AGA PDC Conference

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Financial Management Excellence How Does Your
Agency Compare To Its Peers?
AGA PDC Conference June, 2007 Nashville, TN
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Speakers Agenda

• Mark Howard Accenture Introductory Remarks
• Kinney Pointer NASACT Update of NASACT
  Program Initial Findings
• Jan Sylvis State of TN Tennessees Experience
  To Date
• Bob Childree State of AL Why Alabama Is
  Getting Involved

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States Participating as of 6/24/07
Program Launched at NASACT Conference in Portland
in August 2005
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Key Findings and Observations from Initial NASACT
Finance Benchmark Datacut

• Initial NASACT datacut is similar to the combined
  Hackett Peer group used for the initial group of
  States
• Low overall labor rates are masking
  inefficiencies of current processes, especially
  in transaction processing
• States are investing significantly less in
  Planning and Performance Management than
  non-government peers
• The Finance Service Delivery Model
• Highly focused on transaction processing
• Highly fragmented
• Outsourcing is not yielding benefits
• States are under-investing in technology
• Transaction processing efficiency and
  effectiveness is relatively low
• Extremely manual/non-standard processes
• Overall best practice utilization is low
• States have lower quality levels and cycle times
  than peer organizations

States have a unique opportunity to create more
value from their scale at a lower cost
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State Governments are Positioned to Achieve World
Class Performance
Hackett Finance Value Grid
High
1Q
World Class
Effectiveness
1Q
Effectiveness
Efficiency
State Govts
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
Low
High
Efficiency
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The NASACT Median Cost of Revenue is Nearly
Identical to That of the Hackett Peer Group Used
in all Benchmark Projects
0.65
0.64
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However, From A Staffing Perspective States Are
Requiring 46 More Total Finance FTEs Of Which
61 Are In Transaction Processing
970
663

• Metrics based on 3/2007 metrics

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Finance Inefficiency is Being Masked by Overall
NASACT Median Labor Rates That Are 37 Below the
Hackett Median
Average fully-loaded labor costs (in thousand )
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NASACT Technology Investment is Low, FTEs are
46 Greater, Indicating an Under-Leveraged
Technology Environment
Technology Cost as a of Operating Budget
Technology Cost per FTE
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Greatest Opportunity Exists to Improve the
Efficiency and Effectiveness of Transaction
Processes

• The current systems environment is complex and
  consists of multiple applications and mapping
  requirements to support an overall view of the
  data
• The NASACT Median has
• 46 secondary AP applications
• 27 secondary TE applications
• 30 secondary billing applications
• 21 secondary cash receipts applications
• The number of systems drive a more manual process
  that requires a large number of FTEs to support
• This complexity also drives long cycle times and
  a larger percentage of error rates across the
  processes ultimately resulting in a higher cost
  per transaction

Secondary Applications are used to augment the
functionality of the primary application or
support additional activities in the process.
Examples of secondary applications might be PC
Spreadsheets, other ERP applications, bolt-ons or
specialty applications.
Cash Disbursements and Revenue Cycle Represent
the Greatest Opportunities
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Staff Allocation Between the States and Hacketts
Peer Group Provide Generate Some Interesting
Questions
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Process Cost Allocation Comparisons Also
Highlight the Opportunity
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Several Key Recommendations are Relevant to
Current Participating States

• Focus on improving Transaction Processes
• Establish single end-to-end process owners (e.g.,
  Procure to Pay)
• Improve the utilization of best practices
• Standardize practices across the state
• Better leverage technology
• Best Practices Can be Leveraged by State
  Government No Real Barriers
• Common Application Platform
• Shared Services
• High Process Specific Best Practice Utilization
  Currently Exists
• Evaluate the costs vs. benefits of shared
  services
• An Enterprise-wide technology strategy must be
  established to support all finance processes
• Access to information must be easier to reduce
  the Brute Force required today, allowing staff
  to focus on more strategic activities
• State government must position itself to be able
  to attract and retain qualified talent by
  providing richer jobs with a more
  strategic/advisory role
• Establish a state-wide Transformation Management
  Office to coordinate initiatives

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Tennessees Experience

• Participation in NASACT pilot
• Results of the pilot
• Sharing the results with leadership

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Tennessees Results

• Leverages NASACT sponsored Hackett benchmark
  program
• Provides a State-wide baseline of current
  performance and best practice utilization
• Provides an understanding of the best practices
  that the State could leverage
• Creates the catalyst for changing the appropriate
  processes to maximize the upcoming technology
  investment (e.g., Edison)
• Supports the prioritization of improvement
  initiatives

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TNs components 4 functions and 39 defined
process groups

• Human Resources
• Total Rewards Administration
• Payroll Services
• Data Management, Reporting and Compliance
• Staffing Services
• Workforce Development Services
• Organizational Effectiveness
• Total Rewards Planning
• Strategic Workforce Planning
• Function Management
• Procurement
• Supply Data Management
• Requisition and PO Processing
• Supplier Scheduling
• Receipt Processing
• Compliance Management
• Customer Management
• Sourcing Execution

• Finance
• Cash Disbursements
• Revenue Cycle
• Accounting and External Reporting
• Tax Management
• Treasury Management
• Compliance Management
• Planning and Performance Management
• Business Analysis
• Function Management
• Information Technology
• Infrastructure Management
• End User Support
• Infrastructure Development
• Application Maintenance
• Application Development and Implementation
• Quality Assurance
• Risk Management

Process Group
Process
Sub-Process
Activity
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Project scope assumptions

• Scope of benchmark included all Agencies within
  the State of Tennessee, Executive Branch
• The time period from which data was collected was
  FY 2006 (July 1, 2005 thru June 30, 2006)
• Benchmark data reflected status as of the end of
  the period
• Costs should reflect the annualized benchmark
  period
• Both costs and related revenues / volumes were
  included

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Benchmark project delivery team involvement and
commitments

• Sponsor
• Provide project oversight remove barriers as
  needed
• State Coordinator
• Coordinate the entire benchmark across the entire
  state (approximately 50 time commitment)
• Functional Lead
• Coordinate the collection of data provide
  access to key resources (approximately 50 time
  commitment)
• Agency/Location Coordinators
• Collect and submit data meet with Leader to
  report progress (2 to 3 days per
  function/location)
• Strategic Advisors (Hackett)
• Provide local support and industry-specific
  translation of survey questions interpret
  performance create and deliver interpreting
  results session
• Benchmark Advisor (Hackett)
• Respond to participants questions regarding
  survey completion validate submitted data
  develop comparison population

Sponsor
Project Team
Human Resources Lead
Finance Lead
State Coordinator
Hackett Manager
Procurement Lead
IT Lead
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Overall state roles responsibilities

• Responsible for coordinating benchmark across all
  functions
• Monitor progress of location coordinators and
  answers general questions
• Determine organization's scope, timeline, and
  level of detail for data collection
• Manage the project according to the agreed upon
  timeline
• Develop an internal communication strategy for
  questions, concerns
• Identify list of location coordinators that will
  help to collect the data
• Train location collectors or assist in training
• Coordinate responses for questions and concerns
• Conclude and lock State data submission process
• Communicate scrub issues to Agency/location
  coordinators

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Agency/Location coordinators roles
responsibilities

• Trained on process definitions, terminology and
  data collection tools
• Provide progress related to data collection/
  participate in status updates
• Responsible for collecting and entering responses
  into the web questionnaire
• Advised to direct questions for help to
  functional/overall coordinators
• Required to follow up on scrub issues identified
  by functional coordinators

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Team structure
State of Tennessee Project Sponsor D. Goetz,
Commissioner
Commissioners/Agency Leaders
Hackett Executive J. Rosengard, SVP
State Coordinator D. Hagood
Hackett Project Director P. Miller
Project Mgmt. Team
Core team
Finance Team Functional Leader - TBD Hackett Lead
B. DeGraw
HR Team Functional Leader - TBD Hackett Lead J.
Freeman
IT Team Functional Leader - TBD Hackett Lead M.
Daniel
Procurement Team Functional Leader - TBD Hackett
Lead K. Gallucci
Hackett Client Services Hackett Lead K. Jackson
Agency/Bureau/Department Coordinators
Additional Hackett Advisors for QA, Technical,
Best Practice and Statistical
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Critical success factors for benchmarking

• Visible support by State Leadership
• Dedicated and knowledgeable coordinators
• Managing to the timeline to hit key milestones
• Strong communication through the help chain
• Raise issues early
• Accuracy is important however, judgment must be
  used to manage materiality
• Active collaboration during analysis stage
• Identifying team resources early in the planning
  process

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Tennessee received

• A detailed report on our organizations
  performance as compared to average, world-class
  and State government
• An analysis of the drivers of unnecessary costs
  and complexity within our organization
• A prioritized set of recommendations to guide us
  in planning and implementing a continuous
  improvement program
• A quantification of potential savings, by
  functional area, in cost and cycle time
  achievable through the deployment of best
  practices / technology
• An understanding of proven Best Practices to
  drive toward world-class performance

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Findings and observations
Illustrative Value Grid Plotting
High
1Q
World Class
1Q
Finance
How effectively is the function meeting business
demands
IT
Human Resources
Procurement
Low
High
How 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.
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Tennessee

• Has lower costs
• Has higher levels of staffing
• Is very decentralized
• Pays much lower wages
• Does not use technology effectively

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Implications

• Low cost per transaction is the result of low
  wages
• Lack of centralization means more people doing
  it their way (e.g., server proliferation)
• Staff focused on transactions rather than end
  results
• Too little time spent on analysis and planning
  for improvement results in a reactive rather than
  proactive environment
• More handling means more errors
• Processes are overly complex because of controls

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So whats next?

• Weve used the finance and payroll results to
  make design decisions for our Edison
  implementation
• Centralizing certain payments
• Beginning to take a P-to-P approach to managing
  procurement and payments
• Selecting best practice choices out of system
  flexibility

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And

• Weve used results to make changes in the interim
  to improve current operations
• Contract language change
• Evaluated existing travel and expense application
• Established a transition management office
  methodology
• Establishing a shared services organization

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Conclusion

• We are looking forward to our next benchmark to
  see how weve improved! Its scheduled for the
  year following implementation (2008) once the
  system has stabilized.

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Alabama Reasons For Getting Started Involved

• (Insert Bob Childree slides here)