Case Study: How to Cut the Cost of Finance

[Editor's note: We erroneously referred to Monash having halved the cost of finance in early promotions of this article. It was in fact reduced by 25%. This was an editorial oversight on our part, not Monash's, and we apologize for any confusion that may have resulted] Monash University was honoured by the Shared Services community earlier this year, when it won the coveted SSON Excellence Award for "Improvement and Innovation". This marked the culmination of a journey that started in 2009, and is today in its third year of Shared Services operation. The results [read the winning application below] speak for themselves. Winning Application: Improvement and Innovation [Australasian Shared Services and Outsourcing Excellence Awards, 2014] Strategy In 2009 Monash University commenced a review of Finance services across the organisation with three key objectives: improve the efficiency and effectiveness of Finance processes achieve operational cost savings across the University and enhance financial governance, business intelligence, compliance and risk management. The review found that the University operated a substantial devolved Finance function with an estimated 940 staff (339 FTEs), led by a small Finance Division of 80 staff (70 FTEs) with key responsibility for the University’s financial framework, expertise advice and management of Finance systems, processes and policies. This highly devolved Finance function had resulted in differentiated work practices that significantly limited efficiencies, compliance controls and the capacity to leverage investment in standard systems and process improvements. In addition more than 60% of Finance activity was focused on transactional processing with limited transactional efficiencies; and minimal resources focussed on higher value add activities. A devolved & inconsistent budget model also limited the University’s capacity for consistent management of financial performance. The estimated cost of Finance to the organisation at this time was A$20 per $1,000 revenue, in comparison with a cross industry median benchmark of A$11. We believed that with improved processes, automation and a changed service model, the University could achieve a lower average cost of Finance servicing. Three improvements Three key improvements to Finance operations were recommended: a "hub" model for Finance the establishment of a common financial budgeting and planning process across the University and a program of more than 200 improvements across process, policy and systems to deliver better quality Finance support and a substantially lower cost. The key benefits deriving from these recommendations were expected to be at least a 24% improvement in the cost of Finance services, from $20 per $1,000 revenue to $15. The benefits of transforming Finance extended beyond the financial benefits identified, though, to key non-financial benefits that included: increased levels of customer satisfaction more Finance specialisation and improved quality of support improved skills development and career development for Finance staff and better financial control and management over Finance processes. Implementation of the recommendations commenced in 2010 with the organisational redesign occurring in early 2011 and the system and process improvements delivered over a four-year period. Improvement Methodologies The three recommendations were managed under one project with different approaches for each component. Planning and development of the majority of the initiatives was undertaken from late 2009 until early 2011. Monday, 31 January, 2011 marked the introduction of the significant organisation change and a number of process and system changes including changes to Accounts Payable, Purchasing and Accounts Receivables processes, amongst other improvements. The organisational change aspect of the project was considerable, with one goal to move from more than 940 devolved staff across the organisation to a "hub" model of Finance serviced by about 280 FTEs. Stakeholder engagement was key to the decision making and an engagement process of this magnitude required skilled resources with a deep knowledge of the organisation. The level of resistance to the change was significant and came from all levels of the organisation as most staff had never seen or even heard of a shared services model. To address this resistance, significant time and effort was expended in engaging stakeholders from across the organisation in the redesign process. More than 200 engagement sessions were held over twelve months while the "hub" model was designed and implementation was planned. The end result was an unusual model in shared services, designed to specifically deal with the complexities of Australia’s largest higher education provider. The "hub" model comprises three "hub" types: Purchasing, Research Accounting, and Financial Planning. These "hubs" are situated in locations best suited to deliver face-to-face services to customers. Wherever possible, "back-office" functions were separated from these teams and centralised – i.e. Accounts Payable and Receivable, Expense Management and Management Reporting. The reporting lines of all staff are through to the CFO with the exception of faculty financial planning staff who have a dual reporting line to the dean they service and the CFO. This was the one concession that was required to ensure organisational-wide commitment to the change. A detailed staff transition plan was developed to manage the transition and recruitment of new and existing staff to fill the future roles. A very tight workplace relations environment meant that a five step recruitment process was required with a direct transfer phase, followed by selective and open expressions of interest phases and then broader traditional recruitment. In all, more than 200 staff were recruited to new roles. All of these staff commenced their new roles on Monday, 31 January 2011 and all were provided with comprehensive orientation and training programs in the four weeks before go-live. These programs provided a valuable foundation to ensure staff were emotionally ready for their new roles. With a strong focus on the professionalisation of Finance, personal development and career progression has been a priority over the last three years. To support the consistent delivery of Finance services across the University a service framework was designed and implemented to manage customer expectations. This framework incorporates annual customer satisfaction surveys, annual service review discussions and a customer panel to review systemic issues and set performance targets. A series of KPIs were agreed with stakeholders before go-live and are reported against, twice a year to the senior management team of the University. The process and system improvements were developed and implemented across seven workstreams: financial planning, revenues, purchasing, payments, treasury, research/project accounting, and financial accounting. Each workstream worked with a reference group comprised of staff from across the organisation, and specialist consulting resources were used to supplement the design, identification and refinement of any technology needs or process re-engineering. Each workstream was led by an internal subject matter expert and each used a common framework for process redesign. The individual process and system improvement initiatives number in the hundreds and have been delivered over a three year period since late 2010. Some examples of the improvements introduced include; a common budget approach incorporating simpler templates and centralised annual leave costs and changes to internal charging, thereby improving financial management, planning and accountability and reducing the need for manual data entry (TM1). Life-of-project reporting and enhanced project forecasting have also been introduced (TM1) together with enhanced project costing tools and project milestone monitoring mechanisms to significantly improve financial support for researchers. Accounts Payable invoice processing automation (Readsoft) was introduced and online purchasing tools (in-house) were also implemented with new thresholds for financial approval, removing the need for manual forms and approvals. Manual staff reimbursement and credit card acquittal processes have been replaced with a world-class best practice system (Concur), providing all staff with faster reimbursement and 24/7 access. Debtor management processes have been enhanced to reflect better practice through the centralisation of the debtor database, collections and improved efficiency of invoicing. In addition, most revenue transactions have been transferred to online systems, removing the need for manual intervention. Financial accounting processes have been streamlined with the introduction of consolidation tools (Caseware) and the general ledger structure (SAP) has been enhanced to better suit the organisation’s needs. SAP Treasury was introduced to better manage the University’s investments and borrowings. In addition complex tax reporting obligations have been reviewed, refined and revamped. Together with the organisational change described above, these improvements have ensured that every area of the University now receives the same level of financial expertise and support. Academic staff are now provided with a consistent level of support, whatever their financial need – from a simple purchase through to comprehensive financial advice throughout the life of a research project. The Finance leadership team’s ability to ask the questions "Why do we do it?" and "How can we do this better?" and then follow this through with successful system and process changes, continues to ensure Finance at Monash is considered better practice within the higher education sector. The positive outcomes achieved are reflected in the increasing levels of customer satisfaction across the University, together with the innovative Finance practices put in place. Finance at Monash is now focussed on looking to the future and at how the servicing needs of a rapidly changing business environment and increased demand for decision-making support can be met. Benefits Achieved The project had three key objectives: To improve the efficiency and effectiveness of processes To achieve cost savings and To enhance governance, business intelligence, compliance and risk management. All of these objectives have been achieved with other benefits realised along the way. The very nature of the new service delivery model, which brings previously devolved activity under a centralised structure, has resulted in better financial governance, compliance and risk management. For example, all purchases are now tracked and invoices processed promptly, asset purchasing is handled correctly and all tax considerations are accounted for at the time of the transaction. Finance staff have been provided with comprehensive training, enhancing their ability to ensure compliance with policies. Better data is being entered into systems, which has resulted in enhanced business intelligence. Risk management has been strengthened through better data security and consistently applied risk mitigation practices. All processes have been made more efficient, for example the implementation of automated invoice processing has increased the volume of invoices processed per FTE by more than 300%, bringing Monash in line with better practice. The number of collections per FTE has trebled and performance is now beyond the target identified in 2009. From a customer perspective, the processes are also more efficient, and the introduction of new thresholds for approval have removed the need for approvals for 50% of all purchasing transactions. Recently a manager commented "[The new reports are] good tools for lots of productive conversations in helping our research staff manage their funds". Academic staff also really appreciate the easy to use credit card and reimbursement process: "The system works well. Invoices are no longer lost and we have control over balancing credit cards in a timely manner." The number of staff involved in Finance has decreased from 940 (339 FTE) to a dedicated workforce of 260 staff (240 FTE). The project initiatives have resulted in a reduction to the cost of Finance, from $20 per $1000 revenue in 2009 to $15 at the end of 2013, achieving the project target of a 25% reduction in cost. Customer satisfaction with Finance has also significantly improved. In late 2011 satisfaction amongst senior managers with P2P was very low (45%) but by the end of 2013 this had increased to 83%. Satisfaction with issues being resolved in a timely manner also increased from 63% in 2011 to 79% in 2013. Find out more: Read the interview with Nicole Tournier, Director, Finance Strategy, Monash University online.

Case Study: How to Cut the Cost of Finance

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