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Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking Overview Q2, 2007.

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Presentation on theme: "Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking Overview Q2, 2007."— Presentation transcript:

1 Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement NASACT Benchmarking Overview Q2, 2007

2 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

3 Page 3 Background State 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 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.

4 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.

5 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 cost per 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 8,458 9,024 Overall Finance cost as 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 cost per 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% IT FINANCE HUMAN RESOURCESPROCUREMENT

6 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

7 Page 7 States Participating as of 3/29/07 Program Launched at NASACT Conference in Portland in August 2005 StateBenchmarkStatus TennesseeFIN, HR, IT, PROCCompleted ArizonaFINCompleted DelawareFIN, PROCCompleted ColoradoFINCompleted MassachusettsFINCompleted MississippiFIN, HR, IT, PROCCompleted GeorgiaFin, ITCompleted AlaskaHRActive AlabamaFIN, HR, PROCActive

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9 Page 9 Transactional Employee Life Cycle Planning & Strategy Hacketts HR/Payroll benchmark framework Total Rewards Administration Health and Welfare Administration Pension and Savings Administration Compensation Administration Payroll Services Time and Attendance Payroll Administration Data Management, Reporting and Compliance Compliance Management EE Data Management HR Reporting Staffing Services Recruiting and Staffing Exit Process Workforce Development Services Learning and Development Career Planning Performance Management Organizational Effectiveness Labor Relations Administration Organization Design and Measurement Employee Relations Total Rewards Planning Benefits Planning Compensation Planning Strategic Workforce Planning Workforce gap assessment Leadership gap assessment Management & Administration Function Management Function oversight Personnel management Policy and procedures oversight

10 Page 10 Operations & Compliance Sourcing & Supplier Management Planning & Strategy Hacketts Procurement benchmark framework Supply Data Management Supplier master management Item master/content management Catalog management Contract master management Requisition and PO Processing Requisition processing Purchase order processing Requisition and purchase order support Customer Management External Customer Management Internal Customer Management Product Development and Design Support Sourcing Execution Requirements definition and supplier bidding Negotiation and supplier contract creation Supplier Management and Development Supplier Management Supplier Partnering Function Strategy and Performance Mgt Strategic and operational planning Sourcing and Supply Base Strategy Sourcing and Supply Base data gathering Sourcing and Supply Base Analysis Function Mgt Function oversight Personnel mgt Policy and procedures oversight Management & Administration Supplier Scheduling Supply requirements review Supplier scheduling Order release Inbound tactical supply management Delivery coordination Receipt Processing Materials and goods Services Compliance Management Internal Compliance Management External Compliance

11 Page 11 Technology Infrastructure Application Management Planning & Strategy Management & Administration Infrastructure Management Operations Management Security Management Disaster Recovery Planning End User Support Help Desk End User Training Infrastructure Development Planning Construct Implement Control & Risk Management Hacketts IT benchmark framework Application Maintenance Application Support Enhancement Delivery Upgrade Execution Application Development and Implementation Planning Construct Implement Quality Assurance Change Management Risk Management Audit and Compliance IT Business Planning Alignment Project Prioritization Communication Enterprise Architecture Planning Governance Standards Management Emerging Technologies Technology Evaluation Function Management Function oversight Personnel management Policy and procedures oversight

12 Page 12 Data collection activities - Web based collection tool and reporting

13 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) Hacketts 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 =

14 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 Finances role in strategic decision making Restatement of reports released to external agencies EFFECTIVENESS EFFICIENCY 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

15 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 Illustrative Only 0.25% 1.00% 0.15% 0.90% 0.20% 0.30% 0.15% 0.90% 0.30% 0.40% OverallAgency AAgency BAgency C HR Finance Agency D

16 Page 16 Cash Disbursements cost as a % of revenue Transactions per FTE Cost per transaction (invoices/T&E reports) Percent cash disbursement transactions automated Despite High Automation and Productivity, Process Fragmentation Drives Greater Process Costs in Payables

17 Page 17 Representative analyses provided in the final reports (contd) Transaction Processing**Risk Management Planning & Dec. SupportMgmt-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 TOTAL OVERALL 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 $ 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 Gap Opportunities (versus Median) Gap Opportunities (versus World Class) $ 0 $ 10 $ 20 $ 30 $ 40 $ 50 $ 60 $ 70 $ 80 $ 90 $ 100 Total Cost 2005Total Savings Opportunity Capped Opportunity* $38.6 $34.1 $86.2 Finance Example

18 Page % 0.02% 0.04% 0.06% 0.08% 0.10% 0.12% 0.14% ABC StateMedianWorld Class Cost as a % of revenue 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% ABC StateMedianWorld Class Percent transactions automated Cash Disbursement Best practices ABC State 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% 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 (contd)

19 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 Results Presentation 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 as validation of data with Hackett Analysis of baseline data versus benchmark database - development of recommendations NASACT Utilizes Hacketts Proven Benchmark Process and Tools (8-12 week process from kickoff)

20 Page 20 Week 1Week 2-3Week 4-5 Week 6Week 7Week 8Week 9Week Training Data Collection Analysis & Preliminary Results Final Results Draft Data Data Validation Pre-Planning Hacketts Benchmarks can be executed in approx weeks (approximate timeline)

21 Page 21 Benchmark program costs 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 $9,000 for each additional benchmark

22 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

23 Page 23 Hackett Finance Value Grid High Low High 1Q1Q 1Q1Q State Governments are poised to leverage their scale and relative lower complexity to achieve World Class performance Projected State Govt Peer Group OverallState A Effectiveness Efficiency World 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 Effectiveness Efficiency 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 Govts

24 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 Finance resource allocation World Class 0.73%

25 Page 25 Finance Tennessee Findings and observations Information Technology Total IT cost of $355M equates to $7,687 per end-user (2 nd 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 (1 st quartile) Decentralized model with majority of FTEs in agencies outside DOP Low technology investment is limiting HRs 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 TNs 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 (1 st 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 Grid SM. 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 How effectively is the function meeting business demands 1Q Human Resources Low 1Q High Illustrative Value Grid Plotting* World Class IT Procurement High

26 Page 26 Finance has the right structure in place to provide value How efficiently is Finance meeting business demands World-Class 1Q High Low State of AZ Arizonas operating model provides an opportunity to create more value State of AZs 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 AZs resource allocation has a greater focus on transactional activities Transactional FTEs are comparable to World Class but only 13% of Arizonas Finance staff is focused on planning and analysis compared to 25% in World Class organizations Process fragmentation exists AZ 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

27 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 Awards For 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…..

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