achieving world-class performance in finance, hr/payroll, it and procurement nasact benchmarking...
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Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement
NASACT Benchmarking Overview
Q2, 2007
Page 2
Topics
Benchmarking in state government – background
What states are participating and why
Overview of the benchmark deliverables and process
Appendix: – Sample trends and findings in the state benchmark program to date
Page 3
Background
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.
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.
State RFP issued through NASACT. In April 2005 NASACT conducted a formal RFP to select a single benchmarking service provider.
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.
Page 4
There are many, and different, reasons for State Governments to benchmark
1. Back office Performance Data - Where are we and how do we compare to other states and as well as world-class organizations. Helps to establish project priorities.
2. 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)
3. 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.
Page 5
Excellence is no accident…. World-class organizations operate and perform very differently than their median peers
Hackett 2006 Functional Performance Data
Overall IT costper end user
Median WC
-7%
Median client spends $5.7 Million less per 10,000
end-users; less adept at leveraging IT to reduce
labor costs
8,4589,024
Overall Finance costas a % of revenue
Median WC
45%
Median client has $5.5 Million in potential finance
process cost savings per $1 Billion of revenue
1.22%
0.67%
Overall HR costper employee
Median WC
13%
Median client has $2.5 Million in potential HR
process cost savings per 10,000 employees
1,864
1,614
Overall Procurement cost as a % of spend
Median WC
25%
Median client has $2.1 Million in potential procurement
process cost savings per $1 Billion of spend
0.64%
0.85%
ITFINANCE HUMAN RESOURCES PROCUREMENT
Page 6
Overall program features
Standardized approach and taxonomy – aligned for government
Deliverable is a customized report (approx. 80 pages per function) based on objective facts to include:
– Evaluation of efficiency and effectiveness measures
– Understanding on use of best practices
– Quantification of improvement opportunities
– Recommendations and prioritization assessments
Comparisons included:
– State Government (after 7 states complete their data submission for each function – now available in the finance function)
– Hackett World-class and peer group organizations
A state may decide to participate in one or more benchmark studies at any time
Page 7
States Participating as of 3/29/07
Program Launched at NASACT Conference in Portland in August 2005
State Benchmark Status
Tennessee FIN, HR, IT, PROC Completed
Arizona FIN Completed
Delaware FIN, PROC Completed
Colorado FIN Completed
Massachusetts FIN Completed
Mississippi FIN, HR, IT, PROC Completed
Georgia Fin, IT Completed
Alaska HR Active
Alabama FIN, HR, PROC Active
Page 8
Transactional Compliance and Risk Management
Budgeting and Analysis
Hackett’s Finance benchmark focuses on 8 process groups that are discretely defined
Cash DisbursementsAccounts PayableTravel and ExpensesProgram Payables
Revenue CycleCreditCustomer billingCollectionsCash Application
Accounting and External ReportingFixed AssetsInterfund/InterdepartmentalAccountingGeneral Ledger AccountingProject Grant and Cost AccountingExternal Reporting
Treasury ManagementCash ManagementCapital and Risk Management
Compliance ManagementRegulatory Compliance and AuditingProcess Certification
Budget Preparation and ReportingLong Term ForecastingAnnual/Bi-Annual budgetingBudget and Performance Reporting
Business analysisDepartment/Program Analysis
Finance Function ManagementFunction OversightPersonnel ManagementPolicy and Procedures Oversight
Management & Administration
Page 9
Transactional Employee LifeCycle
Planning & Strategy
Hackett’s HR/Payroll benchmark framework
Total Rewards AdministrationHealth and Welfare AdministrationPension and Savings AdministrationCompensation Administration
Payroll ServicesTime and AttendancePayroll Administration
Data Management, Reporting and ComplianceCompliance ManagementEE Data ManagementHR Reporting
Staffing ServicesRecruiting and StaffingExit Process
Workforce Development ServicesLearning and DevelopmentCareer PlanningPerformance Management
Organizational EffectivenessLabor Relations AdministrationOrganization Design and MeasurementEmployee Relations
Total Rewards PlanningBenefits PlanningCompensation Planning
Strategic Workforce PlanningWorkforce gap assessmentLeadership gap assessment
Management & Administration
Function ManagementFunction oversightPersonnel managementPolicy and procedures oversight
Page 10
Operations & ComplianceSourcing &
Supplier Management
Planning & Strategy
Hackett’s Procurement benchmark framework
Supply Data ManagementSupplier master managementItem master/content management Catalog managementContract master management
Requisition and PO ProcessingRequisition processingPurchase order processingRequisition and purchase order support
Customer ManagementExternal Customer ManagementInternal Customer ManagementProduct Development and Design Support
Sourcing ExecutionRequirements definition and supplier biddingNegotiation and supplier contract creation
Supplier Management and DevelopmentSupplier ManagementSupplier Partnering
Function Strategy and Performance Mgt
Strategic and operational planning
Sourcing and Supply Base StrategySourcing and Supply Base data gatheringSourcing and Supply Base Analysis
Function MgtFunction oversightPersonnel mgtPolicy and procedures oversight
Management & Administration
Supplier SchedulingSupply requirements reviewSupplier schedulingOrder releaseInbound tactical supply managementDelivery coordination
Receipt ProcessingMaterials and goodsServices
Compliance ManagementInternal Compliance ManagementExternal Compliance
Page 11
Technology Infrastructure
Application Management
Planning & Strategy
Management & Administration
Infrastructure ManagementOperations
ManagementSecurity
ManagementDisaster Recovery
Planning
End User SupportHelp DeskEnd User Training
Infrastructure DevelopmentPlanningConstruct Implement
Control & Risk Management
Hackett’s IT benchmark framework
Application MaintenanceApplication
SupportEnhancement
DeliveryUpgrade
Execution
Application Development and ImplementationPlanningConstructImplement
Quality AssuranceChange
Management
Risk ManagementAudit and
Compliance
IT Business PlanningAlignmentProject
PrioritizationCommunication
Enterprise Architecture PlanningGovernanceStandards
Management
Emerging TechnologiesTechnology
Evaluation
Function ManagementFunction oversightPersonnel managementPolicy and procedures oversight
Page 12
Data collection activities - Web based collection tool and reporting
Page 13
Processes Accounts payable Travel and expense Freight payments
Activities 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
Matching of supplier invoice, purchase order, receipt acknowledgement and other required documents or information to validate and verify payment can be made to suppliers.
(More)
Hackett’s process taxonomy assures “apples-to-apples” comparisons
Sub-Processes Sourcing execution Supplier set-up Pre-processing Verification / approval Processing Discrepancy resolution Payments Inquiry response File / store / retrieve Reconciliation/ accrual/compliance
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
=
Page 14
World-Class is defined as top quartile performance in both efficiency and effectiveness
Time allocated to Planning and Analysis
Working capital - days sales outstanding (“DSO”)
Percent credit sales collected within terms
Effective tax, Cost of capital Quality metrics (billing, tax,
reporting, forecasting) Accuracy of forecasts and
analysis Use of balanced scorecards,
simulation models Finance’s role in strategic
decision making Restatement of reports released to
external agencies
EFFECTIVENESSEFFICIENCY Overall finance cost as a % of
revenue Process cost as a % of revenue Technology cost per finance
FTE Technology cost as a % of
revenue Staffing levels by process
grouping Unit cost of transactions Utilization of self-service for
inquiry Cycle times and iterations Application complexity Automation of transactions Reliance on spreadsheets
ABC Org..Peer Group
Hackett Value Grid™
Hackett uses actual client data to determine performance
Finance Sample
Finance Sample
Page 15
Representative analyses provided in the final reports
Other cost -- Facilities, travel Supplies, telephone
Technology cost* -- Computer processing Maintenance
Outsourcing cost -- Outside services
Labor cost -- Wages (full time and part time) Overtime and bonuses Taxes and fringe benefits
Process Cost:$ 90 million
$ 30 million
$ 90 million
$ 75 million
$ 285 million
$ 120 million
Revenue = $ 10 billion
Total Finance and Costs by Cost Type Total Finance and HR Costs as a percent of revenue by Agency
IllustrativeOnly
0.25%
1.00%
0.15%
0.90%
0.20%
0.30%
0.15%
0.90%
0.30%
0.40%
Overall Agency A Agency B Agency C
HRFinance
Agency D
Page 16
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
ABC State Median World Class
Cash Disbursements cost as a % of revenue
31,198
12,78514,881
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
ABC State Median World Class
Transactions per FTE
$9.16
$3.91$3.10
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
ABC State Median World Class
Cost per transaction (invoices/T&E reports)
0%
20%
40%
60%
80%
100%
ABC State Median World Class
Percent cash disbursement transactions automated
Despite High Automation and Productivity, Process Fragmentation Drives Greater Process Costs in Payables
Page 17
Representative analyses provided in the final reports (cont’d)
Transaction Processing** Risk Management
Planning & Dec. Support Mgmt-Administration
Cost Differences (versus World Class)
Cash Disbursements
Revenue Cycle
Accounting and External Reporting
SUBTOTAL:
Tax Management
Treasury Management
Compliance Management
SUBTOTAL
Planning and Performance Management
Business Analysis
SUBTOTAL
Finance Management and Administration
OVERALL TOTALOVERALL TOTAL
Note: * Opportunities capped at 50% of current process cost
$ 4.1 MM *
$ 6.1 MM *
$ 8.8 MM *
$ 19.0 MM
$ 2.2 MM *
-
$ 2.3 MM *
$ 4.5 MM
$ 2.1 MM
$ 5.6 MM *
$ 7.7 MM
$ 2.8 MM *
$ 34.1 MM$ 34.1 MM
$ 2.0 MM
$ 3.9 MM
$ 5.3 MM
$ 11.2 MM
$ 1.0 MM
-
$ 2.3 MM *
$ 3.3 MM
-
$ 4.4 MM
$ 4.4 MM
$ 2.3 MM
$ 21.5 MM$ 21.5 MM
Gap Opportunities (versus Median)
Gap Opportunities (versus World Class)
$ 0
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
$ 70
$ 80
$ 90
$ 100
Total Cost 2005 Total SavingsOpportunity
CappedOpportunity*
$38.6$34.1
$86.2
Finance Example
Page 18
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
ABC State Median World Class
Cost as a % of revenue
0%5%
10%15%20%25%30%35%40%45%
ABC State Median World Class
Percent transactions automated
Cash Disbursement Best practicesABCState
Degree of integration of the purchasing application to the accounts payable application
Suppliers submit their invoices electronically
Use of a Web application to allow suppliers to obtain status updates
Workflow cycle to process a transaction (invoice/T&E) is kept to fewer than five b/day
Percentage of travelers completing and submitting their expense reports via an online application
Percent of expense reports requiring management approval
Percent of expense reports audited for compliance (e.g., sample size)
High
0%
0.0
14.5 day(s)
4%
100%
15%
High
16%
5%
3 day(s)
52%
100%
30%
Top Performer
Finance Example
Representative analyses provided in the final reports (cont’d)
Page 19
Planning/Kickoff
Review Question Set Scope and Definitions
Identify Data Sources Establish Project
Coordinator Identify Location /
Function Coordinators Conduct Project
Education and Training
Data Collection & Other Inputs
Collect All Required Quantitative Data
Practice Assessment Workshop
Conduct Executive Interviews
Conduct Stakeholder Survey
Data Validation
Data Consolidation Data Review and
Validation Client Signoff on Data
Accuracy: Reflecting Operations of the State/Agency
Analysis / Draft Report
Conduct Data Analysis Develop
Recommendations and High Level Action Plan
Assemble Draft Results Report for State Leadership
Review Draft Report
ResultsPresentation
Present Benchmark Results and Associated Findings to State/Agency Leadership
Quantification of Financial Impact of Improved Performance
Prioritization of Opportunities
Determine Actions Required to Close Performance Gaps
Enablement through tools and methodology
Collection of baseline data as well asvalidation of data with Hackett
Analysis of baseline data versus benchmarkdatabase - development of recommendations
NASACT Utilizes Hackett’s Proven Benchmark Process and Tools (8-12 week process from kickoff)
Page 20
Week 1 Week 2-3 Week 4-5 Week 6 Week 7 Week 8 Week 9 Week 10-12
Training
Data Collection
Analysis & Preliminary Results
Final ResultsDraft Data
Data Validation
Pre-Planning
Hackett’s Benchmarks can be executed in approx. 8-12 weeks (approximate timeline)
Page 21
Benchmark program costs
Functional benchmark Includes:
- Unlimited agency participation - Single report to the state, with agency comparisons on selected high level metrics (i.e. finance cost as a percent of spend) - Access to online data collection tools and final results data - Onsite executive interviews - Draft review and final presentation (1/2 day sessions each)
Functional Benchmark
Total SOW agreement fees
Percent discount realized
Realized price per benchmark
1 benchmark $80,000 $80,000 2 benchmarks $144,000 10% $72,000 3 benchmarks $210,000 12.5% $70,000 4 benchmarks $272,000 15% $68,000
State resource needs:•State coordinator half time for 6-8 weeks•Agency coordinators half time for 1-2 weeks•Agency data collectors 2-3 days•Core team and management to participate in data review and final report meeting (3-6 hours)
Administrative fee to NASACT 3%
Plus: travel related expenses – capped at $10,000 for the first benchmark and $9,000for each additional benchmark
NASACT Benchmarking Program Update
2006 NASACT Conference - Omaha
Clark Partridge, State of Arizona
Jan Sylvis, State of Tennessee
Jeff Rosengard, The Hackett Group
August 21, 2006
Select slides from NASACT conference in Omaha
Page 23
Hackett Finance Value Grid
High
LowHigh
1Q
1Q
State Governments are poised to leverage their scale and relative lower complexity to achieve World Class performance
ProjectedState Gov’tPeer Group
Overall State A
Effe
ctiv
enes
s
Efficiency
World ClassWorld Class
Key FN Drivers State A
Role of Finance
Information Access & Distribution
Value of Analysis and Quality of Output
Working Capital & Risk Mgmt.
Cost and FTEs
Productivity, Cycle Times & Self-service
Cost per transaction
Automated Transactions
Integrated Technology & Common Architecture
Effe
ctiv
enes
sEf
ficie
ncy
Most KPIs for the Key Driver are at or near World Class Some KPIs for the Key Driver are at or near World Class Most KPIs for the Key Driver are far from World Class
State Gov’ts
Page 24
Projected State Peer
Group Range Quartile 1
Quartile 2
Quartile 3
Quartile 4
Initial Results Show a Focus on Transaction Processing with Lower Overall Finance Costs Than World Class and Many Private Peers
Quartile breakdown as a % of revenue/operating budget
0.25%
0.59%
0.70%
1.23%
2.31%
0% 20% 40% 60% 80% 100%
State ProjectedPeer Group
Median
World Class
Transaction processing Control and risk mgmt
Planning and strategy Mgmt and administration
Finance resource allocation
World Class0.73%
Page 25
Finance
Tennessee Findings and observationsInformation Technology Total IT cost of $355M equates to $7,687 per end-user (2nd quartile) Sr IT leader has executive level visibility, but controls only 41% of the IT budget Application and infrastructure complexity are high (# of applications) Lack of statewide IT governance (i.e., no formal enterprise PMO; a standardized project
methodology exists but is not being adhered to)
Human Resources Total HR cost of $45M equates to $963 per employee (1st quartile) Decentralized model with majority of FTEs in agencies outside DOP Low technology investment is limiting HR’s ability to drive efficiency in transactional
processes Extent of formal HR strategy varies by agency
Finance Total finance cost of $124M equates to 0.59% of revenue (2nd quartile) State of TN’s finance resources are 33% greater than World Class in total and focus twice
as many resources on transactional activities There is a $28M process cost gap to World Class There are opportunities for State of TN to leverage Hackett Certified Best Practices
Procurement Total procurement cost of $31M equates to .186% of spend (1st quartile) Lower effectiveness scores are driven by lower involvement in overall planning and
budgeting, lower spend influence, cost reduction savings, and a higher number of suppliers
Lower staffing levels across all process areas with the exception of P.O. Processing and Receipt Processing
*Illustrative Value GridSM. The above diagram represents the approximate placement on the value grid. The exact placement is included in
each functional section.
How efficiently is the function meeting business demands
Ho
w e
ffec
tive
ly is
th
e fu
nct
ion
mee
tin
g
bu
sin
ess
dem
and
s
1Q
Human Resources
Low
1Q
High
Illustrative Value Grid Plotting*
World
Class
IT
Procurement
High
Page 26
Hackett Value Grid
Finance Efficiency
Fin
an
ce E
ffe
ctiv
en
ess
Fina
nce
has
the
right
stru
ctur
e in
pla
ceto
pro
vide
valu
e
How efficiently is Finance meeting business demands
World-Class
1Q
1Q
High
HighLow
State of AZ
Arizona’s operating model provides an opportunity to create more value
•State of AZ’s finance cost as a percent of operating budget is 0.33%, placing it in the 1st quartile of the peer group
•A solid shared service infrastructure is in place and overall vision is strong, however, opportunity still exists to expand
AZ’s resource allocation has a greater focus on transactional activities
•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
•Process fragmentation existsAZ is under-investing in technology •World Class companies spend 11% of total operating budget/revenue on technology vs. 5% for the State
•Limited tools exist (common ERP, web-based tools and self-service reporting) to enable best practice based solutions
Overall benchmark findings and observations
Page 27
NASACT Press Release 3/21/07
Colorado, Massachusetts, and Mississippi Honored For Peak Effectiveness in Finance Operations
By NASACT, The Hackett Group, and Accenture
At Annual NASC Conference States Receive AwardsFor Top-Quartile Effectiveness Based on Hackett Benchmark Results
BIRMINGHAM, Ala, March 21, 2007 – The National Association of State Auditors,
Comptrollers and Treasurers (NASACT) has announced that three states – Colorado, Massachusetts, and Mississippi – have been named as winners of NASACT Benchmark Achievement Awards for achieving top-quartile effectiveness in finance operations…..