Presentation on theme: "Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking Overview Q2, 2007."— Presentation transcript:
1Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking OverviewQ2, 2007
2Topics Benchmarking in state government – background What states are participating and whyOverview of the benchmark deliverables and processAppendix:Sample trends and findings in the state benchmark program to date
3BackgroundState steering Committee formed in 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 Contract vehicle now in place for states to select any or all benchmarks, based on their needs.
4There are many, and different, reasons for State Governments to benchmark 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.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)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.
5Excellence is no accident… Excellence is no accident…. World-class organizations operate and perform very differently than their median peersHackett 2006 Functional Performance DataFINANCEHUMAN RESOURCESPROCUREMENTIT13%Median1.22%Median1,864Median0.85%25%-7%WC9,02445%Median8,458WC1,614WC0.64%WC0.67%Overall Finance costas a % of revenueOverall HR costper employeeOverall Procurement cost as a % of spendOverall IT costper end userMedian client has $5.5 Million in potential finance process cost savings per $1 Billion of revenueMedian client has $2.5 Million in potential HR process cost savings per 10,000 employeesMedian client has $2.1 Million in potential procurement process cost savings per $1 Billion of spendMedian client spends $5.7 Million less per 10,000 end-users; less adept at leveraging IT to reduce labor costs
6Overall program features Standardized approach and taxonomy – aligned for governmentDeliverable is a customized report (approx. 80 pages per function) based on objective facts to include:Evaluation of efficiency and effectiveness measuresUnderstanding on use of best practicesQuantification of improvement opportunitiesRecommendations and prioritization assessmentsComparisons 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 organizationsA state may decide to participate in one or more benchmark studies at any time
7States Participating as of 3/29/07 Program Launched at NASACT Conference in Portland in August 2005StateBenchmarkStatusTennesseeFIN, HR, IT, PROCCompletedArizonaFINDelawareFIN, PROCColoradoMassachusettsMississippiGeorgiaFin, ITAlaskaHRActiveAlabamaFIN, HR, PROC
9Hackett’s HR/Payroll benchmark framework Employee LifeCycleManagement & AdministrationTransactionalPlanning & StrategyTotal Rewards AdministrationHealth and Welfare AdministrationPension and Savings AdministrationCompensation AdministrationPayroll ServicesTime and AttendancePayroll AdministrationData Management, Reporting and ComplianceCompliance ManagementEE Data ManagementHR ReportingStaffing ServicesRecruiting and StaffingExit ProcessWorkforce Development ServicesLearning and DevelopmentCareer PlanningPerformance ManagementOrganizational EffectivenessLabor Relations AdministrationOrganization Design and MeasurementEmployee RelationsTotal Rewards PlanningBenefits PlanningCompensation PlanningStrategic Workforce PlanningWorkforce gap assessmentLeadership gap assessmentFunction ManagementFunction oversightPersonnel managementPolicy and procedures oversight
10Hackett’s Procurement benchmark framework Sourcing & Supplier ManagementPlanning & StrategyOperations & ComplianceSupply Data ManagementSupplier master managementItem master/content managementCatalog managementContract master managementRequisition and PO ProcessingRequisition processingPurchase order processingRequisition and purchase order supportSupplier SchedulingSupply requirements reviewSupplier schedulingOrder releaseInbound tactical supply managementDelivery coordinationReceipt ProcessingMaterials and goodsServicesCompliance ManagementInternal Compliance ManagementExternal ComplianceCustomer ManagementExternal Customer ManagementInternal Customer ManagementProduct Development and Design SupportSourcing ExecutionRequirements definition and supplier biddingNegotiation and supplier contract creationSupplier Management and DevelopmentSupplier ManagementSupplier PartneringFunction Strategy and Performance MgtStrategic and operational planningSourcing and Supply Base StrategySourcing and Supply Base data gatheringSourcing and Supply Base AnalysisManagement & AdministrationFunction MgtFunction oversightPersonnel mgtPolicy and procedures oversight
11Hackett’s IT benchmark framework TechnologyInfrastructureApplicationManagementControl & Risk ManagementPlanning & StrategyManagement &AdministrationInfrastructure ManagementOperations ManagementSecurity ManagementDisaster Recovery PlanningEnd User SupportHelp DeskEnd User TrainingInfrastructure DevelopmentPlanningConstructImplementApplication MaintenanceApplication SupportEnhancement DeliveryUpgrade ExecutionApplication Development and ImplementationPlanningConstructImplementQuality AssuranceChange ManagementRisk ManagementAudit and ComplianceIT Business PlanningAlignmentProject PrioritizationCommunicationEnterprise Architecture PlanningGovernanceStandards ManagementEmerging TechnologiesTechnology EvaluationFunction ManagementFunction oversightPersonnel managementPolicy and procedures oversight
12Data collection activities - Web based collection tool and reporting
13Hackett’s process taxonomy assures “apples-to-apples” comparisons =Process GroupsCash disbursementsProcessesAccounts payableTravel and expenseFreight paymentsSub-ProcessesSourcing executionSupplier set-upPre-processingVerification / approvalProcessingDiscrepancy resolutionPaymentsInquiry responseFile / store / retrieveReconciliation/ accrual/complianceData collectionActivitiesProcessing and routing of incoming mail specific to the cash disbursements process including the handling of invoices, bills of lading & receiving documents and expense reportsMatching of supplier invoice, purchase order, receipt acknowledgement and other required documents or information to validate and verify payment can be made to suppliers.(More)Empirical data is collected based on activities performed, regardless of job title,reporting hierarchy, geographic location, or organization structure
14Hackett uses actual client data to determine performance World-Class is defined as top quartile performance in both efficiency and effectivenessFinance SampleHackett Value Grid™EFFICIENCYEFFECTIVENESSOverall finance cost as a % of revenueProcess cost as a % of revenueTechnology cost per finance FTETechnology cost as a % of revenueStaffing levels by process groupingUnit cost of transactionsUtilization of self-service for inquiryCycle times and iterationsApplication complexityAutomation of transactionsReliance on spreadsheetsTime allocated to Planning and AnalysisWorking capital - days sales outstanding (“DSO”)Percent credit sales collected within termsEffective tax, Cost of capitalQuality metrics (billing, tax, reporting, forecasting)Accuracy of forecasts and analysisUse of balanced scorecards, simulation modelsFinance’s role in strategic decision makingRestatement of reports released to external agenciesPeer GroupABC Org..Hackett uses actual client data to determine performance
15Representative analyses provided in the final reports Total Finance and Costs by Cost TypeTotal Finance and HR Costs as a percent of revenue by AgencyIllustrativeOnly$ 285 millionOther cost --Facilities, travelSupplies, telephoneTechnology cost* --Computer processingMaintenanceOutsourcing cost --Outside servicesLabor cost --Wages (full time and part time)Overtime and bonusesTaxes and fringe benefits$ 75 million1.00%$ 90 million0.90%0.90%0.40%$ 30 million0.30%ProcessCost:$ 90 million0.25%0.30%0.15%0.20%0.15%$ 120 millionOverallAgency AAgency BAgency CAgency DRevenue = $ 10 billionFinanceHR
16Despite High Automation and Productivity, Process Fragmentation Drives Greater Process Costs in PayablesCash Disbursements cost as a % of revenueCost per transaction (invoices/T&E reports)Transactions per FTEPercent cash disbursement transactions automatedABC. 4968D. c , 39,41 / 12237,38,39,40,41 ??rule 4973??
17Representative analyses provided in the final reports (cont’d) FinanceExampleCost Differences(versus World Class)Gap Opportunities(versus Median)Gap Opportunities(versus World Class)$ 0$ 10$ 20$ 30$ 40$ 50$ 60$ 70$ 80$ 90$ 100Total Cost 2005Total SavingsOpportunityCappedOpportunity*$38.6$34.1$86.2Cash DisbursementsRevenue CycleAccounting and External ReportingSUBTOTAL:Tax ManagementTreasury ManagementCompliance ManagementSUBTOTALPlanning and Performance ManagementBusiness AnalysisFinance Management and AdministrationOVERALL TOTAL$ 2.0 MM$ 3.9 MM$ 5.3 MM$ 11.2 MM$ 1.0 MM-$ 2.3 MM *$ 3.3 MM$ 4.4 MM$ 2.3 MM$ 21.5 MM$ 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 MMTransaction Processing**Risk ManagementPlanning & Dec. SupportMgmt-AdministrationNote: * Opportunities capped at 50% of current process cost
18Representative analyses provided in the final reports (cont’d) FinanceExample0.00%0.02%0.04%0.06%0.08%0.10%0.12%0.14%ABC StateMedianWorld ClassCost as a % of revenue0%5%10%15%20%25%30%35%40%45%ABCStateTop PerformerCash Disbursement Best practicesDegree of integration of the purchasing application to the accounts payable applicationSuppliers submit their invoices electronicallyUse of a Web application to allow suppliers to obtain status updatesWorkflow cycle to process a transaction (invoice/T&E) is kept to fewer than five b/dayPercentage of travelers completing and submitting their expense reports via an online applicationPercent of expense reports requiring management approvalPercent of expense reports audited for compliance (e.g., sample size)HighHigh0%16%0.05%Percent transactions automated14.5 day(s)3 day(s)4%52%100%100%15%30%
19NASACT Utilizes Hackett’s Proven Benchmark Process and Tools (8-12 week process from kickoff) Enablement through tools and methodologyCollection of baseline data as well as validation of data with HackettAnalysis of baseline data versus benchmark database - development of recommendationsPlanning/KickoffData Collection& Other InputsData ValidationAnalysis /Draft ReportResultsPresentationReview Question Set Scope and DefinitionsIdentify Data SourcesEstablish Project CoordinatorIdentify Location / Function CoordinatorsConduct Project Education and TrainingCollect All Required Quantitative DataPractice Assessment WorkshopConduct Executive InterviewsConduct Stakeholder SurveyData ConsolidationData Review and ValidationClient Signoff on Data Accuracy: Reflecting Operations of the State/AgencyConduct Data AnalysisDevelop Recommendations and High Level Action PlanAssemble Draft Results Report for State LeadershipReview Draft ReportPresent Benchmark Results and Associated Findings to State/Agency LeadershipQuantification of Financial Impact of Improved PerformancePrioritization of OpportunitiesDetermine Actions Required to Close Performance Gaps
20Analysis & Preliminary Results Hackett’s Benchmarks can be executed in approx weeks (approximate timeline)Week 1Week 2-3Week 4-5Week 6Week 7Week 8Week 9Week 10-12Pre-PlanningTrainingData CollectionData ValidationAnalysis & Preliminary ResultsFinal ResultsDraft Data
21Benchmark program costs State resource needs:State coordinator half time for 6-8 weeksAgency coordinators half time for 1-2 weeksAgency data collectors 2-3 daysCore team and management to participate in data review and final report meeting (3-6 hours)Administrative fee to NASACT 3%Plus: travel relatedexpenses – capped at$10,000 for the firstbenchmark and $9,000for each additionalbenchmark
22NASACT Benchmarking Program Update Select slides from NASACT conference in Omaha2006 NASACT Conference - OmahaClark Partridge, State of ArizonaJan Sylvis, State of TennesseeJeff Rosengard, The Hackett GroupAugust 21, 2006
23Hackett Finance Value Grid Projected State Gov’t Peer Group State Governments are poised to leverage their scale and relative lower complexity to achieve World Class performanceHackett Finance Value GridKey FN DriversState ARole of FinanceInformation Access & DistributionValue of Analysis and Quality of OutputWorking Capital & Risk Mgmt.Cost and FTEsProductivity, Cycle Times & Self-serviceCost per transactionAutomated TransactionsIntegrated Technology & Common Architecture1QHighWorld ClassEffectiveness1QEffectivenessEfficiencyState Gov’tsMost KPIs for the Key Driver are at or near World ClassEfficiencyHighSome KPIs for the Key Driver are at or near World ClassLowMost KPIs for the Key Driver are far from World ClassProjected State Gov’t Peer GroupOverallState A
24Initial Results Show a Focus on Transaction Processing with Lower Overall Finance Costs Than World Class and Many Private PeersQuartile breakdown as a % ofrevenue/operating budgetFinance resource allocationQuartile 4Quartile 3World Class0.73%A.Total Other cost percent of revenueTotal Labor cost percent of revenueTotal Technology cost percent of revenueTotal outsourcing cost percent of revenueAnnual net revenueB. second chart on page 49 - don't know164 Total cost percent of revenueQuartile 2Projected State Peer Group RangeQuartile 1
25Tennessee Findings and observations Information TechnologyTotal 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 budgetApplication 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 ResourcesTotal HR cost of $45M equates to $963 per employee (1st quartile)Decentralized model with majority of FTEs in agencies outside DOPLow technology investment is limiting HR’s ability to drive efficiency in transactional processesExtent of formal HR strategy varies by agencyFinanceTotal 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 activitiesThere is a $28M process cost gap to World ClassThere are opportunities for State of TN to leverage Hackett Certified Best PracticesProcurementTotal 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 suppliersLower staffing levels across all process areas with the exception of P.O. Processing and Receipt ProcessingIllustrative Value Grid Plotting*High1QWorld Class1QFinanceHow effectively is the function meeting business demandsITHuman ResourcesProcurementLowHighHow efficiently is the function meeting business demands*Illustrative Value GridSM. The above diagram represents the approximate placement on the value grid. The exact placement is included in each functional section.
26Overall benchmark findings and observations Arizona’s operating model provides an opportunity to create more valueState of AZ’s finance cost as a percent of operating budget is 0.33%, placing it in the 1st quartile of the peer groupA solid shared service infrastructure is in place and overall vision is strong, however, opportunity still exists to expandAZ’s resource allocation has a greater focus on transactional activitiesTransactional 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 organizationsProcess fragmentation existsAZ is under-investing in technologyWorld Class companies spend 11% of total operating budget/revenue on technology vs. 5% for the StateLimited tools exist (common ERP, web-based tools and self-service reporting) to enable best practice based solutionsHigh1QWorld-Class1QFinance has the right structure in placeto provide valueState of AZLowHighHow efficiently is Finance meeting business demands
27NASACT Press Release 3/21/07 Colorado, Massachusetts, and Mississippi HonoredFor Peak Effectiveness in Finance OperationsBy NASACT, The Hackett Group, and AccentureAt Annual NASC Conference States Receive AwardsFor Top-Quartile Effectiveness Based on Hackett Benchmark ResultsBIRMINGHAM, 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…..