2. side with the private/public sector to help deter,
detect and identify terrorist activity in New York
City through information sharing as the head of
NYPD Shield programme. Lt. Amadeo has a BA
in Political Science, a Graduate Certificate in
Police Studies and will be completing a Master
o f Science degree in Security Management
in 2016. He is also a graduate o f the 231st
Session FBI National Academy.
Detective Sergeant Steve lannone has over
27 years with the NYPD. He began his career
in 1989 in Brooklyn and served in several com-
mands around the City in uniform and plain
clothes both as an Officer and a Supervisor.
He was promoted to Sergeant in 2002 and was
assigned to Manhattan’s West side. In 2005 he
was offered a position with the Counterterrorism
Division and tasked with developing the NYPD
Shield Unit. Because of his successful efforts,
he was promoted to Detective Sergeant and
has remained with the Shield programme since
its inception. Detective Sergeant lannone has
an Associate’s Degree in Electrical Technology,
numerous certifications in Emergency
Preparedness from The Department of
Homeland Security and is a Certified Business
Continuity Professional through the Disaster
Recovery Institute International.
A bstract
This article will identify the challenges that post
9/ 11 law enforcement faces regarding private-
public partnerships and describe in detail the
N Y P D Shield programme, created to combat
3. those challenges. Recommendations made by the
911 Commission included the incorporation of
the private sector into future homeland security
strategies. One such strategy is N Y P D Shield.
This programme is a nationally recognized
award-winning public-private partnership dedi-
cated to providing counterterrorism training and
information sharing with government agencies,
non-government organizations, private busi-
nesses, and the community. Information is
shared through several platforms that include a
dedicated website, instruction of counterterrorism
training curricula, e-mail alerts, intelligence
assessments and the hosting of quarterly confer-
ences. This article also details how the N Y P D
Shield is providing its successful template to
other law enforcement agencies enabling them
Page 106
mailto:[email protected]
mailto:[email protected]
to initiate similar programmes in their respective
jurisdictions, and in doing so joining a National
Shield Network.
Keywords: NYPD Shield, counterter-
rorism training, information sharing,
public-private partnership, force multi-
plier, National Shield Network
INTRODUCTION
B efo re th e te rr o ris t attacks in N e w Y ork
C ity in S e p te m b e r 2 0 0 1 , th e N e w Y ork
4. C ity P olice D e p a r tm e n t (N Y P D ) was
c o n fid e n t in its ability to h a n d le any an d
all c r im e i n th e city. A lready to u tin g re c o rd
re d u c tio n s in c rim e u n d e r past ad m in is-
trations, N e w Y ork C ity was b e c o m in g
th e safest larg e city in th e U S A . B efore
1 1 th S e p tem b er. 2001 fig h tin g te r r o r was
largely c o n sid e re d th e responsibility o f
federal p a rtn e rs. A fte r lo sin g 23 p o lice
officers in th e fine o f d u ty an d m an y m o re
in th e years to c o m e, th e N Y P D d e c id e d
to d o w h a t it can to e n te r th e fig h t against
te rr o ris m in N e w Y ork City. S ince 9 /1 1 ,
th e global w a r o n te r r o r has n o w b e c o m e
th e resp o n sib ility o f law e n fo rc e m e n t as
w ell as th e p riv ate se c u rity profession
across th e c o u n try .
K n o w in g th a t ap p ro x im a te ly 85 p e r c e n t
o f critica l in fra stru c tu re , in telle ctu al p ro p -
e rty an d sensitive c o rp o ra te in fo rm a tio n
in th e U S A are p ro te c te d b y th e alm ost
1 m illio n s e c u rity officers in th e p rivate
se c to r s e c u rity in d u stry (U S G o v e rn m e n t
A c c o u n ta b ility O ffice, 2006), th e N Y P D
realised th a t it n e e d e d to engage this valu-
able reso u rce. T h e b en e fits o f p a r tn e rin g
w ith th e p riv a te se c u rity in d u stry can
b e tallied exponentially. As an exam ple,
after re c e iv in g N Y P D S hield train in g ,
se c u rity officers w h o have b e e n ed u c ated
o n th e N e w Y o rk C ity te rro ris m tip
h o t-lin e (1 -8 8 8 -N Y C -S A F E ) have re p eat-
edly called to r e p o rt suspicious activity
a ro u n d th e city. In o n e case, a serial b a n k
5. ro b b e r was a p p re h e n d e d after a S hield
m e m b e r receiv ed a ‘w a n te d b u lle tin ’ in
a S hield e -m a il alert. W o rk in g to g eth er,
th e N Y P D ca n m o re th a n d o u b le its eyes
a n d ears in th e c o m m u n itie s it is sw o rn
to p ro te c t. L aw e n fo rc e m e n t across th e
co u n try , especially th e N Y P D , does this
b ecau se it has seen th a t w o rk in g to g e th e r
w ith its c o m m u n ity o n ly increases its
stren g th a n d ability, n o t o n ly to c o m b a t
c o m m o n v arie ty crim e , b u t also to p ro v id e
a substantial h e ig h te n e d aw areness level fo r
re p o rtin g w h a t is c o n sid ered u n u su al to th e
c o m m u n ity b e in g p a rtn e re d w ith . T h is is
th e essence o f p u b lic—p riv ate partn ersh ip s:
e m p o w e rin g th e p riv ate se c to r to act o n
w h a t it sees as u n u su al o r o u t o f th e o u t o f
th e ordinary. W h e th e r p a r tn e rin g directly
w ith p o lice a n d re ceiv in g tra in in g fro m
professional law e n fo rc e m e n t officers, o r
a p riv ate citizen th a t engages p ro g ram m e s
like ‘See S o m e th in g , Say S o m e th in g ’ to
in f o r m local au th o ritie s, g e ttin g th e in fo r-
m a tio n to an investigative b o d y is essential.
T h e N Y P D ’s answ er to creatin g n e w
a n d lasting p artn e rsh ip s in th e fig h t against
te rro ris m is th e N Y P D S hield p ro g ra m m e .
N Y P D S hield is a m e m b e rsh ip -b a se d
liaison p ro g ra m m e b e tw e e n th e N Y P D
a n d N e w Y ork C ity ’s p riv ate a n d p u b lic
sectors. Its m ission is to s tre n g th e n th e
N Y P D ’s p a rtn e rsh ip w ith p riv ate sec u rity
professionals a n d to serve as th e N Y P D ’s
p ro g ra m m e fo r c o m m u n ic a tio n w ith
th ese p riv ate se c to r entities o n m atters
6. o f c o u n te rte rro ris m . S hield provides m u l-
tip le p latfo rm s fo r th e p riv ate se c to r to
access in fo rm a tio n a n d resources w ith in
th e N Y P D to address e m e rg in g threats
an d ev o lv in g c o n d itio n s w ith in N e w
Y ork C ity a n d addresses p riv a te se c to r
in fo rm a tio n n eeds o n b o th a g eo g rap h ic
an d in d u stry secto r-sp ecific basis in a
n u m b e r o f specific ways. T h e se p latfo rm s
in c lu d e co n feren ces, tra in in g sem inars, th e
w ebsite, e -m a il alerts, in tellig e n ce analysis
briefs an d professional liaisons. W ith over
Successful public-private partnerships: The NYPD shield model
17,000 m e m b e rs, N Y P D S hield is b ro k e n
d o w n in to 2 2 ‘sec to rs’, allo w in g fo r m o re
d ire c te d a n d specific c o m m u n ic a tio n
a m o n g th e c o m m u n ity o f professionals
in each sector. T h e se in clu d e: business
im p ro v e m e n t districts (BIDs); c h e m ic a l/
p e tro le u m ; cultural; ed u c a tio n ; e n e rg y /
utilities; e n te rta in m e n t; fin an c e an d
b an k in g ; g o v e rn m e n ta l agencies; h e a lth
a n d hospitals; h o sp itality a n d to u rism ; law
e n fo rc e m e n t; m a ritim e ; m edia; p o sta l/
parcel; professional services; real estate an d
p ro p e rty m a n a g e m e n t; religious; retail an d
m erc h a n t; security; te le c o m m u n ic a tio n s /
IT ; tra n sp o rta tio n ; an d o th e r. T h e u ltim a te
goal o f th e S hield p ro g ra m m e is to create
ad d itio n al ‘eyes an d ears’ w ith in th e secu
rity c o m m u n ity to assist in a tte m p tin g to
th w a rt p o te n tia l te rro ris t plots a n d attacks.
7. S hield serves as a fo rce m u ltip lier, tak in g
advantage o f th e h ig h n u m b e rs o f se c u rity
p e rso n n e l em p lo y ed th r o u g h o u t th e city.
‘Public an d p rivate secto r p artn e rs can
lo o k to an ex cellen t exam ple o f h o w
expectations can b e clearly established in
a public—private p artn ersh ip : th e N e w
York Police D e p a rtm e n t’s (N Y P D ) Shield
program . T h e N Y P D Shield program
b rings to g e th e r p ublic an d p rivate secto r
entities to facilitate in fo rm a tio n sharing
fo r security purposes. F or instance, i f a
N e w Y ork C ity business o w n e r w ishes
to b e c o m e p a rt o f th e p rogram , he
o r she can apply to be a m e m b e r o f
N Y P D Shield online. N Y P D Shield is
a tw o -w a y street; th e key to success is
fo r in fo rm a tio n to flow in tw o direc-
tions. W e ask y o u r assistance in th e fight
against terro rism by re p o rtin g suspicious
b eh a v io r as soon as possible.’1
HISTORY
N Y P D S hield b eg a n in 2 005 after th e
D e p u ty C o m m issio n e r o f C o u n te rte r ro ris m
at th e tim e, M ik e S h eeh a n , b e c a m e aw are
o f th e F ed eral B u rea u o f Investigation
(F B I)’s In fraG u a rd p ro g ra m m e . In fra G u a rd
is a p a rtn e rsh ip b e tw e e n th e FBI a n d th e
p u b lic /p riv a te sector, a n d is d e sc rib e d as
an association th a t represents businesses,
academ ic in stitu tio n s, state an d local law
e n fo rc e m e n t agencies, a n d o th e r p a rtic i-
8. pants. In fraG u a rd is d e d ic a te d to sh a rin g
in fo rm a tio n an d in tellig e n ce to p re v en t
h o stile acts against th e U S A . T h e th e n
P olice C o m m is s io n e r R a y m o n d K elly an d
D e p u ty C o m m is s io n e r S h e e h a n d e c id e d
th a t th e N Y P D sh o u ld b e g in its o w n p ro -
g ra m m e .2 T h e N Y P D S h ie ld was p u rp o s e d
in 2005 w h e n it ab so rb ed th e m e m b e rsh ip
database fro m a n o th e r N Y P D p ro g ra n u n e
called th e A rea P olice—P riv ate S e c u rity
L iaison (A PPL). T h e A P P L p ro g ra m m e
co n sisted o f N Y P D executives a n d se c u rity
d irec to rs w ith in N e w Y ork C ity w h o se
goal was ‘to e n h a n c e p o lic e a n d se c u rity
c o o p e ra tio n in th e p r o te c tio n o f p e o p le
an d property, to e x c h an g e in fo rm a tio n ,
an d to h elp elim in a te th e cred ib ility gap
b e tw e e n p o lic e an d p riv a te security.’
INFORMATION-SHARING
PLATFORMS
T h e N Y P D S hield m o tto , ‘C o u n te r in g
te rr o ris m th ro u g h in fo rm a tio n s h a rin g ’,
is a c co m p lish e d by e n g a g in g w ith th e
p u b lic /p riv a te se c to r th ro u g h m u ltip le
p latform s. O n e o f these p latfo rm s is
th ro u g h th e N Y P D S h ield w ebsite (w w w .
n y p d sh ield .o rg ). T h e w eb site serves as a
ce n tral d e p o sito ry fo r m e m b e rs to share
a n d receive in fo rm a tio n . T h e w eb site p r o -
vides n u m e ro u s resources fo r its m e m b e rs
th a t in c lu d e in te llig e n c e assessments a n d
in fo rm a tio n a l b u lletin s, w e ek ly re p o rts,
th e ‘A ro u n d th e W o rld ’ videos, a reso u rce
lib rary an d v ario u s p u b licatio n s.
9. Intelligence assessments
T h e C o u n te r te r r o r is m B u re a u ’s T e rro rism
T h re a t Analysis G ro u p (T T A G ) consists o f
Page 108
highly educated civilian intelligence ana-
lysts that prepare intelligence assessment
reports based on terrorist attacks both
at home and abroad. These non-classi-
fied open source assessments are posted
on the website for security directors and
managers to read, providing them with
information that can assist in deciding
whether adjustments are required to their
organisations’ security posture based on
the type o f attack. ‘Within hours o f a
major incident abroad, Shield makes
its intelligence products available via its
website. Actionable and filling a need
for basic information, these briefs enable
the private sector to quickly take steps
to protect its assets.’3 These intelligence
assessments are widely redistributed within
security industry circles because they are
highly digestible 2—3-page documents that
always conclude by tying in whether the
incident or attack has ‘implications for
New York City’. Some examples of recent
intelligence assessments are the Paris and
San Bernardino attacks as well as the attack
on the art exhibit in Garland, TX.
‘Analytical briefings are provided on
10. a weekly basis, but they can be pro-
vided sooner on an event-specific
incident basis. The analytical briefs
are researched and prepared by intel-
ligence research specialists assigned to
the Counterterrorism Division. Those
specialists prepare and make available
to members sector-specific briefings
(cyber security, C B R N [chemical, bio-
logical, radiological and nuclear], etc),
weekly regional reports (Iran, Iraq,
Arabian Peninsula, Africa, etc), inci-
dent-specific reports (Times Square
bombing, Mumbai, etc), and they also
prepare reports on trends and analysis.’4
Informational bulletins
The NYPD Shield website also posts
informational bulletins that are prepared
by TTAG. These bulletins provide specific
information about events throughout the
city, such as parades, the New York City
Marathon, special dignitary visits such
as that by Pope Francis, major sporting
events, New Year’s Eve and the 4th o f July
celebrations to name a few. These bulletins
offer information to security directors and
managers, informing them o f event details
and providing a threat assessment that
includes possible disruptions relating to
the event that will assist them in informing
members o f their particular organisations.
Weekly reports
Weekly reports focusing on various
11. regions o f the world are posted on the
website. These reports discuss terrorism-
related attacks, tradecraft and also highlight
political and governmental issues in those
regions. The weekly cyber reports are
pertinent and informative briefings that
discuss cyber threats and breaches to
assist security directors and managers in
providing basic understandings o f these
technological attacks and shed light on
security measures and law enforcement
efforts to mitigate these threats. October
has been designated National Cyber
Awareness Month. In October 2015, the
NYPD Shield website posted a daily cyber
tip, culminating with the ‘Myth-Busting
Cyber Security Tips R eport’. These tips
are archived and still available to view.
Videos
The NYPD Shield website also hosts a
series o f posted videos titled, ‘Around the
World’. These productions are arranged
into a newscast-style format and provide
information on terrorism-related news
and information.
Reports and publications
Under the NYPD Reports and Publications
tab, members have access to various docu-
ments, including ‘Engineering Security
Successful public-private partnerships: The NYPD shield model
12. — P rotective D esign for H ig h -R is k
B u ild in g s’, w h ic h was developed by the
N Y P D to ‘aid th e N e w York C ity b u ild in g
c o m m u n ity by pro v id in g in fo rm a tio n o n
h o w to prev en t an d m itigate th e effects o f
a te rro rist attack o n a b u ild in g ’.5 M o st o f
the re co m m en d atio n s in this p u b licatio n
address traditional threats from explosive
devices, in clu d in g guidelines o n en h a n c in g
p e rim e te r security; achieving robust
b u ild in g design; designing effective access
co n tro l, screening an d m o n ito r in g systems;
and developing fire-resistance, em erg en cy
egress an d c o m m u n ic a tio n system solu-
tions. ‘T h e re co m m en d atio n s also address
e m e rg in g threats fro m chem ical, b io lo g -
ical an d radiological w eapons, in clu d in g
guidelines o n d eploying and using heating,
ventilation and air c o n d itio n in g systems and
associated d e te c tio n devices’.6
A n o th e r w id ely v iew e d a n d d istrib -
u te d d o c u m e n t is th e N e w Y ork C ity
P olice D e p a rtm e n t study, ‘A ctive S h o o te r:
R e c o m m e n d a tio n s a n d Analysis fo r R is k
M itig a tio n ’. T h e N Y P D d ev e lo p e d this
p u b lic a tio n based o n analysis o f past active
s h o o te r in cid en ts an d careful review s o f
p re v io u s studies. Last u p d a te d in 2 0 1 2 a n d
c u rre n tly u n d e rw a y fo r u p d a te th ro u g h
2 0 1 5 , this p u b lic a tio n was d ev e lo p e d to
p ro v id e re c o m m e n d a tio n s to m itig a te
th e ev e r-p re v alen t an d frig h te n in g active
s h o o te r threat.
‘T h e N Y P D p e rfo rm e d a statistical
13. analysis o n a subset o f 3 2 4 active s h o o te r
in c id e n ts fro m 1966 to 2 012 to id en tify
c o m m o n characteristics a m o n g active
s h o o te r attacks. T h is d o c u m e n t provides
re c o m m e n d a tio n s fo r b u ild in g se c u rity
p e rso n n e l to ed u c ate th e m a n d m em b ers
o f th e ir organisations to m itig ate th e
risk fro m active s h o o te r attacks.’7
Resource library
A c e n tre p ie c e o f tools at th e disposal o f
N Y P D S hield m e m b e rs is th e w e b site ’s
reso u rce library. T h is lib rary includes
in fo rm a tio n a n d e x te rn a l links to w e b -
sites th a t are b ro k e n d o w n in to m u ltip le
categ o ries, w ith exam ples th a t in c lu d e
best practices fo r physical sec u rity ; crisis
a n d risks; facility security; e m e rg e n c y
p lan n in g ; sch o o l te rro rism ; chem ical, b io -
logical, radiological an d n u c le a r (C B R N )
th re a t security, a n d m a ritim e security,
to n a m e a few. T h is se c tio n provides a
p le th o ra o f in fo rm a tio n th a t can prove
useful to b o th p riv ate se c to r se c u rity m a n -
agers a n d d irec to rs as w ell as m e m b e rs o f
th e law e n fo rc e m e n t c o m m u n ity .
Quarterly conferences
N Y P D S h ie ld hosts co n fe re n c e s
th r o u g h o u t th e year. T h e s e events prove
to b e a n effective m ean s to c o n v e y rel-
ev a n t te r r o r is m in f o r m a tio n a n d c u r r e n t
P o lic e D e p a r tm e n t in itiativ es to in v ite d
s e c u rity d ire c to rs, m an ag e rs a n d o th e r law
e n f o rc e m e n t a g e n c y p a rtn e rs. T h e c o n -
14. fe ren c es allow th e S h ie ld te a m to solidify
re la tio n sh ip s w ith se c u rity d ire c to rs an d
m an a g e rs as w e ll as to e n c o u ra g e th e m to
tak e ad v a n ta g e o f S h ie ld reso u rces. ‘T h e
b rie fin g s b e tw e e n th ese e n titie s address
in d u s try a n d g e o g ra p h ic -sp e c ific c o n -
c e rn s w h ile p ro v id in g fe e d b a c k fro m th e
s e c u rity field o n p o licies in s titu te d by
th e D e p a r tm e n t’.8 T opics p re s e n te d at
th e c o n fe re n c e s fro m P o lic e D e p a r tm e n t
s u b je c t m a tte r e x p e rts ra n g e fro m in -
d e p th assessm ents o f w e ll- k n o w n attacks,
te rr o ris t trad e cra ft, b rie fin g s o n large-scale
events affec tin g N e w Y ork C ity, N Y P D
c o u n te r te r r o r is m p ro g ra m m e s, re c o m -
m e n d a tio n s to m itig a te th e active s h o o te r
th re a t, explosive effects, c y b e r te rr o ris m
a n d assessm ents o n specific te rr o ris t o rg a n -
isations.9 In a d d itio n , th e co n fe re n c e s have
h o s te d n o ta b le speakers fro m g o v e rn -
m e n ta l o rg a n isa tio n s, in c lu d in g M ic h a e l
M o re ll, f o r m e r D e p u ty D ir e c to r o f th e
C e n tra l In te llig e n c e A g e n cy ; N ic h o la s
J. R a sm u sse n , D ire c to r o f th e N a tio n a l
Page 110
Amadeo and lannone
C o u n te r te r r o r is m C e n te r ; E d w a rd F.
D avis III, f o r m e r P o lic e C o m m is s io n e r
o f th e B o s to n P olice D e p a r tm e n t; J e h C .
J o h n s o n , S e c re ta ry o f th e D e p a r tm e n t
o f H o m e la n d S e c u rity ; J a n e t N a p o lita n o ,
15. f o r m e r S e c re ta ry o f th e D e p a r tm e n t o f
H o m e la n d S e c u rity ; a n d , m o s t recently,
Jam es C o m e y , D ir e c to r o f th e FBI.
S in ce J u ly 2 0 0 5 , 3 6 S h ie ld c o n fere n ces
have b e e n h e ld , w ith a to ta l o f 12,951
a tte n d e e s .10
E-mail alerts
W h e n S h ie ld approves a n e w m e m b e r,
th a t in d iv id u a l is g iv en th e o p tio n to
receive e -m a il alerts. T h e s e alerts p ro v id e
m e m b e rsh ip w ith re a l-tim e in fo rm a tio n
re g a rd in g te rr o ris m events th ro u g h o u t th e
w o rld . T h e alerts fall in to a n u m b e r o f ca t-
eg o ries, in c lu d in g m a jo r in cid en ts; p o lice
activity; traffic a n d transit; b a n k robberies;
b u ild in g evacuations; b u ild in g em e rg e n c y
drills; w e e k e n d events; lo catio n s o f p ro test
th r o u g h o u t th e city; b re a k in g new s and
te rr o ris m a n d / o r active s h o o te r in cid en ts
b o th n atio n ally a n d globally.
Training
C o n s id e re d th e b re a d a n d b u tte r o f th e
S h ie ld p ro g r a m m e w ith n ea rly 8 5 ,0 0 0
m e m b e rs a n d n o n - m e m b e r s tra in e d , th e
S h ie ld p ro g r a m m e c u r r ic u lu m offers
12 tra in in g o p p o r tu n itie s fo r p e rs o n n e l
w ith in th e c o rp o ra te , p riv a te se c u rity
a n d m a n a g e m e n t sectors. T h is enables
face to -fa c e in te ra c tio n w ith th e p u b lic /
p riv a te sector, c re a tin g th e m o st im p a c t
in th e in fo rm a tio n -s h a rin g relationship.
T h is tra in in g is p ro v id e d to m e m b e rs
at n o co st a n d ca n b e ta ilo re d specifi-
cally tow ards tn e ir o rg a n is a tio n s needs.
16. T ra in in g is c o n d u c te d at th e ir respective
facility, w h ile all S h ie ld in s tru c to rs are
c e rtifie d b y N e w Y ork S tate. A n y se c u rity
d ir e c to r /m a n a g e r m e m b e rs ca n re q u est
tra in in g th r o u g h th e w e b site b y calling
th e office o r via e-m a il.
Seven o f these courses are c o n d u c te d
b y S hield p e rso n n e l, w h ile five o th ers
are c o n d u c te d b y th e C o u n te rte r ro ris m
D iv isio n ’s T ra in in g S ectio n . A lth o u g h
tra in in g is given u p o n req u est, th e re are
o fte n in c id e n ts o r attacks th a t cause S hield
to engage th e affected sec to r proactively.
F o r instance, after th e re c e n t attacks in
Paris, S hield c o n d u c te d tra in in g specifically
d ire c te d to w ard ‘soft targ ets’ in th e e n te r
ta in m e n t sector, su ch as restaurants, bars
a n d n ig h tclu b s. T h e S hield p ro g ra m m e
is a free in fo rm a tio n -s h a rin g a n d train in g
p ro g ra m m e w h e re N Y P D officers visit
businesses to tra in staff. A fte r th e m u rd ers
o f an o n - a ir television re p o rte r an d h e r
ca m e ram a n by a fo r m e r colleague, N Y P D
S hield h e ld an active s h o o te r tra in in g
sem in ar at P olice H e a d q u a rte rs specifically
fo r m e m b e rs o f th e m edia. ‘P olice offi
cials said th e sy m p o siu m was n o t so m u c h
a b o u t h o w to p re v e n t mass sh o otings b u t
h o w to b e ready “i f ” . W e w a n t to give y o u
so m e ideas a b o u t h o w y o u ca n survive an
in c id e n t like th is’.11
NYPD SHIELD COURSES
Recommendations for active shooter
17. incidents
T h is is th e m o st re q u e ste d c o u rse o ffered by
Shield, an d it explores re c o m m e n d a tio n s
to m itig ate th e risks fro m active s h o o te r
attacks. T h is tra in in g is g eared to w ard
b u ild in g se c u rity p erso n n el; how ever,
it also provides g u id an ce to individuals,
in c lu d in g m anagers an d em ployees, so th ey
can p re p are to re sp o n d to an active s h o o te r
situ atio n . It is also th e o n ly co u rse th a t is
offered to all em ployees o f an o rg a n isa tio n
a n d n o t lim ite d to se c u rity p e rso n n el. T h e
N Y P D d ev e lo p e d this p ro g ra m m e based
o n analysis o f past active s h o o te r in cid en ts
a n d careful review s o f prev io u s studies
by p ro v id in g statistics, histo rical exam ples,
a n d th e th re e re c o m m e n d a tio n s o n h o w
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Successful public-private partnerships: The NYPD shield model
to act w h e n faced w ith an active sh o o ter:
avoid, b a rric a d e o r c o n fro n t (literally, the
‘A B C ’s o f an active s h o o te r event). It also
in fo rm s a b o u t w h a t to e x p e c t w h e n law
e n fo rc e m e n t responds to th e scene. A t th e
c o n c lu sio n o f th e course, stu d en ts have
th e o p p o rtu n ity to b r in g to g e th e r w h a t
has b e e n ta u g h t by w a tc h in g a tra in in g aid
v id eo th a t provides a visual o f th e in s tru c -
tio n al p o in ts ta u g h t d u rin g th e class.
Terrorism awareness for the security
18. professional
T h is co u rse is in te n d e d to p ro v id e secu-
rity p e rso n n e l w ith th e tools to deter,
d e te c t a n d id en tify p o te n tia l te rro rist
activity. O v e r e ith e r tw o o r fo u r h o u rs,
th e in s tru c to r an d class discuss h o w to
recognise an d identify te rro rist-re la te d
physical a n d b eh a v io u ral in d icato rs, co llect
an d process in fo rm a tio n , m ake a p p ro p ria te
n o tificatio n s an d , w h e n necessary, take
a c tio n d u rin g a te rro ris t attack. Topics
th a t are co v ered in th e c o u rse in clu d e
an in tro d u c tio n to te rro rism , im p ro v ised
explosive devices, in d ic a to rs o f suicide
attacks a n d v e h ic le -b o rn e im provised
explosive devices.
It is o n e th in g to desc rib e to a stu d e n t
a b o u t w h a t explosive devices are an d
a n o th e r to actually sh o w th e m . To this
en d , in stru c to rs display in e r t explosive
th a t allows th e stu d e n t to visually inspect
an d feel these c o m p o n e n ts. E xam ples
in c lu d e types o f p ip e b o m b s, blasting caps,
igniters, sw itches and differen t ch em ical
c o m p o n e n ts u sed to c o n s tru c t explosive
devices.
Detecting hostile surveillance
D u r in g th e p re-stages o f an attack, terro rists
o fte n c o n d u c t p re -o p e ra tio n a l surveil-
lan ce o n a target. ‘T h e a l-Q a e d a m an u al
“ M ilita ry Studies in th e Jih a d against th e
T yrants” an d its o n lin e tra in in g m agazines
n o t o n ly in s tru c t operatives p la n n in g an
attac k to c o n d u c t surveillance, th e y also
19. p o in t o u t th e ty p e o f in fo rm a tio n th a t
sh o u ld b e g a th e re d .’ 12 D e te c tin g H o stile
S urveillance is a f o u r - h o u r ex a m in a tio n
o n h o w p u b lic /p riv a te se c u rity p e rso n n e l
can d e te c t hostile surveillance th a t m ay
b e c o n d u c te d o n th e ir facility, em ployees
o r business area. It provides se c u rity p e r-
so n n el w ith th e tools to k n o w w h a t to
lo o k fo r w h e n th e y are b e in g w a tc h ed .
The Vehicle-Borne Improvised
Explosive Device security checkpoint
operations course
T h is fo u r -h o u r, tw o -p h a se c o u rse is
d esig n ed to p ro v id e h a n d s -o n in s tru c -
tio n re g ard in g v e h ic le -b o rn e explosive
re c o g n itio n to m e m b e rs o f th e profes-
sional se c u rity co m m u n ity . T h e co u rse
is in te n d e d to in s tru c t se c u rity p e rso n n e l
w ith p a rk in g facilities a n d / o r d e liv e ry /
lo a d in g d o c k areas in th e ir organisa-
tio n . D u r in g th e first phase o f classroom
in stru c tio n , th e stu d e n t is p ro v id e d w ith
te c h n iq u e s a n d m e th o d s re g ard in g th e
use o f p ro p e r v eh icle in sp e c tio n d u rin g
se c u rity c h e c k p o in ts at h ig h -p ro file events
a n d critical in fra stru c tu re lo catio n s. T h e
sec o n d phase o f in stru c tio n focuses p r i-
m arily o n th e h a n d s - o n aspects o f v ehicle
searches. S tu d e n ts w ill le a rn a b o u t th e
v ario u s m e th o d s o f explosive c o n c e a lm e n t
in differen t types o f v ehicle an d d e m o n -
strates th e use o f p ro p e r te c h n iq u e s for
in te rv ie w in g b o th o p e ra to rs a n d passen-
gers o f suspicious vehicles.
20. Suspicious mail and package
T h is c o u rse is in te n d e d to p ro v id e
m e m b e rs o f th e se c u rity c o m m u n ity an d
m a ilro o m p e rso n n e l w ith th e skill set
re q u ire d to d e te c t an d id en tify suspicious
m ail a n d packages. T h e c o u rse w ill discuss
h o w to h a n d le m ail an d packages securely;
recognise a n d id e n tify suspicious item s;
take a p p ro p ria te actions u p o n disco v erin g
a suspicious article; a n d b est practices for
m a ilro o m security.
Page 112
Federal Emergency Management
Association courses
IR TB /PR SB I are sponsored by the
Department o f Homeland Security AND
FEMA; FEMA is a subsidiary o f DHS. The
final two courses provided to members by
N YPD Shield are awareness courses that
are sponsored by the Federal Emergency
Management Association (FEMA). The first
is Incident Response to Terrorist Bombings
(IRTB), which is designed to help responders
including security personnel recognise and
report a potential incident involving explo-
sives and take appropriate action in response
to the event. The second Is Prevention and
Response to Suicide Bombing Incidents,
the goal o f which is to provide students with
sufficient knowledge o f suicide bombings so
they can assist in the prevention, deterrence,
21. mitigation and response effort to this threat.
PUBLIC-PRIVATE PARTNERSHIP
PROGRAMME EXPANSION: THE
NATIONAL SHIELD NETWORK
The Shield programme is currendy devel-
oping a plan for a coordinated collaboration
with other large city police departments such
as Boston, Baltimore, Mobile, Memphis,
Nashville and Minneapolis. The goal o f the
collaboration is to duplicate the successes of
the N Y PD ’s relationship with the public/
private sectors and ultimately create a network
o f public/private partners throughout law
enforcement jurisdictions nationwide. The
Shield programme is offering other depart-
ments the NYPD Shield template, which
includes its training curriculum, so that
they may develop a comparable programme.
In turn, these newly established Shield
programmes will offer assistance to their
neighbouring law enforcement jurisdictions
and to the communities they serve.
Expansion o f the Shield programme on a
national level is proving to be an extraordi-
nary example o f interagency collaboration
between law enforcement and the public/
private security industry. ‘The programme
is also deserving o f duplication by other
law enforcement agencies and private sector
security professionals to prevent an act of
terrorism elsewhere in America.’ 13
Expanding the Shield programme to a
22. national level, and in the process creating
a National Shield Network (NSN) offers
multiple benefits for the NYPD. Ultimately,
the N S N will provide additional layers o f
security for N ew York City by possibly
disrupting potential terrorist plots through
open communication with various police
departments, before those threats reach the
city’s borders. It will also allow the NYPD
to obtain accurate and timely informa-
tion, in any state, from a network o f Shield
partners across law enforcement, but most
importantly from corporate America.
W h en an event occurs in any N SN
city that is possibly terrorism-related (eg
a school shooting, explosion, terrorist
attack), the Shield programme in the inci-
dent city will contact the other N SN
members w ith an alert e-mail, text or other
secure means in timely fashion. It is a given
that during any major terrorist incident,
law enforcement is focused on eliminating
the present threat to protect lives. W ith
that understanding, the goal is to conduct
a conference call detailing a basic recap
o f the incident. D uring this briefing, the
following five questions will be answered:
• Is the incident terrorism related?
• Have any suspects been identified or
arrested?
• Do any suspects have any ties or associa
tions to other cities?
23. • Are there any security concerns for the
incident city or other N S N cities?
Another added benefit for the NYPD would
be that an N SN would increase Shield
membership among both civilians and law
enforcement. Future goals include holding
an annual conference that specifically brings
Successful public-private partnerships: The NYPD shield model
together law enforcement and the public/
private security industry, where members
can obtain information on training events,
meet vendors, research guest speakers for
local events, create new partnerships and col-
laborate with other police departments, etc.
There are also benefits for police depart-
ments to adopt and support an NSN.
Modelling a national network after the
Shield programme will assist police depart-
ments in bridging the communications gap
between their department and the public/
private communities, which in turn will
provide law enforcement with access to the
private sector’s personal knowledge o f their
businesses, buildings, neighbourhoods, spe-
cific fields o f expertise, etc. It will also enable
police departments to offer assistance to local
communities and their national Shield part-
ners by providing counterterrorism training
to their local business community.
24. Implementation o f a Shield programme
will allow law enforcement to gain access
to the wealth o f knowledge possessed
by corporate representatives across the
country, and in some cases the world, as
the US business community is interna-
tional in nature and scope.
‘The N Y PD recognized that the private
sector has unique qualifications to assist
the department in their pre-event
planning and surveillance; in turn indi-
viduals in the private sector can be
informed, participating members o f the
system that serves to protect their city.
This partnership could serve as a model
for a federal program.’14
Many law enforcement agencies agree that
implementing a programme similar to the
Shield programme would be a productive
and successful way to engage with the public/
private sector. However, many o f these agen-
cies feel that committing limited resources
and manpower would pose as a significant
challenge to their organisation. To put this
into perspective, the NYPD is comprised of
over 35,000 police officers and is responsible
for policing a city with a population o f 8.5
million people. The Shield programme’s
team consists o f twelve NYPD members
responsible for the day-to-day operation o f
this in-demand programme. Needless to say,
it does not take a lot o f resources and/or per-
25. sonnel to implement an information-sharing
programme with have such a high rate o f
return on a minimal investment. In early
2015, members from the Shield programme
travelled to Maryland to present to various
law enforcement agencies in the area about
the possibilities of implementing a local pro-
gramme. In the audience was an intelligence
analyst from the Ann Arundel County Police
Department who saw how the benefits o f a
programme could impact the public/private
sector in his communities. Within a short
period o f time, this sole analyst rolled out
the Ann Arundel County Guardian Shield
programme that consisted o f a bi-weekly
newsletter with an e-mail distribution of
1,000 public/private sector members. The
newsletter not only addressed traditional
terrorism but included cyber terrorism and
criminal activity, illegal drug information,
and provided security tips and information.
One analyst, with a distribution o f 1,000,
is making an impact by informing and pre-
paring a more educated public/private sector.
Guardian Shield is also in the process o f
incorporating the N YPD active shooter
recommendations curriculum into its pro-
gramme and recently launched a website
dedicated to communicating w ith the
public/private sector. Law enforcement
agencies that do not yet offer an equiva-
lent programme to Shield should consider
growing their capacity to work w ith public/
private partners and start a programme.
26. ‘The NYPD Shield program is extremely
interested in helping your local law
enforcement partners get started and
offer a tremendous amount o f support
Page 114
and guidance. The Shield program has
been instrumental in assisting two juris-
dictions in the State o f Maryland get
started in the last several months and has
helped Orange County, CA, Seattle, WA
and Boston, MA start similar programs.’15
N YPD SHIELD has assisted in the
implementation o f SHIELD programs in
Baltimore County, Baltimore City and Anne
Arundel County (MD), Boston Regional
Intelligence Center (BRIC, MA), Hanover
C ounty (VA), Suffolk C ounty Police
D epartm ent (NY). NYPD Shield is also in
the process o f having discussions with other
law enforcement agencies to implement
similar programmes. Discussions to imple-
m ent Shield programmes in Mobile, Kansas
City, Nashville, Baltimore City, Prince
George County, MD, are already underway.
W ith the assistance o f the Shield pro-
gramme, the Seattle Police D epartm ent
launched its Seattle Shield programme in
2009, and defines its mission as an infor-
mation reporting and sharing partnership
between law enforcement and private and
27. public-entity security managers in the
dow ntow n Seattle area. Suspicious activity
can be reported and then disseminated to
members through Seattle Shield. Similar to
the N Y PD Shield website, Seattle Shield
uses a secure website to send out alerts to
partners in the programme and holds bi-
m onthly networking meetings (see h ttp ://
www.seattleshield.org).
In 2011, the Orange C ounty Intelligence
Assessment C en:er (OCIAC) in California
instituted its Orange C ounty Shield pro-
gramme. O C IA C ’s Shield represents the
C enter’s public/private sector outreach
programme that brings together private
sector security personnel w ith both the
intelligence com munity and Orange
C ounty first responders. O C IA C ’s Shield
membership has grown to over 1,000
members. T he programme consists o f a
myriad o f functions that include:
‘a safe and trusted information sharing
platform providing efficient manage-
m ent o f suspicious activity reports, tips
and leads and provides opportunities
for training, table top and field exer-
cises bringing private sector, law, health
and fire into a unified stand promoting
threat mitigation, target hardening and
disaster recovery’.16
CONCLUSION
In 2009, the US Department o f Justice, in
conjunction w ith the Office o f Community
28. O riented Policing Services (better known
as the ‘C O PS’ Office) sponsored the docu
ment, ‘Operation Partnership: Trends and
Practices in Law Enforcement and Private
Security Collaboration’. The purpose o f
this report is to assist both law enforcement
agencies and private security organisations in
collaborating to form effective partnerships.
‘The report discusses key trends, dif
ferent forms o f partnerships, types o f
activities and programs, and the key
components that make these relation-
ships successful. It highlights the five tips
for enhancing existing law enforcement
— private security partnerships. These
tips include improving the communi-
cation process, improving the content
o f the communication, improving the
training content, facilitate personal con-
tacts among the membership, and finally
to find out what other law enforcement/
private security partnerships are doing.’17
The Shield programme strives to enhance
its effectiveness based on these points.
The programme continually looks for
ways to improve its communications with
members and the intelligence and event-
driven content, authored by TTAG, offered
through the website. Communication is an
integral component in any information-
sharing programme. In addition to the use
http://www.seattleshield.org
29. Successful public-private partnerships: The NYPD shield model
o f e-mails, there are encrypted websites as
well as password-protected portals that are
utilised as centralised com m unication points.
However, there is no substitute for good old-
fashioned face-to-face interaction. Many
corporations and industries — beyond those
that are part o f the critical infrastructure
— have been identified as targets o f ter-
rorist attacks. Inform ation-sharing between
public and private entities simply has not
evolved as recom m ended and expected. It is
incum bent upon law enforcement leaders to
develop a process and training to remedy that
problem .18 Law enforcement as a whole needs
to do a better jo b at engaging the public/
private sectors on their playing field. ‘As in
any w orthw hile pursuit, effective com m u-
nication is critical in the cost-effective and
efficient interactions betw een the various
parties.’19 A ttending different m onthly secu-
rity association meetings goes a long way
in improving these relationships. It shows
the private sector that you are serious about
engaging them and that there is m ore to the
relationship than the occasional e-mail blast.
In N ew York City, the Shield programme
n o t only invites security directors and m an-
agers to its conferences at police headquarters,
m em bers o f the team attend the meetings o f
organisations such as the Building O w ners
and Managers Association, the R eal Estate
Board o f N e w York, the H otel Association
30. o f N ew York City, the First Precinct
Financial Area Security Council, and the
M useum , Library and Cultural Property
Protection C om m ittee. Attendance at these
meetings provides a good opportunity to
engage private sector partners, furnish them
w ith inform ation that can assist their secu-
rity personnel, and demonstrates that law
enforcem ent can ‘speak their language’. It
also shows an elevated level o f profession-
alism in that law enforcem ent can grasp and
understand the everyday challenges faced by
the security industry.
Participating in these meetings and
attending annual association conferences
and seminars such as ASIS International and
the FBI N ational Academy also allows the
Shield program m e to touch on O peration
Partnership’s point o f form ing personal rela
tionships. O bserving five em ergency drills
and sitting in on various table-top exercises
also solidifies these personal relationships
betw een the N Y P D Shield and p u b lic /
private security. ‘A critical mission o f the
N Y P D Shield is to help area businesses
assess and revise their security procedures.’20
Finally, to to u ch on O peration Partner-
ship’s point on im proving training content,
the Shield program m e is continually
am ending its training curriculum to reflect
the m ost recent terrorist tradecraft as well
as tactics, techniques and procedures by
studying attacks globally to determ ine the
31. implications for N e w York City. Shield
personnel w ill continue to attend various
training seminars and lectures themselves
to improve their terrorism know ledge base
and professional developm ent. In 2017 and
onward, the Shield program m e is com -
m itted to continue to building on its past
successes and looks forward to pursuing
fresh and innovative ways to share inform a-
tion and to proactively reach out and engage
the public/private sector in the nam e o f
detecting, d eterring and preventing the
next terro r attack.
As described by the father o f p u b lic -
private partnerships (P3), the late D eputy
Inspector M atthew J. Simeone, Nassau
C o u n ty Police, ‘P3 netw orks allow law
enforcem ent agencies to leverage the vast
resources o f the private security industry as
well as com m unity base’s civic organisations
to enhance public safety’ (Simeone, 2006).
T h e Shield program m e has embarked on a
mission to take that idea to the next level
and develop a massive, collaborative, nation-
w ide netw ork o f inform ation-sharing that
n o t only bolsters the w ork o f police depart-
m ents but adds significant value to the local
and state com m unities for each law enforce-
m ent agency. T h e Shield program m e is n o t
Page 116
only th e p re m ie r p ro g ram m e to w atch o u t
32. for, b u t th e best p ro g ram m e to em ulate.
R efer en ces
(1) Busch, N. and Givens, A. (2005),
‘Achieving resilience in disaster
management: the role o f public-private
partnerships’, Journal of Strategic Security, p. 9.
(2) Sheehan, M . (2008), ‘Crush the Cell:
H o w to Defeat Terrorism w ithout
Terrorizing Ourselves’, Crown, N ew
York, NY, pp. 233-234.
(3) Sitneone, M. J. J r (2006), ‘T he power
o f public—private partnerships: P3
networks in policing’, Police Chief
Magazine, Vol. 73, No. 5, available at:
h ttp ://www.policechiefrnagazine.org/
magazine/index.cfm?fuseaction=display_
arch&article_id=902&issue_id=52006
(accessed 20th February, 2016).
(4) Scollan, T. J. (2011), ‘An assessment o f
the N ew York State Enhanced Security
Guard Training legislation and its
efficacy on security officer preparedness’,
Naval Postgraduate School, Monterey,
CA, available at: h ttp ://calh o u n .n p s.
e d u /h a n d le /10945/10688 (accessed 26th
February, 2016).
(5) N Y PD Shield (n.d.), ‘N Y PD Shield:
Security Public-Private Partnership’,
available at: http://w w w .nypdshield.org/
public/ (accessed 14th December, 2015).
33. (6) Falkenrath, R . (ed.) (2009),
‘Engineering security: protective design
for high risk buildings’, available at:
h ttp ://w w w .n y c .g o v /h tm l/n y p d /h tm l/
counterterrorism/engineeringsecurity.
shtml (accessed 15th March, 2016).
(7) N Y P D Shield, ref. 5, above.
(8) Harrington, M. (2014), ‘N ew York C ity’s
first responders: enhancing collaboration’,
The Naval Postgraduate School
thesis, available at: https://w w w .hsdl.
org/?view& did=762416-in-the-event-of-
an-attack/ (accessed 10th Marcki, 2016).
(9) N Y P D Shield, ref. 5 above.
(10) Ibid.
(11) Sanders, A. (2015), ‘N Y PD holds
training on “active shooters” after
Virginia TV killings’, available at:
h ttp : / / w w w . silive.com /new s/index.
ssf/2015/09/nypd_active_shooter.htm l
(accessed 15th March, 2016).
(12) Burton, F. (2007), ‘The secrets o f counter
surveillance’, available at: h ttp s://w w w .
stratfor.com/secrets_countersurveillance
(accessed 18th December, 2015).
(13) Bove, V. (2015), ‘N Y PD Shield:
America’s public-private collaboration
m odel’, Epoch Times, 25th July, available
34. at: h ttp ://w w w .th eep o ch tim es.co m /n 3 /
co lu m n /814481-nypd-shield-americas-
public-private-collaboration-model/
(accessed 14th December, 2015).
(14) Dias, D. P. (2008), ‘Partnering with
private networks: the D O D needs a
reserve cyber corps’, Army War College,
Carlisle Barracks PA, available at: h ttp ://
oai.dtic.mil/oai/oai?verb=getRecord&me
tadataPrefix=html&identifier=AD A47901
(accessed 23rd February, 2016).
(15) Somers, S. (2015), ‘The need for
public—private partnerships’, available
at: https://w w w .linkedin.com /pulse/
need-public-private-partnerships-
stephen-somers-cpp-chs-v (accessed
N th December, 2015).
(16) O CIA C Shield (n.d.), ‘Orange C ounty
Intelligence Assessment C enter
(O CIA C)’, available at: h ttp s://w w w .
ociac.org/default.aspx?menuitemid=231
(accessed 13th Decem ber 2015).
(17) Institute for Law and Justice (2005),
‘Operation Partnership trends and
practices in law enforcement and private
security collaborations’, available at:
h ttp: / / w ww .ilj. org/publications/docs/
Operation_Partnership_Private_Security.
p d f (accessed 20th November, 2015).
(18) Carter, D. L. (2004), ‘Law Enforcement
Intelligence: A Guide for State, Local,
35. and Tribal Law Enforcement Agencies’,
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(19) Celluci, T. A. (2011), ‘A Guide to
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37. “I agree,” replied Tim, “and I’m glad you brought it up, because
I have a suggestion on how to improve
that situation.” He leaned forward in his chair as he realized he
had captured the interest of the others.
“The problem is, we have too many expenses on our income
statement that are eating up the profits.
Now, I’ve done some checking, and the expenses all seem to be
legitimate except for interest expense.
Look here, we paid over $250,000 last year to the bank just to
finance our short-term borrowing. If we
could have kept that money instead, our profit margin ratio
would have been 4.01 percent, which is
higher than any other firm in the industry.”
“But, Tim, we have to borrow like that,” responded Roy (“Pop”)
Thomas, age 35, the vice president for
production. “After all, our sales are seasonal, with almost all
occurring between March and September.
Since we don’t have much money coming in from October to
February, we have to borrow to keep the
production line going.”
“Right,” Tim replied, “and it’s the production line that’s the
problem. We produce the same number of
products every month, no matter what we expect sales to be.
This causes inventory to build up when
sales are slow and to deplete when sales pick up. That
fluctuating inventory causes all sorts of problems,
including the excessive amount of borrowing we have to do to
finance the inventory accumulation.”
(See Tables 1 through 5 for details of Gale Force’s current
operations based on equal monthly
production.)
42. do for one month, then a deluge the next. It’s terrible for the
employees, not to mention the supervisors
who are trying to run an efficient operation. Your idea may
make the income statements look good for
now, but the whole company will suffer in the long run.”
Chuck intervened. “OK, you guys, calm down. Tim may have a
good idea or he may not, but at least it’s
worth looking into. I propose that you all work up two sets of
figures, one assuming level production and
one matching production with sales. We’ll look at them both
and see if Tim’s idea really does produce
better results. If it does, we’ll check it further against other
issues Pop is concerned about and then
make a decision on which alternative is better for the firm.”
Table 3 (continued)
April May June July August September
Sales Forecast
Sales (units) ................................. 500 1,000 1,000 1,000 500
250
Sales (unit price: $3,000) ............. $1,500,000 $3,000,000
$3,000,000 $3,000,000 $1,500,000 $ 750,000
Cash Receipts Schedule
50% cash ...................................... $ 750,000 $1,500,000
$1,500,000 $1,500,000 $ 750,000 $ 375,000
50% from prior month’s sales ...... $ 450,000 $ 750,000
$1,500,000 $1,500,000 $1,500,000 $ 750,000
Total cash receipts ................. $1,200,000 $2,250,000
$3,000,000 $3,000,000 $2,250,000 $ 1,125,000
Cash Payments Schedule
Production in units ...................... 400 400 400 400 400 400
47. 3. Assume that there is an added expense for each sales dollar
of .5 percent (.005). Based on this fact
and the information computed in question 2, is seasonal
production justified?
A. Compute the total sales using table 3 ( original or
recomputed table can be sued)
B. Apply the added expense and identify what the expense
amount will do (increase/decrease
and by how much).
C. Compare the rate of the added expense burden to the interest
savings computed in
question 2 of table5.
D. Write a one paragraph summary of your findings. Include if
you feel the seasonal production
plan is justified or not and why you are making the formal
recommendation to implement
the change or not.
Sales Forecast, Cash Receipts and Payments, and Cash
BudgetSales ForecastCash Receipts ScheduleCash Payments
ScheduleCash Budget; Required Minimum Balance is
$125,000Table 3(continued)Sales ForecastCash Receipts
ScheduleCash Payments ScheduleCash Budget; Required
Minimum Balance is $125,000Table 5
6
Working Capital and the Financing Decision
LEARNING OBJECTIVES
LO 6-1
Working capital management involves financing and controlling
48. the current assets of the firm.
LO 6-2
Management must distinguish between current assets that are
easily converted to cash and those that are more permanent.
LO 6-3
The financing of an asset should be tied to how long the asset is
likely to be on the balance sheet.
LO 6-4
Long-term financing is usually more expensive than short-term
financing based on the theory of the term structure of interest
rates.
LO 6-5
Risk, as well as profitability, determines the financing plan for
current assets.
LO 6-6
Expected value analysis may sometimes be employed in
working capital management.
The rapid growth of business firms in the last two decades has
challenged the ingenuity of financial managers to provide
adequate financing. Rapidly expanding sales may cause intense
pressure for inventory and receivables buildup—draining the
cash resources of the firm. As indicated in Chapter 4, “Financial
Forecasting,” a large sales increase creates an expansion of
current assets, especially accounts receivable and inventory.
Some of the increased current assets can be financed through
the firm’s retained earnings, but in most cases internal funds
will not provide enough financing and some external sources of
funds must be found. In fact, the faster the growth in sales, the
more likely it is that an increasing percentage of financing will
be external to the firm. These funds could come from the sale of
common stock, preferred stock, long-term bonds, short-term
securities, and bank loans, or from a combination of short- and
long-term sources of funds.
There is also the problem of seasonal sales that affects many
industries such as soft drinks, toys, retail sales, and textbook
publishing. Seasonal demand for products makes forecasting
49. cash flows and receivables and inventory management difficult.
The Internet and cloud computing are beginning to alleviate
some of these problems and help management make better
plans.
Page 159
If you have had a marketing course, you have heard about
supply chain management. Well, financial executives are also
interested in the supply chain as an area where the Internet can
help control working capital through online software.
McDonald’s Corporation of Big Mac fame formed eMac Digital
to explore opportunities in business-to-business (B2B) online
ventures. One of the first things on the agenda was to have
eMac Digital help McDonald’s reduce costs. McDonald’s
wanted to create an online marketplace where restaurants can
buy supplies online from food companies. McDonald’s, like
Walmart, Harley-Davidson, and Ericsson, has embraced supply
chain management using web-based procedures. The goal is to
squeeze out inefficiencies in the supply chain and thereby lower
costs. One of the big benefits is a reduction in inventory
through online communications between the buyer and supplier,
which speeds up the ordering and delivery process and reduces
the amount of inventory needed on hand. These systems may
also be able to attract a large number of suppliers to bid on the
company’s business at more competitive prices.
Retailers like Walmart require suppliers to ship their goods with
radio frequency identification chips (RFID) embedded in their
shipments. These chips eliminate processing delays, reduce
theft, and result in better inventory management. From the
financial manager’s viewpoint, anything that can reduce
inventory levels without creating out-of-stock situations will
reduce the amount of money needed to finance inventory. You
can read more about Walmart and RFID chips in the nearby
Finance in Action box.
Working capital management involves the financing and
management of the current assets of the firm. The financial
executive probably devotes more time to working capital
50. management than to any other activity. Current assets, by their
very nature, are changing daily, if not hourly, and managerial
decisions must be made. “How much inventory is to be carried,
and how do we get the funds to pay for it?” Unlike long-term
decisions, there can be no deferral of action. While long-term
decisions involving plant and equipment or market strategy may
well determine the eventual success of the firm, short-term
decisions on working capital determine whether the firm gets to
the long term.
In this chapter, we examine the nature of asset growth, the
process of matching sales and production, financial aspects of
working capital management, and the factors that go into
development of an optimum policy.
The Nature of Asset Growth
Any company that produces and sells a product, whether the
product is consumer or manufacturer oriented, will have current
assets and fixed assets. If a firm grows, those assets are likely
to increase over time. The key to current asset planning is the
ability of management to forecast sales accurately and then to
match the production schedules with the sales forecast.
Whenever actual sales are different from forecast sales,
unexpected buildups or reductions in inventory will occur that
will eventually affect receivables and cash flow.
In the simplest case, all of the firm’s current assets will be self-
liquidating assets (sold at the end of a specified time period).
Assume that at the start of the summer you buy 100 tires to be
disposed of by September. It is your intention that all tires will
be sold, receivables collected, and bills paid over this time
period. In this case, your working capital (current asset) needs
are truly short term.
Now let us begin to expand the business. In stage two, you add
radios, seat covers, and batteries to your operation. Some of
your inventory will again be completely liquidated, while other
items will form the basic stock for your operation. To stay in
business, you must maintain floor displays and multiple items
for selection. Furthermore, not all items will sell. As you
51. eventually grow to more than one store, this “permanent”
aggregate stock of current assets will continue to increase.
Problems of inadequate financing arrangements are often the
result of the businessperson’s failure to realize the firm is
carrying not only self-liquidating inventory, but also the
anomaly of “permanent” current assets.
Page 160
Finance in ACTION Technology A Great Inventory Tracking
System May Be Helping You
RFID (radio frequency identification technology), a system that
has been around since World War II and was used by the
military to keep track of airplanes, continues to gain traction in
inventory/supply chain management. RFID chips have been used
in trains, ships, and trucks to track shipment containers. They
are also used in automatic toll systems that allow drivers to pass
through tolling areas without stopping. The state of Michigan
has used these chips to track livestock; marathon officials have
used them to track a runner’s time; and the Defense Department
has used them to track the shelf life of their food rations.
Additionally, they are now being used to make sure that
shipping containers entering U.S. ports have not been tampered
with after inspection.
Hewlett-Packard, in a business briefing paper, indicates that
there may be as much as $45 billion of excess inventory in the
retail supply chain that is unaccounted for at any given time. In
short, RFID chips can help a company track goods and make
sure that the right goods get to the right places on time. More
sophisticated chips can be reused and can even record a sale.
For example, if an expensive piece of jewelry is sold with a
chip attached, when the chip is decommissioned, the sale
automatically shows up in the store’s computer system.
In 2005, Walmart mandated that by the end of 2007, its 300
largest suppliers must have RFID chips in each pallet of goods
shipped to its distribution centers. Procter & Gamble was one of
the first companies to comply and found the system beneficial
in managing its own inventory, reducing out-of-stock inventory
52. levels, and preventing inventory theft or theft of goods in
transit. For manufacturers of expensive products such as
pharmaceuticals, theft reduction can be a significant cost
saving. P&G noted that when comparing bar codes to RFID
chips, it took 20 seconds to manually tally bar-code data on a
pallet versus five seconds to read RFID technology. P&G states
that it earned a return on its RFID investment in the millions of
dollars.
According to the RFID Journal’s January 7, 2013, issue, 19 of
the top 30 U.S. retailers are involved at some level with RFID
chips, but full utilization of these chips has a long way to go
before they are used throughout their stores for all products.
Many specialty retailers are beginning to use RFID technology;
American Apparel has adopted RFID technology at all 280 of its
stores.
A rather unique use of these chips is for high-value poker chips
at casinos. In 2010, a robber came into the Bellagio in Las
Vegas and left with $1.5 million in poker chips. Little did he
know that the chips had embedded RFID chips, and as soon as
he walked out of the casino, the chips became worthless and
unable to be used anywhere.
The movement from stage one to stage two of growth for a
typical business is depicted in Figure 6-1. In panel A, the
buildup in current assets is temporary—while in panel B, part of
the growth in current assets is temporary and part is permanent.
(Fixed assets are included in the illustrations, but they are not
directly related to the present discussion.)
Controlling Assets—Matching Sales and Production
In most firms, fixed assets grow slowly as productive capacity
is increased and old equipment is replaced, but current assets
fluctuate in the short run, depending on the level of production
versus the level of sales. When the firm produces more than it
sells, inventory rises. When sales rise faster than production,
inventory declines and receivables rise.
Page 161
Figure 6-1 The nature of asset growth
53. A. Stage I: Limited or no growth
B. Stage II: Growth
As discussed in the treatment of the cash budgeting process
in Chapter 4, some firms employ level production methods to
smooth production schedules and use manpower and equipment
efficiently at a lower cost. One consequence of level production
is that current assets go up and down when sales and production
are not equal. Other firms may try to match sales and
production as closely as possible in the short run. This allows
current assets to increase or decrease with the level of sales and
eliminates the large seasonal bulges or sharp reductions in
current assets that occur under level production.
Seasonal industries can be found in manufacturing, retailing,
electricity, and natural gas. Demand is uneven in these
industries, and many exhibit a seasonal demand. For example,
electricity producers have more demand in the summer for air
conditioning while natural gas companies have more demand in
the winter for heating. One small manufacturing company that
exhibits this type of seasonal demand is Briggs and Stratton
Corporation from Wauwatosa, Wisconsin.
Page 162
Briggs and Stratton is the largest maker of 3.5 to 25 horsepower
air-cooled gasoline engines. Chances are if you’ve ever mowed
a lawn, your lawnmower had a Briggs and Stratton engine. Their
motors can be found in pressure washers, compressors and
pumps, garden tillers, generators, small tractors, lawnmowers,
and outboard marine engines, and about 30 percent of the
company’s overall sales are in the international market.
Briggs and Stratton’s fiscal year ends in June, and Figure 6-
2 demonstrates both the seasonality of sales and the leverage
impact on earnings per share that we discussed in Chapter 5.
Because Briggs sells most of its products to other manufacturers
who use the engines as part of their finished products, a large
percentage of sales must occur early in the year in order to
54. produce the garden equipment that would be in demand in
spring and summer. We can see from Figure 6-2 that sales are
lowest in the July to September quarter, followed by the
September–December quarter. Peak sales are in the third
quarter, beginning in January and ending in March. There are
carryover sales in the April to June quarter, which is the second
best period for Briggs and Stratton.
Figure 6-2 Quarterly sales and earnings per share for Briggs
and Stratton
Page 163
Notice that the first quarter of the year always generates
negative earnings per share as the costs of production outweigh
the revenue produced. This is most likely caused by the costs of
building inventory. Earnings in the second and fourth quarter
are small, with most of the earnings coming in the peak sales
period of the third quarter. For example in 2013, Briggs and
Stratton earned $0.90 billion for the year with $0.89 billion
coming in the third quarter; in 2014 the firm earned $0.82
billion with $0.81 billion coming in the third quarter. The
seasonal nature of the company’s sales can be exacerbated by
inventory buildup at the end user and a fall in orders for the
next season. The company has made acquisitions in recent years
to diversify its product line and to smooth out sales and
earnings. The future will tell if these acquisitions succeed.
Retail firms such as Target and Macy’s also have seasonal sales
patterns. Figure 6-3 on the next page shows the quarterly sales
and earnings per share of these two companies, with the
quarters ending in April, July, October, and January. These
retail companies do not stock a year or more of inventory at one
time. They are selling products that are either manufactured for
them by others or manufactured by their subsidiaries. Most
retail stores are not involved in deciding on level versus
seasonal production but rather in matching sales and inventory.
Their suppliers must make the decision to produce on either a
55. level or a seasonal basis. Since the selling seasons are very
much affected by the weather and holiday periods, the suppliers
and retailers cannot avoid inventory risk. The fourth quarter for
retailers, which begins in November and ends in January, is
their biggest quarter and accounts for as much as half of their
earnings. You can be sure that inventory not sold during the
Christmas season will be put on sale during January.
Both Target and Macy’s show seasonal peaks and troughs in
sales that will also be reflected in their cash balances, accounts
receivable, and inventory. Notice in Figure 6-3 that Target is
growing slightly faster than Macy’s, which has a rather flat
trendline. Even so, Macy’s peak earnings per share are higher
than Target’s earnings per share when the fourth quarter sales
peak out. Both companies illustrate the impact of leverage on
earnings as discussed in Chapter 5, but we can tell that Macy’s
has higher leverage because its EPS rises and falls with sales
more than Target’s EPS (bottom of Figure 6-3). We shall see as
we go through the chapter that seasonal sales can cause asset
management problems. A financial manager must be aware of
these problems to avoid getting caught short of cash or
unprepared to borrow when necessary.
Many retail-oriented firms have been more successful in
matching sales and orders in recent years because of new,
computerized inventory control systems linked to online point-
of-sales terminals. These point-of-sales terminals allow either
digital input or use of optical scanners to record the inventory
code numbers and the amount of each item sold. At the end of
the day, managers can examine sales and inventory levels item
by item and, if need be, adjust orders or production schedules.
The predictability of the market will influence the speed with
which the manager reacts to this information, while the length
and complexity of the production process will dictate how fast
production levels can be changed.
Page 164
Figure 6-3 Quarterly sales and earnings per share, Target and
Macy’s
56. Temporary Assets under Level Production—An Example
Page 165
To get a better understanding of how current assets fluctuate, let
us use the example of the Yawakuzi Motorcycle Company,
which manufactures and sells in the snowy U.S. Midwest. Not
too many people will be buying motorcycles during October
through March, but sales will pick up in early spring and
summer and will again trail off during the fall. Because of the
fixed assets and the skilled labor involved in the production
process, Yawakuzi decides that level production is the least
expensive and the most efficient production method. The
marketing department provides a 12-month sales forecast for
October through September (Table 6-1).
Table 6-1 Yawakuzi sales forecast (in units)
Total sales of 9,600 units at $3,000 each = $28,800,000 in sales.
After reviewing the sales forecast, Yawakuzi decides to produce
800 motorcycles per month, or one year’s production of 9,600
divided by 12. A look at Table 6-2 shows how level production
and seasonal sales combine to create fluctuating inventory.
Assume that October’s beginning inventory is one month’s
production of 800 units. The ending inventory level is computed
for each month and then multiplied by the production cost per
unit of $2,000.
Table 6-2 Yawakuzi’s production schedule and inventory
The inventory level at cost fluctuates from a high of $9 million
in March, the last consecutive month in which production is
greater than sales, to a low of $1 million in August, the last
month in which sales are greater than production. Table 6-
3 combines a sales forecast, a cash receipts schedule, a cash
payments schedule, and a brief cash budget to examine the
buildup in accounts receivable and cash.
In Table 6-3, the sales forecast is based on assumptions in Table
57. 6-1. The unit volume of sales is multiplied by a sales price of
$3,000 to get sales dollars in millions. Next, cash
receipts represent 50 percent collected in cash during the month
of sale and 50 percent from the prior month’s sales. For
example, in October this would represent $0.45 million from the
current month plus $0.75 million from the prior month’s sales.
Page 166
Table 6-3 Sales forecast, cash receipts and payments, and cash
budget
*Assumes a cash balance of $0.25 million at the beginning of
October and that this is the desired minimum cash balance.
Cash payments in Table 6-3 are based on an assumption of level
production of 800 units per month at a cost of $2,000 per unit,
or $1.6 million, plus payments for overhead, dividends, interest,
and taxes.
Page 167
Finally, the cash budget in Table 6-3 represents a comparison of
the cash receipts and cash payments schedules to determine cash
flow. We further assume the firm desires a minimum cash
balance of $0.25 million. Thus in October, a negative cash flow
of $1.1 million brings the cumulative cash balance to a negative
$0.85 million and $1.1 million must be borrowed to provide an
ending cash balance of $0.25 million. Similar negative cash
flows in subsequent months necessitate expanding the bank
loan. For example, in November there is a negative cash flow of
$1.325 million. This brings the cumulative cash balance to
−$1.075 million, requiring additional borrowings of $1.325
million to ensure a minimum cash balance of $0.25 million. The
cumulative loan through November (October and November
borrowings) now adds up to $2.425 million. Our cumulative
bank loan is highest in the month of March.
We now wish to ascertain our total current asset buildup as a
result of level production and fluctuating sales for October
through September. The analysis is presented in Table 6-4. The
cash figures come directly from the last line of Table 6-3. The
58. accounts receivable balance is based on the assumption that
accounts receivable represent 50 percent of sales in a given
month, as the other 50 percent is paid for in cash. Thus the
accounts receivable figure in Table 6-4 represents 50 percent of
the sales figure from the second numerical line in Table 6-3.
Finally, the inventory figure in Table 6-4 is taken directly from
the last column of Table 6-2, which presented the production
schedule and inventory data.
Table 6-4 Total current assets, first year ($ millions)
Total current assets (last column in Table 6-4) start at $3.3
million in October and rise to $10.35 million in the peak month
of April. From April through August, sales are larger than
production, and inventory falls to its low of $1 million in
August, but accounts receivable peak at $3 million in the
highest sales months of May, June, and July. The cash budget
in Table 6-3 explains the cash flows and external funds
borrowed to finance asset accumulation. From October to
March, Yawakuzi borrows more and more money to finance the
inventory buildup, but from April forward it eliminates all
borrowing as inventory is liquidated and cash balances rise to
complete the cycle. In October, the cycle starts over again; but
now the firm has accumulated cash it can use to finance next
year’s asset accumulation, pay a larger dividend, replace old
equipment, or—if growth in sales is anticipated—invest in new
equipment to increase productive capacity. Table 6-5 presents
the cash budget and total current assets for the second year.
Under a simplified no-growth assumption, the monthly cash
flow is the same as that of the first year, but beginning cash in
October is much higher than the first year’s beginning cash
balance, and this lowers the borrowing requirement and
increases the ending cash balance and total current assets at
year-end. Higher current assets are present despite the fact that
accounts receivable and inventory do not change.
Page 168
Table 6-5 Cash budget and assets for second year with no
59. growth in sales ($ millions)
Figure 6-4 on the next page is a graphic presentation of the
current asset cycle. It includes the two years covered in Tables
6-4 and 6-5 assuming level production and no sales growth.
Patterns of Financing
The financial manager’s selection of external sources of funds
to finance assets may be one of the firm’s most important
decisions. The axiom that all current assets should be financed
by current liabilities (accounts payable, bank loans, commercial
paper, etc.) is subject to challenge when one sees the permanent
buildup that can occur in current assets. In the Yawakuzi
example, the buildup in inventory was substantial at $9 million.
The example had a logical conclusion in that the motorcycles
were sold, cash was generated, and current assets became very
liquid. What if a much smaller level of sales had occurred?
Yawakuzi would be sitting on a large inventory that needed to
be financed and would be generating no cash. Theoretically, the
firm could be declared technically insolvent (bankrupt) if short-
term sources of funds were used but were unable to be renewed
when they came due. How would the interest and principal be
paid without cash flow from inventory liquidation? The most
appropriate financing pattern would be one in which asset
buildup and length of financing terms are perfectly matched, as
indicated in Figure 6-5.
Page 169
Figure 6-4 The nature of asset growth (Yawakuzi)
In the upper part of Figure 6-5 we see that the temporary
buildup in current assets (represented by teal) is financed by
short-term funds. More importantly, however, permanent
current assets and fixed assets (both represented by blue) are
financed with long-term funds from the sale of stock, the
issuance of bonds, or retention of earnings.
Figure 6-5 Matching long-term and short-term needs
60. Page 170
Alternative Plans
Only a financial manager with unusual insight and timing could
construct a financial plan for working capital that adhered
perfectly to the design in Figure 6-5. The difficulty rests in
determining precisely what part of current assets is temporary
and what part is permanent. Even if dollar amounts could be
ascertained, the exact timing of asset liquidation is a difficult
matter. To compound the problem, we are never quite sure how
much short-term or long-term financing is available at a given
time. While the precise synchronization of temporary current
assets and short-term financing depicted in Figure 6-5 may be
the most desirable and logical plan, other alternatives must be
considered.
Long-Term Financing
To protect against the danger of not being able to provide
adequate short-term financing in tight money periods, the
financial manager may rely on long-term funds to cover some
short-term needs. As indicated in Figure 6-6, long-term capital
is now being used to finance fixed assets, permanent current
assets, and part of temporary current assets.
Figure 6-6 Using long-term financing for part of short-term
needs
By using long-term capital to cover part of short-term needs, the
firm virtually assures itself of having adequate capital at all
times. The firm may prefer to borrow a million dollars for 10
years—rather than attempt to borrow a million dollars at the
beginning of each year for 10 years and pay it back at the end of
each year.
Short-Term Financing (Opposite Approach)
Page 171
This is not to say that all financial managers utilize long-term
financing on a large scale. To acquire long-term funds, the firm
must generally go to the capital markets with a bond or stock
offering or must privately place longer-term obligations with
61. insurance companies, wealthy individuals, and so forth. Many
small businesses do not have access to such long-term capital
and are forced to rely heavily on short-term bank and trade
credit.
Furthermore, short-term financing offers some advantages over
more extended financial arrangements. As a general rule, the
interest rate on short-term funds is lower than that on long-term
funds. We might surmise then that a firm could develop a
working capital financing plan in which short-term funds are
used to finance not only temporary current assets, but also part
of the permanent working capital needs of the firm. As depicted
in Figure 6-7, bank and trade credit as well as other sources of
short-term financing are now supporting part of the permanent
capital asset needs of the firm.
Figure 6-7 Using short-term financing for part of long-term
needs
The Financing Decision
Some corporations are more flexible than others because they
are not locked into a few available sources of funds.
Corporations would like many financing alternatives in order to
minimize their cost of funds at any point. Unfortunately, not
many firms are in this enviable position through the duration of
a business cycle. During an economic boom period, a shortage
of low-cost alternatives exists, and firms often minimize their
financing costs by raising funds in advance of forecast asset
needs.
Not only does the financial manager encounter a timing
problem, but he or she also needs to select the right type of
financing. Even for companies having many alternative sources
of funds, there may be only one or two decisions that will look
good in retrospect. At the time the financing decision is made,
the financial manager is never sure it is the right one. Should
the financing be long term or short term, debt or equity, and so
on?
Page 172
62. Figure 6-8 is a decision-tree diagram that shows many of the
financing choices available to a chief financial officer. A
decision is made at each point until a final financing method is
chosen. In most cases, a corporation will use a combination of
these financing methods. At all times the financial manager will
balance short-term versus long-term considerations against the
composition of the firm’s assets and the firm’s willingness to
accept risk. The ratio of long-term financing to short-term
financing at any point in time will be greatly influenced by
the term structure of interest rates.
Figure 6-8 Decision tree of the financing decision
Page 173
Term Structure of Interest Rates
The term structure of interest rates is often referred to as a yield
curve. It shows the relative level of short-term and long-term
interest rates at a point in time. Knowledge of changing interest
rates and interest rate theory is extremely valuable to corporate
executives making decisions about how to time and structure
their borrowing between short- and long-term debt. Generally,
U.S. government securities are used to construct yield curves
because they are free of default risk and the large number of
maturities creates a fairly continuous curve. Yields on corporate
debt securities will move in the same direction as government
securities, but will have higher interest rates because of their
greater financial risk. Yield curves for both corporations and
government securities change daily to reflect current
competitive conditions in the money and capital markets,
expected inflation, and changes in economic conditions.
Three basic theories describe the shape of the yield curve. The
first theory is called the liquidity premium theory and states
that long-term rates should be higher than short-term rates. This
premium of long-term rates over short-term rates exists because
short-term securities have greater liquidity and, therefore,
higher rates have to be offered to potential long-term bond
buyers to entice them to hold these less liquid and more price-
63. sensitive securities. The market segmentation theory (the
second theory) states that Treasury securities are divided into
market segments by the various financial institutions investing
in the market. Commercial banks prefer short-term securities of
one year or less to match their short-term lending strategies.
Savings and loans and other mortgage-oriented financial
institutions prefer the intermediate length securities of between
5 and 7 years, while pension funds and life insurance companies
prefer long-term 20- to 30-year securities to offset the long-
term nature of their commitments to policyholders. The
changing needs, desires, and strategies of these investors tend
to strongly influence the nature and relationship of short-term
and long-term interest rates.
The third theory describing the term structure of interest rates is
called the expectations hypothesis. This theory explains the
yields on long-term securities as a function of short-term rates.
The expectations theory says long-term rates reflect the average
of short-term expected rates over the time period that the long-
term security is outstanding. Using a four-year example and
simple averages, we demonstrate this theory in Table 6-6. In the
left-hand panel of the table, we show the anticipated one-year
rate on T-bill (Treasury bill) securities at the beginning of each
of four years in the future. Treasury bills are short-term
securities issued by the government. In the right-hand panel, we
show the two-, three- and four-year averages of the one-year
anticipated rates.
Table 6-6 The expectations theory
1-year T-bill at beginning of year 1 = 4%
1-year T-bill at beginning of year 2 = 5%
2-year security (4% + 5%)/2 = 4.5%
1-year T-bill at beginning of year 3 = 6%
3-year security (4% + 5% + 6%)/3 = 5.0%
1-year T-bill at beginning of year 4 = 7%
4-year security (4% + 5% + 6% + 7%)/4 = 5.5%
Page 174
64. For example, the two-year security rate is the average of the
expected yields of two one-year T-bills, while the rate on the
four-year security is the average of all four one-year rates.1 In
this example, the progressively higher rates for two-, three-, and
four-year securities represent a reflection of higher anticipated
one-year rates in the future. The expectations hypothesis is
especially useful in explaining the shape and movement of the
yield curve. The result of the expectations hypothesis is that,
when long-term rates are much higher than short-term rates, the
market is saying it expects short-term rates to rise. When long-
term rates are lower than short-term rates, the market is
expecting short-term rates to fall. This theory is useful to
financial managers in helping them set expectations for the cost
of financing over time and, especially, in making choices about
when to use short-term debt or long-term debt.
In fact, all three theories of the term structure just discussed
have some impact on interest rates. At times, the liquidity
premium or segmentation theory dominates the shape of the
curve, and at other times, the expectations theory is the most
important.
Figure 6-9 shows a Treasury yield curve that is published by the
St. Louis Federal Reserve Bank in National Economic Trends, a
weekly online publication that can be directly accessed
on www.stlouisfed.org. The bottom axis shows time periods
(months and years) and the vertical axis indicates rates. In this
figure, there are three curves: December 2013, December 2014,
and the curve for the week ending January 2, 2015. We can see
that long-term yields have dropped between year-end 2013 and
2014 and that the latest yield curve at the beginning of 2015
was the same as year-end 2014. Using the January 2015 curve
(the dotted red line), we can see that yields rise from close to
zero percent for three-month Treasury bills, to 1.7 percent for
five-year Treasury notes, and continue up to 2.2 percent for 10-
year Treasury bonds. This upward-sloping yield curve has the
normal shape. The increase in rates from the three-month to the
10-year yield is 0.5 percent or 50 basis points. (A basis point
65. represents 1/100th of one percent.)
Figure 6-9 Treasury yield curve
*The treasury yield curve for December 2014 is almost identical
to that for the week ending 1/2/2015.
Page 175
The Federal Reserve has kept all interest rates low, with short-
term rates extremely low. This action by the Fed is intended to
help the economy recover from the most serious recession since
the Great Depression. By keeping the cost of borrowing low, the
Fed hopes to stimulate the economy. As the economy recovers,
the yield curve will shift up and become less steep.
An upward-sloping yield curve is considered normal, but the
difference between short-term and long-term rates has often
been quite wide, such as in October 1993 when short-term rates
were less than 3 percent and long-term rates were close to 7
percent. Generally, the more upward-sloping the yield curve,
the greater the expectation that interest rates will rise. When
faced with a downward-sloping, or inverted, yield curve, the
expectation would be the opposite. A good example of this
occurred in September 1981 when short-term rates were over 17
percent and long-term rates were close to 15 percent. A little
over one year later, in December 1982, short-term rates were 8
percent and long-term rates were about 10.5 percent. This
example also illustrates that interest rates can move
dramatically in a relatively short time (in this case, 15 months).
In designing working capital policy, the astute financial
manager is interested in not only the term structure of interest
rates but also the relative volatility and the historical level of
short-term and long-term rates. Figure 6-10 covers a 25-year
period and demonstrates that short-term rates (red) are more
volatile than long-term rates (blue). This volatility is what
makes a short-term financing strategy risky. Figure 6-10 also
shows that interest rates follow the general trend of inflation as
measured by the consumer price index (black). Note that prices
declined during the recession of 2007–2009, which is what is
![Journal of Business Continuity & Emergency Planning Volume
10 Number 2
Vincent Atnadeo
Stephen lannone
Journal o f Business Continuity
& Emergency Planning
Vol. 10, No. 2, pp. 106-117
© Henry Stewart Publications,
1749-9216
Successful public-private partnerships:
The NYPD shield model
Vincent Amadeo* and Stephen lannone**
Received (in revised form): 2nd May, 2016
*1 Police Plaza NY, NY 10038, USA
Tel: +1 718 615 7506; E-mail: [email protected]
**1 Police Plaza NY, NY 10038, USA
Tel: +1 718 615 7335; E-mail: [email protected]
Lieutenant Vincent Amadeo is a 20-year
veteran of the New York City Police Department
(NYPD). His prior assignments have included
uniform, plainclothes and undercover oper-
ations with the Patrol Services Bureau,
conducted confidential investigations within
the Internal Affairs Bureau and supervised
the Regional Intelligence Support Center
within the Intelligence Bureau. Assigned to the
Counterterrorism Division, he works side by](https://image.slidesharecdn.com/journalofbusinesscontinuityemergencyplanningvolume10-221026074147-8ce5121e/85/Journal-of-Business-Continuity-Emergency-Planning-Volume-10-docx-1-320.jpg)
