SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 1 SALVAGGIO, TEAL & ASSOCIATES State of Kansas Financial Management System Needs Assessment Study Value Pocket Survey Briefing for Agency CFOs November 2, 2006

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 2 Discussion Topics  Introduction  Business Case Methodology  Value Pocket Identification & Quantification  Value Pocket Data Collection  Responses to System Survey

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 3 Business Case Methodology System Benefits and Costs Cost to Implement & Operate the New System Software Hardware Implementation Upgrades Ongoing Maint. & Mgmt. Training System Cost Savings & Process-improvement Benefits System Savings Replacing/retiring current systems Not implementing planned systems and upgrades Process-Improvement Benefits Value Pocket benefits vs Standard financial analyses will be performed using dollar- quantifiable costs and benefits: - NPV (Net Present Value) - IRR (Internal Rate of Return) - Payback Period

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 4 Business Case Methodology Financial Analysis Illustrative Value Pocket (process-improvement) benefits will be calculated using data obtained via: The Value Pocket Survey that is being sent to agencies Interviews with central agencies and SMEs 3

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 5 Value Pocket Identification & Quantification What Are Value Pockets? Value Pockets are the most likely sources of significant value (i.e., cost savings and other process-improvement benefits) to be found in each process/functional area within the scope of a system implementation

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 6 Value Pocket Identification & Quantification Value Pocket Categories Dollar-Quantifiable System Benefits/Cost Savings (Tangible Items) Improved Process Outcomes/Results (effectiveness), for example: –Decreased cost of goods and services –Decreased inventory carrying costs Reduced Cost of Executing the Process (efficiency). For example, reassign/reduce headcount (FTEs) by: –Reducing the number of FTEs required to enter data into systems: Avoid entering the same data/transactions into multiple systems Avoid entering data on a form that is then entered into a system (instead of entering into system directly) –Reducing the number of FTEs require to generate needed information by no longer being required to obtain and consolidate data from multiple sources (also results in faster and better decision making) –Reducing the number of FTEs required to reconcile data among multiple systems –Reducing the number of FTEs required to track transactions spread over multiple systems (e.g., avoid keeping tracking data in spreadsheets, using paper logs, etc.) Non-Dollar-Quantifiable System Benefits/Cost Savings (Intangible Items) Reduced Cycle Times In Support of Strategic Initiative(s) Increased Accuracy Improved Usefulness of Information

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 7 HR / PAYROLL Position Control Basic Employee Data Personnel Management Training Payroll Employee Relations & Performance Appraisal Recruitment and Applicant Tracking Benefits Administration Compensation Time Reporting Leave Accounting CORE FINANCIAL General Ledger Budgetary Control Accounts Payable / Travel Accounts Receivable & Cash Receipts Cash Management Cost Accounting Grant Accounting Project Accounting Cost Allocation Asset Management BUDGET DEVELOPMENT Appropriation Budget Operating Budget Performance Based Budget Common Database Value Pocket Identification & Quantification Examples of Value Pockets PROCUREMENT VALUE POCKET EXAMPLES Reduce cost of goods and services Reduce inventory carrying costs Reduce cost of conducting solicitations Reduce inventory reorder cost PROCUREMENT & Inventory Solicitations (RFx) Catalog Procurement Reverse Auctions Warehousing & Inventory Management Commodity Management Vendor Management PROCUREMENT & Inventory Solicitations (RFx) Catalog Procurement Reverse Auctions Warehousing & Inventory Management Commodity Management Vendor Management

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 8 HR / PAYROLL Position Control Basic Employee Data Personnel Management Training Payroll Employee Relations & Performance Appraisal Recruitment and Applicant Tracking Benefits Administration Compensation Time Reporting Leave Accounting BUDGET DEVELOPMENT Appropriation Budget Operating Budget Performance Based Budget BUDGET DEVELOPMENT Appropriation Budget Operating Budget Performance Based Budget CORE FINANCIAL General Ledger Budgetary Control Accounts Payable / Travel Accounts Receivable & Cash Receipts Cash Management Cost Accounting Grant Accounting Project Accounting Cost Allocation Asset Management CORE FINANCIAL General Ledger Budgetary Control Accounts Payable / Travel Accounts Receivable & Cash Receipts Cash Management Cost Accounting Grant Accounting Project Accounting Cost Allocation Asset Management Procurement & Inventory Solicitations (RFx) Material Warehousing External Services Purchasing Fleet Management Common Database Value Pocket Identification & Quantification Examples of Value Pockets FINANCIAL VALUE POCKET EXAMPLES Reduce time performing invoice matching process Reduce time monitoring actual expenses against budget Reduce time maintaining vendor information and responding to vendor inquiries Reduce time calculating asset depreciation

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 9 Formula & Source of Variables Vendor Self-Service System Enabler Reduce the number of FTEs (and associated compensation) required to register vendors and update vendor information Source of Value # of Hours Spent Updating Vendor Information x Salary x (1 + Benefits Factor) x Estimated % Reduction in Effort Agency Survey & Central Agency Interviews Value Pocket Identification & Quantification Value Pocket Components – Example HR & agency management FTE = Full-time Equivalent Experience of Other Organizations

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 10 Introduction Functional Areas within Scope Calc Sheet Example Calc Sheet 1 Calc Sheet 2 Calc Sheet 3 Value Pocket Data Collection Value Pocket Survey – Worksheet/Tabs Effort-Related Response Data  The survey is in a Microsoft Excel spreadsheet that has a number of worksheets/tabs as depicted to the right  Data entry is only required in the “Metric Data” and “Effort-Related Data” response worksheets/tabs  You can enter hours directly into the Effort- Related Data response worksheet/tab, or use Calc Sheets. Calc Sheets are essentially “scratchpads” that can be used to calculate hours and associated comp. for the “Effort- Related Data” response worksheet/tab  You can access the Calc Sheet that corresponds to a Value Pocket by: Clicking on the appropriate tab at the bottom of the spreadsheet OR Clicking on a hyperlink that is on the Value Pocket’s row. Clicking on a hyperlink on the Calc Sheet will return you to the Effort-Related Data worksheet/tab VP 1 VP 2 VP 3 Metric Data

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 11 Value Pocket Data Collection Value Pocket Survey – Calc Sheet Example  Calc Sheets are set up to apply either the Percent-of-Time Method (PoT) or the Units-of-Work Method (UoW) of calculating the total estimate annual hrs. (and comp.) spent each year performing a VP activity In the PoT method, you provide the % of time spent performing a VP activity ([4]) and the total hrs. worked on a VP activity are calculated ([6]) In the UoW method, you provide total hrs. worked on VP activity ([6]) and the % of time spent performing a VP activity ([4]) is calculated Calc Sheet Totals pulled into the “Effort-Related Data” response worksheet/tab [7] provide input [8] = [7] x [2] [9] provide input [10] = [8] x ([1+[9]) [11] = [10] x [4]

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 12 Value Pocket Data Collection Value Pocket Survey – Calc Sheet Example (PoT)  To calculate total hours using the PoT Method for a Calc Sheets row:  Enter values for columns [1] and [2]  Enter “P” in column [3]  Enter % of time the group/individual works on the VP activity in column [4]  Enter in column [5], the approx. total # of hrs. each person in the group works for the State each year  Column [6] will be calculated for you. [6] = [2] x [4] x [5] Calc Sheet [7] provide input [8] = [7] x [2] [9] provide input [10] = [8] x ([1+[9]) [11] = [10] x [4]

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 13  Suggested ways to calculate % of time spent: If spends about 2 hrs. each day, use 2 hours / 8 hours per day = 25% If spends about 2 days each week, use 2 days / 5 days per week = 40% If spends about 3 days each month, use 3 days / 21 business days = 14% If spends about half of his/her time during only two months out of the year, use 50% x 2 months / 12 months = 8.3% Value Pocket Data Collection Calculating % of Time Spent Performing a VP Activity

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 14 Value Pocket Data Collection Value Pocket Survey – Calc Sheet Example (UoW)  To calculate total hours using the UoW Method for a Calc Sheets row: Enter values for columns [1] and [2] Enter “U” in column [3] Column [4] will be calculated for you after values have been entered for columns [2], [5] and [6]. [4] = [6] / ([2] x [5]) Enter in column [5], the approx. total # of hrs. each person in the group works for the State each Year Enter in column [6]: (# Units processed each year) x (# hrs. ea. Unit is processed). For example, if 1,000 units are processed each yr. by the group and it takes 20 min. to process each Unit, enter (excluding quotation marks) “=1000*20/60” Calc Sheet

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 15 And please keep in mind that what we need are reasonably good estimates, not exact numbers  Calc Sheets are essentially “scratchpads” that can be used to calculate hours for the “Effort-Related Data” response worksheet/tab using the Percent-of-Time method OR the Unit-of- Work Method. Use whatever method you feel comfortable using just as long as you develop for each Value Pocket activity on the “Effort-Related Data” response worksheet/tab a reasonable estimate for: Total number of hours spent annually performing the VP activity, and Total amount of compensation paid for those hours  You can enter hours and compensation amounts directly into the “Effort-Related Data” response worksheet/tab, instead of using Calc Sheets Things to keep in mind…

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 16 Let’s take a look at the Value Pocket Survey

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 17 Responses to System Survey  Survey responses to date  Will be contacting some of the respondents for clarification  It is essential that we include in the study: Approximate system costs that will likely be incurred if a new statewide system is not implemented –Upgrades/enhancements to existing systems –New systems All personnel costs pertaining to the implementation and ongoing operation and support of hardware, as well software. Also, include training resources. Do not include the cost of the end users of the software

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 18 Value Pocket Data Collection Value Pocket Survey  Chip Julian Please complete and return the survey via attachment no later than the close of business on November 17, 2006 to: If you have any questions whatsoever regarding this survey, please do not hesitate to contact Chip

SALVAGGIO, TEAL & ASSOCIATES Proprietary and Confidential 19 Questions/Next Steps