1. © ALG Software 2005 Leveraging What You’ve Got Business Performance Management from the bottom up July 2005 Richard Barrett VP Marketing ALG Software Business Performance Management and Business Intelligence 2005

2. © ALG Software 2005 Joining the dots CostingScorecardBudgetingFinancial Reporting Individual elements of Business Performance Management Historical Predominantly financial Ideally future orientated Requires a deep operational perspective

3. © ALG Software 2005 The silo approach CostingScorecardBudgetingFinancial Reporting MarketingOperations Sales Finance

4. © ALG Software 2005 There might be some batched data exchange Financial Reporting The silo approach MarketingOperations CostingScorecardBudgeting Sales Finance Database

5. © ALG Software 2005 Financial Reporting The silo approach CostingScorecardBudgeting Database There might be a corporate data warehouse and enterprise BI portal Data warehouse But beware of people talking about “integrated BPM solutions”– it means you’ll need the plumbers

6. © ALG Software 2005 Observation 1 1. Most organizations have some foundation of BPM Some parts will already be delivering value Some parts may be less than robust It needs joining up

7. © ALG Software 2005 The Re-forecasting Report 2004 Independent telephone survey amongst the UK’s top 1,000 organizations by revenue Respondents were “in charge of the budgeting process” In 2004 the results from 200 medium to large organizations were analysed Average 115 cost centre managers contributing to the planning and budgeting process

8. © ALG Software 2005 Frequency of Re-forecasts 2002-2004

9. © ALG Software 2005 Re-forecasting Line Item Expenses 75% still modelled in spreadsheets

10. © ALG Software 2005 LINE ITEM EXPENSES Modelling in spreadsheets Users modelling in spreadsheets to generate line item expenses VOLUMES CONSUMPTION RATES UNIT COSTS Budgeting Database

11. © ALG Software 2005 Transforming the process Traditional view Hierarchical, department view Predominantly financial Finance MarketingCall CentreOperations Process view Based on operational drivers that span departments MarketingCall CentreOperations

12. © ALG Software 2005 Driver Based Budgeting Call CentreMarketing Operations Linking the operational drivers across the business to create a dynamic budget model.. Sales Volumes Sales Volumes Sales Conversion ratio Sales Conversion ratio # Inbound calls # Inbound calls Marketing activity Marketing activity

13. © ALG Software 2005 Operations resources Call Centre resources Driver Based Budgeting Call CentreMarketing Operations.. that predicts resource requirements and can be rapidly re-forecast Marketing resources Sales Volumes Sales Volumes Sales Conversion ratio Sales Conversion ratio # Inbound calls # Inbound calls Marketing activity Marketing activity

14. © ALG Software 2005 Observation 2 2.BPM needs to incorporate the operational (driver) perspective It’s what managers work with – it’s how they think Without it all you’ve got is a financial variance not a cause/effect relationship that you can test with “What If?” analysis The operational perspective is critical to most BPM processes Planning and Budgeting Cost and Profitability Analytics Scorecarding and Metrics Management Key to answering the requirements of the OFR 1. Most organizations have some foundation of BPM Some parts will already be delivering value Some parts may be less than robust It needs joining up

15. © ALG Software 2005 ALG’s Enterprise Performance Optimisation ALG’s take on BPM Underpinned by a deep operational perspective On demand calculation, “What if?” analysis

16. © ALG Software 2005 Database Oracle or MS SQL Transactional and legacy systems General Ledger Data Integration Database Oracle or MS SQL Single solution

17. © ALG Software 2005 Financial Reporting The silo approach MarketingOperations CostingScorecardBudgeting Users all link into silo based applications…. Sales Finance Database … each with their own database Database

18. © ALG Software 2005 Single solution Users Via LAN or Web Database Oracle or MS SQL Transactional and legacy systems General Ledger Data Integration Database Oracle or MS SQL Dynamic link to external analysis and reporting tools MS Excel and BI Tools, E.g.. Cognos PowerPlay, Proclarity…

19. © ALG Software 2005 Single solution Operational Planning and Budgeting Performance Management BSC Users Via via LAN or Web Database Oracle or MS SQL Transactional and legacy systems General Ledger Data Integration Database Oracle or MS SQL Dynamic link to external analysis and reporting tools MS Excel and BI Tools, E.g.. Cognos PowerPlay, Proclarity… Cost and Profitability Analytics

20. © ALG Software 2005 SINGLE OPEN DATABASE Performance Monitoring Strategy Mapping Performance Management Simple line item consolidation Rolling Re- forecasts Driver-Based Budgeting Activity-Based Scenario Planning Operational & Capacity Planning Product, Channel & Customer Profitability Shared Services Costing Cost to Serve COST AND PROFITABILITY ANALYTICS PLANNING & BUDGETING PERFORMANCE MANAGEMENT BSC “More advanced methods of planning and budgeting” ALG’s solutions

21. © ALG Software 2005 1 2

22. 3 4

23. 5 6

24. 7

25. Performance Monitoring Strategy Mapping Performance Management Simple line item consolidation Rolling Re- forecasts Driver-Based Budgeting Activity-Based Scenario Planning Operational & Capacity Planning Product, Channel & Customer Profitability Shared Services Costing Cost to Serve PLANNING & BUDGETING PERFORMANCE MANAGEMENT BSC SINGLE OPEN DATABASE COST AND PROFITABILITY ANALYTICS Routes to implementation

26. © ALG Software 2005 Case Studies

27. © ALG Software 2005 British Airways

28. © ALG Software 2005 Global cost and profitability analytics Fuel Planes Maintenance Ticketing Capital Insurance Duty free Ground costs Services Staff Baggage Landing Multi-location, multi-currency,multi-lingual GLOBAL MULTI-DIMENSIONAL ROUTE PROFITABILITY

29. © ALG Software 2005.. with predictive forecasting Fuel Planes Maintenance Ticketing Capital Insurance Duty free Ground costs Services Staff Baggage Landing Multi-location, multi-currency,multi-lingual GLOBAL MULTI-DIMENSIONAL ROUTE PROFITABILITY Forecast volumes and capacity utilization – visualise the future

30. © ALG Software 2005.. on an impressive scale Fuel Planes Maintenance Ticketing Capital Insurance Duty free Ground costs Services Staff Baggage Landing Multi-location, multi-currency,multi-lingual GLOBAL MULTI-DIMENSIONAL ROUTE PROFITABILITY Forecast volumes and capacity utilization – visualise the future “We have spoken to other airlines through our alliances and we believe that we are carrying out the most sophisticated route profitability analysis in the industry.” Paul Stafford, Information Management Design Manager at British Airways

31. © ALG Software 2005 International Division of a Global Asset Management Provider

32. © ALG Software 2005 Modelling Processes & Profitability Cost Analytics Costs Activities Cost Objects Resources Current costs and profitability by Product, Customer etc

33. © ALG Software 2005 Cost and Profitability Analytics Costs Activities Cost Objects Resources Cost Analytics Current costs and profitability by Product, Customer etc Reported to have identified significant reduction in costs

34. © ALG Software 2005 “What If?” analysis for Strategy Planning Costs Activities Cost Objects Resources Costs Activities Cost Objects Resources Cost AnalyticsDriver Analysis Activity Based Budgeting Adjust driver volumes & unit rates Make resource planning decisions, adjust capacity

35. © ALG Software 2005 “What If?” analysis for Strategy Planning Costs Activities Cost Objects Resources Costs Activities Cost Objects Resources 3-5 Year Strategic Plan Cost AnalyticsDriver AnalysisBudget / Forecast New Line Item costs based on new assumptions

36. © ALG Software 2005 With annual Driver Based Budgeting Costs Activities Cost Objects Resources Costs Activities Cost Objects Resources Baseline Costs 3-5 Year Strategic Plans Cost AnalyticsDriver Analysis Target KPIs Budget / Forecast Annual Driver Based Planning and Budgeting Capital New Line Item costs based on new assumptions

37. © ALG Software 2005 Increasingly common solution Multiple methodologies Cost and Profitability Analytics Activity Based Budgeting Driver Based Budgeting All done in a single application Pertinent solution Underpins strategic planning with real operational costs On demand re-forecast

38. © ALG Software 2005 Sagicor

39. © ALG Software 2005 Requirement Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting 5 currencies 3 languages Multiple locations

40. © ALG Software 2005 Solution Vision Strategic Plan Operating Plan Operating Budget Rolling Re- forecasts Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting

41. © ALG Software 2005 Solution Vision Strategic Plan Operating Plan Operating Budget Rolling Re- forecasts 3 year rolling 12 months rolling Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting Annual

42. © ALG Software 2005 SS Operating Plan SS Operating Budget SS Rolling Re-forecasts Solution Vision Strategic Plan Operating Plan Operating Budget Rolling Re- forecasts 3 year rolling 12 months rolling Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting Annual

43. © ALG Software 2005 SS Operating Plan SS Operating Budget SS Rolling Re-forecasts Solution Vision Strategic Plan Operating Plan Operating Budget Rolling Re- forecasts 3 year rolling 12 months rolling Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting Annual Cost & Profitability Analysis Monthly

44. © ALG Software 2005 SS Operating Plan SS Operating Budget SS Rolling Re-forecasts Solution Vision Strategic Plan Operating Plan Operating Budget Rolling Re- forecasts 3 year rolling 12 months rolling Credible methodology for planning, budgeting and cross charging Shared Services Accountability for Operational Planning and Budgeting Reliable line of business Cost and Profitability Reporting Annual Cost & Profitability Analysis Monthly

45. © ALG Software 2005 TNT Express UK

46. © ALG Software 2005 TNT Express UK 1 Cost and Profitability Analytics Down to the individual transaction level “In summary, despite slower growth in volumes, Express performance was excellent. The fastest and most reliable approach grew EBITA by 51.5%, boosting margins from 4.0% in 2001 to 5.8% in 2002.” Peter Bakker, CEO, TPG Annual Report 2002

47. © ALG Software 2005 TNT Express UK 1 Cost and Profitability Analytics Down to the individual transaction level 2 Traditional budgeting Replicate the current budgeting process (Excel hell) + 1 mid year reforecast Use a 52 week budget Shorter annual budget cycle Shorter re-forecasting cycle Predictive Planning will remove 3 months from our current planning process... if we then build some rules, it could almost disappear..

48. © ALG Software 2005 TNT Express UK 1 Cost and Profitability Analytics Down to the individual transaction level 2 Traditional budgeting Replicate the current budgeting process (Excel hell) + 1 mid year reforecast 3 Driver based planning and budgeting Quarterly, then monthly rolling re-forecasts

49. © ALG Software 2005 TNT Express UK Cost and Profitability Analytics Driver based planning and budgeting

50. © ALG Software 2005 Summary

51. © ALG Software 2005 Joining the dots in BPM Costing and Profitability Analytics ABC Performance Measurement BSC Operational Planning and Budgeting Rolling Re-forecasts

52. © ALG Software 2005 www.algsoftware Thank you EPO CDROM