organization and therefore economic risk management is very vital in all industries and sectors. The risk management will involve the implementation of any revenue generating activity. This is then followed by proper allocation of resources to maximize returns and minimize the likelihood of any unfortunate event. The fire and rescue industry has changed the relevant service revenue account regarding the revenue expenditure funded by the government. This is an initiative that will help to cope with the risk and meet the cost of expenditure from the available capital resources (Wildavsky, 1993). Employees of the Authority enjoy two different pension schemes which are the Fire Service Pension Scheme for uniformed firefighters and the Local Government Pension Scheme. The latter is a scheme for civilian staff and is accounted for as a defined benefits scheme. On the other hand, Fire Service Pension Scheme is an unfunded scheme which is introduced by the authority itself. According to the conditions of employment, the Fire Service Authority offers retirement benefits to its firefighters and other employees. This is a commitment of the authority and therefore any pension risk anticipated must be properly controlled. The governments’ withdrawal or reduction of its support to the authority regarding pension fund allotment means that the Authority must look for alternatives to fund the pensions. Finally, developed countries like UK faces the great risk of deflation as the economic growth slows. The deflation risk which is attributed to the government decrease in its spending should also be controlled and its impacts mitigated. The action of the government to cut on its expenditure impacts heavily on the aggregate demand. This means that there will be less money in circulation to support the excess aggregate supply. Deflation has affected the UK economy and all industries notably in the Fire and Rescue industry. The risk of deflation can be mitigated by adoption of strategies that can generate more revenue. Within the Greater Manchester Fire and Rescue Authority, proper measures need to be acquired that will boost thee aggregate demand. The industry should focus on the market by acquiring more assets for the fire and rescue services (Williams, 1998). Reference Bender, R. and Ward, K., 2002. Corporate Financial Strategy. 2nd ed. Preston: Butterworth- Heinemann. Corby, S. and White, G., 1999. Employee relations in the public services: themes and issues. Bristol: Routledge. Gilbody, J., 1998. The UK monetary and financial system. Bristol: Routledge. IMF, 2009. Crisis and recovery. Birmingham: International Monetary Fund. McLaney, E., 2009. Business finance: theory and practice. 8th ed. Winchester: Prentice Hall. McNutt, P., 2002. The economics of public choice. 2nd Ed. London: Edward Elgar Publishing. Merna, T. and Thani, F., 2008. Corporate risk management. 2nd ed. London: John Wiley and Sons. Miles, D. and Preston, I., 2003. The economics of public spending. London: Oxford University Press. Williams, A., 1998. UK government & politics. 2rd ed. Preston: Heinemann. Wildavsky, A. B., 1993. National budgeting for economic and monetary union. Edinburgh: Martinus Nijhoff Publishers. Read More