TOWN OF BELMONT CASE STUDY
Executive Summary

Course: ACCY6900.10
Professor: Marcus Melton, CIA, CGFM, PMP
Student: xxxxxxxxxxx
Date: xxxxxxxxxxxxxx

Introduction

The purpose of this summary is to present the results of a cost comparison analysis of the

Town of Belmont’s two options in providing snow plowing services: to replace six of their snow

removal vehicles on a one-to-one basis; or to subcontract six more vehicles for snow plowing

services. This summary will also explore some of the financial and non-financial implications of

public service outsourcing versus keeping the service mainly in-house, specifically in relation to

the snow plowing services for the Town of Belmont.
The Results of the Financial Cost Analysis

The results of the financial cost analysis are presented in Tables 1 to 4 in the Appendix

and the reasoning behind the calculations and assumptions that led to the results are summarized at the end of the Appendix.

The results of the cost analysis indicates that the cost of using the new and more efficient

snow plowing vehicles (Walther Snow Fighters) would be approximately $896 per vehicle for

one season, during conditions with more than three inches of snowfall. In those same conditions, the cost of subcontracting vehicles to carry out the snow plowing services would be

approximately $1,264 per vehicle for one season, indicating a difference of approximately $368
(Refer to Table 4 in the Appendix). This does not take into effect the cost of purchasing the new

vehicles, which would cost $30,000 per vehicle. A net present value calculation could be done to

determine the present value of the investment of each vehicle, but data about the lifespan or economic life of the new vehicles were not made available. It is also unclear whether the new snow removal vehicles could be used for spreading salt and sand, and if so, this fact should be taken into account in determining the net present value.
The Implications of Public Service Outsourcing

In outsourcing essential public services; and in direct relation to this case study, the

subcontracting of snowplowing services; there are several risks to take into consideration. The

first is the higher costs of the subcontracting services, as also demonstrated in the cost comparison analysis. This higher cost would prove especially problematic in years when snowfall

is abundant, and depending on the conservativeness of the budget or availability of emergency funds, the town might not have the ability to pay for the upsurge need for the costly

subcontractors in those years. The second risk is the reliability of the subcontractors. The case study mentions that during a storm, ninety percent of subcontractors called would show up.
Although this percentage is on the higher side, the question is whether this “attendance” ratio

will hold up when the new subcontractors are hired. This loss of control could mean that the uncertainty of having sufficient snowplows during heavy storms is prevalent.

However, there are several benefits to hiring the additional subcontractors on the roster.

If strong relationships with dependable contractors can be formed, the contractor can be locked in for a two or three year contract, costs can be better defined, which would aid the town’s

budgeting process. Another benefit is the ability to define the relationship between the town and

the contractor in a signing of a contract. The town would be able to outline the specific guidelines

and terms for duties in various circumstances, which would give the town a good portion of the management control of the snowplowing service.

The Drawbacks and Benefits of Maintaining In-house Services

In a decision to purchase the new snow removal vehicles, the town is also deciding to

keep this service in-house. The first cost or drawback in doing so would be the upkeep and

storage of the vehicles and equipment. Although the case study suggests that repairs and maintenance costs are incorporated in the given cost of operating the new town vehicles, one

could argue if other costs; such as storage or parking costs, insurance, and deicing materials; are

included in that amount. The second drawback relates to the cost of coordination and training of the crews to operate the town vehicles. Several factors that accompany the hiring of the town’s

own personnel would be management costs, costs of training, personnel benefits costs, and the cost of liability insurance for the crew while performing services for the town.

On the plus side, the town would have more control over the availability of the crew,

better accessibility to snowplow vehicles, and control over the timing of the snow removal. These

controls could mean that the town is more equipped to provide assurance that its standard of

high quality public services is maintained. Secondly, if a properly trained crew is already

available, which is the case in this town, there could be the obvious costs savings in operating the

new snow plowing vehicles, as demonstrated in the cost comparison analysis. This would also implicitly suggest that there would be cost savings in keeping the crew in the town’s payroll,

rather than pay more for their same services if they worked for the subcontractors instead.
Recommendation

In addition to making cost cutting measures, the Town of Belmont’s Highway Department

has the added pressure to maintain its reputation for providing its citizen with high quality services and the challenge is to determine if subcontracting this service will support or taint the maintenance of their reputation. If the town comes to the same conclusion as this summary, that it will be cheaper to operate their own vehicles, they should make the necessary net present value

analysis of the cost of purchasing new vehicles. If, instead, the town decides to subcontract the

snow vehicles rather then replacing them, the Highway Department should look at their current

list of available subcontractors and judge the quality and reliability of using them for this essential public service. If confidence in the subcontractors is high, the next step should be to investigate how they could define terms in the contract, so that they can retain sufficient control over the provision of the service.
Conclusion

The snowplowing services in a town like Belmont, with a sizable amount of snowfall a

year would be critically linked to the accessibility of many basic necessities for its residents.

Perhaps the decision to outsource or not to outsource is not simply dependent on a

straightforward cost analysis, but a decision based on how well the town wants to serve its public, especially when it concerns a service its citizens relies on for their survival.

Appendix
Table 1: Analysis of Snowfall Data in the Town of Belmont
Proportion of days
Snowfall
Trace
Under 1
1-3
3-5
5-10
10-15
Over 15
% of month with over 3 inch of snowfall
Estimate of days with over 3 inch of snowfall % days of snow, sleet or hail
Number of days of snow, sleet or hail

November December
January
February
March
0.72
0.54
0.47
0.47
0.5
0.18
0.27
0.29
0.3
0.27
0.1
0.09
0.11
0.11
0.12
0.05
0.07
0.05
0.06
0.01
0.04
0.04
0.04
0.01
0.01
0.01
0.01
0.005
0.002
0.01
0.004
0%

8%

12%

11%

11%

0

1

2

1

1

November December
January
February
March
0.11
0.34
0.41
0.39
0.28
3.3
10.54
12.71
10.92
8.68

Total number of days in winter with snow, sleet or hail
Total number of days in winter with over 3 inch of snowfall

46
5

Total # in days (c)

2.48
1.40
0.43
0.22

Table 2: Calculations of Operating Old Vehicles vs. New Vehicles
Old vehicles in
New vehicles in
Old Vehicles o/t
New Vehicles o/t
Labor (#of person per vehicle/hr)
$12
$18
$6
$9
Salt ($27 per ton at 3 tons per hr)
$41
$41
$41
$41
Sand ($3 per ton at 3 tons per hr)
$5
$5
$5
$5
Fuel per hour
$6
$6
$6
$6
Repairs and Maintenance (per hr)
$10
$10
$10
$10
Total with Salt/Sand
$73
$79
$67
$70
Total cost per hour for snowplowing $28
$34
$22
$25
Cost of new vehicle

$30,000

Table 3: Calculation of total hours of Operating town vehicles and Subcontractors vehicles
Own service
SubContractors
Time(hrs) Total hrs / Total hours
Total
Total hours
Number of per vehicle for for snowfall hours in
Number of for snowfall
Snowfall
Vehicles vehicle the season level season Vehicles level Total hours in season
A
b b x c* axb a x b x c* d bxd b x c* x d
Under 1
4
18
72
1-3
7
4
28
3-5
13
6
15
78
194
8
48
119
5-10
13
8
11
104
145
15
120
168
10-15
13
14
6
182
78
15
210
90
Over 15
13
23
5
299
66
15
345
77
Total for over 3 inches
37
483
454
*c – from Table 1 (Total # of days)

Table 4: Cost comparison for Operating New Snowfighters vs. Using Subcontractors
Total hours in season/vehicle*
Cost of vehicles/hr **
Overtime costs/hr **
Time spend on overtime (hr) 70%
Total cost
* from Table 3
** from Table 2
Difference in costs

New Snowfighters Subcontractor
37
37
$22
$34
$25
$34
26
$896.26
$1,264.44

$368.17

Explanation and Assumptions behind the Cost Analysis

First, an analysis was performed on the snowfall data in the Town of Belmont to determine the total number of days when snowfall was

over three inches. The importance of this outcome was to determine how many days in the season, would require the use of additional six vehicles that the town was looking to replace or subcontract out. (Refer to Table 1) The main assumption here is that the number of days would equal the number of times or instances, that the vehicles would be sent out.

Second, a calculation was done to determine how many hours each vehicle would be use in a season, particularly when there is more

than three inches of snow. (Refer to Table 3) The assumption here was both town operated vehicles and subcontractor vehicles services would be required for the same amount of time, given the same level of snowfall.

Third, the cost per hour of operating a town vehicle was calculated, to include labor, fuel, and repairs and maintenance costs, for the old

and new vehicles. (Table 2) Two costs per hour were included: One to include the salt and sand costs, and one without the said costs. The

assumptions made here is that for snowplowing purposes, the town vehicles will not need salt and sand. This assumption was made to obtain a cost that was comparable with subcontracting a vehicle, which is solely used for snow plowing purposes.

Finally, a cost comparison between operating a new town snow vehicle and subcontracting a vehicle was performed for the winter

season, incorporating results from the analysis of the snowfall data, hours of use for each vehicle, and cost per hour of each vehicle. (Table 4)
The final assumption is very simply interpreted from the case study, assuming that total hours a snowplowing vehicle is used in the winter months, 70% of those hours are attributed to overtime for the purposes of labor rate calculation.