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  • 2 Key Points: 1. The operating performance between World-Class companies with their peers is significant. (Delete: operate differently than median performers. The results are material and significant.) 2. Focus on the function of the executive that you are speaking with. As you can see there are dramatic differences in cost between Median and World-Class. While historically we have seen overall costs decrease in business support functions, recently we have seen costs increase in finance due to new compliance requirements imposed by Sarbox. In addition, the chart shows that IT costs are higher for world-class companies, as they have leveraged technology to reduce labor costs in other functions. Interestingly, the performance gap between world-class companies and the peer group is widening. For example in 1992 the cost gap was 21% today it is 42%. In real dollars a median company in finance has the opportunity to take out 5.3 million in cost per billion of revenue. An important consideration of World-Class is that cost differential continues to widen year after year. For example, average performance in 1992 (1.9% of revenue) today would put a company solidly in the 4 th quartile. Relate this data to the client: Given the size of your organization, the potential performance gap between World-Class and the Median performance is $XXX Million.
  • trb - Transaction processing FTEs cash disbursements allocation - rule 4892 / rule (4892, 4893, 4894) revenue cycle allocation - rule 4893 / rule (4892, 4893, 4894) general accounting - external reporting allocation rule 4894 / rule (4892, 4893, 4894) Compliance and risk management FTEs tax management allocation - rule 4895 / rule (4895, 4896, 4897) treasury management allocation - rule 4896 / rule (4895, 4896, 4897) compliance management allocation - rule 4897 / rule (4895, 4896, 4897) Planning and analysis FTEs planning and performance mgmt allocation - rule 4898 / rule (4898, 4899) business analysis allocation - rule 4899 / rule (4898, 4899) Management and initiatives FTEs mgmt and admin - performance improvement allocation - rule 4900 / rule (4900, 4901) mgmt and admin - general - rule 4900 / rule (4900, 4901)
  • A. Total Other cost percent of revenue 163 594 12288 Total Labor cost percent of revenue 160 594 12355 12357 12359 12361 12365 12367 12363 12369 12371 12373 Total Technology cost percent of revenue 162 594 12388 12389 Total outsourcing cost percent of revenue 161 594 12377 12378 12379 12380 12381 12382 12383 12384 12385 12386 Annual net revenue 5 261 6857 B. second chart on page 49 - don't know 164 Total cost percent of revenue
  • Some combination of Rules 4892 thru 4901 CANNOT use 1Q at this will be stacked all-star CANNOT USE 1Q as this will be stacked all-star
  • Transaction processing FTEs cash disbursements - rule 4892 revenue cycle - rule 4893 general accounting - external reporting - rule 4894
  • These are possibilities…but not sure… What is the average time to apply cash - from receipt of customer remittance through successfully completing the cash application to individual accounts (number of business days)? 177 596 6444 What is the average time that it takes to complete new credit reviews (e.g., from receipt of credit application to approval of new customer number, in business days)? 322 596 6443 What is the total cycle time (in business days) that accounts payable normally takes to process an invoice once received in A/P? 175 549 6787 B. How many business days does it take to close your books at month-end? Check for the new rule defined332 172 12349 How many days after month-end close does it take to report month-end operating results and other key financial/accounting reports to executive management? 341 172 2473
  • A. 4919 B. 4972 C. 4968 D. c1 160 12237, 39,41 / 12237,38,39,40,41 ??rule 4973??
  • A. 253 549 4693 B. 254 549 3953 C. Not in question set D. 78 E. 175 - invoices only not T&E F. 269 549 7462 G. 271 549 7023 H. 270 549 7455
  • A. 4920 B. 4893 C. 4969 D. 4974 594 12357, 12378 12250, 12251, 12252, 12253
  • A. 4921 B. 4894 C. 332 D. 4971
  • A. 4924 B. 4897 C. 4982 597 2408 261 12366 D. 434 593 6045 ext. audit fees 261 6857 revenue
  • A. 4923 B. 4896 C. 414 423 12278 banking fees 261 6857 revenue D. 368 423 2415 bank accounts 261 6857 revenue
  • What is the actual, effective year end tax rate for the most current reporting period? 184 597 6099 What was the average return on the company’s investable funds for the most recent period? 185 423 7664
  • Process Cost 4925 4926 4927 4928 Plan&Perf. Mgmt Bus Analysis Mgmt and admin Mgmt and Admin Perf. Improvment General labor 12363 12369 12371 12373 outsourcing 12381 12384 12385 12386 Annual net revenue 261 6857
  • A. 4925 B. 4898 C. 173 D. 387
  • A. 4926 B. 4899 C. 456 D. 4983 172 12400 product/svc. lines 261 6857 revenue
  • A. What % of analyst time is spent collecting and compiling #s to create a report v.s analyzing the data/info to provide insight? 70 592 7488 B. What percent of the time is spent collecting and compiling information versus analyzing data for tax purposes? 4090 597 7399
  • A. Labor = rule 160 / rule (160, 161, 162, 163) Outsourcing = rule 161 / rule (160, 161, 162, 163) Technology = rule 162 / rule (160, 161, 162, 163) Other = rule 163 / rule (160, 161, 162, 163) B. Technology cost per FTE: rule 4955 (594 - 12388+12399) / sum(594 - 12354, 12356, 12358, 12360, 12362, 12364, 12366, 12368, 12372) Labor per FTE: rule 109 C. Applications per billion = sum ( Primary per billion, Secondary per billion) Primary Applications per billion Cash disbursements - 4956 221 10524, 10526 Revenue cycle - 4957 221 10528, 10531 Gen Acct Ext Rept - 4958 221 10527, 10532 Budget plann - 4959 221 10539, 10541 Secondary Applications per billion Cash disbursements - 4960 221 10570, 10572 Revenue cycle - 4961 221 10574, 10577 Gen Acct Ext Rept - 4962 221 12423, 10578 Budget plann - 4963 221 10585, 10587 D. Technology percent of revenue rule 162
  • A. 3341 549 2109 B. 297 596 4096
  • A. How are PC spreadsheet applications (e.g., Lotus, Excel) being utilized for the budgeting/forecasting process? (Select all that apply.) 595 2237 How are PC spreadsheet applications (e.g., Lotus, Excel) being utilized for the budgeting/forecasting process? (Select all that apply.) 3347 595 472 As a stand-alone budgeting/forecasting application 3348 595 460 As a graphical-user interface or front-end to your budgeting/forecasting application 3349 595 456 As a forms template and/or tool to enter and upload information 3350 595 5392 To perform analysis, calculations or as a reporting tool B. To what extent does your company utilize the following tools or technology to support the business performance reporting process? 595 5628 Data warehousing/data marts 148 595 1270 Executive information systems ('EIS') 149 595 1840 Data mining technology 150 595 1263 Online analytical processing tools (OLAP) 151 595 4065
  • A. Of your active suppliers, what percent of the suppliers submit their invoices electronically? 189 549 3953 B. What percent of invoices are sent to customers electronically (e.g., original invoices transmitted using an eBusiness application so that the invoices are captured electronically by your customer)? 296 596 7051 C. How many business performance reports are prepared and distributed on an annual basis? 4964 595 12277 / 12276 +12277 D. 76 596 12251/12251 + 12250
  • Transcript

    • 1. Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking Overview Q3, 2007
    • 2. Topics <ul><li>Benchmarking in state government – background </li></ul><ul><li>Why did the State of Arizona participate? </li></ul><ul><li>Overview of the benchmark deliverables and process </li></ul><ul><li>What is the State of Arizona doing now? </li></ul><ul><li>Objective: Understand how benchmarking and corresponding process improvement can demonstrate strategic leadership and success! </li></ul>
    • 3. Background <ul><li>State steering Committee formed in 2004. A state steering committee was formed with NASACT in early 2004 to explore the use of benchmarking. The Hackett-Accenture team was selected to conduct a benchmarking pilot for the finance function. </li></ul><ul><li>Pilot Benchmark project. Six states and selected agencies participated in the finance benchmark pilot (Alaska, Arizona, Nebraska, Oregon, Tennessee and Washington). Pilot results were presented at Biloxi conference in November 2004. </li></ul><ul><li>State RFP issued through NASACT. In April 2005 NASACT conducted a formal RFP to select a single benchmarking service provider. </li></ul><ul><li>Vendor selected and tailored program for states. In June 2005 The Hackett-Accenture team was formally selected to support the NASACT benchmarking program in Finance, HR/Payroll, Procurement, and IT. Program launched at NASACT annual conference, August 2005. Contract vehicle now in place for states to select any or all benchmarks, based on their needs. </li></ul>
    • 4. States Participating as of 7/1/07 Program Launched at NASACT Conference in Portland in August 2005 Active FIN Oklahoma Active HR Alaska Active FIN, HR, PROC Alabama Completed FIN, IT Georgia Active FIN, HR, PROC New Jersey Completed FIN, HR, IT, PROC Mississippi Completed FIN Massachusetts Completed FIN Colorado Completed FIN, PROC Delaware Completed FIN Arizona Completed FIN, HR, IT, PROC Tennessee Status Benchmark State
    • 5. There are many, and different, reasons for State Governments to benchmark <ul><li>Back office Performance Metrics/Data - Where are we and how do we compare to other states, as well as world-class organizations. Helps to establish project priorities. </li></ul><ul><li>Baseline and future measurement for technology investments - Provides a baseline, supporting a “before and after” comparisons when undertaking an improvement project (such as a new ERP) </li></ul><ul><li>Foundation for Business Case - Provides performance insights and quantitative measures into process areas for improvement that will be the starting point for change and a business case. </li></ul>
    • 6. The performance gap between world-class organizations and their median peers continues to be significant Median World- Class 6% World-class are investing more in IT 8,701 9,198 Median World- Class 49% $6.3 million in savings per $ billion of revenue 1.24% 0.61% Median World- Class 9% $1.7 million in savings per 10,000 employees 1,995 1,822 Median World- Class 30% $1.9 million in savings per $ billion of spend 0.63% 0.82% Hackett 2007 Functional Performance Data IT cost per end-user Finance cost as a % of revenue HR cost per employee Procurement cost as a % of spend FINANCE PROCUREMENT HUMAN RESOURCES IT
    • 7. Transactional Compliance and Risk Management Budgeting and Analysis Hackett ’ s Finance benchmark focuses on 8 process groups that are discretely defined  Cash Disbursements  Accounts Payable  Travel and Expenses  Program Payables  Revenue Cycle  Credit  Customer billing  Collections  Cash Application  Accounting and External Reporting  Fixed Assets  Interfund/Interdepartmental Accounting  General Ledger Accounting  Project Grant and Cost Accounting  External Reporting  Treasury Management  Cash Management  Capital and Risk Management  Compliance Management  Regulatory Compliance and Auditing  Process Certification  Budget Preparation and Reporting  Long Term Forecasting  Annual/Bi - Annual budgeting  Budget and Performance Reporting  Business analysis  Department/Program Analysis  Finance Function Management  Function Oversight  Personnel Management  Policy and Procedures Oversight Management & Administration
    • 8. Hackett’s HR/Payroll benchmark framework Transactional Employee Life Cycle Planning & Strategy <ul><li>Total Rewards Administration </li></ul><ul><ul><li>Health and Welfare Administration </li></ul></ul><ul><ul><li>Pension and Savings Administration </li></ul></ul><ul><ul><li>Compensation Administration </li></ul></ul><ul><li>Payroll Services </li></ul><ul><ul><li>Time and Attendance </li></ul></ul><ul><ul><li>Payroll Administration </li></ul></ul><ul><li>Data Management, Reporting and Compliance </li></ul><ul><ul><li>Compliance Management </li></ul></ul><ul><ul><li>EE Data Management </li></ul></ul><ul><ul><li>HR Reporting </li></ul></ul><ul><li>Staffing Services </li></ul><ul><ul><li>Recruiting and Staffing </li></ul></ul><ul><ul><li>Exit Process </li></ul></ul><ul><li>Workforce Development Services </li></ul><ul><ul><li>Learning and Development </li></ul></ul><ul><ul><li>Career Planning </li></ul></ul><ul><ul><li>Performance Management </li></ul></ul><ul><li>Organizational Effectiveness </li></ul><ul><ul><li>Labor Relations Administration </li></ul></ul><ul><ul><li>Organization Design and Measurement </li></ul></ul><ul><ul><li>Employee Relations </li></ul></ul><ul><li>Total Rewards Planning </li></ul><ul><ul><li>Benefits Planning </li></ul></ul><ul><ul><li>Compensation Planning </li></ul></ul><ul><li>Strategic Workforce Planning </li></ul><ul><ul><li>Workforce gap assessment </li></ul></ul><ul><ul><li>Leadership gap assessment </li></ul></ul>Management & Administration <ul><li>Function Management </li></ul><ul><ul><li>Function oversight </li></ul></ul><ul><ul><li>Personnel management </li></ul></ul><ul><ul><li>Policy and procedures oversight </li></ul></ul>
    • 9. Operations & Compliance Sourcing & Supplier Management Planning & Strategy Hackett’s Procurement benchmark framework <ul><li>Supply Data Management </li></ul><ul><ul><li>Supplier master management </li></ul></ul><ul><ul><li>Item master/content management </li></ul></ul><ul><ul><li>Catalog management </li></ul></ul><ul><ul><li>Contract master management </li></ul></ul><ul><li>Requisition and PO Processing </li></ul><ul><ul><li>Requisition processing </li></ul></ul><ul><ul><li>Purchase order processing </li></ul></ul><ul><ul><li>Requisition and purchase order support </li></ul></ul><ul><li>Customer Management </li></ul><ul><ul><li>External Customer Management </li></ul></ul><ul><ul><li>Internal Customer Management </li></ul></ul><ul><ul><li>Product Development and Design Support </li></ul></ul><ul><li>Sourcing Execution </li></ul><ul><ul><li>Requirements definition and supplier bidding </li></ul></ul><ul><ul><li>Negotiation and supplier contract creation </li></ul></ul><ul><li>Supplier Management and Development </li></ul><ul><ul><li>Supplier Management </li></ul></ul><ul><ul><li>Supplier Partnering </li></ul></ul><ul><li>Function Strategy and Performance Mgt </li></ul><ul><ul><li>Strategic and operational planning </li></ul></ul><ul><li>Sourcing and Supply Base Strategy </li></ul><ul><ul><li>Sourcing and Supply Base data gathering </li></ul></ul><ul><ul><li>Sourcing and Supply Base Analysis </li></ul></ul><ul><li>Function Mgt </li></ul><ul><ul><li>Function oversight </li></ul></ul><ul><ul><li>Personnel mgt </li></ul></ul><ul><ul><li>Policy and procedures oversight </li></ul></ul>Management & Administration <ul><li>Supplier Scheduling </li></ul><ul><ul><li>Supply requirements review </li></ul></ul><ul><ul><li>Supplier scheduling </li></ul></ul><ul><ul><li>Order release </li></ul></ul><ul><ul><li>Inbound tactical supply management </li></ul></ul><ul><ul><li>Delivery coordination </li></ul></ul><ul><li>Receipt Processing </li></ul><ul><ul><li>Materials and goods </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><li>Compliance Management </li></ul><ul><ul><li>Internal Compliance Management </li></ul></ul><ul><ul><li>External Compliance </li></ul></ul>
    • 10. Hackett’s IT benchmark framework Technology Infrastructure Application Management Planning & Strategy Management & Administration <ul><li>Infrastructure Management </li></ul><ul><ul><li>Operations Management </li></ul></ul><ul><ul><li>Security Management </li></ul></ul><ul><ul><li>Disaster Recovery Planning </li></ul></ul><ul><li>End User Support </li></ul><ul><ul><li>Help Desk </li></ul></ul><ul><ul><li>End User Training </li></ul></ul><ul><li>Infrastructure Development </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><li>Construct </li></ul></ul><ul><ul><li>Implement </li></ul></ul>Control & Risk Management <ul><li>Application Maintenance </li></ul><ul><ul><li>Application Support </li></ul></ul><ul><ul><li>Enhancement Delivery </li></ul></ul><ul><ul><li>Upgrade Execution </li></ul></ul><ul><li>Application Development and Implementation </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><li>Construct </li></ul></ul><ul><ul><li>Implement </li></ul></ul><ul><li>Quality Assurance </li></ul><ul><ul><li>Change Management </li></ul></ul><ul><li>Risk Management </li></ul><ul><ul><li>Audit and Compliance </li></ul></ul><ul><li>IT Business Planning </li></ul><ul><ul><li>Alignment </li></ul></ul><ul><ul><li>Project Prioritization </li></ul></ul><ul><ul><li>Communication </li></ul></ul><ul><li>Enterprise Architecture Planning </li></ul><ul><ul><li>Governance </li></ul></ul><ul><ul><li>Standards Management </li></ul></ul><ul><li>Emerging Technologies </li></ul><ul><ul><li>Technology Evaluation </li></ul></ul><ul><li>Function Management </li></ul><ul><ul><li>Function oversight </li></ul></ul><ul><ul><li>Personnel management </li></ul></ul><ul><ul><li>Policy and procedures oversight </li></ul></ul>
    • 11. Data collection activities - Web based collection tool and reporting
    • 12. Hackett’s process taxonomy assures “apples-to-apples” comparisons <ul><li>Processes </li></ul><ul><li>Accounts payable </li></ul><ul><li>Travel and expense </li></ul><ul><li>Freight payments </li></ul><ul><li>Activities </li></ul><ul><li>Processing and routing of incoming mail specific to the cash disbursements process including the handling of invoices, bills of lading & receiving documents and expense reports </li></ul><ul><li>Matching of supplier invoice, purchase order, receipt acknowledgement and other required documents or information to validate and verify payment can be made to suppliers. </li></ul><ul><li>(More) </li></ul><ul><li>Sub-Processes </li></ul><ul><li>Sourcing execution </li></ul><ul><li>Supplier set-up </li></ul><ul><li>Pre-processing </li></ul><ul><li>Verification / approval </li></ul><ul><li>Processing </li></ul><ul><li>Discrepancy resolution </li></ul><ul><li>Payments </li></ul><ul><li>Inquiry response </li></ul><ul><li>File / store / retrieve </li></ul><ul><li>Reconciliation/ accrual/compliance </li></ul>Process Groups Cash disbursements Empirical data is collected based on activities performed, regardless of job title, reporting hierarchy, geographic location, or organization structure Data collection =
    • 13. NASACT Utilizes Hackett’s Proven Benchmark Process and Tools (12-16 week process from kickoff) Planning/Kickoff <ul><li>Review Question Set Scope and Definitions </li></ul><ul><li>Identify Data Sources </li></ul><ul><li>Establish Project Coordinator </li></ul><ul><li>Identify Location / Function Coordinators </li></ul><ul><li>Conduct Project Education and Training </li></ul>Data Collection & Other Inputs <ul><li>Collect All Required Quantitative Data </li></ul><ul><li>Practice Assessment Workshop </li></ul><ul><li>Conduct Executive Interviews </li></ul><ul><li>Conduct Stakeholder Survey </li></ul>Data Validation <ul><li>Data Consolidation </li></ul><ul><li>Data Review and Validation </li></ul><ul><li>Client Signoff on Data Accuracy: Reflecting Operations of the State/Agency </li></ul>Analysis / Draft Report <ul><li>Conduct Data Analysis </li></ul><ul><li>Develop Recommendations and High Level Action Plan </li></ul><ul><li>Assemble Draft Results Report for State Leadership </li></ul><ul><li>Review Draft Report </li></ul>Results Presentation <ul><li>Present Benchmark Results and Associated Findings to State/Agency Leadership </li></ul><ul><li>Quantification of Financial Impact of Improved Performance </li></ul><ul><li>Prioritization of Opportunities </li></ul><ul><li>Determine Actions Required to Close Performance Gaps </li></ul>Enablement through tools and methodology Collection of baseline data as well as validation of data with Hackett Analysis of baseline data versus benchmark database - development of recommendations
    • 14. Week 1-2 Week 3-4 Week 5-6 Week 7-8 Week 9-10 Week 11-12 Week 13-14 Week 15-16 Training Data Collection Analysis & Preliminary Results Final Results Draft Data Data Validation Pre-Planning Hackett’s Benchmarks can be executed in 12-16 weeks (approximate timeline)
    • 15. Benchmark program costs <ul><li>State resource needs: </li></ul><ul><ul><li>State coordinator half time for 6-8 weeks </li></ul></ul><ul><ul><li>Agency coordinators half time for 1-2 weeks </li></ul></ul><ul><ul><li>Agency data collectors 2-3 days </li></ul></ul><ul><ul><li>Core team and management to participate in data review and final report meeting (3-6 hours) </li></ul></ul><ul><li>Administrative fee to NASACT 3% </li></ul>Plus: travel related expenses – capped at $10,000 for the first benchmark and $9,000 for each additional benchmark
    • 16. The Hackett Value Grid TM Hackett Value Grid™ ABC Co. Company <ul><li>EFFECTIVENESS (y-axis) </li></ul><ul><li>Partnership </li></ul><ul><li>Quality </li></ul><ul><li>Talent Management </li></ul><ul><li>Flexibility </li></ul><ul><li>Access To Information </li></ul><ul><li>EFFICIENCY (x-axis) </li></ul><ul><li>Cost </li></ul><ul><li>Cycle Time </li></ul><ul><li>Technology Enablement </li></ul><ul><li>Complexity </li></ul>Although this is a sample, each dot on The Hackett Value Grid will represent organizations that participated in the 2007 Performance Study. The star will represent your organization and indicate how it compares in the areas of efficiency and effectiveness to the other participants.
    • 17. What does it take to achieve world-class performance? Common characteristics of executives leading world-class organizations World-Class <ul><li>Use metrics to determine priorities, not “intuition” </li></ul><ul><li>Establish infrastructure to lead change </li></ul><ul><li>Evaluate strategic alternatives and business case </li></ul><ul><li>Track and communicate progress consistently to established performance targets </li></ul><ul><li>Fact-based award recognition </li></ul><ul><li>Understand proven approaches of world-class organizations </li></ul><ul><li>Select “right” practices vs. maximum possible </li></ul>Prioritize and Manage Identify Certified Practices Execute Continuous Measurement Objectively Quantify Opportunity <ul><li>External comparison of internal performance to world-class standards </li></ul><ul><li>Develop a holistic solution encompassing </li></ul><ul><ul><li>People (Organization) </li></ul></ul><ul><ul><li>Business Process </li></ul></ul><ul><li>Technology configuration and rapid execution </li></ul><ul><li>Use of Information </li></ul><ul><li>Technology </li></ul>Benchmarking and Best Practices are the foundation
    • 18. Arizona Benchmark Overview
    • 19. Finance has the right structure in place to provide value How efficiently is Finance meeting business demands World-Class 1Q 1Q High High Low State of AZ Capitalizing on identified opportunities will enable State of AZ to increase finance’s effectiveness and efficiency Key Effectiveness drivers: + Company standard for data definitions and code standards + Suppliers making inquiries using web application + Cost analysis provided on target + Integration of strategy, tactics & budgeting + Credit sales collected within terms + High return rate on invested funds + Formal documented strategic plan + Days to report general accounting results - Billing errors - Role of Finance in strategy - No balanced scorecards - Time spent on business analysis - Managers perform BPR online - Use of non-financial measures Key Efficiency drivers: + Days to Close & Report + General Accounting as a % of operating budget + Finance cost as % of operating budget - Days to complete the budget - A/P to G/L integration - Number of process applications - Integration between order entry/sales application and billing - Cash disbursements automated - Cash Disbursement Transactions per FTE - Fixed asset integration with accounts payable - Cash Disbursements as a % of operating budget - Cash disbursement cost per transaction - Days to prepare ad hoc business performance reports
    • 20. Overall findings and observations <ul><li>State of AZ’s finance cost as a percent of revenue/operating budget is 0.33%, placing it in the 1st quartile of the peer group </li></ul><ul><li>A solid shared service infrastructure is in place and overall vision is strong, however, opportunity exists to expand to larger agencies/departments </li></ul><ul><li>State of AZ’s resource allocation reflects a greater focus on transactional activities than World Class </li></ul><ul><ul><li>Transactional FTEs are comparable to World Class but only 13% of Arizona’s Finance staff is focused on planning and analysis compared to 25% in World Class organizations </li></ul></ul><ul><ul><li>Organizational fragmentation of processes exists </li></ul></ul><ul><li>Business requirements are being satisfied by brute force efforts in many cases </li></ul><ul><ul><li>Ability to mine and use information for strategic purposes is challenging; with significant reliance on standalone spreadsheets </li></ul></ul><ul><ul><li>Benchmark indicates low utilization of best practices in several areas further limiting the ability of Finance to drive incremental value to the State </li></ul></ul><ul><li>State of AZ is under-investing in technology </li></ul><ul><ul><li>World Class organizations spend 11% of total operating budget/revenue on technology vs. 5% for the State </li></ul></ul><ul><ul><li>Limited tools exist (common ERP, web-based tools and self-service reporting) to enable best practice based solutions </li></ul></ul>
    • 21. Summary findings by Process Group <ul><li>Transaction processing </li></ul><ul><ul><li>Opportunities exist in all the transactional processes to reduce cycle times </li></ul></ul><ul><ul><li>The cash disbursement process has low automation & process fragmentation, resulting in high staffing, high transaction costs, and low productivity. Staffing is fragmented across 20-25 locations, with an average of 10 FTEs per location </li></ul></ul><ul><ul><li>Revenue cycle staffing and costs are comparable to World Class but effectiveness is reduced by greater error rates </li></ul></ul><ul><li>Risk & Compliance </li></ul><ul><ul><li>Inherent government complexity may be leading to significant compliance management staffing requirements </li></ul></ul><ul><li>Decision Support </li></ul><ul><ul><li>There are minimal resources to focus on the value added processes of planning, performance management, and business analysis </li></ul></ul><ul><ul><li>Effectiveness opportunities exist by positioning the finance function as a strategic partner with operations and fully integrating tactical and strategic business plans </li></ul></ul><ul><ul><li>Although considered easy, the budget process is manual and long </li></ul></ul>
    • 22. The State of AZ allocates 68% of its finance staff time to transactional activities Transactional
    • 23. Finance cost as a % of revenue/operating budget places State of AZ in the first quartile of the peer group State of AZ Quartile 1 Quartile 2 Quartile 3 Quartile 4 Finance cost as a % of revenue/operating budget Quartile breakdown as a % of revenue/operating budget 0.33% 0.70% 0.73% World Class 0.73%
    • 24. State of AZ’s total FTEs are less than the Median or World Class, but only 13% focus on planning and analysis Finance resource allocation Finance Staffing (FTEs) (Median and World-Class are normalized based on revenue/operating budget) 626 800 852 13% 25%
    • 25. State of AZ’s average labor rates are 35% lower than World Class and may be masking overall inefficiency Average fully loaded labor rates The Hackett Group is not a compensation analysis firm. The Median and World Class figures represent organizations throughout the United States. They are not specific to only the Arizona Market.
    • 26. Comparative Process Analysis
    • 27. Resources committed to Cash Disbursements is greater than both median and world class Transaction processing FTEs Process cost as a % of Revenue/operating budget
    • 28. Transactional cycle times exceed the Median and World Class in Cash Disbursements and Revenue Cycle General accounting: days to close & report Transactional cycle times – in days Complexities and/or regulatory requirements of private sector organizations do not exist at the State of Arizona
    • 29. Low automation, and process fragmentation are driving Cash Disbursement units costs to be 3 times World Class Cash Disbursements cost as a % of Revenue/operating budget Transactions per FTE Cost per transaction (invoices/T&E reports) Percent cash disbursement transactions automated
    • 30. The highly fragmented Cash Disbursements process should be considered a candidate for shared services
    • 31. Best practices analysis for cash disbursements Best practices State of AZ Top Performer <ul><li>Degree of integration of the purchasing application to the accounts payable application </li></ul><ul><li>Suppliers submit their invoices electronically </li></ul><ul><li>Percentage of travelers completing and submitting their expense reports via an online application </li></ul><ul><li>Percent of expense reports requiring management approval </li></ul><ul><li>Percent of expense reports audited for compliance (e.g., sample size) </li></ul>None/Completely Manual
    • 32. Revenue cycle staffing and process costs are comparable to World Class, effectiveness is impacted by re-work Revenue Cycle cost as a % of Revenue/operating budget Revenue Cycle FTEs Occurrence of billing errors Percent customer bills processed electronically
    • 33. General accounting & external reporting are performing at World Class Accounting & external reporting cost as a % of revenue/operating budget Accounting & external reporting FTEs Days to close Percent automated journal entries
    • 34. Inherent government complexity may be requiring greater compliance staffing than World Class Compliance management cost as a % of Revenue/operating budget Compliance management FTEs Audits per internal audit FTEs External audits fees ($000)
    • 35. There may be an opportunity to rationalize the number of bank accounts required in Treasury management Treasury management cost as a % of Revenue/operating budget Treasury management FTEs Annual gross banking fees ($000) Bank accounts
    • 36. State of AZ is achieving favorable results in Treasury investments Average return on invested funds
    • 37. Focusing on decision support processes will enable finance to increase its overall effectiveness Process cost as a % of revenue/operating budget Planning, analysis and decision support FTEs
    • 38. Budget complexity (line items) is World Class but automated tools may improve the overall cycle time Days to complete the budget Number of line items in budget Percent of customers that describe the budget process as convenient and easy % of operation managers using online budgeting application
    • 39. The few resources focused on business analysis consider themselves operational partners and are productive Business analysis cost as a % of Revenue/operating budget Business analysis FTEs Programs/services per FTE Self assessment of finance analysts level of partnering with operations management
    • 40. State of AZ’s analysts spend less time analyzing information than the Median or World Class Allocation of analysts’ time for standard reports
    • 41. Technology Analysis
    • 42. Investment in technology is lower than the Median or World Class, when viewed against staffing or revenue/budget Technology cost as a % of total cost Labor v. technology cost per FTE Finance technology cost as a % of revenue/operating budget 16% 15% 16%
    • 43. Low integration and cross functionality within transactional processes impacts Finance’s efficiency Customer billing application integration AP to GL application integration Note: graph represents a distribution of median companies
    • 44. There is limited deployment of decision support tools and a greater leverage of spreadsheets for the budget process Spreadsheet usage in budgeting and forecasting Use of data management and analysis tools (Data Warehousing/Data Marts) Note: graph represents a distribution of median companies Business-simulation models used scenario analysis
    • 45. Technology does not adequately support the cash remittance or internal reporting processes Percent of reports distributed electronically Percent of remittances settled electronically Hackett defines “Electronic Distribution” as completely system driven. Reports attached to e-mails do not count as electronic. E-mail addresses must be pre-loaded into an application that sends the reports.
    • 46. Recommendations (Discussion)
    • 47. In summary, the overall benefits available to the State of AZ Finance are significant <ul><li>Ability to significantly leverage the scale opportunities of the State </li></ul><ul><li>Improved efficiency and effectiveness across Finance and its stakeholders </li></ul><ul><li>Rapidly improved transaction processing service levels (i.e., shorter cycle times, reduced error rates) </li></ul><ul><li>Improved ability to enhance available information, optimize processing costs and purchased costs through strong integration and partnering with stakeholders </li></ul><ul><li>Easier access to information will reduce the “Brute Force” effort required today, freeing up more time for value-added analysis </li></ul><ul><li>Richer jobs and an enhanced Finance reputation by performing more strategic/advisory role vs. controllership/transaction oriented role </li></ul>
    • 48. Improving all key business drivers simultaneously is essential to becoming world-class + + = <ul><li>Technology leverage </li></ul><ul><li>System complexity </li></ul><ul><li>Standardization </li></ul><ul><li>Centralization </li></ul><ul><li>Staffing levels </li></ul><ul><li>Resource allocation </li></ul><ul><li>Partnering </li></ul><ul><li>Organizational </li></ul><ul><li>Productivity </li></ul><ul><li>Cycle times </li></ul><ul><li>Complexity </li></ul>How you manage your staff How you enable your staff How you execute <ul><li>Low cost </li></ul><ul><li>High value </li></ul><ul><li>Service levels </li></ul><ul><li>Risk management </li></ul><ul><li>Performance measurement </li></ul><ul><li>Access/availability </li></ul><ul><li>Data vs. intelligence </li></ul><ul><li>Actionable </li></ul>World-class performance Process Technology Information People
    • 49. To move from transaction processor to business partner the best have followed the same path Eliminate Simplify Automate Observed Best Practices <ul><li>Redundant or ineffective approvals (e.g. expense reports, requisitions) </li></ul><ul><li>Duplicate data capture </li></ul><ul><li>Immaterial transactions (journal entries, small $ payments) </li></ul><ul><li>Paper invoices/Checks </li></ul><ul><li>Allocations </li></ul><ul><li>Manual JEs </li></ul><ul><li>ETC </li></ul><ul><li>Chart of Accounts </li></ul><ul><li>Allocations </li></ul><ul><li>Cost Centers </li></ul><ul><li>Technology standards and systems </li></ul><ul><li>Data Definitions </li></ul><ul><li>Customer/Supplier Databases </li></ul><ul><li>ETC </li></ul><ul><li>Employee/Customer/ Supplier Self service </li></ul><ul><li>Delivery of management information </li></ul><ul><li>Remaining manual JEs </li></ul><ul><li>ETC </li></ul>
    • 50. We recommend that the State of Arizona focus on three high priority actions <ul><li>Action #1 - Develop best practice based solutions for each core finance process </li></ul><ul><li>Action #2 - Define and implement an expanded shared Finance operating model </li></ul><ul><li>Action #3 - Better leverage technology across Finance </li></ul>
    • 51. Next Steps <ul><li>Validate benchmark findings </li></ul><ul><li>Decide on a maximum of 2 – 4 initiatives that will be the focus for improvement </li></ul><ul><li>Establish transition committee and process owner </li></ul><ul><li>Evaluate current project landscape to avoid duplication / competition of effort </li></ul><ul><li>Start initiatives and measure permanent progress </li></ul><ul><ul><li>Set quarterly timelines including quantitative targets </li></ul></ul><ul><ul><li>Measure, report and communicate progress on a quarterly basis </li></ul></ul><ul><li>Keep focus and communicate, communicate, communicate </li></ul>
    • 52. What is the State of Arizona strategically doing now? <ul><li>Submitted Budget Request for ERP/Purchasing System—Leverage Technology </li></ul><ul><li>Travel Management Subsystem—Utilizes technology to implement cash disbursements best practice </li></ul><ul><li>Web-based Vendor Inquiry—Utilizes technology to provide payment information to vendors (cash disbursements best practice) </li></ul><ul><li>Expanding Shared Services—Central Services Bureau & Human Resources </li></ul><ul><li>Data Warehouse Planned—Utilizes Technology to address Business Information Analysis </li></ul><ul><li>Participating in Payroll Benchmark </li></ul>
    • 53. What does it take to achieve world-class performance? Common characteristics of executives leading world-class organizations World-Class <ul><li>Use metrics to determine priorities, not “intuition” </li></ul><ul><li>Establish infrastructure to lead change </li></ul><ul><li>Evaluate strategic alternatives and business case </li></ul><ul><li>Track and communicate progress consistently to established performance targets </li></ul><ul><li>Fact-based award recognition </li></ul><ul><li>Understand proven approaches of world-class organizations </li></ul><ul><li>Select “right” practices vs. maximum possible </li></ul>Prioritize and Manage Identify Certified Practices Execute Continuous Measurement Objectively Quantify Opportunity <ul><li>External comparison of internal performance to world-class standards </li></ul><ul><li>Develop a holistic solution encompassing </li></ul><ul><ul><li>People (Organization) </li></ul></ul><ul><ul><li>Business Process </li></ul></ul><ul><li>Technology configuration and rapid execution </li></ul><ul><li>Use of Information </li></ul><ul><li>Technology </li></ul>Benchmarking and Best Practices are the foundation
    • 54. Questions or Comments? ? ? ? ?

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