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Innovation

Ousting the Outsourcing Misconception

Should Your Lemonade Stand Consider Outsourcing?

Imagine that you are a child selling lemonade in your neighborhood. During the summer months, you find yourself understaffed because of the high demand. Your staff of recruited neighborhood kids is overworked trying to produce enough lemonade to keep up with demand, and the quality of your lemonade is suffering as a result. Worse yet, several of the neighbors have filed complaints about the customer service at your stand. During the down time in the colder months your stand is overstaffed, but you don’t want to deal with letting anyone go. This fluctuation makes budgeting difficult and you find yourself running at a substantial financial deficit while you wait for the warmer months to return.

Now imagine that there was an opportunity to bring in a group of neighborhood kids you could partner with to increase customer service, bolster the quality of your lemonade, handle staffing and activity fluctuations, and save money. These are kids from your local area and they don’t want to monopolize the lemonade stand business – it will still be your stand. But these kids have worked at lemonade stands before, so you’ll be confident that your operations will run smoothly.

While on a much more simplistic level, the ideology behind this lemonade stand is analogous to the services SAFEbuilt offers to municipalities building departments.

WHAT REALLY IS OUTSOURCING, REALLY?

Any time a local government contracts with an outside company or agency to perform services, it is essentially outsourcing. Now, this term has developed a bad reputation over the years but at its basic level it’s the process of shifting responsibility from the local government to a private provider to accomplish specific services.

EVALUATING THE OPTIONS

Outsourcing is a tool that can be effective when used well and ineffective when used incorrectly. Many communities have relied on contracted providers for services such as solid waste collection and disposal, street repairs, and utilities for years, and with the budgetary issues many local governments still face after the Great Recession, many communities are turning to full local governmental outsourcing solutions.

There is an ever-increasing need for local government entities to provide cost-effective services to their residents while maintaining the highest levels of service. With staffing challenges, budgetary restrictions and rising personnel costs local governments are searching for alternative service delivery options, and that with the proper research and due diligence, it can provide numerous advantages. Benefits to outsourcing include service improvements, a means of accommodating fluctuating seasonal peak demands, access to outside expertise, stabilized budgets, and new insight into innovations.

Use of consultants can mean having the right numbers of employees, with the right expertise, when you need them. Outlining clear performance metrics in the contract allow a local government to make sure that quality thresholds and expectations are met, including outstanding customer service.

THE TALE OF TROY

One of the most significant outcomes of a well-executed outsourcing program, and the focal point of this article, is cost savings. Financial savings are often realized through economies of scale, access to cutting-edge technology the local government wouldn’t have been able to afford on its own, innovations, or simply a different way of doing business. Reduced labor costs can help a jurisdiction better manage its financial burdens. The following example is how one community in Michigan took a chance on outsourcing their building department services – and came out a success.

Troy, Michigan is the largest city in Oakland County, with a population of over 83,000. Before hiring SAFEbuilt in 2010, Troy’s building services department was operating at a substantial deficit; the city’s comprehensive annual financial report from June 30, 2010, reported a cumulative shortfall of $6.6 million, caused by years of increases in employee costs, pensions, and related operational costs. Troy had grown quite a bit in previous years, and that expansion had required additional full-time staff, all union positions. Unfortunately, when the economy and construction slowed, staffing could not be adjusted in a timely manner, so the city was now overstaffed. The situation was not sustainable for the long-term.

Feeling the pressure to control expenditures and reduce their budget, the City hired SAFEbuilt to provide full service building department services. Under the contract SAFEbuilt managed the daily operations of the building department, performs inspections, plan reviews, staffs the front counter, archives city records, and works with city officials on departmental budget. SAFEbuilt also works with the economic development department to encourage growth and promote business opportunities within the community. SAFEbuilt and the City work on a percentage of fees model. This fee structure means that Troy never has to worry about building department costs exceeding revenue, even with fluctuations in building activity. In other words, SAFEbuilt turned the city’s fixed costs into variable costs based on activity levels.

Excellent service and cost efficiency go hand-in-hand. By looking for ways to improve the department’s processes and create efficiencies, SAFEbuilt helped bolster the department’s financial performance. For example, reconfiguring the department’s office space within city hall has improved its workflow to the point that it is now using half the square footage to accomplish the same amount of work. Thousands of paper records were scanned for more efficient archiving and retrieval. Inspectors were equipped with wireless laptops so they could access and enter information in the field.

Another outcome of the partnership, Troy has been able to improve interdepartmental and intergovernmental relations through better communication. As a result, permit technicians disburse permits for water and sewer, planning, and for other city departments as well, improving the flow of information among city workers and saving time and money. SAFEbuilt helped built upon this improvement, streamlining work processes to reduce processing time.

The changes saved the City of Troy’s building inspections budget $1 million in fiscal 2010- 11, the first year of the contract. City officials understood that the way the building services department had traditionally provided services is not in all cases the most efficient

HOW IS YOUR STAND OPERATING?

While the lemonade stands run by the neighborhood children may not actually be turning to outsourcing, jurisdictions across the country are finding it to be an effective and efficient way of dealing with financial challenges. Outsourcing is certainly not for everyone, but many organizations would benefit from asking themselves if there is a better way to operate? When done correctly, outsourcing is a tool for improving service levels, realizing cost savings, stabilizing budgets and dealing with fluctuating activity levels and demands.

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