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Master the budget, line by line.

DURING THE PAST THREE YEARS the business picture for the aerospace industry has changed, and I have seen my security department's annual budget shrink from $21 million to $15 million and the staff from 420 to 270. Yet we have maintained a proprietary force, continued 40 hours of annual in-service training, and sent employees to specialized training programs on topics such as hazardous chemicals and disaster recovery. We have also assumed the responsibility for fire protection and disaster preparedness for the entire 14,000-person company.

Security managers have been isolated in the world of law enforcement and asset protection, but those who wish to maintain thriving departments must train themselves in business finance and speak the language of the accounting and business managers who control the overall company budget. It is equally important that each security department have a well-trained accountant or bookkeeper to track the spending within the department.

The need for security is recognized and appreciated by most company employees; however, the rising costs of security make it a convenient and frequent target for budget cuts. The ability of security professionals to manage and contain department costs effectively is critical to the success and survival of the security department.

Security managers should be prepared to answer specific questions on the security budget, line by line, and have adequate justification for increased or continuing costs. Security professionals must learn to work with the business base and find creative ways to reduce costs and maintain service. Here is how I do it for my $15 million budget. My staff begins preparing its budgets in August. These are then collated into one budget package. Each supervisor must ask himself or herself the following:

* Do I have the optimum staff to do the job?

* Does my staff have the proper equipment to do its job professionally?

* What training does my staff need this year?

As these questions are answered, the justification for the budget costs will be built.

In a group setting, these first-draft budgets are discussed line by line. Each item is questioned and justified, and alternative solutions are explored. The department manager must take advice and suggestions from the line managers and ask hard questions, ensuring no fat is in the budget. Only when the department manager is satisfied will the budget be defensible.

In most departments labor will be the single largest expense. The fact is that employing personnel is costly. Options do exist to reduce this cost, such as employing a contract force rather than a proprietary force. I believe, however, that for most companies the proprietary officer is the better value in spite of the increased cost. Regardless of which type of security personnel is used, the cost of personnel is significant. If proprietary officers are used, their salary alone is not their true cost.

The supporting company staff and benefits must be calculated in the overall cost projection. Overhead staff is an inclusive term; it is the accounting clerk, the company nurse, the janitorial staff, and everyone supporting an employee regardless of his or her work area. This may be called "related payroll expenses " or the " burdened " labor rate. This is the rate that must be used when calculating the security budget.

Generally, each company has a fixed percentage that when added to the actual salary reflects the employees' true cost to the company. In small, lean companies this may be as little as a 20 percent addition; in larger companies it may be as high as 50 percent.

With these additional costs, the proprietary force comes under close scrutiny and requires rigorous defense. I believe it is important to maintain a proprietary force and push for it each year, justifying the cost by explaining the lower turnover rate, increased company loyalty, and certifiable training in the topics the company feels are important.

Training has immediate and recognizable benefits and is justified through the officers' increased professionalism, which reduces the company's potential liabilities. My officers are armed and annually receive 40 hours of in-service training, which includes firearms, first aid, customer service, and disaster response training.

While training may be rarely questioned, it must be developed item by item, line by line. Consider the cost of an officer being absent from his or her post to attend training and the cost of filling assignments at premium pay. Consider the various training aids, such as film rental and educational workbooks, and the cost of first aid and CPR training.

While many instructors may be volunteers, supplies must be purchased or rented by the department. If firearms training is conducted, the costs may include the range fee, targets, ammunition, and a fee for the range master. I have found it more cost-effective to purchase rather than rent equipment such as slide projectors and VCRs, which are used on a regular basis.

The cost of off-site courses and seminars should be factored into the budget, too. Several good companies offer one-day workshops and seminars that provide good, solid training at a reasonable price. Most companies want the most professional and best-trained security department they can afford.

Materials and supplies are often a red-flagged line item because the figure is often padded. Therefore, the accounting department will likely ask for a breakdown of what exactly is being purchased and used.

The cost of office supplies makes up the bulk of this line item. These supplies may be open to potential misuse both inside and outside the department. Maintaining an inventory system can prevent pilferage, particularly of computer paper, pens, and notebooks. If your office has maintained accurate records of previous actual costs, you can base the projected budget on a similar figure.

While officer labor and training are significant expenses, do not neglect the other items of the budget that can quickly add up.

Communications can be an enormous expense. Remember the cost of the phone lines for the office equipment, the alarm lines, and the access control devices that may operate on the telecommunication links. Don't forget to include the cost of the elevator phones, the fax lines, and the car phones.

I have found it helpful to remind employees periodically that personal long-distance calls may not be made on the company phones. Many companies have deleted long-distance service from office phones, but some phones in security offices may be able to dial nationwide and in some cases worldwide.

If your company has not already blocked all 900 and 976 numbers, this is a good time to do so.

The travel and mileage line on your budget may include not only the obvious but also the lease fee on your security vehicles. Equipment expense is easily overlooked. The cost for each item may be small, but in a total count it may represent a significant piece of the security budget. What is on the equipment line? Is the lock and key hardware included there? The nuts and bolts used by the alarm technicians? Perhaps even the officers' uniforms?

As a cost-saving measure, my department stopped furnishing the officers with uniforms and began giving a uniform allowance. The savings freed one full-time staff employee for other duties since she had previously spent 50 percent of her time on uniform requests. Now the officers enjoy the freedom to purchase the items they need.

Don't overlook anticipated consultants, depreciation on capital items, fees for professional organizations and seminars, the support staff, and maintenance contracts for equipment upkeep. It is easy to overlook copier repair, computer system support, ASIS dues, and secretarial support for the department. Not including these small items in your budget, however, has the potential for cost overruns, something every manager wants to avoid.

If you cannot discuss the budget, it will not be approved. Managers must be able to speak the language of accountants and discuss the budget numbers with a roomful of people who also want the dollars. This requires a complete familiarity with all aspects of the operation.

For the senior manger this may require some in-depth homework. There is nothing more intimidating than being in a budget meeting and having someone ask a specific question that you can't answer fully.

To keep informed of the budget and associated costs I have found it helpful to review and initial every purchase order and petty cash voucher used by the department. It takes only a few moments of my time, yet it provides invaluable information on the department's daily operation.

Additionally, I receive a monthly summary of the budget that details line by line the dollars being spent. The department business manager attends the weekly staff meetings and is kept informed of changes that may affect the budget.

Tracking the monthly expenses against the approved budget is important so that security managers can determine immediately the department's financial picture. Computer programs are available that make tracking and retrieving this detailed information possible for even the smallest department.

Your local computer software store can find the program appropriate for your needs. The cost of the program will pay for itself by maintaining and forecasting costs accurately. This accuracy is important in establishing a professional working relationship with the company business office.

Whatever the size of the budget, the process for compiling the information and presenting it to management is essentially the same. Justification of the budget begins with the first line supervisor in the security department, progresses up the management chain, and continues throughout the year. Budget questions do not disappear when the budget is approved, and throughout the year security managers should be prepared to reconfirm the original requests and be willing to make changes when necessary.

Today's security professional must also be able to discuss industry trends. Are security salaries in line with the competition? Is the equipment reliable? Is it state of the art? Are competitors adding or deleting staff.? Is technology replacing personnel? Budget discussions are about more than just numbers; they're a way to forecast the company's future and put a cost to that future.

Presenting the budget is also an effective time to present your cost reductions. A proposed reduction on one line item may result in favorable consideration of the overall budget, and it presents the manager as a team player, concerned with cost and budget constraint.

Effective presentation of the budget relies heavily on the following:

* thorough knowledge of the department

* recognition of the company's financial picture

* communication skills

* financial savvy

The budget cannot be considered as a once-a-year exercise. Effective managers work with the budget daily, reviewing the actuals on a monthly basis while continuing to assess the changing needs of the department and the company.

Security is a business, and while it is an important operation, it is not sacred. The budget will face cuts, and the manager of the future must be able to present a compelling case for maintaining and increasing the security budget.

About the Author . . . Anna C. Northcutt is manager of security services for TRW General Services Division, Space and Defense Sector, in Redondo Beach, CA.
COPYRIGHT 1991 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:accounting and finance for industrial security managers
Author:Northcutt, Anna C.
Publication:Security Management
Date:Jul 1, 1991
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