Delivering Precise Reporting In Cost Savings

Confidential and Proprietary©2009 Ed Kerbs KERBS

Best Practices In Cost Savings and Expense Reduction:

Ed KerbsMarch 2015

Gain Credibility by Measuring Savings & Spend Transparently.

Communicate Professional, Accurate and Precise Financials.

Consensus in savings measurement assumptions and lexicon can be more critical than delivering actual savings.


Savvy Cost Savers Generally Achieve Three Goals:

1) Meet Business Requirements• Requirements are missed regularly • Failing the business effects careers

2) Deliver Cost Savings (increased quality, decreased time to market)• Goes directly to the bottom line• Pure profit, net proceeds

3) Evolve Process• Make enhancements, drive process improvement• Automate – let the machine manage tedium. Communicate clear, timely and irrefutable financials• Become a trusted partner of the business you support

Save money and deliver timely financial transparency with unfailing accuracy and precision.

Best Practice


Questions Management Has Regarding Cost Savings:

“I Saved $15M Dollars”• Was it a “soft” or “hard” dollar save?• Is that $15M save fiscal, calendar and/or carryover?• Is the save a one time, ongoing or combination?• Is it an annualized save? • How was the money saved? Who gets the credit?• How does this effect my budget?• What is the timing of the save?• Was the savings capital or expense?• Where did the data come from around the save?• Does this data contradict other data?• What are the ramifications of the savings (spend) data to the intended and unintended

audience? • What term does the $15M cover?

Best Practice Have clear, credible answers to savings questions off the top of your head or at your fingertips. Savings and their positive effect on your career is nullified if you are not perceived as credible. Perception is reality. If unsure say “I don’t know, I’ll get back to you by X” …. And honor your word.


Questions Management Has Regarding Cost Savings: “I Saved $15M Dollars”• Was it a “soft” dollar save?

• Internal chargeback, management accounting “Federalized” service charges & allocations. It may or may not effect actual spend.

• Can be viewed as important and worthy – or not “Funny Money”• Physical auditing & strict management can render “P&L” savings• Used to assign value for “free” external goods/services - training

• Was it a “hard” dollar save?• (What I paid before) – (What I pay now) = Hard Dollar Save

• For exactly the same or more “apples to apples”• Must subtract out hard dollars spent to net• Can include negotiated rationalization “Platinum to Copper”

• Actual A/P dollar credit to the treasury – Measured in two ways• One time charge (OTC), current single credit• Ongoing credit, recurring (monthly, yearly etc.)

Best Practice – Defining The Type of Save

Standardized measurement systems around money and savings rely on a common lexicon.


Questions Management Has Regarding Cost Savings: “I Saved $15M Dollars”• Was it a “Cost Avoidance”?

• New cost not in a budget, baseline, contract or competitive bid.• (What I “was going to pay”) – (What I am ending up paying)• Negotiated Price Reduction without “apples to apples” • Must subtract out any hard dollars spent to net.• Additional uncharged services translated to “soft dollars”

• Was it a “Negotiated Save”?• (What I paid before) – (What I pay now)

• For exactly the same or more “apples to apples”• Must subtract out hard dollars spent to net - Use red for loss ($2.9K)

• Actual A/P dollar credit to the treasury – Measured in two ways• One time charge (OTC), current single credit• Ongoing credit, recurring (monthly, yearly etc.)

• Cost reduction against the final set of terms and conditions*

Best Practice – Defining The Type of Save Credible actors and savings rely on a common lexicon. Gain agreement* Conservative never inflated measurement is key, publish budget implications. Scorecard – Dashboard quarterly / monthly across relevant management scope = increased job security.


Questions Management Has Around Cost Savings: “I Saved $15M Dollars”• Was it Capital or Expense?

• Work with supplier and finance to determine if save was capital or expense – CAN BE BOTH*• Understand impact of capital and expense within your organization to optimize spend & savings efforts

• Capital is depreciated or amortized over the life of the asset• Expense paid in same period

• Was it a Calendar year save or was it a Fiscal year save?• Savings occurring in the calendar year OR Savings occurring in company’s fiscal reporting year

• Label the savings for year and as calendar (CY’09) OR fiscal year (FY’09) - capital and/or expense• Set expectations and educate around partial year savings*

• Was it an Annualized save?• (What I paid “`Yearly”) – (What I pay now “Yearly”) = Annualized Save (Common and Conservative)

• Label the savings as annualized ($15M annualized) capital and/or expense • One full year of ongoing savings (typically monthly) (Labor 1920 hours/yr) 4 weeks?*• Can include one time charges or credits “1st year annualized” vs “ongoing annualized”

• Was it a Carryover save?• (Final partial period savings) = Carryover savings*

• Used when an annualized 12 month savings event crosses an accounting boundary or goal date (Fiscal or Annual)• It is the diminished part of the annualized save that continues into a partial adjacent Fiscal or Calendar year• Allows equitable visibility of annualized savings when hard goals or target boundary dates are < 12 months out • Label the savings for year number, fiscal/calendar and as carryover (CY’09 Carryover) capital and/or expense• Set expectations and educate around partial year savings & carryover savings*

• Was it a Total save?• Covers all types savings (OTC and Ongoing) across the entire term of the contract or project.

• Label the total savings and number of years ($15M total savings over 3 years) capital and/or expense

Best Practice – Timing of The Save Standardized measurement systems around money and savings rely on a common lexicon. Set expectations, educate readers, gain consensus around these terms, document conservative assumptions.* Be especially careful to be clear around partial year savings reporting. Different audiences may need different reporting.


Fiscal Year 2007 (FY’07)Fiscal Year 2006 (FY’06) Fiscal Year 2008 (FY’08)

Carryover CY’07

TOTAL SAVINGS Through End Of Term (EOT)

Questions Management Has Regarding Cost Savings: “You Saved $11,900?”

Busy Slide Example Remember this cash stream may involve invoice credit. The exact timing of when monies move (or not) to (or from) treasury varies Setting expectations and gaining consistent understanding of these terms to all stakeholders is not typically simple at first Foundational education & consensus around savings measurement terms & assumptions can be more critical than the actual savings Existing customs and protocol requires a negotiated set of definitions that can vary company to company

• ”Existing contract for web hosting expense with end of term (EOT) Jan 31, 2008 was renegotiated mid term. Nothing changed except for the payment terms including: i) a negotiated credit of $10,000 one time charge (OTC) and ii) a ongoing reduction of $100 per month will appear beginning in the July 2006 invoice through end of term. Company’s reporting year ends September 30”

Calendar Year 2006 (CY’06) Calendar Year 2007 (CY’07)(CY’08)

• Fiscal year 2006 expense save for Web Hosting is $10,000 OTC and $300 ongoing = $10,300 (FY ’06 Save) • Fiscal year 2007 expense save for Web Hosting is = $1,200 (FY ’07 Save) • Calendar year 2006 expense save for Web Hosting is $10,000 OTC and $600 ongoing = $10,600 (CY ’06 Save) • Calendar year 2007 expense save for Web Hosting is = $1,200 (CY ’07 Save)• Calendar year 2008 expense save for Web Hosting is = $100 (CY08 Save)• 1st year annualized expense save $10,000 OTC and $1,200 ongoing = $11,200 (1st Yr Annualized) • Annualized ongoing expense save? (12 * $100) = $1,200 (Annualized Save)• Carryover expense save for CY 2007 is the ongoing charges from FY 2008 until CY 2008 = $300 (CY ’07 Carryover)• The total save expense for 19 months through end of term including OTC and ongoing is = $11,900 (Total Save)


Questions Management Has Regarding Cost Savings: “I Saved $15M Dollars”• Where did the data come from around the save? Does this data contradict other

data?• Vendor data ≠ Finance GL data ≠ A/P data ≠ management reports?• Multiple stakeholders, different messages, different data & views?• Improve Data Quality - Publish With “Eyes Wide Open” :

• What are the ramifications of the spend (savings) data to the intended and unintended audience? Could blindsiding occur? Is consensus needed?

• Did the savings get “double counted” or even “spent” by more than one stakeholder?

Best Practice – Understand Audience & Consequence A new ground up standardized measurement system and managerial financial reporting infrastructure might be needed Team needs to include Finance, Vendor, User/Client, Purchasing - automation & proper data inputting and coding is key Resetting expectations, gaining agreement on changing process take time and potentially $’s and headcount

Vendor G/L

Finance A/P

Purchasing

BudgetManagement

User/Client

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Delivering Precise Reporting In Cost Savings