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

Achieving World-Class Performance in Finance, HR/Payroll, IT and Procurement

NASACT Benchmarking Overview

Q2, 2007

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

Page 3

Background

State steering Committee formed in 2004. 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 2005. Contract vehicle now in place for states to select any or all benchmarks, based on their needs.

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.

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 costper 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

8,4589,024

Overall Finance costas 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 costper 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%

ITFINANCE HUMAN RESOURCES PROCUREMENT

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

Page 7

States Participating as of 3/29/07

Program Launched at NASACT Conference in Portland in August 2005

State Benchmark Status

Tennessee FIN, HR, IT, PROC Completed

Arizona FIN Completed

Delaware FIN, PROC Completed

Colorado FIN Completed

Massachusetts FIN Completed

Mississippi FIN, HR, IT, PROC Completed

Georgia Fin, IT Completed

Alaska HR Active

Alabama FIN, HR, PROC Active

Page 8

Transactional Compliance and Risk Management

Budgeting and Analysis

Hackett’s Finance benchmark focuses on 8 process groups that are discretely defined

Cash DisbursementsAccounts PayableTravel and ExpensesProgram Payables

Revenue CycleCreditCustomer billingCollectionsCash Application

Accounting and External ReportingFixed AssetsInterfund/InterdepartmentalAccountingGeneral Ledger AccountingProject Grant and Cost AccountingExternal Reporting

Treasury ManagementCash ManagementCapital and Risk Management

Compliance ManagementRegulatory Compliance and AuditingProcess Certification

Budget Preparation and ReportingLong Term ForecastingAnnual/Bi-Annual budgetingBudget and Performance Reporting

Business analysisDepartment/Program Analysis

Finance Function ManagementFunction OversightPersonnel ManagementPolicy and Procedures Oversight

Management & Administration

Page 9

Transactional Employee LifeCycle

Planning & Strategy

Hackett’s HR/Payroll benchmark framework

Total Rewards AdministrationHealth and Welfare AdministrationPension and Savings AdministrationCompensation Administration

Payroll ServicesTime and AttendancePayroll Administration

Data Management, Reporting and ComplianceCompliance ManagementEE Data ManagementHR Reporting

Staffing ServicesRecruiting and StaffingExit Process

Workforce Development ServicesLearning and DevelopmentCareer PlanningPerformance Management

Organizational EffectivenessLabor Relations AdministrationOrganization Design and MeasurementEmployee Relations

Total Rewards PlanningBenefits PlanningCompensation Planning

Strategic Workforce PlanningWorkforce gap assessmentLeadership gap assessment


Function ManagementFunction oversightPersonnel managementPolicy and procedures oversight

Page 10

Operations & ComplianceSourcing &

Supplier Management

Planning & Strategy

Hackett’s Procurement benchmark framework

Supply Data ManagementSupplier master managementItem master/content management Catalog managementContract master management

Requisition and PO ProcessingRequisition processingPurchase order processingRequisition and purchase order support

Customer ManagementExternal Customer ManagementInternal Customer ManagementProduct Development and Design Support

Sourcing ExecutionRequirements definition and supplier biddingNegotiation and supplier contract creation

Supplier Management and DevelopmentSupplier ManagementSupplier Partnering

Function Strategy and Performance Mgt

Strategic and operational planning

Sourcing and Supply Base StrategySourcing and Supply Base data gatheringSourcing and Supply Base Analysis

Function MgtFunction oversightPersonnel mgtPolicy and procedures oversight


Supplier SchedulingSupply requirements reviewSupplier schedulingOrder releaseInbound tactical supply managementDelivery coordination

Receipt ProcessingMaterials and goodsServices

Compliance ManagementInternal Compliance ManagementExternal Compliance

Page 11

Technology Infrastructure

Application Management

Planning & Strategy


Infrastructure ManagementOperations

ManagementSecurity

ManagementDisaster Recovery

Planning

End User SupportHelp DeskEnd User Training

Infrastructure DevelopmentPlanningConstruct Implement

Control & Risk Management

Hackett’s IT benchmark framework

Application MaintenanceApplication

SupportEnhancement

DeliveryUpgrade

Execution

Application Development and ImplementationPlanningConstructImplement

Quality AssuranceChange

Management

Risk ManagementAudit and

Compliance

IT Business PlanningAlignmentProject

PrioritizationCommunication

Enterprise Architecture PlanningGovernanceStandards

Management

Emerging TechnologiesTechnology

Evaluation

Function ManagementFunction oversightPersonnel managementPolicy and procedures oversight

Page 12

Data collection activities - Web based collection tool and reporting

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)

Hackett’s 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

=

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 Finance’s role in strategic

decision making Restatement of reports released to

external agencies

EFFECTIVENESSEFFICIENCY 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

Finance Sample

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

IllustrativeOnly

0.25%

1.00%

0.15%

0.90%

0.20%

0.30%

0.15%

0.90%

0.30%

0.40%

Overall Agency A Agency B Agency C

HRFinance

Agency D

Page 16

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

ABC State Median World Class

Cash Disbursements cost as a % of revenue

31,198

12,78514,881

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


Transactions per FTE

$9.16

$3.91$3.10

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00


Cost per transaction (invoices/T&E reports)

0%

20%

40%

60%

80%

100%


Percent cash disbursement transactions automated

Despite High Automation and Productivity, Process Fragmentation Drives Greater Process Costs in Payables

Page 17

Representative analyses provided in the final reports (cont’d)

Transaction Processing** Risk Management

Planning & Dec. Support Mgmt-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 TOTALOVERALL 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$ 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

$ 4.4 MM

$ 2.3 MM

$ 21.5 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 2005 Total SavingsOpportunity

CappedOpportunity*

$38.6$34.1

$86.2

Finance Example

Page 18

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%

0.14%


Cost as a % of revenue

0%5%

10%15%20%25%30%35%40%45%


Percent transactions automated

Cash Disbursement Best practicesABCState

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%

0.0

14.5 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 (cont’d)

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

ResultsPresentation

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 asvalidation of data with Hackett

Analysis of baseline data versus benchmarkdatabase - development of recommendations

NASACT Utilizes Hackett’s Proven Benchmark Process and Tools (8-12 week process from kickoff)

Page 20

Week 1 Week 2-3 Week 4-5 Week 6 Week 7 Week 8 Week 9 Week 10-12

Training

Data Collection

Analysis & Preliminary Results

Final ResultsDraft Data

Data Validation

Pre-Planning

Hackett’s Benchmarks can be executed in approx. 8-12 weeks (approximate timeline)

Page 21

Benchmark program costs

Functional benchmark Includes:

- Unlimited agency participation - Single report to the state, with agency comparisons on selected high level metrics (i.e. finance cost as a percent of spend) - Access to online data collection tools and final results data - Onsite executive interviews - Draft review and final presentation (1/2 day sessions each)

Functional Benchmark

Total SOW agreement fees

Percent discount realized

Realized price per benchmark

1 benchmark $80,000 $80,000 2 benchmarks $144,000 10% $72,000 3 benchmarks $210,000 12.5% $70,000 4 benchmarks $272,000 15% $68,000

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 $9,000for each additional benchmark

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

Page 23

Hackett Finance Value Grid

High

LowHigh

1Q

1Q

State Governments are poised to leverage their scale and relative lower complexity to achieve World Class performance

ProjectedState Gov’tPeer Group

Overall State A

Effe

ctiv

enes

s

Efficiency

World ClassWorld 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

Effe

ctiv

enes

sEf

ficie

ncy

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 Gov’ts

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

0.25%

0.59%

0.70%

1.23%

2.31%

0% 20% 40% 60% 80% 100%

State ProjectedPeer Group

Median

World Class

Transaction processing Control and risk mgmt

Planning and strategy Mgmt and administration

Finance resource allocation

World Class0.73%

Page 25

Finance

Tennessee Findings and observationsInformation Technology Total 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 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 (1st quartile) Decentralized model with majority of FTEs in agencies outside DOP Low technology investment is limiting HR’s 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 TN’s 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 (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 suppliers

Lower staffing levels across all process areas with the exception of P.O. Processing and Receipt Processing

*Illustrative Value GridSM. 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

Ho

w e

ffec

tive

ly is

th

e fu

nct

ion

mee

tin

g

bu

sin

ess

dem

and

s

1Q

Human Resources

Low

1Q

High

Illustrative Value Grid Plotting*

World

Class

IT

Procurement

High

Page 26

Hackett Value Grid

Finance Efficiency

Fin

an

ce E

ffe

ctiv

en

ess

Fina

nce

has

the

right

stru

ctur

e in

pla

ceto

pro

vide

valu

e

How efficiently is Finance meeting business demands

World-Class

1Q

1Q

High

HighLow

State of AZ

Arizona’s operating model provides an opportunity to create more value

•State of AZ’s 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

AZ’s resource allocation has a greater focus on transactional activities

•Transactional 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 organizations

•Process fragmentation existsAZ 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

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 AwardsFor 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…..

Documents

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