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5. Hegland To Council re cost benefit analysis for fire departmentTo: Scandia City Council From: Robert Hegland Councilman Gentlemen: When we recently voted on whether to approve the purchase of a new tanker for the fire department. I voted against the purchase. My purpose was that it is my belief that our city needs to consider implementing a more structured process for certain capital expenditures that the city makes. We need to have much more information to justify the spending of hundreds of thousands of dollars beyond “the old one is shot and we need a new one”. Do we allow such casual analysis on all major capital expenditures? In business any such an expenditure is preceded by a cost/benefit analysis. Don’t be intimidated by what sounds like a complex process. I have taken the liberty of including a brief description of the process of cost/benefit analysis from Wikipedia. Please note that it is used by both business and government. It’s implementation can be as complex or as simple as is desired. We usually know the cost element. What did it cost to buy? Add to that what it cost to operate. We know most of that already as we keep maintenance logs on all equipment. What we don’t know is the other half, the benefit side. Once we’ve bought whatever piece of equipment is desired we just assume it is being used as intended. Since City Councils such as ours are typically made up of average citizens, it would not be unusual for a council member to be voting on something which he or she has little knowledge in. This enables a department head to make their case with uninformed people. Only by having more complete information available to us can we make good judgments on major expenditures. For instance, what does it cost the city on average for each fire run it makes? When we send equipment to assist a mutual aid member city what does it cost us? Correspondingly, when we ask them to send us equipment, what does it cost them? I guarantee you that at some point one or more of these partners will be charging for such items as they are stressed to meet budgets. If a truck goes out on a call, how many firemen were involved, how much water was used, how long did the call take, how many water runs were required, etc. Knowing s uch information helps the City Council to judge new equipment purchases. Are they timely, is the equipment sought the right equipment, etc. This is a timely subject as we are coming up to budget time for the fire department. I believe there are lots of questions which should be asked. I am recommending that we request the fire department to fill out a call sheet for every call. I am including a suggested format. Most people, especially volunteer personnal do not like to deal with such issues. However, to properly to our job, it is required. We have a Chief and 2 or 3 Assistant Chiefs. This task can be easily spread among the existing personnel. I prepared the format as we will only get back what we provide a format for. Please review and comment. Sincerely, Bob Hegland Cost–benefit analysis From Wikipedia, the free encyclopedia Jump to: navigation, search Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic approach to estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for a business. It is a technique that is used to determine options that provide the best approach for the adoption and practice in terms of benefits in labor, time and cost savings etc.[1] The CBA is also defined as a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project"). Broadly, CBA has two purposes: 1. To determine if it is a sound investment/decision (justification/feasibility), 2. To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.[2] CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their "net present value." Closely related, but slightly different, formal techniques include cost-effectiveness analysis, cost–utility analysis, risk–benefit analysis, economic impact analysis, fiscal impact analysis, and Social return on investment (SROI) analysis. Theory Cost–benefit analysis is often used by governments and other organizations, such as private sector businesses, to appraise the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives and the status quo. CBA helps predict whether the benefits of a policy outweigh its costs, and by how much relative to other alternatives (i.e. one can rank alternate policies in terms of the cost –benefit ratio).[3] Generally, accurate cost–benefit analysis identifies choices that increase welfare from a utilitarian perspective. Assuming an accurate CBA, changing the status quo by implementing the alternative with the lowest cost–benefit ratio can improve Pareto efficiency.[4] An analyst using CBA should recognize that perfect appraisal of all present and future costs and benefits is difficult, and while CBA can offer a well-educated estimate of the best alternative, perfection in terms of economic efficiency and social welfare are not guaranteed.[5]