Charity Begins at Home

Charities, like all other businesses, have to spend money to carry out their work. Communications, energy, water, waste management, business consumables, finance and insurance are just some of the essential operational overheads incurred, without which they cannot function. However, many are paying too much for these services because they don’t have the in-house expertise or knowledge to manage them effectively.

Even finance managers who are aware of the need to control their costs, struggle to achieve meaningful savings because they lack the time and resources to drive cost reduction programmes. In a recent surveyª accountants KPMG concluded, ‘Businesses are under constant pressure to reduce cost, yet many find it hard to do so in a sustainable fashion. Nine out of ten cost reduction programmes fail to achieve their targets, and the gains that are achieved appear to be short-lived.’

Organisations usually focus on the headline prices of their essential overheads, assuming that these equate to the total cost. Not so. Just because a supplier offers you a low price it doesn’t mean you will make meaningful, long-term savings. After all, how do you know if it’s the best price? What if their prices go up next month and you’re tied into a long-term contract? Will they apply minimum charges that push your costs up rather than down? Do you have time to constantly monitor your prices and check your bills? And so on.

Traditional cost reduction programmes focus on these headline prices and short-term savings, but this approach overlooks many of the issues that affect the real cost of purchasing business overheads. What’s more, managing costs and making important procurement decisions often fall to staff whose core competencies lie elsewhere. By taking staff away from their main roles, organisations compromise productivity – another indirect cost of purchase that is rarely taken into consideration.

All charities want to meet their aims and really need to focus on managing their costs consistently and diligently rather than on one-off savings. This is the true function of cost and purchase management, requiring time, resources and specialist expertise, which many charities lack. Increasingly, many are turning to outsourced providers of these services. Thus, they can access specialist knowledge, mitigate the financial loss of taking key individuals away from their core responsibilities and eliminate the costs of employing in-house resources.

Energy experts Auditel agree, “Clued up companies are already making savings by employing the expertise of organisations that have the experience and time to obtain results.”

However, as in any other profession, there is best practice in cost management. Charities should always check exactly what they are going to get! For example, one of the most important things to consider when employing an outsourced expert is their auditing procedure. Best practice review processes should include the following:

• A comprehensive, in-depth review of current essential services expenditure
• A thorough analysis to determine where savings can be made
• A detailed report of recommendations including information about how the consultancy will earn their fees, e.g., on a contingency basis or a set fee
• The consultant will take full responsibility for managing relationships with existing, or
new suppliers

Charities would naturally prefer ethical business solutions (often referred to as Corporate Social Responsibility), as they recognise the need to be accountable for the impact of their activities on the environment and society.

Achieving the projected savings (and rebates for overcharges in the past) should be just the beginning of the job. The consultant should continue to assess current expenditure against new tariffs and services as they become available, to ensure that benefits continue from optimum cost efficiency across all essential business outgoings.

Several leading charities including YMCA, Royal Air Forces Association, RSPCA, Naomi House, Anthony Nolan Trust, Trafford Community Leisure Trust and John Grooms have all taken advantage of outsourcing their cost management function.

Recently, Brunelcare, a registered social landlord, and an originator of the ‘Meals on Wheels’ concept, commissioned a survey on their business costs. Annual savings amounted to £105,000 on gas and electricity usage including a substantial rebate from previous incorrect billings. Their Finance Director, George Cooke said: “As a charitable housing association, we always look for efficiency gains so we have a heightened awareness that we must spend our money wisely. These savings translate into valuable capital which has, in turn, been reused within our organisation.”