• on Dec 10th, 2012 in Finances: Cost & Revenue | 0 comments
    To borrow a saying often attributed to Yogi Berra, “It’s tough to make predictions, especially about the future.” Whenever people make estimates about liabilities for long- term expenses, such as pension and retiree health payments, they’re making predictions about the future. The problem is that predictions are based on the present, and the present is always changing. Since 1992, the Postal Service has had a surplus in the Federal Employees’ Retirement System (FERS) program, according to the Office of Personnel Management (OPM). A surplus occurs when assets exceed the amount of the liability. In October, the OIG released a white paper called Causes of the Postal Service FERS Surplus. The paper, produced with the assistance of Hay Group actuarial firm, examined the reasons behind the FERS surplus. Hay Group found that the surplus had emerged in part because of differences between the Postal Service and the rest of the federal government and recommended using assumptions based just on the Postal Service population rather than everyone in FERS. Hay Group developed an estimate of the surplus under Postal Service-specific assumptions. After the OIG released the paper, the Office of Personnel Management (OPM) released a new estimate of the FERS surplus as it does every autumn. In this new estimate, OPM used a different prediction for future interest rates and also made changes to demographic assumptions such as how long postal employees and retirees will live. OPM’s estimate of the FERS surplus declined substantially. To take into account this new information, the OIG asked Hay Group to update their previous estimate of the surplus to reflect OPM’s assumption changes and new 2011 data. Hay Group also included the most recent Postal Service-service forecasts about future salary increases. Hay Group found the projected surplus under Postal Service-specific assumptions to be $12.48 billion as of fiscal year (FY) 2012; whereas OPM, using FERS-wide assumptions, projected the surplus to be $3.0 billion.In either case, the Postal Service’s FERS fund is more than 100 percent funded, while Fortune 1000 companies are on average only 80 percent funded according to 2010 data. You can read more about the FERS surplus in the update to the original paper on our website.
  • on Apr 30th, 2012 in Finances: Cost & Revenue | 9 comments
    As the Postal Service struggles to survive, it needs to take a good look at the financial health of its products. However, ascertaining the financial health of a product line requires an accurate estimate of the cost of providing that product. The Postal Service is moving into an increasingly data-driven future; thus, the timeliness and accuracy of cost measurement will continue to grow in importance. The Postal Service has not changed its cost system fundamentally in many years, though it updates significant inputs annually. There have been calls for an examination of the accuracy and relevance of the system and implementation of specific changes. In order to inform the dialogue and debate, the OIG published A Primer on Postal Costing Issues, a discussion of postal costing, including the most salient of the concerns the Postal Service and its customers have raised. As discussed in the paper, the main issues that have been raised are whether the Postal Service: 1. Should use fully-distributed costing to evaluate the financial performance of products? 2. Should adapt the system to reflect the excess capacity currently present in the postal network? If so, how? 3. Should measure bottom-up costs? 4. Should use the new postal data sources in the costing system to improve accuracy and reduce costs? 5. Can improve the timeliness of cost studies and, if so, how? As the postal market changes, the Postal Service will need new and/or different cost data to support its decisions, including pricing decisions. Many of the suggested changes and improvements would require a significant expenditure of resources at a time when the Postal Service is under substantial fiscal stress. But the Postal Service needs the right cost data to make the right decisions.. What do you think – should the Postal Service be spending money to improve its cost systems? If so, what do you think are the most important changes needed? This blog is sponsored by RARC.
  • on Oct 10th, 2011 in Finances: Cost & Revenue | 57 comments
    Much emphasis has been placed on reducing the Postal Service’s costs in response to its financial crisis. Yet financial viability could come in the form of a balanced approach that both reduces costs and increases revenue. How would a smart business respond to declines in its major products? Would it raise prices where possible in stagnant areas and invest the proceeds into existing or new growth areas? Would it selectively discount products to grow volume in price sensitive segments? Disruptive innovation, such as that underway in the communications sphere, requires change to ensure the Postal Service has what it needs to move beyond the critical crossroad it faces today. The Office of Inspector General Risk Analysis Research Center’s new paper Postal Service Revenue: Structures, Facts, and Future Possibilities (Report Number RARC-WP-12-002) addresses the major components of the Postal Service’s revenue structure in Fiscal Year (FY) 2010, assesses existing opportunities permissible under the current framework, and discusses future options and policy considerations in a new era. Click here to read the Postal Service Revenue: Structures, Facts, and Future Possibilities white paper. How would you approach the revenue issue to make sure the Postal Service continues to provide self-funded universal service to the American people? This blog is hosted by the OIG’s Risk Analysis Research Center.