Department of Finance

Most fire departments don’t know that their request for fire truck financing proposals actually set themselves up to receive less bidders, create more confusion for themselves, and get worse financing terms. This article will help guide your fire department to set up a successful RFP process.

First, the RFP is not the time to shop for knowledge.

Too often, fire departments send out RFP requests without knowing what they exactly want. So, they effectively use RFP process to shop for information about lenders’ offerings. In other words, your fire department sends our RFP that asks for some very basic terms such as interest rate for a 10 year loan. Your department decided on a 10 year loan because of a general feeling that should be the term. The lenders reply and offer only the interest rate. This is the first step where you start getting a bad deal.

Here’s why. There are 7 factors that control how much you pay when borrowing money. When you send out a RFP based on the basic information above, you are opening yourself to those lenders who understand that they can present a low rate but overcharge you on the other 6 factors. Often, this low rate is calculated on an alternative interest rate formula which, although legal, is inconsistent with the most popular method of calculating rate. You won’t even know that you are being overcharged until after you sign the contract.

Second, determine what you really want.

If you don’t have the department resource who truly understands fire truck financing, find a trustworthy and knowledgeable person who can help you understand exactly what financing terms you want. This person should not be someone who will be bidding later so you have an objective source of help. They should help you set a general payment budget, what terms or restrictions you are willing to undertake, and financing term. By using this information, you will then be able to use the RFP process for its correct use – getting the best deal – rather than fact finding current financing options.

Your bid will be concise and provide a fair opportunity for lenders to present their best options. When lenders see a general RFP, they know that there are sharks who play bidding games. So, they don’t bid and your department ends up with fewer bidders and higher overall borrowing costs.

Finally, specifically ask for the right financing terms.

When you ask for the right information in the RFP, all lenders know you have set up a level playing field that they have a chance to win. So, more lenders respond to your RFP. And they work harder because they feel they have a fair chance to win. You’ll get overall better proposals.

There are 7 specific items you want your bidders to include in their proposal. When you ask for these 7 items, you will get more proposals, and better proposals, and you will also get information that is presented uniformly. That means you will have a far easier job in comparing the proposals since they will be “apple to apple”. Otherwise, you will end up with a wide variety of proposals that seem to have no relation to each other. Your job in comparing them will be harder, you will miss key cost factors, and you’ll be more susceptible to the game players and less likely to know what the best proposal is.

The 7 factors are:

How much you want to borrow
How many years you want to pay back the loan.
The date of your first payment (specify a date)
How frequently you want to make payments (monthly, annually, etc.)
Details of any fees or costs at any time during the financing term (this means not just “origination fees” or costs which are charged at the beginning but any fee or cost whatsoever such as prepayment fees or lien release fees or balance verification fees, etc.)
Interest rate and how it is calculated and how long the rate is fixed
Payout details (the bank must verify that they will pay your vendors according to the contract). Otherwise you may incur extra fees from your vendor because they can’t pass along a chassis discount, for example. This is a hidden way you will pay more for your financing choice even though your lender is not charging the fee.
In summary.
The key to any successful RFP process is to know what you want. Just as you didn’t send out RFP’s for a “fire truck” without any specifications about chassis, engine, transmission, or pump, you shouldn’t send a RFP for financing proposals without specifying the exact terms you want. Explore the options before you bid and with someone you trust and is knowledgeable. Require specific information that your lender has to put in writing upfront so that you create a fair proposal environment, get more interested bidders, and get a easily comparable set of proposals to choose from.

The Process

Including the finance department in Six Sigma deployment is a decision usually made at the design stage of the operation. Here, the department is treated as an associate in the establishment and operation plan. Easy said than done, many operations people are of the view that people related to accounting or anything to do with it are scorekeepers, auditors, or bookkeepers. Making them adapt to the awkward inclusion of the finance department is always a barrier.

All the ideas that had the ability of becoming Six Sigma projects have to be evaluated by the finance department before being finalized. Thereafter, the finance department authenticates the potentiality of every project to affect the result. This not only restricts process owners from pinpointing Six Sigma projects but also allows them to identify prospects. Additionally, financial evaluations act as decisive factors for business decisions and viability of an opportunity to the Six Sigma project.

Six Sigma Committees are active in the decision-making process. It is known that process owners and Belts frequently criticize the inclusion of the finance department and hold it responsible for the stagnation of profitable projects. However, later they become conscious that the projected advantages of a few projects may not even influence the result.

Finance can work with the teams for identifying the advantages of any project. There are times when some projects actually project more profits more benefits compared to what the process owners originally forecasted. The process owner and the finance department should concur on how these benefits can be premeditated after implementation of the project.

A second review of the inclusion of finance is carried out at the end of the DMAIC process. Afterwards, the ownership of the solution is immediately transferred to the process owner. The Belts are not involved with the calculation of benefits – they only concentrate on the DMAIC process.

Eventually, during first year after the implementation of the date solutions, the company records the profits. If there is a possibility of making an improvement, new Six Sigma projects are created. Whereas involving finance in a Six Sigma project generally starts before involving the Belts, it also goes on even after the Belts transfer ownership of the solution to the process owner.

Advantages of involving Finance in Six Sigma

o By recruiting a finance team to calculate the benefits, the real benefits are easily recorded with accuracy. This allows the team to focus completely on improving the KPI, without thinking about the final financial results. An improvement in the KPI can affect the bottom line.

o Inconsistencies may occur due to differences in working and handling styles. Instead, insisting on a single process that ensures proper financial calculation of every operation can offer comparable results.

o If the process of calculation remains with the owner, they may end up forgetting to calculate other processes that are affected by the calculation.

o These audits can be conducted internally or by simply inviting eternal teams to review calculations of the benefits.

Almost all departments within all companies have an untapped ‘cognitive surplus’. A ‘cognitive surplus’ is the difference between the specific tasks an employee is assigned to do and what they actually are capable of doing – the actual versus the potential work.

It seems obvious, but to tap into it the ‘Cognitive Surplus’ can make a huge difference.

Companies such as 3M, Dell and Google have all implemented what is called ’20% time’ or ‘innovation time’ – one day of their working week, dedicated to whatever projects they like… provided it benefits the company in some way.

Does it pay off?

One might wonder: Does it pay off? Well, at Google this has resulted in successful projects such as Gmail, Google News and AdSense, and according to ex-employee, Marissa Mayer, as many as half of Google innovations are a result of ’20% time’.

But, while this approach might be considered something market leaders can utilise, many finance departments perceive they barely have the time to complete all the necessary work at present, never mind crafting new and innovative ideas, supporting procedures that aid business growth.

Yet finance departments really do need this ‘innovation time’.

In this slow and sometimes contracting economy, the next two years will be critical for businesses. It will fall largely on finance departments to walk the thin line between productive spending and managing a dwindling pool of resources. Additionally, with a host of new financial regulations coming into place in this two-year period, financial departments will be instrumental in helping businesses to remain compliant without losing their current standing.

This extra pressure and workload will make it difficult for finance to inspire new talent whilst holding on to the employees they already have. Finance professionals require stimulating challenges without being overloaded with extra work – they need ’20% time’ to effectively tap-in to their expertise, and not have their time consumed by lengthy, repetitive tasks – that can be automated.

How to make time for tapping into ‘Cognitive Surplus’ in the finance department

One way in which businesses can help free up some of their finance department’s time to complete tasks, is by automating the tedious and time-consuming tasks that turn prospective talent off finance work. Reconciliation is one such set of tasks that finance professionals find particularly tiresome and time consuming. Fortunately it is now possible to automate account reconciliation, processing hundreds of thousands of transactions in just minutes rather than hours or potentially days.

While significantly reducing reconciliation errors, automation also frees up large chunks of time that could be dedicated to maintaining compliance, providing strategic insight in this tough economy.