Leveraging cost & revenue analytics to drive enhanced decisions

Transcription

1 Leveraging cost & revenue analytics to drive enhanced decisions Please disable pop-up blocking software before viewing this webcast January 16, 2019

2 Speakers Matt Unterman Principal, Advisory Services Not-for-Profit and Higher Education Practices Grant Thornton LLP T E matt.unterman@us.gt.com Anthony Pember Senior Manager, Advisory Services Not-for-Profit and Higher Education Practices Grant Thornton LLP T E anthony.pember@us.gt.com Grant Thornton LLP. All rights reserved. 2

3 Learning objectives 1 Describe how cost and revenue management models are constructed and the type of information provided by the model. 2 Demonstrate how model reports and the analytics the reports support have enhanced decision-making to address particular management challenges. 3 Recognize how this cost and revenue management model approach can be leveraged to achieve mission and financial performance improvement. Grant Thornton LLP. All rights reserved. 3

4 Agenda 1 What is cost and revenue analytics? 2 What can cost and revenue analytics do for an organization? 3 Examples of how cost and revenue analytics have been successfully used 4 Strategies for success Grant Thornton LLP. All rights reserved. 4

5 What does a program really cost? Revenue Expense (Indirect) Expense (Direct) Engineering English Grant Thornton LLP. All rights reserved. 5

6 What is cost and revenue analytics?

7 Why do analytics matter? "There is a big data revolution, but it is not the quantity of data that is revolutionary. The big data revolution is that now we can do something with the data." Gary King, Director Harvard's Institute for Quantitative Social Science Grant Thornton LLP. All rights reserved. 7

8 Data analytics defined Wikipedia: Gartner 1 : Informs 2 : The discovery and communication of meaningful patterns in data A catch-all term for a variety of different business intelligence (BI) and application-related initiatives. Increasingly, analytics is used to describe statistical and mathematical data analysis that clusters, segments, scores and predicts what scenarios are most likely to happen The scientific process of transforming data into insight for making better decisions 1 Gartner, IT Glossary 2 INFORMS (The Institute for Operations Research and the Management Sciences (INFORMS) is the largest society in the world for professionals in the field of operations research, management science and analytics.) Grant Thornton LLP. All rights reserved. 8

9 Data analytics defined Improve performance The provision of intelligence based insights and data-driven business performance Streamline operations Support strategic decision making Grant Thornton LLP. All rights reserved. 9

10 Making decisions based on actionable data Data is historical Decisions are about the future Leverage knowledge and technology to bridge the gap Grant Thornton LLP. All rights reserved. 10

11 What is cost and revenue analytics? Cost and revenue analytics is: Combining relevant data sets to provide meaningful analysis and allow insight into organizational cost, revenue, and performance Enterprise-wide, captures all organizational outputs Customer Donor GL Cost Revenue Performance HR Captured at activity, product, service, program level Operations Payroll Facilities Grant Thornton LLP. All rights reserved. 11

12 What is cost and revenue analytics? Analytics opportunities GL Revenue, expense, and margin on a unit basis Program, product and service stratification Program Customer Donor Direct and indirect "fully loaded" - cost Correlates financial and operational data Activity level analytics HR/Payroll Revenue Details Designed for management reporting Facilities Operational Modeling Allocations Assumptions Analytics and Reporting Business rules Combine and process data The point of the exercise is not the modeling but the subsequent analysis Grant Thornton LLP. All rights reserved. 12

13 Increasing complexity, precision, and insights Cost and revenue analytics Construction/design methods Method Description Pros Cons Direct Attribution Attribution of direct cost and revenue to programs or services Easy Quick Limited insights No indirect or overhead Allocation Model Attribution of direct cost/revenue and allocation of indirect cost pools to programs or services Includes overhead and indirect Relatively simple Limited indirect allocation opportunities Lacks precision Activity- Based Costing Allocation of direct and indirect to activities which then are allocated to programs or services Provides breakdown of direct and indirect Most precise method Significant insights Facilitates predictive modeling through accurate historical data Often requires specialist software Can become complex Grant Thornton LLP. All rights reserved. 13

14 Cost and revenue analytics Example construction/design methodology General Ledger Activities Products/Services Operating Expenses Salary Fringe Human Resources Based on role and org. Program Customer Donor Depreciation Debt Service Operations and Maintenance Office Space Facilities Indirect usage Direct space usage Grant Thornton LLP. All rights reserved. 14

15 Cost and revenue analytics RESOURCES ACTIVITIES PRODUCTS University Level Rev Exp School Level Rev Exp Department Level Non-Labor Non-Academic Professor Adjunct TA Tutor FTE FTE Auxiliaries Student Serv. Acad. Admin Facilities IT Finance / HR Administrative Activities Administrative Activities Research Activities Teaching Activities # STUDENTS FTE or BUDGET Auxiliaries Research Course A Course B Course C Course D FULLY LOADED COST & REVENUE BY MAJOR Engineering Major English Major Grant Thornton LLP. All rights reserved. 15

16 What can cost and revenue analytics do for an organization?

17 Cost Improving outcomes Improving outcomes, at scale, at an affordable cost requires structural and organizational change Fundamental problems that need to be addressed by model We don t know enough about the production function Assumed Production Function Decisions about operational models are made by people with no financial responsibility, who assume higher cost equals improved outcomes Quality We have to break the traditional mindset that there must be a linear relationship between cost and quality Give unit level decision makers high quality cost data to allocate resources accordingly Grant Thornton LLP. All rights reserved. 17

18 Supports strategic decision making Are there untapped revenue opportunities that could be pursued? Anticipate and respond to external changes Should we consider shifting our organizational operating model or strategic focus to bolster financial performance? How do we respond to challenges to our business model? Grant Thornton LLP. All rights reserved. 18

19 Mission Related Financial & Operational Stakeholder Engagement What can be measured, analyzed, enhanced? Enhance mission effectiveness Determine optimal financial margin Understand donors, alumni, students, etc. Optimize portfolio Quantify impact of operational models Evaluate program efficacy Understand quality of program outcomes vs. program efforts Identify cost reduction, revenue enhancements and transformative initiatives Evaluate budget tradeoffs Evaluate procurement and strategic sourcing options Identify untapped revenue opportunities Explore donor contribution patterns Analyze volunteer engagement and participation Evaluate stakeholder satisfaction Grant Thornton LLP. All rights reserved. 19

20 Benefits to pursuing cost and revenue analytics? Create value Turn insights into a competitive advantage Enhance ROI for programs and projects Reduce costs Leverage automation and reduce duplicative effort Enhance efficiency and effectiveness Automate time intensive and manual processes Enhance data access and quality Increase insights Target opportunities Be faster and smarter Focus on analysis and not data manipulation Identify root causes to target Confirm or deny "gut feel" to impact targeted outcomes Grant Thornton LLP. All rights reserved. 20

21 Examples of how cost and revenue analytics have been successfully used

22 Use Case 1 Key metric trends Question: How is each department performing financially year-on-year? Before C&R: Belief that revenue generated by departments far exceeded expenses and performance was good Year 1 Year 2 Year 3 After C&R: When indirect expenses are factored into the analysis, performance does not look so good Next step: Investigate root causes Year 1 Year 2 Year 3 Credit Hours Gross Revenue Direct Expense Student Aid Expense Indirect Expense Gross Expense Grant Thornton LLP. All rights reserved. 22

23 Use Case 2 Donor analysis Question: What does it cost us to get a donation and is there a return? Before C&R: The cost to send mail to old donors is the same regardless of when they donated, we should be casting a wide net After C&R: Limit direct mail to more recent donors Next step: Include indirect costs Donor direct response analysis Donor Segment Direct Cost to Generate a Dollar of Revenue 0-12 Months $ Months $ Months $ Months $ Months $ Months $1.52 Grant Thornton LLP. All rights reserved. 23

24 Use Case 3 Contribution to mission Good Low Cost High Contribution Average High Cost High Contribution Question: What is the cost of our programs and is the investment worth it? Before C&R: All of our programs are efficient and we wouldn't be doing them if they didn't contribute to the mission After C&R: The return on our programs is not the same, costs are different and some contribute more to mission than others Average Low Cost Low Contribution Bad High Cost Low Contribution Grant Thornton LLP. All rights reserved. 24

25 Use Case 4 Review of administrative areas Contribution to Cost per Credit Hour by Year Question: How much do our administrative areas impact the cost of delivery? Before C&R: We can't demonstrate the extent to which administrative areas impact delivery After C&R: Able to show impact to delivery and use it to monitor efficiency as well as assess what is impacting delivery cost Grant Thornton LLP. All rights reserved. 25

26 Use Case 5 Location margin Main location Question: How much do we subsidize our secondary locations? Before C&R: Our secondary locations are self-supporting and add to our mission After C&R: Only our main location is selfsupporting Next step: Investigate how each secondary location contributes to mission Secondary locations Grant Thornton LLP. All rights reserved. 26

27 Strategies for success

28 Obstacles to adopting analytics 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Takes too long Labor-intensive Data integrity/accuracy/reliability issues Calculations are difficult to audit Limited communication/collaboration Functionality doesn't meet enough of my needs Difficult to make changes Limited ownership/accountability End result is often already out of date Not integrated with performance reporting system All other responses BPM Pulse Survey Results, December 2013 Grant Thornton LLP. All rights reserved. 28

29 Strategy 1 Be data ready Make sure you have sufficient data Establish data repositories and analytical tools to capture data and create correlations Develop organization-wide data governance and data literacy Don't let perfection be the enemy of progress Live "Good, Better, Best" Grant Thornton LLP. All rights reserved. 29

30 Strategy 2 Create a data-driven culture Instill a culture of data usage Use data to support decision making Develop metrics that are tracked over time Let the facts get in the way of a good story Provide data that is available, understood, and used Hold people accountable for using data Grant Thornton LLP. All rights reserved. 30

31 Strategy 3 Prepare for change Recognize that things will change Acknowledge the human element and manage it accordingly Tackle change head on Don't shy away from difficult decisions Collaborate to overcome concerns Grant Thornton LLP. All rights reserved. 31

32 Strategy 4 Build trust Respect different viewpoints and perspectives Openly question assumptions Tolerate bad news Commit to preserving quality Recognize that it is not about winners and losers Don't shoot the messenger Listen! Grant Thornton LLP. All rights reserved. 32

33 Strategy 5 Communicate, educate and build awareness Create an awareness of what cost and revenue analytics is and what it can do for the organization Engage key stakeholders Have a formal communications plan Have conversations and ask lots of questions Use every opportunity to educate Involve others in defining assumptions Grant Thornton LLP. All rights reserved. 33

34 Other Strategies Develop or acquire personnel with the right skills to support cost and revenue analytics Commit to act on the trends and insights discovered Create a cross-functional steering committee Focus on the long-term and recognize cost and revenue analytics is not a one-time exercise Grant Thornton LLP. All rights reserved. 34

35 Final thought Don't wait for perfect data because you will never start Grant Thornton LLP. All rights reserved. 35

36 Speakers Matt Unterman Principal, Advisory Services Not-for-Profit and Higher Education Practices Grant Thornton LLP T E matt.unterman@us.gt.com Anthony Pember Senior Manager, Advisory Services Not-for-Profit and Higher Education Practices Grant Thornton LLP T E anthony.pember@us.gt.com Grant Thornton LLP. All rights reserved. 36

37 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser

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