Fpm sspov creating


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Fpm sspov creating

  1. 1. Shared Services offers the potential for significant savings across an organization and within business units. However, neither running the Shared Service Center nor investments in continuous improvement activities are free. In this Point of View, we consider the steps involved in establishing and communicating a clear framework for charging back for services to the business unit customers of the Shared Service Center. As we look in some detail at the key issues, fairness emerges as a prerequisite for a successful chargeback framework. By demonstrating that business units are receiving value for money, with transparent, predictable charging, the Shared Service Center can win their active cooperation in the move to continuous improvement and the drive to reduce costs. Success means establishing a framework for a win-win relationship between the Shared Service Center and its customers. Point of View 2
  2. 2. Why a chargeback framework is essential to the overall success of the Shared Service Center The Shared Service Center must be ! Will the charging model adopted positioned as a valued supplier of be cost, break-even, or profit- services and motivate customers to making? actively participate in improvement initiatives. A significant part of the ! Will charges be fixed or variable value proposition for Shared Services in nature - what will affect this? is a new level of efficiency, i.e. ! How will the specific services and reduced headcount. associated charges be clearly Chargebacks are important because defined? they motivate the business units to ! Will a start-up 'grace' period be achieve the workforce reduction granted where the business units targets. Without chargebacks, the are not charged? overall cost of back office financial processing may actually increase, as ! How will costs be allocated: by the local workforce is not reduced business size, transaction while staff are recruited to the volumes, complexity of tasks, Shared Service Center. time required to complete tasks? Some of the questions that need to ! How will charges be be considered when formulating a communicated to the business chargeback framework include: units, in terms of timing, reporting mechanisms, and so ! Will the Shared Service Center on? charge for its services at all, and if so for all services or just ! How can a win-win seller/buyer specific ones? relationship be best established? Chargebacks are important because they motivate the business units to achieve the workforce reduction targets. Point of View 3
  3. 3. Must-know facts: learn from others' experience in setting up a Shared Services Chargeback Framework We have found the following guidelines helpful in building a chargeback framework that makes a significant contribution to the success of the Shared Service Center: Make charging visible Work closely with the client’s finance team The chargeback allocation needs to be clearly defined so that the During development, the Shared business unit customer clearly Services program management team understands what services will – and typically has responsibility for will not – be provided. Joint working directly with the client’s responsibilities must be stated up corporate finance group to define front. In a Shared Services model, the the chargeback framework. The services and responsibilities must be controller function on that team truly shared. The mechanism to must be very disciplined in tracking establish services, responsibilities and and forecasting all build and costs is the Service Level Agreement projected run costs. (SLA). Review what's already in place – The chargeback approach adopted and if possible, capitalize on it must motivate the Shared Service Center to focus on outstanding It is very likely that the business units customer service and continuous in a multi-unit corporation (required improvements. for Shared Services) are already receiving and paying for some form of centrally provided service. It is Gain the business units' active useful to evaluate where these participation transactions may be occurring, how they are being managed and how the The business unit customer needs to business units are charged. be an integral part of driving the costs down over time through There may be some precedents to be continuous improvement. The leveraged. Alternatively, there may be customer also needs to recognize the some confusion in service delivery value of standard processing, with and associated costs allocation. The limited exceptions. The chargeback Shared Service Center controller approach should be designed to needs to coordinate the chargeback influence customer behavior framework with these other entities appropriately. as required. Point of View 4
  4. 4. Confront the challenge of getting Business units of vastly different size will have a agreement on 'fairness' Business units of vastly different size different view on what constitutes chargeback will have a different view on what fairness. constitutes chargeback fairness. For example, a standard per-transaction cost may seem fair, with larger units paying more for more transactions. Set realistic expectations of However, the larger units may take continuous development issue with the actual per-transaction The chargeback allocation is hard to cost since their size may have already get right from the start. The cost pool afforded them economies of scale has been forecasted and will no that make the shared service cost less doubt change over time. It is favorable than it may be for smaller important to set the expectation that business units. the costs will likely be modified as Clearly, the chargeback allocation the Shared Service Center reaches must be aligned with each business full capacity and rollout nears unit’s benefit stream. This is not completion. always easy. It is common to see the benefits most easily attributed to the larger business units, since they have the extra headcount to cut. The smaller units, therefore, may perceive that they are subsidizing the larger ones. Alternatively, the large units Bearing in mind the above issues that are typically encountered during Shared may feel that they are paying for the Services projects, what steps can you take to establish a successful Shared Services majority of a new technical Chargeback Framework? infrastructure used by smaller units Working systematically through the methodology on the following pages will who would not have otherwise been help address the concerns of the business units, while moving the organization able to afford it. forward on achieving the mission of the Shared Service Center. Point of View 5
  5. 5. A Nine-Step Methodology 1. Determine the Nature of Shared 1. Determine the Nature of Shared Service Center Operation Service Center Operation 2. Determine the Chargeback Cost The first step in defining the Pool chargeback approach is to determine the overall business model for the 3. Define the Chargeback Allocation Shared Service Center. Will it be: Requirements ! A cost center with associated 4. Determine the Chargeback costs allocated to participating Model/Approach business units? 5. Determine the Timing and Pricing ! A profit center with a market- Phases (Start-up vs. Ongoing) based fee structure charged to 6. Align the Chargeback Approach business units? with Service Level Agreements ! A business services provider to 7. Determine the other businesses outside of the Systems/Data/Reporting Impact of corporate structure? Chargeback Approach 8. Define the External Benchmarking 2. Determine the Chargeback Cost Approach Pool 9. Achieve Alignment with In setting chargeback levels, it is Chargeback Framework critical to develop an accurate cost basis based on the recovery objectives. This number can be challenging to calculate. ! All costs associated with providing the service at the mutually established service levels need to be calculated. This includes Shared Service Center personnel, systems maintenance, The first step in defining the chargeback approach facility lease and maintenance is to determine the overall business model for the costs. ! Depending on the project’s cost Shared Service Center. recovery objectives, the cost pool may also include the development costs associated with establishing the new Shared Services model, such as process design, systems build, facility build, technical infrastructure build, interest carrying charges. Point of View 6
  6. 6. ! The selected chargeback model 4. Define the Chargeback Model Shared Service Center’s perspective (defined below) may vary for development costs vs. ongoing In selecting and defining the pricing ! Must recover build costs and run costs. model to adopt for the Shared ongoing cost of operations Service Center, several objectives ! Motivate behavior in the Shared ! It is critical that the program must be considered, from the perspective of the business unit Service Center aimed at management controller function customer and that of the Shared continuous improvement on the Shared Services development team accurately Service Center: ! Encourage customer behavior maintains all build and ongoing towards joint responsibility Customer’s perspective run costs. ! Ensure continuous cost/service 3. Define the Chargeback Allocation quality improvements Requirements ! Ensure cost savings are passed on Before evaluating various chargeback to the businesses model options, as outlined in the ! Motivate Shared Service Center next section, the allocation behavior towards continuous requirements must be determined. It efficiency improvement may seem like common sense, but reaching a satisfactory level of ! Must be relatively simple to alignment with the business units monitor/understand will be easier if the allocation requirements are shown to have been satisfied. Each client situation, with its associated requirements, is different. Example requirements include: ! Fair allocation ! Measurable and sustainable allocation In selecting and defining the pricing model to adopt ! Simple to understand and implement for the Shared Service Center, several objectives ! Easily understood metrics must be considered. ! Automatic vs. manual calculation ! Clear audit trail Point of View 7
  7. 7. Choosing a chargeback model There are six fundamental chargeback models outlined in the chart below. Additionally, hybrids can be created from these base models. Different models may be applied for different services. Model Pros Cons Resource-Based ! Perceived to be fair to customers ! Price is less transparent since it is Unit price x quantity of resources derived from multiple resource factors ! Price is based on usage of various used resource factors ! Relatively more cumbersome to administer since data on resource factors must be collected Cost-Plus ! Supports Shared Service Center during ! May not be perceived to be fair to Cost plus management fee the set-up phase since its costs are customers recovered ! Simple to administer Business Transaction-Based ! Favorable to Shared Service Center if it ! Shared Service Center revenues Unit price x business transaction has cost advantage fluctuate according to customer volume ! Perceived to be fair to customers demand ! Price is based on volume of transactions (i.e. usage) Fixed Revenue ! Customer has greater predictability of ! Customer may perceive that cost Fixed compensation for services Shared Service Center costs savings or efficiency improvements are provided ! Provides Shared Service Center with not passed on greater incentive to drive down costs: ! Exposes Shared Service Center to risks the larger the cost reduction, the of cost/volume increases that are higher the profitability beyond its control Fixed Revenue within predefined range ! Favorable to Shared Service Center if it ! Customer may perceive that cost Fixed compensation for services provided, has cost advantage savings or efficiency improvements are as long as resource utilization or ! Perceived to be fair to customers not passed on transaction volumes stay within ! Price is based on volume of predefined range of activity. If activity transactions (i.e. usage) goes above or below range, price will be adjusted accordingly ! Addresses Shared Service Center risks exposure of uncontrollable cost/ volume increases ! Customer does not have to pay fixed revenues if volume falls below predefined range Business Value-Based ! Customers are able to link Shared ! Significant risks to Shared Service Compensation varies according to Service Center fees to the value they Center, particularly in the start-up degree to which predefined business receive phase where cost drivers are not yet objective is accomplished easily understood Point of View 8
  8. 8. 5. Determine the Timing and Pricing Service Center as if they were still Phases providing it independently. After the development cost of the project has Typically, shared services projects are been recovered, the chargeback large, complex, and lengthy projects amount would then be dropped to with deployment to impacted cover the ongoing delivery costs only. business units being accomplished in At this point, the business units begin a phased approach. These realizing the quantifiable benefits. characteristics might lead Shared Service Center management to consider implementing distinct 6. Align the Chargeback Approach service pricing phases, possibly based with Service Level Agreements on different pricing models. For Service Level Agreements are an example, during the initial start-up, integral component of all Shared the Shared Service Center might not Service Centers. They are important charge for services. Once deployment to set expectations with customers to additional business units and to set associated internal Shared commences, it might attempt to Service Center measurements and recover only operating costs. Finally, goals. The chargeback approach must once deployment is complete and/or be aligned with defined SLAs in order the Shared Service Center is for customers to understand and considered to be in a steady state, a accept charges. profit-center (mark-up) pricing option might be implemented. Another consideration is how the chargeback might decrease over time as new business units are added through growth or acquisition. It certainly won’t take long for existing business units to ask this question. For situations where development costs are part of the cost pool: in a 'cost neutral' chargeback scenario, the charges are matched to a business unit’s savings during the project’s recovery period. That is, the business unit will pay the same for the service provided by the Shared Point of View 9
  9. 9. 7. Determine the 9. Achieve Alignment with Systems/Data/Reporting Impact of Chargeback Framework Chargeback Approach This last step can be time-consuming Once the chargeback approach is and frustrating. There are typically determined, the Shared Service multiple constituencies who will have Center must be able to track, capture, a point of view on the chargeback calculate and report on all framework. They include the components of the chosen model. corporate finance department, the Therefore, the model must be Shared Service Center management dissected down to the lowest data team, the business unit customers, requirements and encompass the the IT department and other service impact on systems, processes, people providers to the Shared Service including technology enablers Center, and others. required, data needed, internal and There is a significant 'change external reporting, additional step(s) management' effort associated with within processes, and organizational making the transition from effects. independent processing to a pay-for- service model. To many clients, 8. Define the External Shared Services is one step away from Benchmarking Approach outsourcing, so the chargeback discussions can be challenging. As business unit customers begin to analyze the charges, they will ultimately want to know if they are getting a 'good deal'. Some customers may even compare the Shared Service Center service offerings and pricing to external providers. Therefore, it is important to define the external benchmarking approach to ensure that customers are paying a fair price. Point of View 10
  10. 10. Impact on Processes, People and Technology Processes Technology What is the process for establishing, How must systems be modified to agreeing, maintaining, and servicing process chargebacks? What data is chargebacks? Do existing process required? What technology enablers designs need to be modified to exist that can be leveraged to track, incorporate chargeback pricing calculate, and report chargebacks? specific activities, steps, or decision points? Has the chargeback pricing model been decided upon early enough to incorporate into initial process designs? People Who in the Shared Service Center is responsible for chargeback processing? Does chargeback pricing need to be a distinct department within the Center or added to an existing group? What impact does chargeback processing have on every level of employee at the Shared Service Center from management, to supervisor, to transaction processing personnel? Point of View 11
  11. 11. This Point of View has brought together some of the most F&PM's Finance & Accounting Operations Solutions focus on the planning and implementation of back significant factors, based on the experience of Finance & office services. F&PM assists clients in achieving Performance Management (F&PM) professionals, surrounding the dramatic efficiency increases in these areas while at the same time aligning these services better with creation and operation of a Shared Services Chargeback the needs of the business. Typical programs include Framework. For more information about F&PM solutions, contact: shared services, web-enablement, and client specific finance and accounting strategies. fpm.service.line@accenture.com Shared Services involves the consolidation and redesign of administration and support business or processes into major service centers. The objective of these Shared Service Centers is to deliver the optimum in cost-effective, high quality services. Gary A. Duncan gary.a.duncan@accenture.com The Shared Services model helps to achieve +1 917-452-4400 economies of scale in back office processes and eliminates the replication of basic transaction processing capabilities across an organization. David T. Cousineau david.t.cousineau@accenture.com Adopting the Shared Services model has allowed organizations, including many Fortune 500 +1 973-301-1000 companies, to rethink how and where work is accomplished. Shared Services can provide a range of organizational solutions that retain responsive customer service without requiring physical proximity to the customer. Global companies are also proving the value of Shared Services in managing international operations in an integrated fashion. Copyright © 2004 Accenture. Accenture is a global management consulting, All rights reserved. technology services and outsourcing company. Accenture, its logo, and High Performance Delivered Committed to delivering innovation, Accenture are trademarks of Accenture. collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, This point of view is intended as a general Accenture can mobilize the right people, skills, and guide and not as a substitute for detailed technologies to help clients improve their performance. advice. Neither should it be taken as With more than 83,000 people in 47 countries, providing technical or other professional Accenture works with clients in nearly every major advice on any of the topics covered. So far industry worldwide. Through the integration of as Accenture is aware the information it consulting and outsourcing, Accenture: ! Identifies critical areas with potential for contains is correct and accurate but no maximum business impact. responsibility is accepted for any ! Innovates and transforms the processes in those inaccuracy or error or any action taken in areas. reliance on this publication. This ! Delivers performance improvements and lower operating costs by assuming responsibility for publication contains Accenture certain business functions or areas - and copyrighted material and no part of it can Accenture holds itself accountable for results. be copied or otherwise disseminated Accenture generated net revenues of $11.8 billion without Accenture's prior written consent for the fiscal year ended August 31, 2003. Its home in each case. page is www.accenture.com.