save definitions & benefits tracking 2012

Author : Tahir Rafiq

Project Start Date:

ATR Consulting Limited

Nov 2012

Save Definitions & Benefits Tracking

Case Study : Leading Bank in UAE

atr

Tahir Rafiq

Applying automotive best practice in the Banking Industry.....

atr

Interpretation of Save Definitions

A saving is realized by getting a better rate per unit. Price paid is less than previously paid for goods and services that fulfil a comparable business requirement in terms of quality and quantity or price paid is less than the average cost.

A saving is realized through the elimination or reduction of demand / volume

A saving is realized by achieving a certain spend thresholds or profit share, typically through supplier cash reimbursement.

A saving realized against budgeted and unbudgeted new requirement that has an accounting impact. Minimum of 3 quote value average made against an unbudgeted spend (new requirements). Obtaining less than 3 quotes is approved by exception and on the basis that the market environment dictates.

A saving is realized from a change or reduction in specification that meets business requirements, or by added value through the purchase of enhanced specification of goods or services at no additional cost.

A saving is realized through a change that creates a benefit in terms of increased internal efficiency and / or reduced processing time.

A saving is realized through reduction in future investment or expenditure. Negotiated price that is not lower than price previously paid but avoids a price increase formally requested by a supplier. Supply is realized from existing ENBD stock due to asset recycling, requiring no purchase to fulfil need. Savings that are benchmarked against either the market indices or by market comparison through an RFP benchmarking process.

Price Reduction Existing Contract

Demand Management

Rebates

Specification Change

Process Driven

Price Reduction New Contract

Cost Avoidance

Co

st R

edu

ctio

n

Co

st A

void

ance

1

2

3

4

5

6

7

atr 1

• Savings can be tracked to P&L Yes √ No

• Reduction of actual spend against last year (existing contract)

• Reduction in unit price for goods and services that meet the existing requirement.

A tender for existing cleaning services, current annual costs of 2.4 m pa is reduced to AED 2.0m pa. The new contract is

valid for 1 year and is awarded starting on 1st April 2012

Definition:

Example:

Methodology :

Forecast Saving AED Millions

Calculate &

Allocate

Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013

AED 0.4M 0.3 0.1

Savings Definition : Cost Reduction > Price Reduction > Existing Contract

atr 1

In the 2011/12 budget, Facilities has budgeted AED25m for the refurbishment of a regional office (including a

contingency of AED2m). Procurement supports the tender for the required fit-out services; 4 supplier proposals are

received costing AED19m, AED21m, AED24m and AED29m respectively. The second lowest proposal / bidder is awarded

the contract. The work will be completed and paid for during 2011/12 and costs will be depreciated over 10years.

Definition:

Methodology:

Example:


• Negotiation of prices against various quotes

• Reduction in unit price for goods and services that meet the new requirement.

Forecast Saving

Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013

AED 2.25M 0.23M 0.23M 0.23M

Savings Definition : Cost Reduction > Cost Reduction > New Contract

atr 1

During annual negotiations for mobile telecom services, Etisalat offers to both reduce call tariffs and offers ENBD a rebate in the form of AED 800K credit to the Billing Department on 31st Dec 2011

Definition:

Methodology:

Example:


• Supplier Cash Reimbursement, i.e. Based on achieving certain spend thresholds or profit share.

Forecast Saving


AED 0.8K 0.8K - -

Savings Definition : Cost Reduction > Rebate

atr 1

Savings Definition : Demand Management • Savings can be tracked to P&L Yes √ No

• A saving is realized through the elimination or reduction of demand / volume

• ATM / CDM Call out Charges

ATM / CDM call out charges were reduced from an average of 12 thousand call outs to seven thousand call outs. Procurement

worked with the service provider to understand the nature of callouts and their frequency ( cash out, card reader fault, dispenser

failures etc). Various solutions were put in place which reduced the number of callouts. The resultant reduction in costs was from

approx. AED 7M to AED 4M. Data indicated a drop in callouts in September 2011 which plateaud in the subsequent 3 months.

Savings started in October 2011

Definition:

Example:

Methodology :

Forecast Saving


3M 0.75M 2.25M

atr 1

Savings Definition : Cost Reduction > Specification Change

Procurement led an initiative with Marketing to change and standardize the specification of business cards across ENBD, the specification was reduced from 340gsm to 300gsm without impacting quality of the cards. Annual savings were achieved of AED 150K, the change was implemented immediately starting in February 2012.

Definition:

Methodology:

Example:


• Specification Change

• Reduction in unit price by changing the specification of goods and services that meet the existing requirement.

Forecast Saving


150K 137.5K 12.5K -

atr 1

Savings Definition : Cost Avoidance & Cost Reduction

Working with IT Services, the cost of hardware maintenance services are negotiated down by 25% from AED 0.8M to AED 0.6M per year. As a result, IT Services decides to switch from the Silver support programme (4 hour response) to the Gold support programme (2 hour response); the cost of the Gold programme to ENBD will be AED 0.75m. The new programme will commence from 1st Jan 2011

Definition:

Methodology:

Example:

• Savings can be tracked to P&L Yes √ No √

•.Cost Reduction

• Cost Avoidance

Forecast Saving


0.05 (CR)

0.150 (CA)

0.05 (CR)

0.150 (CA)

- -

atr 1

Savings Definition : Cost Avoidance • Savings can be tracked to P&L Yes No √

• Negotiated price that is not lower than price previously paid but avoids a price increase.

• Cost Avoidance

An IT services supplier requests a 3% increase in contract costs from AED3.1m pa to AED3.2m pa with the new costs

coming into effect from 1st August 2011; Procurement leads negotiations which result in the supplier withdrawing the

request for an increase.

Definition:

Example:

Methodology :

Forecast Saving AED Millions


AED 0.1 M AED 0.042M AED 0.058M

atr 1

Savings Definition : Cost Avoidance • Savings can be tracked to P&L Yes No √

• Negotiated price that is not lower than price previously paid but avoids a price increase.

•

Procurement supports Marketing to put in place a new supplier of graphic design services as a result of which the

contract price remains unchanged at AED 0.4m pa. However, the new supplier will provide some administrative services

(currently provided in-house within ENBD ) effectively freeing-up 1 day per week of a staff member who has a fully-

loaded cost to ENBD of AED 40,000 pa. The new contract commences on 1st April 2011

Definition:

Example:

Methodology :

Forecast Saving


8K 6k 2k

atr 1

Savings Definition : Process Driven


• A saving is realized through a change that creates a benefit in terms of increased internal efficiency and / or reduced processing time.

Reduction of 3 FTE’s as a result of P2P Automation. The cost of 3 FTE’s per annum was AED 360K, the redundancies were

made in May 2011

Definition:

Example:

Methodology :

Annualized AED Forecast Saving AED

Calculate &

Allocate

Year 2011 Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013

360K 240K 120K

atr

End of presentation

Tahir Rafiq Feedback would be greatly received and appreciated

14

save definitions & benefits tracking 2012

Business