Effective budget management: take a fresh look at your workforce.

Once a year, organizations produce a realistic operations budget and constituent approval from voters, elected officials, and department managers. However, acceptance of the annual budget is only one benchmark for success. Managing the budget effectively is a year-round challenge.

In recent years, shrinking federal and state contributions have made municipal budgeting more difficult than ever. In a 2006 study sponsored by Kronos and conducted by Government Insights (an IDC Company) entitled "Municipalities Challenged to Manage Budgets and Overtime," U.S. and Canadian municipal financial executives reported an average annual funding decrease of nearly 4 percent. Yet, the public still expects municipalities to deliver a full complement of high-quality services with little or no reduction in scope.

If your municipality has experienced budget overruns, you are not alone: In the Government Insights survey, 69 percent of municipalities reported spending over budget at least once in the last five years--in spite of legal mandates that prohibited some of them from doing so. When budgets were exceeded, it wasn't by just a few dollars. The average reported overrun was nearly 8 percent, and for large municipalities that meant an average overrun of more than $150 million.

Cost-cutting measures are the financial executive's traditional tool for keeping municipal spending within budget. But scaling back programs and services only solves a budget problem after the fact and is painful for communities to absorb. More importantly, one-time spending cuts lack the power to make a dramatic, long-term difference in budget management practices. A deeper, more comprehensive look at promoting municipal cost-efficiency can provide guidelines and insights that will improve long-term budget management efforts.

With labor-related expenses representing about 40 percent of the typical municipal budget, the workforce and labor costs are a key area to focus a deep, long-range cost containment strategy The Government Insights study drew a strong correlation between effective workforce management and control of labor expenses--especially overtime--and a municipality-wide strategy for budget management.

In the past, workforce management and particularly, employee productivity may have been the province of the HR department. Today, however, overtime expenses cause more than their share of municipal budget overages, and a single labor compliance dispute can turn into an expensive litigation. For the financial executive, these are just two compelling reasons to make workforce management an important area of focus.

COMMON APPROACHES TO BUDGET SHORTFALLS

The Government Insights study revealed the five most common strategies financial executives use to compensate for reductions in external funding:

* Reducing staff (67 percent)

* Eliminating services and programs (65 percent)

* Increasing productivity (51 percent)

* Leaving open positions unfilled (51 percent)

* Increasing taxes (44 percent)

While "higher taxes" may be the last resort, they do represent a standard budget fix--but, it is one which needs voter approval to succeed. Last year, 174 Massachusetts cities and towns proposed tax increases to their voters, but only 55 percent of those increases passed. Clearly, before they will support a tax increase, citizens want their municipal government to become more efficient and explore all ways to curtail spending; while most citizens expect comprehensive services, few welcome higher taxes.

Workforce reduction is the most common approach. The Government Insights study reported that 67 percent of U.S. and Canadian municipalities have reduced staffing levels to contain costs. And 51 percent of respondents said they had left positions unfilled. Yet, in the end, the cost of a hiring freeze or a layoff may exceed its benefits. Reductions in head count are unpopular with local communities and detrimental to workforce morale. No one appreciates the drop-off in quality or the service disruptions that attend a short-staffed department. And, when department managers scramble to discharge their responsibilities with fewer staff, they spend more of their own time rearranging employee schedules and may dip more frequently into the overtime budget.

Sixty-five percent of the Government Insights respondents said they had eliminated some programs or services outright, in lieu of reducing services or fostering a lower service quality Many municipalities have closed some number of their fire stations or locked up public parks and libraries in order to stay within budget. At best, such cuts decrease a community's quality of life--at worst, these cuts have dire public safety implications.

About half of the Government Insights respondents said their municipality is using one or more productivity initiatives as a way of coping with budget constraints, often borrowing best practices from the private sector. Putting each labor dollar to work more efficiently helps a municipality provide the same, or better, services at the same or lower cost. More than half of the financial executives surveyed by Government Insights said their municipality now uses an internal audit and/or a performance review process. Such initiatives can help improve both the personal productivity of individual employees and the overall productivity of departments and the entire municipal system.

These municipalities are on the right track. Finding new ways to make the government workforce more productive is possibly the most effective to maintain a high level of public service without raising taxes. Unlike requests for tax increases, it is a strategy that is largely within department control.

MANAGING OVERTIME

The first step in controlling workforce-related expenses is to gain visibility into where the dollars are going. For municipalities, the answer to that question is often "overtime." The Government Insights study found that more than 80 percent of municipalities had exceeded their overtime budgets at least once in the last five years. When overtime went over budget, the average amount was more than 20 percent.

In general, overtime is a legitimate line item for local governments. It is a necessary expense when a job must be done immediately and all qualified employees have already worked a full, regular schedule. Further, it is often the only expedient solution for a municipality or department that has 25 percent of its positions unfilled yet still needs to provide essential services to the community Crimes and medical emergencies will continue to happen despite budget decreases. When budget cuts have already reduced head count, understaffed police and fire departments must rely on overtime to fulfill their missions.

While departments may have funds to secure planned overtime labor, their budgets can suffer from the misuse of discretionary overtime. When an employee calls in sick, many supervisors will ask someone currently at work to stay longer, or call in someone they know can use the overtime. To reduce unnecessary overtime shifts, a municipality must help managers quickly and easily identify the lowest cost, appropriately skilled employee when they need to call in staff. Even managers with the best intentions for cost control will turn to discretionary overtime if they lack the tools to fill cost-effectively an open shift.

Municipalities that use manual time and attendance solutions find it difficult to track departmental overtime on more than a monthly or even quarterly basis. By then, it is too late to take meaningful action to minimize overtime costs. In fact, 50 percent of financial executives cited their inability to manage overtime proactively and their lack of visibility into overtime as two key reasons for exceeding overtime budgets.

Even when overtime represents the best use of available resources to meet public service objectives, overtime spending is a lightning rod issue. Local media are quick to take note of an employee whose salary has doubled due to overtime pay, or an overtime budget that has been exceeded. Such publicity can spark taxpayer accusations of criminality, impropriety, or--at best--poor fiscal management and loss of public trust.

GAIN VISIBILITY AND CONTROL WITH WORKFORCE MANAGEMENT

A cost-focused workforce management strategy based on automated time and attendance gives department managers the visibility they need to improve productivity and control labor costs, particularly overtime expenditures. In the Government Insights survey, 64 percent of respondents already using an automated time and attendance-based workforce management solution said that it had increased their visibility into managing their employees. Fifty-five percent reported it had enabled them to manage overtime more proactively. With an automated solution, a supervisor can find the right person at the lowest cost to fill a shift while avoiding favoritism in assigning shifts and ensuring compliance with collective bargaining agreements, government regulations, and municipal policies.

In the Government Insights survey, nearly half of the financial executives who had not yet deployed automated time and attendance said they believed such a solution would help them manage their budgets and control overtime. These respondents cited real-time visibility into how close individual workers were to their overtime pay rates as a key capability in leveraging the solution to reduce unnecessary overtime. This group anticipated a number of additional benefits to an automated time and attendance solution:

* Productivity gains: 51 percent said it would enable them to be more productive and lessen their need to reduce municipal staff

* Prevent tax increases: 37 percent said they believed such a solution would help them better provide essential municipal services without raising taxes

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