Capital resource management principles and practices

Capital Resource Management

Plan for recapitalization of fleet (Honolulu Fire Department)

Today's economic agents are presented with a wide array of challenges. They must for instance operate in more environmentally friendly manner; they need to better serve customers' needs and wants, create value for the shareholder, support the development of the communities in which they operate and so on. These changes are not of novelty and they do not need to be further discussed. Yet, what is of importance at this stage is that all these efforts engaged in by economic agents have been also adopted by entities which operate in the not for profit sector.

Public institutions, charity organizations and other entities in this sector are also presented with the necessity of improving their technological infrastructure, enhancing the quality of their services and so on. The business community generally sets the tone, but the not for profit community has to follow it. Among other things, this also implies that the not for profit entities have to become more financially stable.

While organizations for animal rescue, fire rescue, charity organizations, public institutions and so on do not activate for the purpose of profit registration, they do need to generate funds in order to function. The sources of these funds are various, including donations, sponsorships, public funds or borrowed capitals -- either through debt or equity. And just like any economic agent, these institutions are sometimes presented with the necessity of recapitalizing their resources. The Honolulu Fire Department is for instance presented with the necessity of recapitalizing their fleet. The aim of this endeavor then is that of proposing a plan for action. Before achieving this desiderate however, it is necessary to introduce the reader to the dimensions of recapitalization as well as to the actor of the recapitalization plan -- the Honolulu Fire Department.

2. The Honolulu Fire Department

The Honolulu Fire Department, also known simply as HFD, is the fire authority of the city and county of Honolulu. Aside the main occupation of fire safety and quick response to fires, the institution is also in charge of a wide series of other operations, including:

The response to and management of emergency medical incidents

The management of incidents involving hazardous materials

The conduction of rescue operations on both land as well as on sea in order to save lives, properties and the environment.

In order to achieve these objectives, the institution continually improves the quality of its interventions and strives to better respond to the changing needs of the communities. In their own words, "the Honolulu Fire Department will continuously strive to meet the changing needs of our community by providing a modern and technologically advanced department. We will do this by maintaining a high level of readiness and by focusing on the professional development and training of all our personnel" (Website of the City and County of Honolulu, 2009).

At a more specific level, the Honolulu Fire Department engages in two different sets of action in order attain its mission and vision. In this order of ideas, the institution focuses on the following:

a) Adequate internal usage and training of the HFD staff members in order for them to be well trained and motivated fire fighters and rescuers

b) The promotion of fire education to the population (Website of the City and County of Honolulu, 2009).

In 2009, the Honolulu Fire Department employed a total of 1,100 fire fighters, spread across 44 fire stations. In terms of other organization details, the following are noteworthy: "The total number of companies in a platoon is 42 engine companies, 13 ladder or quint companies, 2 rescue companies, 2 hazardous material companies, 2 tower companies, 1 fireboat company, 6 tankers, and 2 helicopters. Hazmat 1 and 2, the hazardous materials companies, are dispatched to incidents involving petroleum, radioactive substances, or toxic chemicals. Also supporting the HFD's mission are several personal watercrafts and 3 rescue boats (2 of which are assigned to the search and rescue companies and 1 to the Waialua Fire Station)" (Website of the City and County of Honolulu, 2009).

Regarding the financial aspect, the cost of providing the fire rescue and adjacent services in 2009 was of $90 million. Despite the fact that the sum might seem impressive, when divided by individuals, the per capita cost of fire rescue and associated services is one of the smallest ones in the region. This does not however undermine the quality of the services (Website of the City and County of Honolulu, 2009). In order to further increase the financial stability of the institution, and subsequently the quality of the services, a process of fleet recapitalization has been set in motion.

3. Recapitalization

The concept of recapitalization is rather common within the specialized literature and it refers primarily to a process of restructuring the organizational capitals in a means that they generate more use for the company. The internal structure of an economic agent as well as other organizational features -- such as the nature of the operations conducted or the size of the company -- constitute important elements in the determination of the capital structure.

Two major components of the capital dimension of an economic agent are the borrowed capitals, materialized primarily in debt and equity. In a context of a large firm for instance, the generation of capitals through equity might prove more beneficial than debt as it might be more efficient for the company to increase its stock offering rather than negotiate with a bank. In the case of a small firm on the other hand, a bank loan might be more easily accessible than the issuance of shares.

Recapitalization occurs specifically when the managerial team of the given economic agent is faced with the necessity of restructuring its capitals in order to better answer emergent challenges. The financial terms website Investopedia defines recapitalization as the process of "restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company's capital structure and replacing them with bonds" (Investopedia, 2010).

The Investorwords website explains the concept as follows: "A change in a company's capital structure, such as an exchange of bonds for stock. Recapitalization is often undertaken with the aim of making the company's capital structure more stable, and sometimes to boost the company's stock price (for example, by issuing bonds and buying stock). Companies that do not want to become hostile takeover targets might undergo a recapitalization by taking on a very large amount of debt, and issuing substantial dividends to their shareholders (this makes the stock riskier, but the high dividends may still make them attractive to shareholders). Also, bankrupt companies often undertake a recapitalization as a part of their reorganization process" (Investorwords, 2010).

4. Recapitalization of the Honolulu Fire Department

The Honolulu Fire Department is currently facing the economic challenges of the entire world and is as such forced to complete its mission with fewer financial resources. Its tasks and responsibilities have not however suffered reductions, meaning as such that it was necessary for the company to identify new sources of income. Today, the Honolulu Fire Department retrieves its funds from the state institutions which collect taxes and then redistribute the money to public institutions. It is then their scope to increase the palette of financial sources, to diversify it and as such increase their financial stability.

The starting point of this project is that of recapitalizing the fleet. The process of fleet recapitalization is complex and does not exclusively refer to the generation of funds to support the fleet, but also to the efficient usage of the fleet so that it generates financial advantages. At a first level, the following measures are to be taken in respect to the fleet:

The thorough analysis of the fleet necessities in the meaning of the identification of the required fleet equipments of the most important necessity and the focus on them

The identification of the purchase priorities and the establishment of the fleet components which need to be hi-tech and top notch quality and their separation from the fleet components which could serve their purpose through a more efficient report between their price and quality

The analysis of the purchase offers from various purveyors and the selection of the purveyor based strictly on the efficiency and quality of the fleet components, rather than political criteria

The thorough maintenance of the fleet components in order to preserve their high quality and high functionality levels for prolonged periods of time. It is also necessary to more thoroughly and intensively verify the fleet components in order to identify any errors or damages early on. The sooner the damages to the fleet are identified, the more easily they can be repaired and the less money would be spent on their repairing or even replacement.

Assuming that these measures are implemented, they would generate fleet efficiencies, prologue the utilization duration of the components and reduce the adjacent expenditures. The recapitalization of the fleet is however in need to be changed in the meaning of adding new sources of income to ensure the adequate functioning of the fleet. In this order of ideas, the following are noteworthy for consideration:

a) Attracting more sponsorships

The targets of these actions would be large corporations or other significantly wealthy institutions. On the one side, these contributors would benefit in image and reputation from the support they offered to the fire department. The improved image would materialize in increased trust from the part of community and even higher sales levels. On the other hand however, the corporations would receive tax incentives for the sponsorships meaning as such that they would once again be remunerated for their financial support. Given these two benefits, it would be rather efficient to approach corporations for sponsorships and the success rates estimated for this endeavor are high.

b) Individual support

There is also the opportunity of attracting funds from the members of the local community. Aside the already traditional donations they are encouraged to make, individuals could financially support the Honolulu Fire Department in exchange for a service or activities offered by the HFD in exchange. The most common example in this sense is the annual creation of calendars with the firefighters and the sale of the calendars. Another event could include voluntary car washes for fund raising purposes.

c) Accessing public funds from other sources

This means of attracting more funds is in fact an artifice and it revolves around the creation of new departments or the offering of new services in order to justify the necessity for more funds. The disadvantage of this measure is however that the money attracted will have to be used for the purposes for which it was intended. The most relevant example in this sense would be constituted by the opening of a research and development department. This measure, alongside with the others presented above have the benefit of generating cost efficiencies and making the HFD's financial state more stable.