MEASURING AND CREATING VALUE IN THE FIRE SERVICE

BY DON FRAZEUR

Budgeting is a key component of my job. I’ve faced the annual budget process for five years. At first, I found the process very frustrating. Why shouldn’t the fire department get new apparatus? Why shouldn’t we be given a “fire simulator” to train our firefighters in fire behavior? I’ve discovered that the budget process is not simply about replacement schedules, training needs, and staffing levels. It is about public value, taxpayers, and accountability for tax revenues.

VALUE, THE UNIVERSAL MEASUREMENT

It can be argued that government and, by extension, the fire service are big business. Money, in the form of taxes, is tendered to the government in return for services provided to constituents. Budgets can be sizeable. The Los Angeles County (CA) Fire Department alone has an annual budget approaching $600 million, the size of a significant company. However, subtle differences separate the valuation process for a public sector fire department and a comparable private sector “for profit” business.

The fire service does not have a “bottom line” monetary measurement indicating how much value is created within the community. Without a bottom line measurement, how can a fire chief demonstrate that the fire department is returning value to its shareholders, the taxpayers?

MEASURING PUBLIC VALUE

A private sector firm’s management is accountable to its shareholders for creating value and company performance. In the private sector, the bottom line produces accurate information about a firm’s performance, showing whether the firm is using inputs (invested capital) efficiently and effectively. Popular bottom line valuation measurements include Return on Invested Capital, Free Cash Flow, and Economic Value Added. A business is efficient if it does things right. It is effective if it does the right things. The bottom line shows in a single monetary figure how well it does both.

All private-sector bottom line measurements focus on past performance. The lesson here is that private-sector firms develop accurate information about past performance instead of concentrating their efforts on guessing about the future. In the private sector, future performance is best predicted by examining the company’s past performance.

Bottom line measures do not apply to fire departments because fire departments do not produce a profit. However, fire department operations are scrutinized in the public arena for accountability. As with the private sector, fire departments are accountable to their shareholders (the voters) to provide effective and efficient services.

Similar to private-sector business, a fire department is efficient if it does things right. Fire department efficiency is measured as a ratio: outputs to inputs. Outputs measurements can be broad, such as the ratio measuring population per firefighter, or specific, such as the ratio of vehicular accident responses per unit deployed.

Taken alone, fire department efficiency measures can be deceptive. A fire department may, for example, have an efficiency ratio of one firefighter for every 400 people served. However, in the fire service, efficiency doesn’t mean much if the fire department can’t use its resources to effectively mitigate an emergency. So, effectiveness must be examined together with efficiency. Here past performance is critical to predicting future performance. It is possible to predict the frequency, nature, and extent of emergencies a fire department will face in the future based on past experience. To be effective, fire departments must be able to control all expected emergencies they will face. A fire department should be efficient and effective. I hypothesize that the public value delivered by a fire department (fire department performance) is dependent on an optimized balance between efficiency and effectiveness.

Value is a relative measurement. In principle, fire departments can produce greater value by achieving one or more of the following:

  • Increasing service levels using current resource levels.
  • Reducing costs (in terms of money and authority) necessary to achieve current service levels.
  • Enhancing the fairness with which the fire department operates and delivers services.
  • Increasing the fire department’s continuing capacity to respond and innovate.

VALUE MEASUREMENT TECHNIQUES

There are two techniques available to evaluate fire department performance: (1) benefit-cost analysis and (2) program evaluation coupled with cost-effectiveness analysis.

Benefit-cost analysis is the most accurate technique because it provides the broadest view and is directly linked to value measurement. It assumes that individuals sizing up positive or negative service consequences should value fire department operations as individuals. The reason benefit-cost analysis is not normally used is that it is the most difficult technique to complete. Imagine measuring the value of a department’s ambulance service to each member of the community. The value to a 22-year-old individual would likely be far less than the value to a 65-year-old individual suffering from chronic emphysema.

In contrast, program evaluation coupled with cost-effectiveness analysis measures how well a fire department policy achieves particular objectives set by the government. This method defines public value collectively in terms defined as objectives that emerge from a collective decision-making process. Given that a department is politically directed, for example, to provide ambulance service, it is easy to measure program cost against objective criteria, such as response time.

It is the citizens acting through politics rather than consumers acting through markets that establish fire department service levels and service distribution. Political changes occasion the need and create the opportunity for operational changes. In politics, powerful political backing is necessary to mobilize the consensus necessary to effect policy. Therefore, political management is necessary if the fire department is to be operationally effective.

AN ORGANIZATIONAL MODEL FOR CREATING VALUE IN THE FIRE SERVICE

The following organizational building blocks will ensure that your department has the foundation necessary to create and deliver sustainable public value. Delivering sustainable public value is the key to generating the political clout necessary to garner support in the budget process.

•Fire departments must work collaboratively with neighborhoods to understand the neighborhoods’ true needs for emergency services and to develop meaningful cooperation strategies that will best deal with these problems. For example, fire departments providing emergency medical services to lower-income neighborhoods will likely need to deliver both emergency and nonemergency care to constituents, while departments serving wealthy, high-profile constituents might need to provide discreet emergency medical services.

•Fire departments cannot carry out their responsibilities alone or in a vacuum. They must be willing to involve the community in all prevention and emergency service aspects that directly impact community life. Prevention efforts are far more effective if the public understands why prevention is important. The public must understand the impact mitigation efforts have on the community as a whole.

•Fire departments should react to emergencies in a way that emphasizes prevention but yet is marked by vigorous mitigation efforts. Prevention efforts are deemed successful if fire incidence declines. Mitigation efforts are successful if fire losses per fire instance decline over an extended period. Mitigation efforts must include response time as an effectiveness measurement component. Fire departments should be proficient and able to manage all perceived emergencies they could encounter.

•Fire departments must be committed to managing resources in the most efficient and effective manner possible. Efficiency is best measured in conjunction with effectiveness. This corresponds to cost-effectiveness analysis completed in conjunction with program evaluation and establishes the accountability necessary to operate effectively in the public arena.

•Fire departments must actively seek employee input and involvement in matters that impact job performance and manage the organization in a manner that will embrace employee job satisfaction and effectiveness. The fire department’s mission and goals should be clearly communicated, understood, and shared by all department employees. The firefighter’s tools are the hose, nozzles, and equipment carried on the apparatus. To be effective, the tools must be sharp and ready at a moment’s notice. The fire chief’s tools are the firefighters. Firefighter input and involvement translate into job satisfaction and effectiveness, elements that make firefighters sharp and ready at a moment’s notice.

•Fire departments must be committed to maintaining the highest levels of integrity and professionalism. Public trust, at all organizational levels, is the most important operational component in service delivery. Unlike our police brothers, constituents open their businesses and homes to firefighters without question, enabling us to perform our duties in a timely fashion. At higher organizational levels, public trust is based on accountability.

•Fire departments operate most effectively when the organization and its operations are marked by stability, continuity, and consistency. This holds true at the fire station level as well as at the organizational level. Everyone has seen the destructive effects short-term officer assignments create in a fire station. The same holds true for a fire department taken as a whole. Rapid fluctuations in a fire department’s management, mission, and structure lead to reductions in morale and, ultimately, public value.

Political management, coupled with effective and efficient operations, is the key to creating public value and ultimate success in the budget process. Fire departments must be accountable for the funds used in providing services to constituents. The fire service must not underestimate the role politics plays in establishing the public value created by a fire department.

References

Anthony, Robert N. and Vijay Govindarajan. Management Control Systems. (Boston: Harvard Business School Publishing, 1998).

Copeland, Tom, Tim Koller, and Jack Murrin. Valuation-Measuring and Managing the Value of Companies. (New York: John Wiley & Sons, Inc., 2000).

Drucker, Peter F. Managing The Non-profit Organization. (New York: Harper Collins, 1990).

Kettl, Donald F. The Global Public Management Revolution. (Washington, DC: The Brookings Institution, 2000).

Merchant, Kenneth A. Modern Management Control Systems. (Upper Saddle River: Prentice Hall, 1998).

Moore, Mark H. Creating Public Value. (Cambridge: Harvard University Press, 1998).

Osborne, David and Peter Plastrik. Banishing Bureaucracy. (Reading: Addison-Wesley Publishing Company, 1992).

DON FRAZEUR has been battalion chief, Supply & Maintenance Division, in the Los Angeles (CA) Fire Department since 1999. He previously served the department in the capacities of captain II, captain I, and engineer. He is a state certified operations commander, a strike team leader, a division supervisor, and an EMT-D. He has a bachelor’s degree in business administration from California State University, Northridge, and a master’s degree in business administration from the University of Southern California. He is a member of the NFPA 1901 Technical Committee.

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