© 2000 Lenhardt & Colton, LLC XPU Budget Planning & Reporting Phase 5 — Communicating Budget Results Wednesday March 29, 2000

© 2000 Lenhardt & Colton, LLC Slide 2 The Financial Planning Process Plan XPU Projects Plan Cost Center Expenses Estimate Revenue & Affordability Prepare Financial Reports Planning

© 2000 Lenhardt & Colton, LLC Slide 3 The Parallel Reporting Process Plan XPU Projects Plan Cost Center Expenses Estimate Revenue & Affordability Prepare Financial Reports Planning Report Actual XPU Project Status Report Actual Cost Center Spending Report Actual Revenue & Affordability Prepare Actual Financial Statements Reporting

© 2000 Lenhardt & Colton, LLC Slide 4 Focus of this Phase Report Actual XPU Project Status Report Actual Cost Center Spending Report Actual Revenue & Affordability Prepare Actual Financial Reports Communicating Budget Results #1 #2

© 2000 Lenhardt & Colton, LLC Slide 5 Project Success Factor 1 l Strategy — support financial awareness n Planning — Manager plans/presents a recommended budget cost center n Reporting — Manager identifies, analyzes and reports to LCW and peer managers on the extent and causes of the relevant variances between planned and actual budget spending –thereby exhibiting ownership and accountability, and –an understanding of the link between activities, business-level issues and costs.

© 2000 Lenhardt & Colton, LLC Slide 6 Project Success Factor 2 l Strategy — Implement performance measures and monitor results. n Planning — Each manager identifies at least one process output volume indicator –Remember: volume changes cause aggregate cost of the cost center to vary. n Reporting — Each manager relates a significant variance in the aggregate cost to a related variance in the process output volume.

© 2000 Lenhardt & Colton, LLC Slide 7 l Strategy — Develop regular departmental budget and cost review procedures Project Success Factor 3

© 2000 Lenhardt & Colton, LLC Slide 8 l Strategy — Improve informational flow (to educate staff on XPU financial drivers). n Planning — Each manager identifies at least one process cost driver –Remember: cost drivers cause unit cost to vary. n Reporting — Each manager communicates efforts undertaken to understand and manage the identified process cost driver (and, if appropriate, reduce the unit cost of his/her process outputs). Project Success Factor 4

© 2000 Lenhardt & Colton, LLC Slide 9 l Strategy — Promote employee involvement in financial status n Planning — The management advisory team functions as an integral component of the planning process n Reporting — The accountable project manager monitors individual project cost and schedule status –The management advisory team monitors and periodically adjusts current list of prioritized projects as circumstances change; and –Periodically updates the five-year forecast of projects. Project Success Factor 5

© 2000 Lenhardt & Colton, LLC Slide 10 Day 1 Day 2 Day 3 & Day 4 Day 5 The Process XPU Budget Analysis Form More Understanding of Cause/Effect of Business-level Issues Plan Actuals Variance Accounting Reports e-distribution Manager Analysis Time Hmmm, we need more info, and so do the troops.

© 2000 Lenhardt & Colton, LLC Slide 11 Identify Business-level Issues Identify and Observe the “Canaries” l A Business-level issue: n Threatens XPU’s annual financial goals; or n Threatens bonding requirements; or n Affects other functional group’s achievement of plan l A Business-level issue: n Threatens XPU’s annual financial goals; or n Threatens bonding requirements; or n Affects other functional group’s achievement of plan

© 2000 Lenhardt & Colton, LLC Slide 12 Estimate Impact of Issues If this canary keels, it’ll cost us $.5m by the end of the year.

© 2000 Lenhardt & Colton, LLC Slide 13 Communicate Outlook Are you aware of any canaries? What’s the estimated financial impact to the total year plan? What’s your plan or recommendation to mitigate? Are you aware of any canaries? What’s the estimated financial impact to the total year plan? What’s your plan or recommendation to mitigate?

© 2000 Lenhardt & Colton, LLC Slide 14 Categorizing Business Issues

© 2000 Lenhardt & Colton, LLC Slide 15 The Management Meeting l Issues n Day-to-day issues n Technical issues n Business level issues n Strategic issues l Solution Initiated by: n The working team n Team and functional mgmt. (staff meetings) n XPU Mgmt Meeting (Monthly Management meetings) n XPU Executive Team (LCW Tuesday meetings)