Discusses the creation of an in-house tool for consistently assessing vendors’ financial health. Covers such topics as:
• Advantages of an in-house system versus a third-party service
• What are the recommended inputs for an in-house tool?
• Methods for consistently translating the data into actionable recommendations
• How do you visually communicate financial data for laypeople to understand?
• Tying financial health assessments to decision-making and clinical development activities
Defined Benefit (DB) pension schemes have entered middle-age. The features of youth – contribution holidays, equity-laden investment strategies, double-digit interest rates and discussions on allocation of surplus – are gone. The majority of schemes have still not yet arrived at old age, though. This is when risks should be expected to be manageably small (or transferred to the care of a third party), such that the sponsor could avoid a failure to recover from a major shock to the scheme’s funding.
CCAR & DFAST: How to incorporate stress testing into banking operations + str...Grant Thornton LLP
Banks are integrating elements of regulatory stress testing into their everyday business processes and strategic planning exercises, and optimizing enterprise risk management in the process. What does enterprise wide stress testing mean for a financial institution? What are the impacts and implications to a financial institution?
An industrial approach to risk and control self-assessmentsGrant Thornton LLP
Derive more value from your risk and control self-assessment process, and integrate your organization’s overall operational risk management process to comply with Dodd Frank and other legislation. We specialize in working with clients to help identify, remediate and resolve assessment gaps so they efficiently meet or exceed regulatory requirements.
Defined Benefit (DB) pension schemes have entered middle-age. The features of youth – contribution holidays, equity-laden investment strategies, double-digit interest rates and discussions on allocation of surplus – are gone. The majority of schemes have still not yet arrived at old age, though. This is when risks should be expected to be manageably small (or transferred to the care of a third party), such that the sponsor could avoid a failure to recover from a major shock to the scheme’s funding.
CCAR & DFAST: How to incorporate stress testing into banking operations + str...Grant Thornton LLP
Banks are integrating elements of regulatory stress testing into their everyday business processes and strategic planning exercises, and optimizing enterprise risk management in the process. What does enterprise wide stress testing mean for a financial institution? What are the impacts and implications to a financial institution?
An industrial approach to risk and control self-assessmentsGrant Thornton LLP
Derive more value from your risk and control self-assessment process, and integrate your organization’s overall operational risk management process to comply with Dodd Frank and other legislation. We specialize in working with clients to help identify, remediate and resolve assessment gaps so they efficiently meet or exceed regulatory requirements.
Day-to-day tactical decisions are relatively easy, but when it comes to big, thorny strategic decisions, there is often great conversation, but limited action. Using a framework, leaders can best organize their efforts.
If you'd like to ensure you have a game plan for addressing multiple possible future states, this white paper will help frame your conversations.
Third Party Risk Management IntroductionNaveen Grover
On October 30, 2013 the Office of the Comptroller of the Currency (OCC) issued updated guidance on third-party risks and vendor management. The OCC's bulletin points out that its updated guidance replaces OCC Bulletin 2001-47, "Third-Party Relationships: Risk Management Principles," and OCC Advisory Letter 2000-9, "Third-Party Risk."
Measuring the Financial Health of Your Physician Contracting ProgramMD Ranger, Inc.
The average hospital spends 3-5% of its total operating budget on physician contracts for emergency coverage, administrative positions, and hospital-based service agreements. These expenditures cannot be ignored
any longer: the financial impact of these relationships can affect the financial outcomes of the entire organization.
Day-to-day tactical decisions are relatively easy, but when it comes to big, thorny strategic decisions, there is often great conversation, but limited action. Using a framework, leaders can best organize their efforts.
If you'd like to ensure you have a game plan for addressing multiple possible future states, this white paper will help frame your conversations.
Third Party Risk Management IntroductionNaveen Grover
On October 30, 2013 the Office of the Comptroller of the Currency (OCC) issued updated guidance on third-party risks and vendor management. The OCC's bulletin points out that its updated guidance replaces OCC Bulletin 2001-47, "Third-Party Relationships: Risk Management Principles," and OCC Advisory Letter 2000-9, "Third-Party Risk."
Measuring the Financial Health of Your Physician Contracting ProgramMD Ranger, Inc.
The average hospital spends 3-5% of its total operating budget on physician contracts for emergency coverage, administrative positions, and hospital-based service agreements. These expenditures cannot be ignored
any longer: the financial impact of these relationships can affect the financial outcomes of the entire organization.
Vendor Management Best Practices: Is Your Program Up to Par?EDR
Vendor Management Best Practices: Is Your Program Up to Par?
Webinar presented by Scott Roller, former head of vendor management at Citigroup
August 12, 2015
Among the top challenges lenders face today is the need to meet higher expectations set by the OCC and the Federal Reserve governing the use of third-party vendors. While the guidelines were released over a year ago, there is still confusion about what institutions should be doing.
One thing, however, is certain. Effective vendor management takes resources, and many institutions are finding it necessary to add staff and/or technology to help with the cause, particularly smaller institutions. The regulators have made it clear, vendor management is not just a one-time assessment, but is an ongoing process, and monitoring vendors long term is as important as the initial due diligence.
EDR is pleased to host a webinar on this timely topic on Wednesday, August 12, 2015 at 2:00 p.m. EST. Scott Roller, former head of vendor management at Citigroup, will provide clarity on the new regulations and help break down regulator expectations into easy-to-understand terms. Roller will explore key dimensions that attendees can use as the foundation for building out their own robust vendor management oversight program, from initial vendor risk classification all the way through ensuring adequate executive engagement in vendor management.
Attendees will learn best practices for satisfying regulators with this educational workshop, including answers to the following:
• What does the latest regulatory guidance on vendor management require?
• What are the biggest headaches banks are facing in complying with them?
• What advice is recommended for smaller banks struggling with limited manpower/resources?
• What are bank examiners looking for during audits?
• What are the latest best practices for policies and procedures?
• How are banks coping with the need to track and monitor vendors?
• What are the most common shortcomings that audits reveal?
RUNNING HEADER: Potential Risk Factors
Potential Risk Factors
Potential Risk Factors
BUS475
Understanding the risks listed below is regular will be indispensable to assessing an association's necessary arrangement. Besides, seeing how to quantify and screen these risks can assist organizations with recognizing and relieve barricades in the essential provision.
1. Economic Struggles
Changing large scale and microeconomic conditions can cause increasingly significant expenses underway; for instance, required materials can turn out to be scant or have lower edges causing lower benefit. Checking the changing monetary conditions can assist with envisioning the impacts on the business and change techniques varying.
2. Political vulnerability.
The administration assumes an indispensable job in the maintainability and strength, all things considered, legislative unsteadiness, such as visit changes in arrangements, can prompt vulnerabilities and lower benefits. Observing the world of politics can help in the capacity to make inside approach changes to relieve outside risks.
3. Demographic changes.
Changes in populace demographics of the objective market can be gainful because, as it may, gone unchecked can prompt misfortunes. Checking deals information, client profiles, and dissecting buyer conduct can quantify the demographic changes that can compromise the organization.
4. Increasing competition.
With a profitable business comes increasingly extensive measures of competition, and the risk for impersonation increments. The degree of competition can be persistently checked and estimated through statistical surveying and examination, enabling a business to keep its upper hand.
5. Quality Control.
The test of meeting and surpassing the degrees of quality wanted by purchasers frequently represent a risk because of the capacity for new organizations to improve and enter the market. Checking clients' assessment and revamping items to line up with showcase needs can help decrease losses because of quality issues.
Contingency planning
A business contingency plan is a game-plan that your association would take if a surprising occasion or circumstance happens. In some cases, a contingency can be sure, for example, an unexpected flood of cash—however, regularly, the term alludes to an adverse occasion that influences an association's notoriety, money-related well-being, or capacity to remain in business. These incorporate a fire, flood, information penetrates, significant system disappointment, and only the tip of the iceberg.
Contingency plans are a significant part of your general business coherence methodology since they help you guarantee your association is prepared for anything. Numerous huge organizations and government associations make different arrangements of contingency designs with the goal that an assortment of potential dangers is very much looked into, and their proper reactions are thoroughly drilled before.
The IT Auditing Series is a series of 10 2-hour webinars.
The study program consists of 5 modules Basic and 5 modules Advanced spanning a broad range of topics and issues in the IT Auditing field. The emphasis in all webinars is therefore on practical aspects, of Internal Auditing.
The course content is based upon ISACA Framework which has been accepted world-wide as the basis of skills and competencies required for all IT Auditors.
This session covers risk analysis for auditors
As Associate Principal at The Monitor Group (now Monitor Deloitte) in China, part of my of my role was helping train 1st Year consultants. This is the summary presentation from a day long Masterclass in the commonly used techniques in assessing a firm's "true" value.
Effective procurement risk management is critical for businesses to ensure that they are not exposed to unnecessary risks that can negatively impact their bottom line. Procurement risks can arise from various sources, such as supplier non-performance, quality issues, and price volatility. To mitigate these risks, companies must conduct a comprehensive procurement risk assessment and implement strategies to minimize potential threats.
Effective procurement risk management is critical for businesses to ensure that they are not exposed to unnecessary risks that can negatively impact their bottom line. Procurement risks can arise from various sources, such as supplier non-performance, quality issues, and price volatility. To mitigate these risks, companies must conduct a comprehensive procurement risk assessment and implement strategies to minimize potential threats.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
1. Traffic Lights and Threat Levels
An In-House Tool for Consistently Assessing
Vendors’ Financial Health
Matthew Eckman
2. Disclaimer
The views expressed in these slides and the accompanying
discussion are my own and do not necessarily reflect the views
of—and should not be attributed to—Genentech or any other
entity associated with the Roche Group.
2
3. Why is it Important to Analyze Vendors’ Health?
Problems abound for sponsors, vendors alike
Persistent economic troubles
Drug development challenges
Billions at stake
Outsourcing on the increase
Industry pain points
Irrational competition
Private equity involvement
3
4. Why is it Important to Analyze Vendors’ Health?
“Controversial financing strategy” hurts acquired firms
“Dividend recapitalization, which is legal, is a shortcut…Instead of
waiting to take profits when an acquisition is resold, the private equity
firm arranges for the company to borrow money…then channels the
proceeds to itself and its investors through a dividend…Some have
criticized the dividend recap strategy for saddling companies with debt
and for the 15 percent U.S. tax treatment often applied to the payouts,
which is far below the 35 percent top individual income tax rate.”
Reuters analysis, December 6, 2012
Link:
4
5. Advantages of an In-House System
Recommended Inputs
Translating Data into Action
Visually Communicate Financial Data
Tying Financial Health Assessments to Decision-Making
5
6. Comparing In-House Versus Third-Party Tools
After initial investment, advantages favor in-house
Criterion In-House Third-Party Tools
Source of data
(public companies)
Vendor
Published financials
Newsfeeds
Public, subscription data
feeds
Published financials
Newsfeeds
Public, subscription data
feeds
Source of data
(private companies)
Vendor Indirect benchmarks
None
Customization/
prioritization
Complete Limited to none
Resource
intensiveness
Significant (upfront)
Moderate (ongoing)
Minimal
Cost intensiveness None (spreadsheet)
Minimal (database)
Moderate to significant
(per-use and subscription)
6
7. Ramifications Of In-House Vs. Third-Party Tools
Significant differences exist
Financial preferences and concerns
• Vendors are business partners, not investments
• GAAP*/IFRS* vs. non-GAAP*, EBITDA*, net debt, etc.
Increased importance and attention
• Finance, risk professionals joining outsourcing, procurement groups
• Risk-based award, book-of-business decisions
Visibility into tool construction, output
• Internal consistency vs. what’s “most accurate”
• Redirects nature of dialogue with vendor
7
* See glossary at end of deck
8. Advantages of an In-House System
Recommended Inputs
Translating Data into Action
Visually Communicate Financial Data
Tying Financial Health Assessments to Decision-Making
8
9. Recommended Inputs for an In-House Tool
Simple concepts to consider
Use multiple facets of financial performance
Emphasize ratios and two-step tests
Avoid using too many market-based measures
9
10. Recommended Inputs for an In-House Tool
Simple concepts to consider
Use multiple metrics in the same family
Emphasize common financial line items
Exploit forward-looking measures
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10
11. Possible Inputs for an In-House Tool
Many options exist
Financial Integrity
• Independent auditor opinion
Bankruptcy Prediction
• Altman Z Score
• Morningstar Solvency Score
• Morningstar’s Distance to Default
Score
Customer Concentration
• % of revenues from top-1/3/5
customers (particular service and/or
overall)
Profitability
• Sales & income trends
• Operating, profit, FCF* margins
• ROA*, ROE*, ROIC*
• Retained earnings, EBIT*,
revenues/total assets
• FCF*/total revenue
Liquidity
• Cash, current, quick (i.e., acid test)
ratios
• Net working capital/total assets
Denotes forward-looking metrics
11
* See glossary at end of deck
12. Possible Inputs for an In-House Tool
Many options exist
Financial Leverage
• Operating cash flow vs. current,
long-term liabilities
• Interest coverage ratio
• FCF* to interest expense
• Morningstar's Cash Flow Cushion
• Total liabilities/total assets
• Total liabilities/total equity
• Total liabilities/total capital
Financial Leverage (continued)
• Net debt/total capital
• Total assets/total equity
• FCF*/total liabilities
Operating Ratios
• Backlog and backlog conversion
trends
• Receivables turnover
• % of receivables from top-1/3/5
customers
• % repeat clients
Denotes forward-looking metric
12
* See glossary at end of deck
13. Advantages of an In-House System
Recommended Inputs
Translating Data into Action
Visually Communicate Financial Data
Tying Financial Health Assessments to Decision-Making
13
15. Methods For Translating Data Into Action
Be particular about text
Use enough…
…but don’t use too much.
Customize some text…
…but focus on boilerplate language.
Avoid financial jargon…
…in favor of layperson descriptions.
15
16. Methods For Translating Data Into Action
Composite scores can facilitate understanding
Singular output
Audited financial statements
36.7% bankruptcy probability
4.8% profit margin
63.9% sales among top 3 customers
89.1% FCF/liabilities
1.32 current ratio
70.4% receivables among top 3 customers
6.4/10
Numerous inputs
16
17. Methods For Translating Data Into Action
What can composite scores tell you?
Clear scale and relativity
Current, historical, and average scores over time
Can be tied to explicit risk levels
17
18. Advantages of an In-House System
Recommended Inputs
Translating Data into Action
Visually Communicate Financial Data
Tying Financial Health Assessments to Decision-Making
18
19. Visually Communicate Financial Data
Color can supplement text, numbers
??/10
Risk Level:
Sponsor Choice
2.5/10
Risk Level:
High
5.8/10
Risk Level:
Medium
9.7/10
Risk Level:
Low
19
20. Visually Communicate Financial Data
Radar plots are compact and information-dense
Financial Integrity
Bankruptcy Prediction
Customer Concentration
ProfitabilityLiquidity
Operating Ratios
Financial Leverage
20
21. 21
Visually Communicate Financial Data
Composite scores can be graphed
Low Risk
Medium Risk
High Risk
0
1
2
3
4
5
6
7
8
9
10
201320122011201020092008
22. Low Risk
Medium Risk
High Risk
0
1
2
3
4
5
6
7
8
9
10
201320122011201020092008
Visually Communicate Financial Data
Composite scores can give historical context
What’s typical for this vendor over
business cycles?
How does the latest score compare to
its historical average?
Vendor
22
23. Low Risk
Medium Risk
High Risk
0
1
2
3
4
5
6
7
8
9
10
201320122011201020092008
Visually Communicate Financial Data
Composite scores can give relative context
How well does the vendor’s plight track
that of a market index?
How does the vendor compare across
similar vendors in the sponsor’s own
tool?
23
26. Advantages of an In-House System
Recommended Inputs
Translating Data into Action
Visually Communicate Financial Data
Tying Financial Health Assessments to Decision-Making
26
27. Tying Financial Assessments to Decision-Making
Key Considerations
Proximity of assessor and decision-maker
Prioritize efforts and areas of focus
Risk-based monitoring, mitigation efforts
Integrate with operational, quality checks
Communication with vendors
27
28. Tying Financial Assessments to Decision-Making
Incorporate into vendor selection process
RFI/RFP Assessment Lower-Risk
Alternatives?
Risk Mitigation
Ineligible?
Eligible?
Low Risk
Unavailable
Medium Risk
High Risk
No
Recommended
Required
Yes
No
28
29. Tying Financial Assessments to Decision-Making
Risk mitigation tool
Make it easy to use
Make it versatile and flexible
Provide a framework, not a mandate
Emphasize “living documents” over plans set in stone
Incorporate risk management concepts
29
30. Tying Financial Assessments to Decision-Making
Risk maps can put activities in context
Negligible
Low
Extreme
High
Medium
Rare
Unlikely
Certain
Likely
Moderate
Likelihood
Impact
30
31. Tying Financial Assessments to Decision-Making
Approach risk mitigation from multiple angles
Action Responses:
• One-time activities that reduce the sponsor’s level of risk once they have been
completed
Control Responses:
• Persistent mechanisms and procedures that are collectively intended to reduce—
or at least maintain—the sponsor’s level of risk; they are typically effective after
being implemented and while being operated
Fallback Responses:
• Contingency plan: a detailed mitigation plan in the event that actions and/or
controls fail to prevent the risk(s) to sponsor that had been identified via the
financial assessment
31
32. Traffic Lights And Threat Levels
Conclusion
• Industry challenges compounded by irrational competition, private equity
• After an initial investment, in-house tools are powerful, cost-effective
• Six simple concepts can guide selection of a custom array of inputs
• Composite scores can facilitate understanding
• Visual cues can be combined with numbers, text to enhance communication
• Assessments should accompany risk mitigation for maximal effect
• Risk maps and response categories can frame mitigation efforts
32
34. Glossary
Explanation of abbreviations
EBITDA
• Earnings before interest, taxes,
depreciation, and amortization
EBIT
• Earnings before interest and taxes
FCF
• Free cash flow
GAAP
• Generally accepted accounting
principles
IFRS
• International Financial Reporting
Standards
ROA
• Return on assets
ROE
• Return on equity
ROIC
• Return on invested capital
Editor's Notes
Persistent economic troubles—a holdover from the global economic crises of the late 2000s—continue to plague many of the largest markets in which sponsors and vendors alike do business…The increasingly-challenging drug development landscape is affecting the industry’s productivity and profit…R&D budgets—a significant source of our costs--reach into the billions for many firms…Sponsors are increasingly reliant on outsourcing to stretch those R&D budgets…Our vendors face significant challenges in their industries as sponsors reduce their slates of preferred vendors, sponsor alliances are not the fiscal windfalls they were hoped to be, and the preclinical and Phase I business segments stagnate in the doldrums of a demand trough…Increasingly-generous signing bonuses are leading to a war of attrition, constraining profits and leading to higher employee turnover that could threaten performance on outsourced studies… The go-to methods of private equity firms are draining cash off the balance sheets, shifting unsustainable debt onto our vendors, and increasing the cost of that debt via high interest rates and credit downgrades. This has, in some cases, led to lawsuits against the private equity firms. And while the recent and debated changes to the US tax code have not lessened their reliance on these tactics, some organizations are predicting moderate returns and a more competitive landscape for PE that could see their use increase.These factors and more are impacting the financial performance of many companies that rely on our industry, leading some to fail. Roche and Genentech have both experienced the sudden failure of vendors in the midst of studies. These failures can result in cost overruns, quality issues,product development delays, and lost revenues.It is important to note that financial, operational, and quality risks with vendors are independent types of risk that are intertwined and, in some cases, predictive of one another. [Explain with an example.] While we are discussing financial risk in this presentation, I will point out that Roche assesses the performance of its vendors across a variety of dimensions (sustainability, operation, quality, etc.) of which financial risk is but one component.
By now, you have an appreciation for the importance of evaluating your vendors’ financial health. Now let’s take a look at the arguments in favor of doing it yourself…
Indirect benchmarks also refers to the use of sector averages in the absence of specific information…can be totally irrelevant and/or misleading
Sponsors view vendors as business partners, not as investmentsFinancial concerns are resultantly differentVendor financial data provided to sponsors should reflect this distinctione.g., avoid non-GAAP/EBITDA figures, don’t downplay debt and debt service, etc.Don’t downplay sponsor requests for financialsFinance professionals joining outsourcing, procurement groups…part of the ‘professionalization’ of new procurement organizations: not only deal cutters anymore, but part of an overall solutions strategy development…also provides greater job security than the tumultuous financial services industryRisk management efforts intensifying (DJSI also asks increasingly about comprehensive risk management)Can impact individual awards and total book of businessSpecifics (construction, final scores) withheld from vendorsPrevents unproductive debates on methodology and the possibility that knowledge could influence vendor behavior, performanceAllows sponsors to use one tool consistently, as opposed to customizing for each vendor (time-saving and focuses attention on items important to sponsor)
At this point, perhaps I’ve convinced you to create your own in-house tool for vendor financial assessments, in place of or in combination with an external service…so let’s now discuss what inputs might comprise a first-in-class financial assessment tool…
Use multiple metrics in the same family: No one metric is perfect, as each has its limitations and idiosyncrasies; multiple indicators lend greater weight to conclusionsEmphasize common financial line items: Esoteric inputs can impact timeliness of vendor responses and inject unwanted variation in calculationsExploit forward-looking measures: Elevates tool from an historical snapshot and better aligns risk assessment with timeline of outsourced work
Can mention that other common financial metrics have some success at being used to predict bankruptcy
At this point, you’ve decided what inputs will comprise your in-house tool for vendor financial assessments…now let’s discuss how you translate those data into actionable recommendations…
Talk about the relative numbers of ENIACs, PCs, and iPads in their first years of availability…emphasize that ease-of-use and visual appeal were key to their understanding and adoptionConcentrate on the broad themesUse layperson language to explain financial concepts
Regardless of how you construct your tool, it’s bound to have text. Here are some recommendations on the use of text in your tool.Use enough text to provide a description and appeal to those who learn via reading, but don’t use too much.Customize some text for the specific vendor you’re evaluating, but focus on boilerplate language so that there’s consistency and end-users get comfortable with the text on the tool.Avoid financial jargon in favor of layperson descriptions that can be understood by anyone, regardless of background and education.
So what do you do with all the inputs you selected and the metrics you’ve calculated? How many of your colleagues would understand these data well enough to make a decision based on them?In order to do this, will have to decide, as a company, thresholds for each metric individually and for each metric’s contribution to the whole weighted composite scoreComposite scores could be additive or subtractiveIn the absence of enough information to determine a score, suggest you act conservatively and rate accordinglyValuable shortcut:When constructing your tool, you can align it with the vendor RFI to enable cut-and-paste entry of the raw financial data. The tool can then automatically calculate all selected metrics, then rate and weight the metrics into the composite score. Microsoft Excel and secure, web-based interfaces are both viable options for doing this.
Provides consistent interpretation of multiple componentsEases the exercise of financial analysis by offering automatically-computed, meaningful, and easy-to-read output derived from relatively simple inputClear scale and relativity (intra- and inter-company) ---Pay attention to the gradation of your scale: a 0-5 scale may be too blunt, 0-10 through 0-100 scales can provide enough room, while round numbers may hold appealCan be compared to most recent composite score to judge relative financial health of lateScores can dictate risk level and suggest whether risk mitigation warranted
So now you’ve opted to create an in-house tool…You’ve sat down with Finance to compile the desired inputs and rate and weight them accordingly…You’ve figured out how to distill the text and numbers down to a meaningful few…But how do you make sure that you’ve unambiguously made your point to a non-financial audience?People learn and understand things in different ways: some by reading, some by seeing. Some people prefer text to numbers; others take in data from pictures best. We’ll look at ways in which we can try and tackle each of those scenarios.
The simplest first step is to add color. In this case, we can overlay color on text and/or numbers.Note that the score is prominent in all cases. The scale is also mentioned. At bottom, the risk level is correlated to the score. The color is, in turn, correlated to the risk level.When looking at the box on the left, it is important to note that sponsors can choose a default for overall scores or individual components in the absence of data…medium- or high-risk, for example…this still allows it to be incorporated with risk management process and hopefully discourages vendors from withholding information…also allows for conservative stance as a default
Radar plots are another visual way to communicate several pieces of data at once:The shape can accommodate many different facets of analysis, simply by adding another sideThe radii convey the scale for the individual scoresThe colors and dotted polygons convey the risk levelsTwo potential setbacks of the radar plot:Can be difficult to reflect an overall score and risk levelComparisons to other benchmarks may be difficult to comprehendCould alter color of the lines to reflect overall risk level of vendor
If we instead focus on a composite score, then we can use a plot such as this to visually communicate key data.Risk levels are demarcated, colored and named against a clear scale that situates the highest scores at the topThe horizontal axis shows the annual composite score of current and historical financial data
Higher lifetime average suggests recent financial challenges (could be unique to firm or reflective of industry/economy)
A graph such as this could show that—while the market index has performed better than a vendor and its cohort—the vendor in question better handled the downturn and has improved at a faster rate than its cohort.
Traffic lights are interpretable under many scenariosSymbol is recognizable, if not identical, in all developed countriesColors can be consistent with other risk level depictions in your toolSuperimposition of symbols onto traffic lights aids B&W printing and those with red/green color blindnessUse of symbols instead of abbreviations (e.g., R, Y, G) or pictures (e.g., “thumbs up”, “thumbs down”) intended to avoid cultural and language differences in a global companyBy default, lack of data for a traffic light could result in a blank traffic light, which would not count toward a vendor’s score
Here we see several of the items previously discussed being used in combination with one another: numbers, boilerplate layperson text, graphs, and traffic lights. This combination should appeal to a broader audience given the redundant signalsAll four variations of a bankruptcy prediction score box shown with sample data…can be used for additional detail on your tool’s major families of metrics By default, lack of data for a traffic light results in a blank traffic light with explanatory text Helps end-users identify particular areas of concern and strengthNote changes in traffic light color and symbol, as well as corresponding textBoilerplate layperson text inputs and traffic light automatically triggered by risk level; risk level automatically triggered by score
Great. You’ve created a powerful, first-in-class, in-house tool to assess your vendors’ financial health…and even better, your colleagues understand it. How do you tie financial health assessments to decision-making and clinical development activities?
Proximity of assessor and decision-makerInvolve end-users in process: Get buy-in and support from top management, emphasize its place as an additional decision-making tool, designate process SMEs, conduct global trainings (VC, TC, in-person, and online) for outsourcing and clinical development colleaguesAssessments and risk mitigation plans without proper context from involved parties could lead to misinterpretation and misunderstandingMost appropriate study team SMEs dictate risk mitigation plans on particular studies; outsourcing relationship managers dictate vendor- or service area-wide RMPs; contract negotiators facilitate study team education and adherence to processPrioritize efforts and areas of focusDevelop eligibility requirements to help focus assessment effortsRisk-based monitoring, mitigation effortsText recommendations automatically triggered based on risk level implied by composite scoreRisk levels can be linked to the performance and extent of risk mitigation activities, ensuring concerning eligible vendors command the most attentionIntegrate with operational, quality checksAlthough financial risk can be independent from operational and quality risks, it should be part of the overall battery of risk assessments you systematically conduct for a holistic approachCommunication with vendorsKnowledge of FHAT methodology, results, or FRMP components could influence vendor behavior, performance
How might vendor financial assessments be incorporated into decision-making? It can be used for the selection of vendors at the RFP stage, for example…Eligibility criteria can include such considerations as:Preferred/prequalified vendorsKey service area vendorsVendors comprising a majority of overall spendVendors with contracts above a minimum thresholdVendors requested by managementDoes sponsor have to work with vendor identified as medium- or high-risk? If not, look for lower-risk alternative vendors with comparable capabilities.Internal customers involved in determining whether a particular vendor is critical, whether there are viable alternatives with lower risk ratings, and what actions will comprise a risk mitigation plan.Also need to mention that risk mitigation activities continue for duration of project/contract…not a one-time exercise
What characteristics should a risk mitigation tool exhibit?Not overly cumbersome:Goal: Create a tool that the business will want to useVersatile:Built-in flexibility for tool to be relevant for all different studies and servicesSuggestive aid:Does not “mandate” activity, rather provides framework for guidanceAccountability:“Living document” that can evolve, record efforts, and proactively describe a backup plan…not a one-time activity!Familiar:Align with risk management processes: Risk map, response categories
Risk Map – Likelihood AxisThis parameter refers to the likelihood of the vendor experiencing a financial issue (e.g., bankruptcy, insolvency, etc.).Could be assigned by the result of the financial assessment or a forward-looking metric within it (e.g., bankruptcy prediction). Sponsors could decide that a vendor lacking an assessment would default to a medium likelihood unless attainable evidence suggests otherwiseRisk Map – Impact AxisThis parameter assesses the impact to the sponsor in the case of a disruption to project(s) due to financial issues with the vendor.Could be assigned by the plan owner after consulting relevant stakeholders.Considerations might include:Critical nature of work to project timelines (e.g., retrospective analysis vs. registration study, primary endpoint vs. secondary endpoint)Total budget of contractRoche example: Any disruption causing delay in project timelines—or directly affecting the well-being of patients—is considered to be high impact to Roche.
Examples of action responses: MSA and contract language Payment terms Preliminary audit Initial communicationExamples of control responses: Repeat financial assessments Performance, operational monitoring Ongoing communicationExamples of fallback responses: Alternate vendors assessed and, if necessary, prepped Vendor transition plans Safeguards to minimize project disruptions at time of failure