Submission to Town on KPMG study – Kevin Cowie

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Mr. Mayor, Deputy Mayor, Members of Council, representatives of KPMG, fellow residents.

MY FIRST OF THREE SUGGESTIONS to Council is to adopt a discipline that professional project managers learn in their first week:  always conduct a financial post-mortem analysis of all major projects.  Perhaps that’s already being done, but I haven’t seen evidence of it.  I heard in Monday’s Council meeting that the conversion to LED street lights will cost about $1.5 million and will save the Town about $115,000 per year, but who’s to say if that’s how it ultimately turns out.  We need a public accounting of actual costs and benefits for all major investments as part of our audited financial statements.  Otherwise, we will fall into the trap of low-ball cost estimates, overly optimistic benefit projections, and failure to consider the Total Cost of Ownership.  Whether the item is an LED light or a new library, unchecked optimism and no accountability leads to costs getting the best of us.

It’s surprising how realistic an advocate becomes when they know their projects will be laid bare and they will have to defend their results.  Cost overruns will be reduced and benefits will more closely resemble reality.

MY SECOND SUGGESTION revolves around something that our Director of Parks and Recreation did at the Council meeting this past Monday evening, as well as our Director of Public Works, and also Councillor Mike Ross.  So what did all these people do?

Frankly, they only did what I’ve witnessed from countless participants in Council meetings.  They asked for money.  Mr. Peter asked for about $5000 to place a Midland map in the Visitor’s Guide Book.  Mr. Berriault asked for approval to resurface the CN bridge across the Wye River.  In both cases, Council agreed and took the first steps to spend the money.

Councillor Mike Ross asked Council to defer the William Street reconstruction project until 2013.  Although that doesn’t sound like he’s asking for money, I raise this example because part of his motion was to reallocate the savings to other projects … in other words, to find a way to spend the money that was saved.

These individuals were just floating an idea – how can that be so wrong?  They thought they were doing their jobs.  It’s Council’s job to say, “Yes” or “No”.  Nevertheless, wouldn’t it be nice if everybody were on the same page and looking for savings?  Frankly, even Council is not on that page – they approved all three motions with a majority vote.

When a department has the potential for cost savings in its budget, Council should rejoice and put that money in reserves or return it to the taxpayer.  When a project is deferred, then defer the associated expense too, don’t just look for another way to spend it.  When any member of staff or Council raises a new spending idea, they shouldn’t just respond, “Sounds good to me!”  Instead, they should ask, “What will we not do instead?”, or simply say, “Not this year”.

Councillors and senior staff should repeat that phrase each night in front of a mirror:  “Not this year.”  They must learn to say, “No” to spending opportunities.  In their households, money saved is surely not simply an excuse to grab a Last Minute Club deal to an all-inclusive resort.  It is an opportunity to put some money into their child’s education fund, or pay down their mortgage or top up their RRSP … in other words, to treat savings as savings.

Of course, if it becomes known that budgets aren’t the safe haven they used to be, the inevitable reaction will be spending them as early in the year as possible so they can’t be taken away, which brings me to my next point.

MY THIRD SUGGESTION is to adopt the approach that business takes when facing a bad quarter, or a bad year.  Enforce a policy of aggressively pursuing reductions throughout the year.  Use zero-base budgeting, where every new item must be justified rather than simply starting with last year’s budget and deciding how much to increase it.  Ensure that every procurement exploits all reasonable opportunities for cost savings.  Freeze or roll back budgets as soon as it becomes apparent that money can or must be saved.  Block attempts to lock in budgets through contractual commitments or other barriers to exit.  Ensure that contracts are not signed until the date it comes up on the critical path of the project plan.  Demand that project leaders always have an exit strategy.

Mr. Peter’s $5000 request is a good example.  Just because he believes he will come in under budget in other areas is not a reason to spend money on an unplanned initiative.  If a department is currently under budget then keep working to stay under budget.  Apparently, Town Hall hasn’t sensed the new reality, and hasn’t specifically been given that directive.  It’s time Council issued the edict to staff and Councillors alike:  The best new idea is a cost saving idea.

To sum up:

1.    Perform regular investment reviews to see how past decisions really turned out;

2.    Learn to say “No” to new spending; and

3.    Plan and work aggressively to save money throughout the year, even when it is budgeted.

KPMG has a clear mandate to look for cost savings.  Some of the ugliness of our current tax situation has already been reported.  Of course, the final report is neither written nor accepted; its suggestions neither debated nor adopted.  Nevertheless, KPMG is already talking the talk, and I suggest that Council get ahead of the curve and begin walking the walk.  Start acting like cost savings are really an objective and not just a sound bite.

Thank you for the opportunity to present these thoughts.

Kevin Cowie

1495 Par Four Drive, Midland

 

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