___________________________________________Performance Management & Control__
AGILE ABC| TURNING DATA INTO INTELLIGENCE | CENTRE FOR PERFORMANCE MANAGEMENT |
| AGILE ABC IN THE PUBLIC SECTOR | AGILE ABC IN THE HEALTH SECTOR
STAYING ON SONG: MANAGING DURING TIMES OF UNPRECEDENTED ECONOMIC UNCERTAINTY
In the face of unforeseen, rapid declines in sales volumes, senior executives are compelled to respond with immediate reductions in discretionary spending and capital outlays. Whilst first pass restructuring is mandatory, there is a need to ensure the business remains stable in the longer term and retains its capacity for revitalisation, once sales income returns to positive growth. There is therefore, a need to review financial structures from both an operational and strategic perspective, to understand:
Where costs can be reduced safely in the short term whilst building the ‘right’ longer term operating structure and strategy to reposition itself for future growth.
HCP Management Consultants (HCP) is able to assist with the resolution of this issue through the application of analytical/simulation financial models. Based on the Value Chain of the business, we construct a model in two steps.
- First, build an operational model (based on activity analysis, illustrated below) to determine how to accurately assign indirect costs to direct costs. Then determine the profitability of products, services and any other ‘outputs’ from the business, including internally focused ‘shared services’.
- Second, simulate business strategy, i.e. understand how transformational and/or differentiating activities are deployed to leverage resources (core competences) into markets in order to deliver a sustainable competitive advantage and targeted outcomes from strategy.
Value and Benefits, Operational: the typical cost model provides most value in complex business environments where it is difficult to: accurately assign indirect costs to those direct costs that are consumed in the production and delivery of goods and services; identify and estimate the extent of inefficiencies in processes; evaluate the full extent of unused capacity (manufacturing as well as administrative functions). A primary benefit from these financial models is an identification of areas where Quick Wins may be realised, measured in terms of cost reduction, improvements in efficiency and effectiveness and a corresponding increase in customer service levels. Another benefit is to assess the impact that pricing and product/customer rationalisation could have on overall profitability.
Value and Benefits, Strategic: HCP differentiates between long term and short term strategy. In the short term the financial analysis allows us to assess the financial impact of strategy implementation which is best conducted through a formal ‘Pathway to Implementation’, derived directly from a Strategy Map and Balanced Scorecard. In the longer term, we use financial models to simulate a Strategic Architecture (a model unique to HCP used to depict an organisations foundation strategy) to:
- Manage Resources and Core Competences: understand the impact of the financial commitment required to build/maintain organisational resources, especially core competencies (e.g. technical ‘know how’, continuous improvement, relationship management)
- Evaluate Value of Differentiating/Transformational Activities: understand the impact of these activities on the cost and financial structure of the business and the expected contribution to the desired outcomes from strategy
- Assess Market Positioning Strategies: evaluate the financial implications of maintaining market positions, such as sponsorship of sporting events and high profile sports people.
- Facilitate Strategic Analysis: conduct ad hoc analysis such as ‘what if’ scenario analysis reflecting assessments of changes in ‘constraints’ (e.g. market volumes, market share, internal cost structure) and the resources required to satisfy these constraints at varying operating levels
STRATEGICALLY ALIGNED ADVANCED COST MANAGEMENT PRACTICES OF RELEVANCE TO ALL INDUSTRIES
Traditional ‘standard’ costing has always been useful as a method of valuing inventory and calculating ‘variances’ against budget, but as a historical reporting mechanism only, it has been likened to running a business by ‘looking through a rear view mirror’. It is also a mechanism that is of great value to the manufacturing industry, but not much else. In the early 1990’s Activity Based Costing (ABC) was widely adopted by both manufacturing and service companies as a viable alternative to traditional cost accounting, offering a capability to deliver:
- Cost reduction: Short term Quick Wins in efficiency and effectiveness as well as input to longer term continuous improvement programs, in both service and manufacturing industries, and
- Increases in income and competitiveness: Evaluation of product and customer profitability and ‘cost to serve’ of internal functions such as shared service centers and other support areas.
Benefiting from many years of experience implementing ABC through global alliances and state of the art cost management practices, HCP Management Consultants (HCP) now uses a profoundly more powerful methodology than conventional ABC, that of Agile ABC. Agile ABC delivers the same benefits as the past, but is strategically focused, is highly flexible (operations and technology) and enables interrogative analysis to allow significantly more powerful decision making.
In offering this service, HCP is able to provide a solution that has transformed conventional ABC into a new dimension. Agile ABC requires minimal staff interviews and takes advantage of existing data and metrics in an organisation to deliver:
- facilitation of in depth strategic analysis incorporating the structure of strategy, i.e.; resources consumed, activities that leverage resources into market segments, return from market segments and assessment of financial and other stakeholder outcomes,
- enables ‘what if’ and scenario analysis to assess changes in ‘constraints’ (e.g. market volumes, market share, internal cost structure) and the resources required to satisfy these constraints at varying operating levels,
- an accurate assessment of asset and resource utilisation that takes into consideration readily measurable time driven metrics and the variability of direct and indirect costs to show areas where ‘excess capacity’ exists and areas where capacity can be reduced or redeployed,
- a business model that reflects the characteristics of the organisation, rather than a predefined “one size fits all” structure, and
- an open architecture which interfaces with familiar applications such as MS Excel, to generate standardised and one off, tailored report formats.
TURNING DATA INTO INTELLIGENCE
REDUCING COSTS, OPTIMISING PERFORMANCE
Enterprise Wide Information Systems have delivered ready access to a wealth of transaction reporting data and as a result, organisations are awash with information. HCP works with quantitative analytical specialist, SymboliX to successfully turn source data into high value, business solutions.
Case Study: In one recent client assignment HCP and SymboliX applied quantitative analytics techniques to deliver significant ($m+) savings annually, through the consolidation of three manufacturing facilities into two.
What did we do? At the request of our client, we set out to assess:
- Can we rationalise our three manufacturing facilities into two, whilst maintaining good customer
relationships and meet current contractual obligations? - If we can, what does the optimal consolidation look like and what are the benefits?
- Which assets ought to be moved and which sold?
Using an ‘Optimisation Modeling’ technique, HCP and SymboliX analysed the configuration of our clients three independent production facilities, located across Australia. The analysis considered constraints imposed by the relevant manufacturing facilities and associated production lines, transportation complexities and the expected impact on customer requirements. Developing scenarios for a number of alternative solutions, we were able to assess the impact of varying outcomes from each scenario (in real time) and estimate the risk of each new direction, as they were reviewed.
What did we deliver? In addition to savings we identified what an optimised resource set would look like (within established customer constraints) and delivered insight into the general operations of the business. Interestingly, this included the observation that whilst some assets were believed to be required for production needs, they were in fact not necessary. They only appeared to be necessary because of an inefficient asset utilisation tool that had been used in the past.
Bigger Picture: The above case study describes one benefit from Quantitative Analytics and Business Intelligence tools and techniques. Other Business Intelligence applications include:
In the absence of access to comprehensive SBI tools and software, businesses suffer from an inability to realise the benefits similar to those described above. Initially, basic software Microsoft Excel can be used to mine source data and conduct analytical research. In the longer term, comprehensive Strategic Business Intelligence software can be applied to support ongoing analysis and a mindset of transformation – from Gut Feel to Informed Decision Making.
CENTRE FOR PERFORMANCE MANAGEMENT
STRATEGICALLY ALIGNED, PERFORMANCE MANAGEMENT ENTERPRISE WIDEAutomated Business Intelligence (BI) tools are being used increasingly to facilitate Enterprise Performance Management (EPM) reporting capabilities that deliver content that is both:
- Historical in nature: offers intelligence that has a primary focus on traditional, primarily quantitative management information (Balance Sheet, Profit and Loss, Variance Analysis), as well as
- Strategically focused: information that is future oriented and translates into meaningful ‘BI’ either immediately or following simple and/or complex analysis and interpretation.
- traditional (historical) management information (referred to above), primarily generated through some form of interface between the General Ledger and a preferred BI tool,
- advanced applications that are strategically oriented and draw on various data sources to address:
- Strategy Evaluation: ‘testing’ of strategic plan using trend analysis, predictive analytics etc.,
- Strategy Execution: use of Strategy Maps and Balanced Score Card to implement strategy, and
- Operational analytics: BI in advanced formats such as forecasting, risk assessment, fraud detection and Benchmarking.
- Additional content that is derived from integration of the above with other:
- Performance Management Tools: e.g. Shareholder Value, Activity Based Costing (Agile ABC), Personnel/Employee Rewards and
Management, and - Other Strategic Tools: e.g. Competitive Intelligence, Scenario Analysis and War Games.
- Performance Management Tools: e.g. Shareholder Value, Activity Based Costing (Agile ABC), Personnel/Employee Rewards and
‘Good Governance’, professionalism, efficiency and effectiveness in an EPM enabled business are all enhanced through a Centre for Performance Management (CPM) whose role is described as follows:
HCP has observed numerous cases where organisations seeking to implement a BI solution have commenced with an independent Departmental project (e.g. Marketing, Research, Finance). In each case one department has purchased a BI tool to address their own specific need. The Operations Department for example may select a statistical analytical tool to assist with production optimisation capabilities whilst Marketing may select a different tool to conduct detailed data mining and customer trend analysis. The Centre for Performance Management is charged with effective management of BI across the business and provides one solution for all needs and purposes. Early implementations of EPM projects are rarely perfect. EPM represents a continual ‘journey’ that starts with a specific BI strategy, i.e. an understanding of what an organisation wants to get out of a BI solution, what resources will be required to manage it and most importantly, how it is going to be implemented in order to deliver the desired results. HCP works with clients to develop their BI strategy and to help with the introduction, development and refinement of a BI solution.
AGILE ABC IN THE PUBLIC SECTOR
IMPROVING EFFICIENCY AND EFFECTIVENESS WHILE IDENTIFYING THE TRUE COST OF SERVICESThe Public Service is constantly caught between the conflicting need to:
- satisfy increasing demands to improvement the quality of its services, while at the same time,
- introduce measures of efficiency and effectiveness in both operating and overhead areas.
In recognition of the difficulty experienced by most Public Service organisations in managing this conflict (and more importantly, in delivering results), HCP Management Consultants (HCP) recommend the application of a methodology we refer to as Agile ABC. Illustrated below, Agile ABC contributes to the enhancement of operating performance in two primary areas:
1. provides insight into activities, processes and capacity constraints to facilitate resource and cost optimisation within and across
business entities, and
2. defines accurate costs for services provided in areas that could include entire Departments, parts of Departments (e.g. Shared Services), Statutory Bodies and other entities (e.g. Hospitals).
In offering this service, HCP has partnered with Cost Perform Australia to provide a solution that:
- uses existing data and metrics and open architecture software (which interfaces with familiar applications such as MS Excel) to generate standardised and one off, tailored report formats
- facilitates in depth strategic analysis incorporating the structure of strategy, i.e.; resources consumed, activities that leverage resources into market segments, return from market segments and assessment of financial and other stakeholder outcomes,
- enables ‘what if’ and scenario analysis in relation to assessment of ‘constraints’ (e.g. processing capacity, number of personnel with special skills), contractual obligations and the resources required to satisfy these constraints at varying operating levels,
- accurately assesses asset and resource utilisation, taking into consideration readily measurable time driven metrics and the variability of direct and indirect costs, showing areas where ‘excess capacity’ exists and areas where capacity can be reduced or redeployed,
- delivers a business model that reflects the characteristics of the organisation, rather than a predefined “one size fits all” structure.
AGILE ABC IN THE HEALTH SECTOR
UNDERSTANDING THE TRUE COST OF SERVICES: AN INTERNATIONAL BENCHMARK IN HOSPITAL COST MANAGEMENT
Traditional ‘standard’ costing has always been useful as a method of valuing inventory and calculating ‘variances’ against budget, but as a historical reporting mechanism only, it has been likened to running a business by ‘looking through a rear view mirror’. It is also a mechanism that is of great value to the manufacturing industry, but not much else. In the early 1990’s Activity Based Costing (ABC) was widely adopted by both manufacturing and service companies as a viable alternative to traditional cost accounting, offering a capability to deliver:
- Cost per DRG: Understanding of resource costs and activities contributing to procedures and DRG’s
- Cost of procedures: Defined as department output and building stones for DRG costing
- Transparency in cost structures: Provides analysis of variable and fixed cost per procedure, gross and net margin
- Cost analytics: Calculation of newly negotiated or expected production volumes, measure effects on department capacity usage and measure effect on cost per procedure and DRG
Benefiting from many years of experience implementing ABC through global alliances and state of the art cost management practices, HCP Management Consultants (HCP) now uses a profoundly more powerful methodology than conventional ABC, that of Agile ABC. Agile ABC delivers the same benefits as the past, but is strategically focused, is highly flexible (operations and technology) and enables interrogative analysis to allow significantly more powerful decision making.
In offering this service, HCP has partnered with Cost Perform Australia to provide a solution that has transformed conventional ABC into a new dimension. Agile ABC requires minimal staff interviews and takes advantage of existing data and metrics in an organisation to deliver:
- facilitation of in depth strategic analysis incorporating the structure of strategy, i.e.; resources consumed, activities that leverage resources into market segments, return from market segments and assessment of financial and other stakeholder outcomes,
- enables ‘what if’ and scenario analysis to assess changes in ‘constraints’ (e.g. market volumes, market share, internal cost structure) and the resources required to satisfy these constraints at varying operating levels,
- an accurate assessment of asset and resource utilisation that takes into consideration readily measurable time driven metrics and the variability of direct and indirect costs to show areas where ‘excess capacity’ exists and areas where capacity can be reduced or redeployed,
- a business model that reflects the characteristics of the organisation, rather than a predefined “one size fits all” structure, and
- an open architecture which interfaces with familiar applications such as MS Excel, to generate standardised and one off, tailored report formats.
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______________________________________Performance Management & Control__
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