United States General Accounting Office GAO Exposure Draft August 1999 EXECUTIVE GUIDE Creating Value Through World-class Financial Management £FF GAO Accountability * Integrity * Reliability GAO/AIMD-99-45 Preface To help promote effective implementation of federal financial management reform, we studied the financial management practices and improvement efforts of nine leading public and private sector finance organizations to identify the success factors, practices, and outcomes associated with world-class financial management. This executive guide is intended to assist federal agencies in achieving the objectives of the Chief Financial Officers (CFO) Act of 1990 and subsequent related legislation by providing case studies of 11 practices critical for establishing and maintaining sound financial operations. The reforms laid out by the CFO Act and subsequent related legislation, when effectively implemented, will place the federal government on par with private sector corporations and state and local governments that have already made the necessary investment in financial management. While many federal agencies have made strides toward generating more reliable annual financial statements, the process of preparing financial statements and subjecting them to independent audit is only the first step toward satisfying the requirements of the legislation. To reap the full benefits of financial reform, federal finance organizations must go beyond the audit opinion toward (1) establishing seamless systems and processes, (2) routinely generating reliable cost and performance information and analysis, (3) undertaking other value-added activities that support strategic decision-making and mission performance, and (4) building a finance team that supports the agency's mission and goals. This exposure draft was prepared under the direction of Lisa G. Jacobson, Director, Defense Audits. Other GAO contacts and key contributors to this report are listed in appendix VI. Questions or comments can be directed to me before October 15, 1999, at (202) 512-2600 or firstname.lastname@example.org or Linda Garrison, Assistant Director, by phone, e-mail, or regular mail at the following: Phone: (404) 679-1902 Email: garrisonl.atlro@gao. gov Mail: Linda Garrison, Assistant Director U.S. General Accounting Office 2635 Century Parkway, Suite 700 Atlanta, GA 30345 cin ssiant Comptroller General unting and Information Management Division GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Contents Background 3 Learning from Leading 5 Organizations Characteristics of a World-class 6 Finance Organization Goals, Practices, and Strategies To Consider 7 Make Financial Management an Entitywide Priority 8 Redefine the Role of Finance To Better Support Mission Objectives 18 Provide Meaningful Information for Decisionmakers 28 Build a Finance Team That Delivers Results 38 Appendixes Appendix I: Research Objectives, Scope, and Methodology 45 Appendix II: Supplemental Case Study Information 46 Appendix III: World-class Finance Performance Metrics 47 Appendix IV: Comparison of Selected Federal Agencies & Case Study Entities 48 Appendix V: Leading Organization Contacts and Project Advisors Acknowledgements 51 Appendix VI: GAO Contacts and Staff Acknowledgments 52 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 3 Background Creating a government that runs more efficiently and effectively has been a public concern for decades. In recent years, however, the push towards creating a smaller, more results oriented government; has intensified the urgency to find ways to do more with less. To effectively evaluate and improve the value derived from government programs and spending, the Congress and other decisionmakers must have accurate and reliable financial information on program cost and performance. Further, they must be able to rely on federal finance organizations to provide analysis and insight about the financial implications of program decisions and the impact of those decisions on agency performance goals and objectives. Currently, financial data are not always useful, relevant, timely, and reliable enough to be used for federal decision-making, and many federal finance organizations are not yet well equipped enough to routinely provide analysis or advice related to this information. In the private sector, the role of the finance organization historically has centered on oversight and control, focusing on its fiduciary responsibilities and paying less attention to increasing the effectiveness of operating divisions. However, over the past decade, dramatic changes in the business environment have driven finance organizations to reevaluate this role. Increased competition resulting from an emerging global market has put pressure on finance organizations to find new ways to reduce administrative costs, add value, and provide a competitive advantage. At the same time, advances in information technology have made it possible for the finance function to shift from a paper-driven, labor intensive, clerical role to a more consultative role as advisor, strategist, analyst, and business partner. According to a 1997 study performed by a major public accounting firm,' most CFOs in 1989 were spending 75 to 80 percent of their time on fiduciary issues, essentially external reporting. Today, the goal of many leading finance organizations is to spend about 20 percent of their time on fiduciary issues and the remaining time performing strategic support activities, such as cost analysis or business performance analysis. Also, a 1996 report by the Institute of Management Accountants, found that over the previous 5 to 10 years, management accountants were increasingly being asked to supplement their traditional accounting role with more financial analysis and management consulting.2 'Reinventing the CFO: Moving from Financial Management to Strategic Management Coopers and Lybrand, New York, New York: 1997. 2 The Practice Analysis of Management Accounting. Institute of Management Accountants (Montvale, New Jersey: 1996). 4 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Dramatic changes also have occurred in federal financial management in response to the most comprehensive management reform legislation of the past 40 years. The combination of reforms ushered in by (1) the CFO Act of 1990, (2) the Government Management Reform Act (GMRA) of 1994, (3) the Federal Financial Management Improvement Act (FFMIA) of 1996, (4) the Government Performance and Results Act (GPRA) of 1993, and (5) the Clinger-Cohen Act of 1996 will, if successfully implemented, provide the necessary foundation to run an effective, results-oriented government. The CFO Act and GMRA spelled out a long overdue and ambitious agenda to help the government remedy its lack of useful, relevant, timely, and reliable financial information. For the government's major departments and agencies, this legislation (1) established chief financial officer positions, (2) required audited financial statements annually, and (3) set expectations for agencies to develop and deploy more modern financial management systems, produce sound cost and operating performance information, and design results oriented reports on the government's financial condition by integrating budget, accounting, and program information. FFMIA built on the CFO Act and GMRA by requiring financial statement auditors to report whether agencies' financial systems comply with federal financial management systems requirements, federal accounting standards, and the U.S. Government Standard General Ledger. The Government Performance and Results Act of 1993-- commonly know as "GPRA" or the "Results Act" was enacted to hold federal agencies accountable for achieving program results. It requires that agencies (1) set multiyear strategic goals and corresponding annual goals, (2) measure performance toward the achievement of those goals, and (3) report on their progress. Effective implementation of the Results Act, however, hinges on agencies' ability to routinely produce meaningful budget, accounting, and program information needed to manage performance and measure results. The CFO Act and other related financial reform legislation, if successfully implemented, will provide the basis for producing this information. To help insure that agencies effectively use information technology to achieve program results, the Congress passed the Clinger-Cohen Act of 1996. The Clinger-Cohen Act builds on the best practices of leading public and private sector organizations by requiring agencies to better link their information technology planning and investment decisions to program missions and goals. The Clinger-Cohen Act contains critical provisions requiring federal agencies to use investment and capital planning processes to manage their information management technology portfolios. Further, it requires that agencies modernize inefficient administrative and mission-related work processes before making significant technology investments to support them. Implemented together, these measures provide a basis for improving accountability over government operations and routinely producing sound cost and operating performance information, thereby making it possible to better assess and improve the government's financial condition and operating performance. GAOIAIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 5 Background Learning From Leading Organizations To help promote effective implementation of federal financial management reform, we studied the financial management practices and improvement efforts of nine leading private and public sector finance organizations to identify the success factors, practices, and outcomes associated with world-class financial management. The six private sector and three state organizations we studied have been recognized by their peers and other independent researchers for their outstanding financial management practices and successful finance reengineering efforts. For more information on the criteria we used to select these organizations, see appendix I. As federal agencies continue to improve their management and financial accountability, they will be able to draw upon the expertise and experience of these private sector and state government organizations. Leading Finance Organizations Private sector State governments The Boeing Company Massachusetts Chase Manhattan Bank Texas General Electric Company Virginia Hewlett-Packard Owens Corning Pfizer Inc At one time, all of these organizations found themselves in an environment similar to the one confronting federal agencies today--one in which they were called upon to improve financial management while simultaneously reducing costs. The key practices drawn from the organizations we examined can provide a useful framework for federal agencies working to improve their financial management. This guide discusses the goals, success factors, and practices associated with building a world-class finance organization. Specifically, we have identified 4 overall goals common to these leading organizations along with 11 practices that were critical to their ability to meet these goals. In addition, this guide includes examples from our case study work that best illustrate how each practice enabled the selected organization to achieve the desired outcomes. We preceded our case study work with an extensive review of financial management literature, guides, and reports. We also consulted with leading public and private sector experts in financial management. Case study data were collected through interviews and analysis of documentation. Further, the case study organizations reviewed all case study information included in this guide for accuracy and completeness. Appendix I provides a more detailed description of our research objectives, scope, and methodology. 6 GAO/AIMD-99-45 * Executive Guide: Creating Value Tl:rough World-class Financial Management Characteristics of a World-class Finance Organization A world-class finance organization can best be defined in terms of the business outcomes it produces--outcomes such as improved business analysis, innovative solutions to business problems, reduced operating costs, increased capability to perform ad-hoc analysis, and improved overall business performance. To build a world-class finance organization and help achieve better business outcomes, each of the organizations we examined set an agenda for transforming the finance organization according to its own environment, needs, and capabilities. Although the techniques used varied depending on the organization's size and culture and some efforts were more mature than others, the goals, practices, and success factors outlined in the following illustration were instrumental in the organization becoming a value-creating, customer-focused partner in business results. Essential Elements of a Value-Creating, Customer-Focused Partner in Business Results Success factors Goals - . ~Goals p Make financial Redefine the Provide Build a management role of meaningful team an entitywide finance. information to that priority. decision- delivers I makers. results. Practices 1. Build a 4. Assess the I 7. Develop 10. Build a foundation of finance systems that [ finance control and organization's 2 support the organization accountability. current role in i partnership . that attracts meeting I between and retains 2. Provide clear mission finance and talent. strong executive objectives. operations. leadership. II 11. Develop a 5. Maximize 8. Reengineer : finance team 3. Use training J the efficiency | processes in with the right to change the l of day-to-day conjunction I mix of skills culture and accounting with new and engage line activities. technology. .. competencies. managers. 6.Organize 1 9. Translate finance to financial data add value. Ilinto meaning- ful information. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 7 Goals, Practices, and Strategies To Consider This section summarizes the results of our research and case study work. Specifically, it contains the 4 overall goals and 11 practices we identified as critical for building a world- class finance organization. To facilitate the practical use of this guide, information is organized into four sections--each summarizing one of the four goals as well as those practices that have enabled Ileading organizations to achieve these goals. Further, for each of the 11 practices, we provided (1) a summary of key characteristics, (2) illustrative case study examples, and (3) strategies for federal agencies to consider when implementing the practice. 8 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Make Financial Management an Entitywide Priority The quality and image of federal financial management has suffered from decades of neglect and an organizational culture that has not fully recognized the value of good financial management--not even at its most basic level--as a means of ensuring accountability. Making financial management a priority throughout the federal government has involved changing the organizational culture of federal agencies. Although the views about how an organization can change its culture vary considerably, the organizations we studied identified leadership as the most important factor in successfully making cultural changes. Top management must be totally committed, in both words and actions to changing the culture, and this commitment must be sustained and demonstrated to staff. The leading organizations we studied made financial management improvement an entitywide priority by building a foundation of control and accountability that supports external reporting and performance management, providing clear strong executive leadership, and using training to change the organizational culture and engage line management. Essential Elements of a Value-Creating, Customer-Focused Partner inBusiness Results Success O factors ~I E Goals 0`71 Goals, Make financial n ui management an entitywide priority. Practices - 11* 1. Build a foundation of control and accountabilityn 2. Provide clear strong executive leadership. 3.Use training to change the culture and engage line managers. GAO/AI MD-99-45 . Executive Guide: Creating Value Through World-class Finaucial Managcmcnt 9 Goals, Practices, and Strategies to Consider . Make Financial Management an Entitywide Priority Practice 1 Build a Foundation of Control and Accountability That Supports External Reporting and Performance Management A solid foundation of control and accountability requires a system of checks and balances that provides reasonable assurance that the entity's transactions are appropriately recorded and reported, its assets protected, its established policies folicies followed, and its resources used economically and efficiently for the purposes intended. The private sector and state organizations we visited built and maintained this foundation largely through the discipline of preparing routine periodic financial statements and annually subjecting them to an independent audit. However, senior executives at leading organizations recognize that the financial information demanded by decisionmakers to measure and manage performance requires greater precision and more timely access than that required to receive an unqualified opinion on the entity's financial statements. To ensure that decisionmakers have useful, relevant, timely, and reliable information, leading finance organizations establish accountability goals that extend well beyond receiving an unqualified audit opinion. In addition, the internal controls at these organizations are designed to efficiently meet the control objectives necessary for performance measurement and management as well as external financial reporting. Similarly, according to a 1998 survey of federal CFOs,3 federal finance organizations continue to expand their focus from audited financial statements to include performance measurement and strategic planning. For example, the CFO Council and the Office of Management and Budget (OMB) are aggressively working on eight priority initiatives outlined in the1998 Federal :Financial Management Status Report and Five-Year Plan. Although one of the eight priorities focused on obtaining an unqualified opinion on agency financial statements, the eight priorities taken as a whole aim at improving the financial and performance information needed to make and implement effective policy, management, stewardship, and program decisions. 3 CFO Survey: Preoaring for Tomorrow's Way of Doing Business, Grant Thornton LLP and the Association of Government Accountants (Alexandria, Virginia: March 1998). 10 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice I Case Studies Accountability goals and an effective control structure provide the basis for a more results-oriented government Commonwealth of Virginia Texas To build a foundation of control and account- Similarly, in Texas the performance ability, senior government leaders in the management system is an integral part of agency Commonwealth of Virginia had clear goals and and statewide planning structures, evaluation objectives that went beyond receiving an and decision-making processes, and unqualified audit opinion. With the passage of accountability systems. Creating and the Single Audit Act in 1984, the maintaining a performance management system Commonwealth of Virginia had to produce and required close, consistent, and coordinated have audited Comprehensive Annual Financial attention above and beyond that required for Reports (CAFR) for the first time. Although not external financial reporting purposes. In Texas, required by the act, the state Comptroller had the ability to produce fairly stated external each state agency also produce audited financial financial reports was only the first step in statements, thereby ensuring accountability at building a more effective, results-oriented every level of government rather than solely at government. An unqualified opinion on the those levels considered material to CAFR. The state's CAFR provided, assurance that financial goal was to ensure that managers and information was accurate and reliable for lawmakers would have useful, relevant, and evaluating its overall financial position. timely information for assessing and managing program performance. However, an unqualified audit opinion by itself does not ensure that the information needed to Now that Virginia routinely receives an measure and manage performance is useful, unqualified opinion on its CAFR, only those relevant, timely, or reliable. The internal state agencies with a specific need (e.g., controls that were considered adequate for agencies' operating trust, enterprise and external financial reporting were not always internal service funds) are required to produce sufficient for performance management. For auditable financial statements. The remaining example, internal controls over expenditure agencies now are required to certify the data met the control objectives for aggregating accuracy of financial information that feeds and reporting this information on the financial CAFR. By subjecting all state agencies to the statements; however, they did not meet the rigorous discipline of preparing financial reports objectives for calculating per-unit-cost and having them audited, the Comptroller efficiency measures required for performance increased accountability for data accuracy management. beyond that required to receive an unqualified audit opinion. State officials continue to raise Therefore, state agencies, with the help of the the bar and seek new ways to increase State Auditor's Office, reevaluated and accountability and improve the state's redesigned agency internal controls to meet performance. For example, the Department of both external financial reporting and Planning and Budget currently performs trend performance management control objectives. analysis and prepares fiscal impact statements Because the state routinely receives an for the state's legislature, using useful, relevant, unqualified opinion on its CAFR, the State and timely financial information from the Auditor's Office and agency internal auditors state's integrated budget and accounting no longer spend the bulk of their time on systems. Also, to ensure that performance data control issues related to external financial and long-range plans drive budget decisions, the reporting. Instead, their focus is on improving state has set goals, including implementing an the reliability of performance management activity-based accounting and budgeting information. system, for enhancing its performance budgeting process. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 11 Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 1 Strategies to Consider To build a foundation of control and accountability, senior executives could: * Leverage audit resources ,and the financial statement audit process to improve data reliability and increase accountability. * Increase accountability by' establishing goals for (1) producing financial and performance reports for major programs and/or business segments and (2) moving the organization toward more frequent financial reporting (e.g., quarterly, monthly). * As part of the agency's GPRA performance planning process, (1) establish efficiency criteria that measure the cost associated with program outcomes and (2) develop an approach for assessing and improving agency internal controls over finance related efficiency measures. * Use accounting and operational performance data to support budget formulation and strategic planning. 12 GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Make Financil Management an Entitywide Priority * Practice I Practice 2 Provide Clear, Strong understand the important role the CFO and the finance organization play in improving the entity's overall business performance. Consequently, the CFO is a central figure on the top management team and heavily involved in strategic planning and decision- making. In addition, the senior executives at these organizations demonstrated their sustained commitment to finance-related improvement initiatives by using key business/line managers to drive improvement efforts, attending key meetings, ensuring that the necessary resources are made available, and creating a system of rewards and incentives to recognize those who support improvement initiatives. In fact, the committed support of the CEO and line management are critical to the success of finance-related improvement initiatives. In the same way, federal financial management reform has recently gained momentum through the committed support of top federal leaders. For example, the President has management improvement a top priority and established a goal to obtain made financial manancial an unqualified opinion on the government's financial statements. To achieve this goal, he directed the head of each agency without an unqualified audit opinion to submit to the OMB (1) an initial plantfor resolving financial reporting deficiencies and (2) quarterly progress re reportsports for achieving ther, OMB is required to periodically report to the Vice President on the agency submissions and governmentwide progress. In addition, many federal CFOs have primary leadership responsibility for implementing the Results Act at the department or agency level. The CFO Council has played a key leadership role in establishing financial and performance improvement changing the way federal agencies plan, budget, manage, goals and priorities forprorities evaluate, and account for federal programs. To ensure that federal financial management improvement efforts succeed and that the President's and the CFO Council's priorities are achieved, the support and involvement of key nonfinancial executives and managers is critical. This commitment starts with the heads of agencies establishing priorities and setting expectations and continues with the active involvement of program/line managers and executives in driving financial improvement initiatives. GAO/AIMD-99-45 n Executive Guide: Creating Value Through World-class Financial Management 13 Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 2 Case Study Senior leadership involvement is the key to successfully implementing financial systems initiatives The CEO of Owens Corning recognizes that Reengineering can be one of the most good financial and operating information difficult tasks an organization can take on, and strong financial leadership are key and Advantage 2000 was no exception. In elements in improving the company's overall fact, the degree of difficulty was compounded business performance. by the level of sophistication and complexity Owens Corning was trying to achieve with In 1992, under the leadership of its new its technology upgrades. The key to Owens chairman and CEO, Owens Corning set its Corning's successful implementation of sights on becoming the global leader in home Advantage 2000 was senior leadership's building materials. However, the chairman involvement throughout the project. realized that the vision of global growth, Initially, the new system disrupted the designed to drive the company to $5 billion company's operations--to the point that it in sales by the year 1999, would not be was beginning to affect production schedules possible without first addressing some long- and customer satisfaction. Through it all, standing problems affecting the company's however, senior managers never walked ability to analyze and use financial away. Instead, they helped middle managers information for decision-making. At the work through the snags by providing time, financial analysis was difficult because resources and remaining visible at key accounting policies and business processes meetings. varied among business units. For example, various manufacturing plants used different Replacing more than 200 outdated financial costing methods, making cost comparisons systems with state-of-the-art business difficult. In addition, closing schedules and software and client/server technology is not inventory methods often varied between only complex but also quite costly. From plants, further complicating meaningful 1995 through 1998, Owens Corning's analysis. To resolve these and other issues, a cumulative investment in Advantage 2000 new CFO was brought in to implement a was $145 million, but according to company wide-reaching overhaul of the company's executives the program will generate savings business and financial systems and in ongoing expense and working capital. The processes. The companywide initiative bottom line--the CEO and top executives of would come to be known as Advantage 2000. Owens Corning recognized that investing in Advantage 2000 cost less than maintaining the status quo. 14 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 2 Strategies to Consider To demonstrate and reinforce commitment to improving financial management, heads of agencies and senior executives could: * Form an executive management team (heads of component organizations and those reporting directly to the agency head) to establish a vision and fundamental goals and provide sponsorship for each major financial management improvement project. * Involve key program /business managers in driving financial improvement initiatives. * Develop a plan to ensure that all key constituents visibly support financial management improvement initiatives. * Actively market the program benefits of financial management improvement efforts to secure the necessary resources and Congressional support. * Establish an expectation that top financial executives, as part of the top management team, provide forward looking analysis that creates a link between accounting information and budget formulation and contributes to strategic planning and decision-making. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 15 Goals, Practices, and Strategies to Consider *Make Financial Management an Entitywide Priority * Practice 2 Practice 3 Use Training to Change the Organizational Culture and Engage Line Management Improving federal financial management hinges upon leadership's ability to manage change and create an organizational culture that values good financial management. Legislation starting with the CFO Act of 1990 has been directed at enhancing the finance organization's responsibilities in supporting the management of federal activities. Although acceptance by the program offices has sometimes been slow, according to a recent survey of federal CFOs,4 program directors are starting to look to the finance organization for help. They attribute the change to a joint effort by program and finance offices to implement the Results Act and develop strategic plans. In addition, the CFO Council's numerous outreach efforts and GPRA-related education events have helped to win the acceptance of program managers. The key to successfully managing change and changing organizational culture is gaining the support of line management. To change the organizational culture and enlist the support of line managers, many organizations utilize training programs. Some are generic in nature and are intended to help people anticipate and cope with change and ensure that every person in the organization understands the need for change. Others are specifically geared towards providing line managers with a greater appreciation of the financial implications of their business decisions. Through these interactions, financial managers gain a better understanding of business problems and nonfinancial managers gain an appreciation of the value of financial information. This not only produces better managers, it also helps break down functional barriers that can affect productivity and impede improvement efforts. In addition, these organizations provide tools to facilitate and accelerate the pace of the change initiative. According to one executive we met with, change initiatives that are implemented slowly generally fail because staff have too much time to contemplate the potential negative effects that change might bring and rally opposition that ultimately undermines the effort. 4CFO Survey: Preparing for Tomorrow's Way of Doing Business, Grant Thornton LLP and the Association of Government Accountants (Alexandria, Virginia: March 1998). 16 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, andStrategies to Consider * Make Financild Management anEntitywide Priority * Practice 3 Case Study Training programs teach nonfinancial managers the value of financial information and facilitate the pace of change The Boeing Company strategies for removing cultural barriers to To ensure that nonfinancial managers at all levels change. GE's finance organization has used understand the value of financial information, these tools and strategies to facilitate Boeing has developed an education program that improvement initiatives, ranging from teaches managers basic business competence. organizational restructuring to changing the Using a three-step development planning process, role of the internal audit function. managers assess their current capabilities, determine their specific development needs, and To be successful, the project teams build and execute a development plan. (See spearheading these initiatives had to achieve appendix II.) Depending on individual need, each of the following objectives: (1) lead change, Boeing offers a variety of learning experiences (2) create a shared need, (3) shape a vision, (4) including self-paced, team, classroom, case study, mobilize commitment, (5) make change last, (6) and simulation. For example, through Boeing's monitor progress, and (7) change systems and Creating Value learning project, managers learn structures. To ensure that each objective would how to recognize the importance of cash flow and be accomplished, the team used a survey to its influence on business decisions, understand profile the change process and measures its shareholder expectations and the consequences of progress. Staff and managers were surveyed not meeting them, and identify the relationship periodically and asked to score each of the five between individual decisions and actions and dimensions from 100 percent to 0 percent based shareholder value. on how well they think each is being accomplished. For change to be successful, The information is presented in a "multiple most dimensions must be rated high. media" format in order to accommodate different learning styles and to allow learning to occur in The profile directed the team's efforts so that different environments and in periods best suited they could develop a strategy to address the to the learner. Other learning experiences include areas that needed the most attention. For course work, such as Elements of Product Cost, in example, mobilizing commitment, especially which participants analyze and use cost element from those outside the finance organization, information to support decision-making related to was often one of the more difficult objectives to improvement efforts, ensuring that resources are accomplish. However, the team used a method, applied to those activities that return the greatest learned in the CAP workshop, for analyzing benefits and provide the highest value to and increasing stakeholder commitment levels. customers. During the class, participants learn to First, the team listed the names of those apply unit cost principles to the products they individuals whose support was critical for the produce as well as how process, activity, and success of the project. Then, they assessed each individual cost elements, such as labor, materials, stakeholder's level of commitment based on and overhead, are accumulated to become unit or their perceived level of agreement--to what product cost. degree does the individual agree that change is needed? If the team perceived a person did not General Electric agree, it developed an individual plan to get General Electric's (GE) education and training this person's support. Plans were developed by grams have played a crucial role in changing the addressing questions such as: Why are they organizational culture and facilitating both resisting this change? Do they have a vested finproancial and nonfinancial improvement interest in the status quo? What new initiatives. One of the most successful programs is opportunities will they have when the change the Change Acceleration Process (CAP) workshop. is implemented? and Who influences this During the CAP workshop, GE managers and person and what is their level of acceptance? professional staff are given tools and taught GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 17 Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 3 Strategies to Consider To demonstrate and reinforce commitment to improving financial management, heads of agencies and senior executives could: * Identify key financial and nonfinancial managers and staff whose support is critical to the success of financial management improvement initiatives. * Develop curriculum and provide training that teaches key nonfinancial managers and staff * how to use financial information to improve operational planning and decision- making and * how reform legislation (e.g. CFO Act, GMRA, FFMIA, GPRA) will affect operating unit roles, responsibilities, and processes within the context of specific agency operations. * For all key managers and staff, develop curriculum and provide training that provides a framework and tools that can be used to facilitate and accelerate the pace of change initiatives. 18 GAO/AIMD-99-45 * Executive Guide: Creating Value Th ough World-class Financial Management Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 3 Redefine the Role of Finance To Better Support Mission Objectives In the private sector, the role of the finance organization historically has centered on oversight and control, focusing on its fiduciary responsibilities and external financial reporting requirements. However, over the past decade dramatic changes in the business environment have forced finance organizations to reevaluate this role. The pressure to reduce administrative costs resulting from competition in an emerging global market drove many finance organizations to find more efficient ways to deliver their services. Nonetheless, becoming more efficient is not enough to remain competitive. Today, leading finance organizations are focusing more on internal customer requirements by providing products and services that directly support strategic decision- making and ultimately improve overall business performance. Similarly, competition has changed the environment in which federal agencies operate. Shrinking budgets have increased competition for scarce resources, requiring managers to make tough resource allocation decisions that may affect program delivery. Without the support of federal finance organizations, program managers may not be able to determine or defend the cost associated with or benefits derived from government activities. We found the leading finance organizations we visited had redefined the role of finance to better support mission objectives by assessing the finance organization's current role in meeting mission objectives, maximizing the efficiency of day-to-day accounting activities, and organizing finance to add value. Essential Elements of a Value-Creating, Customer-Focused Partner in Business Success factors Goals - r * Make fa: *1C u l Redefine the men vl! role of n a o. tt finance. Practices - 1. Build 4. Assess the finance organization's current role in meeting mission a e ' : i:objectives. s:rol: 5. Maximize : the efficiency ::an :h: :of day-to-day ifuand!~ i accounting i a:: liie ~ activities. 6. Organize finance to add value. GAO/AIMD-99-45 Executive Guide: Creating Value Through World-class Financial Management 19 Practice 4 Assess the Finance Organization's Current Role in Meeting Mission Objectives Many leading finance organizations assess their current role in supporting mission objectives by comparing the percentage of staff time spent on strategic support activities, such as business performance analysis or cost analysis, with the percentage of resources spent on transaction processing and other routine accounting activities. According to a 1995 Financial Executives Research Foundation report,5 transaction processing and other routine accounting activities, such as accounts payable, payroll, and external reporting, consume about 69 percent of costs within finance. Other studies indicate that these activities consume as much as 80 percent of finance's resources. While transaction processing will always exist, it does not have to drain the finance organization's resources. Therefore, many leading finance organizations have calculated and compared these percentages as a general indication of how well they supported the organization's business objectives. A goal for many leading organizations is to reduce the time spent on transaction processing activities to 20 percent. To further assess the efficiency and effectiveness of specific products and services, many of the leading finance organizations we studied relied on benchmarking 6 and customer feedback. For example, comparisons against world-class benchmarks, such as closing the books in less than 4 days or processing payroll at $1.39 per transaction, were used to identify activities or processes in need of improvement. (See appendix III: World-class Performance Metrics.) In addition, these organizations used feedback from their internal customers to gather specific information related to quality and customer expectations. For example, Hewlett-Packard's finance organization conducted a detailed survey of about 200 internal customers worldwide in which customers were asked to rank certain components, or services, as either high or low in terms of both importance and satisfaction. The survey results were then used to guide improvement initiatives. 6 Reengineering the Finance Function, Financial Executives Research Foundation, Executive Report, Vol. 2, No. 3 (June 1995). 6Benchmarking is the continuous process of measuring products, services, and practices against the toughest competitors or those organizations recognized as industry leaders. 20 GAO/AIMD-99-45 * Executive Guide: Creating Value TIusough World-class Financial Management Goals, Practices, and Strategies to Consider * Rederune the Role of Finance to Better Support blission Objectives * Practice 4 Case Study Assessing and revising the organization's charter, processes, products, and services enables finance to better support business objectives The role of Pfizer's finance organization has magnitude of the opportunity. For example, changed significantly over the past several Pfizer took 7 days to close its books versus the years, from an organization focused primarily 3 to 4 day world-class standard. Further, it on control and compliance, to one that is cost Pfizer twice as much as the benchmark integral to making strategic business average to pay an invoice. This sobering news decisions. About 6 years ago, under the served a vital purpose--it created a sense of leadership of Pfizer's CEO and CFO, Pfizer's urgency surrounding the need to change and corporate finance organization embarked on a helped the CFO rally the organizational reengineering initiative to transform its support needed to institute a comprehensive charter, processes, products, and services. reengineering initiative The CEO and CFO's vision was to make Pfizer "the preeminent corporate finance To facilitate change within the finance organization in the industry." At the heart of organization, several cross-functional process this vision was the concept that the finance improvement teams were established. organization should actively support the Through comprehensive revisions to its strategic imperatives of Pfizer Inc. charter, processes, organization and systems, Pfizer has reduced the cost associated with Unlike many finance organizations going transaction processing activities by up to 50 through this type of transformation, Pfizer's percent in certain functions and shifted its change effort was not in reaction to a crisis. focus to activities that directly support Pfizer's In fact, given the company's long history of business objectives. profitable growth, there seemed to be little reason to change. Pfizer's CFO, on the other The shift in focus and resources has allowed hand, saw an opportunity to do things more Pfizer's finance organization to become a effectively and efficiently and thereby re- "growth enabler" on behalf of the company by: deploy resources from transactional activities (e.g., closing the books, preparing tax returns, * supplying the necessary resources (from paying invoices) to value added activities (e.g., information to capital); operations, treasury and tax planning). The * providing increased opportunities to finance organization, for example, was invest (redeploy financial gains or savings producing too much data and not enough on behalf of the business); information. To build a case for change, * offering business solutions ("how," not Pfizer's CFO initiated a benchmarking survey "why not"); and to determine exactly how his organization * assisting in making the right business stacked up against the other leading finance decisions. organizations. The results dramatized the GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Managcment 21 Goals Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 4 Strategies to Consider To assess the finance organization's current role in meeting mission objectives, agency CFOs and senior finance executives could: * Identify all major functions performed by the finance organization (e.g., accounts payable, payroll, performance reporting, performance analysis) and group each function into meaningful categories (e.g., transaction processing, control and compliance, strategic decision support). * Establish and monitor agency specific performance goals and measures that reflect the finance organization's role in meeting mission objectives (i.e., the percentage of time or resources devoted to mission support vs. transaction processing or control and compliance activities). * Benchmark financial management practices and processes with recognized industry leaders (e.g. the cost of finance as a percentage of total outlays, unit cost per accounting transaction) in order to measure performance and identify best practices. * To the extent that operating in a federal environment affects specific benchmarks, compare financial management practices and processes with other federal agencies to provide a context with which to interpret benchmarking results. * Periodically survey internal customers to identify specific areas for improvement. 22 GAO/AIMD-99-45 * Executive Guide: Creating Value Thrcsugh World-class Financial Management Goals, Practices, and Strategies to Consider *Redefine the Role of Finance to Better Support Mission Objectives * Practice 4 Practice 5 Maximize the Efficiency of Day-to-day Accounting Activities As part of an overall strategy to reduce the cost of finance and better support business objectives, many leading organizations have reduced the number of staff required to perform routine transaction processing activities by eliminating or streamlining inefficient processes and/or consolidating these activities at shared services centers. Similarly, some federal agencies are aggressively expanding their use of Electronic Funds Transfer to include contract payments and travel payments as a means of increasing the efficiency of their routine accounting activities. Each of the six private sector finance organizations we visited consolidated, and reengineered routine processes, such as accounts payable, fixed asset standardized, andardized, accounting, and payroll at shared service centers. The primary objective for moving to shared services is to reduce operating costs. However, other benefits included better control and standardization of processes, more cost-effective technology deployment, and an enhanced position for continual improvement and customer service. Although their approach varied depending on the size, culture, and industry, leading organizations have realized the benefits of shared services by completing each of the following stages. The first stage is consolidation and includes changing the organizational structure and gaining control over processes. The second stage is standardization and entails changing processes, adopting a common technology platform, and continuous improvement. The final stage is reengineering and involves changing workflow and leveraging technology through the use of electronic commerce, data warehousing, and document imaging. Similar to the findings in our previous report on outsourcing the finance function, we found that although outsourcing is considered an option for reducing costs and improving efficiency, none of the leading organizations we visited were currently outsourcing any significant aspect of their finance organizations. The primary reason for not outsourcing is due to the limited capacity of outsourcing vendors to perform larger more complex finance and accounting operations. However, these organizations indicated thata they are continually evaluating opportunities to reduce costs and improve quality; therefore, as the outsourcing market evolves and the capacity and quality of outsourcing vendors improves, outsourcing may become a more attractive alternative. 7 Financial Management: Outsourcing of Finance and Accounting Functions (GAO/AIMD/NSLAD- 98-43). GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 23 Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 5 Case Study Effectively implementing shared service centers can result in reduced operating costs and better customer support Over the past decade, high-tech companies However, creating a shared service center have seen their gross margins shrink was much more than simply centralizing smaller and smaller as a result of increased activities and cashing in on economies of competition and the steady introduction of scale. To achieve these cost savings and newer, faster, and more advanced provide innovative, cost-effective shared technology. To remain competitive and business services, Hewlett Packard not only ensure continued growth, Hewlett Packard had to consolidate its activities, but it also formed a task force to find ways to reduce had to reengineer its processes and change the cost of the finance organization. At the its organizational structure. time, the cost of finance was 2.8 percent of company revenues and accounting At one Financial Service Center, process- transaction costs were more than two to reengineering initiatives alone have resulted three times that of comparable companies. in cost savings of $36 million since 1990. The task force recommended that Hewlett Through the use of electronic data Packard consolidate its transaction interchange, document imaging, and processing activities such as accounts common software platforms, the center has payable, accounts receivable, payroll, and maximized its use of human resources. Each fixed assets accounting from over 100 month the center's 295 employees process decentralized centers into just 8 Financial 165,000 invoices, 15,000 travel expense Service Centers worldwide. As a result, the reports, 44,000 checks, 77,000 payments, number of employees needed to process and 122,000 electronic transactions, accounting transactions was reduced by reimbursements, and deposits. In addition, more than half--from about 2,500 to only the center performs general ledger and fixed 1,200 employees worldwide. asset accounting and responds to customer inquiries. As part of its overall effort to By implementing the Financial Service reduce infrastructure costs, the center also Centers, Hewlett Packard reduced the costs redesigned its organizational structure using of its finance organization from 2.8 percent a self-directed, team-based approach. Each of revenues in 1989 to 1.4 percent in 1994 of the four- to eight-person teams is and to less than 1.0 percent by 1998. The responsible for a number of tasks, such as company's finance costs are now in the top timecards, overtime, and discretionary quartile of comparable organizations. budget management. The benefits of a team concept include ownership of customer problems, higher morale, and increased creativity/problem solving. 24 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, andStrategies to Consider * Redefine theRole of Finance to Better Support Mission Objectives + Practice 5 Strategies to Consider To maximize the efficiency of day-to-day accounting activities, senior executives could: Identify high-volume processes or transactions that do not directly support the agency's mission (low-value, low-risk) and evaluate opportunities for * consolidating, standardizing, and reengineering transaction processing and other routine accounting activities at a shared service center, initially by department and then across departments; * eliminating, streamlining, or reengineering costly, inefficient transaction processing and routine accounting activities, or * outsourcing transaction processing and routine accounting activities. GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management 25 Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 5 Practice 6 Organize Finance to Add Value According to a recent survey of federal CFOs,8 the federal finance organization of the future will have fewer people, with a greater percentage of analysts than clerks. Currently, however, most functions within finance organizations are focused primarily on (1) establishing and administering policy, (2) tracking, monitoring, and reconciling account balances, or (3) ensuring compliance with laws and regulations. While they recognize the need for change, according to the CFOs surveyed, many questions remain unanswered regarding how best to scope, define, and organize finance office responsibilities. When it comes to organizational design, we found that leading finance organizations often had the same or similar core functions (i.e., budgeting, treasury management, general accounting, payroll). However, the way these functions were organized varied depending on individual entity needs. In practice 5 of this guide, we discussed how leading organizations reduced the number of resources required to perform financial management activities by (1) consolidating activities at a shared service center and (2) eliminating or streamlining duplicative or inefficient processes. Their goal was not only to reduce the cost of finance but also to organize finance to add value by reallocating finance resources to more productive strategic support activities. To accomplish this, leading finance organizations have realigned their mission and organizational structure to better support the entity's business objectives. Specifically, many leading organizations have (1) organized around core business processes to simplify work and flatten hierarchies, (2) consolidated certain transaction processing activities to gain economies of scale, and (3) moved functions, such as cost accounting and financial analysis, to the business units to support business units' strategic planning and decision-making needs. sCFO Survey: Preparing for Tomorrow's Way of Doing Business, Grant Thornton LLP and the Association of Government Accolmtants (Alexandria, Virginia: March 1998). 26 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 6 Case Study Reallocating resources allows finance to better support business unit's strategic needs In 1997, Chase Manhattan Bank decided to organizational improvement is cost savings. examine its staff functions following the But, tell them that you are going to make completion of two mega-mergers; Chemical their jobs less frustrating, and watch how and Manufacturers Hanover in 1991 and motivated they become." Chase and Chemical in 1996. The objective was to determine whether the inherited BEP was organized into three groups. The structures from the predecessor organizations first group, with representatives from both had been combined and adapted in a way that finance and the bank businesses, was charged best supported the needs of what was in effect with diagnosing the problem. This group was a new organization. Chase wanted to quickly to determine what Chase does well and what identify and act on any opportunities to could be improved--and given only 5 weeks to simplify structures, enhance efficiencies and complete the task. The second group was reduce expenses. By doing this, Chase hoped charged with determining how much Chase to realize its ultimate goal of making the spent on its finance and other staff functions. support function as responsive as possible to The third group was responsible for the line units it served. identifying best practices used by other leading organizations. As part of this effort, To achieve this objective, the chairman they met a number of leading nonfinancial created the Business Effectiveness Program services companies to determine how they (BEP). It was clear from the beginning what organized their various support functions. the program would not be--it would not be months and months of study and analysis. After completing its work, the BEP staff Senior management was involved and proposed a solution, which involved creating committed to short deadlines--deadlines that Chase Business Services--a shared services were announced publicly on a regular basis. center to consolidate transaction processing The goal was to eliminate the things that activities, reduce staff costs, and improve frustrated people most about their work. efficiency. In addition, many support Typically, these are the same things that functions were streamlined and brought closer make it inefficient and costly. According to to the business areas to enhance efficiency and one vice chairman, "It's difficult to get people responsiveness. excited when the goal of process or GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 27 Goals, Practices, andStrategies to Consider * Redefine the Role of Finance to Beuer Support Mission Objectives * Practice 6 Strategies to Consider To organize finance to add value, senior executives could: * Ensure that the finance organization has a well defined mission that supports the agency's mission objectives. * Ensure that financial managers and staff with skills for analyzing and interpreting financial data are aligned to support the agency's strategic planning and decision- making needs at both the field and headquarters level. 28 GAO/AIMD-99-45 * Executive Guide: Creating Value Thrnugh World-class Financial Management Goals, Practices, andStrategies to Consider * Redefine theRole of Finance to Better Support Mission Objectives * Practice 6 Provide Meaningful Information to Decisionmakers Financial information is meaningful when it is useful, relevant, timely, and reliable. However, many federal agencies lack the systems and processes required to produce meaningful financial information needed for management decision-making. For example, many agency financial and management information systems do not routinely provide adequate, timely cost or performance information needed to manage cost, measure performance, make program funding decisions, and analyze outsourcing or privatization options. Similarly, many private sector and state organizations have struggled to overcome some of the same management information issues that now face federal agencies. Over the past decade, global competition and advances in information technology have changed information requirements and users' expectations regarding the availability and usefulness of financial information. Financial information that, in the past, was considered adequate for decision-making is now considered overaggregated and too late to be useful. The leading finance organizations we visited enhanced their capabilities for providing meaningful information to decisionmakers by developing management information systems that support the partnership between finance and operations, reengineering processes in conjunction with implementing new technology, and translating financial data into meaningful information. Essential Elements of a Value-Creating, Customer-Focused Partner in Business Results Success L h factors Goals Provide meaningful information to decision- !. makers. j r4FFmakers. Practices Fin:acil 7. Develop systems that support the partnership between finance and operations. 8. Reengineer processes in conjunction with new technology. 9. Translate financial data into meaning- ful information F GAO/AIMD-99-45 . Executive Guide: Creating Value Through World-class Financial Management 29 Practice 7 Develop Systems That Support integrt':d " the Partnership Between Finance and Operations As federal agencies develop plans for acquiring and installing financial systems, the Clinger-Cohen Act of 1996 and related executive branch guidance will provide a framework for designing and deploying information technology. The Clinger-Cohen Act requires agencies to better link their information technology planning and investment decisions to program missions and goals. If implemented effectively, this legislation will provide a foundation that will help federal agencies improve the interoperability of financial, operating, and management systems. The leading finance organizations we visited have long had general ledger systems capable of generating auditable financial statements efficiently and routinely, thereby providing information on stewardship and accountability at a high level. Further, ther, they historically have had adequate systems for measuring and managing cost and performance. However, over the last decade new technology has made it possible for these organizations to integrate these systems and provide more relevant, accessible information that meets the changing needs of decisionmakers. Many leading organizations have already implemented, or are in the process of implementing an enterprisewide system to integrate financial and operating data to support both management decision-making and external reporting requirements. Some abandoned their legacy systems all together and turned to state-of-the-art integrated architectures, while others used well-functioning legacy systems and tied them together with a data warehouse. Regardless of the approach, these systems provided financial analysts, accountants, and business unit managers accessoo the same cost, performance, and profitability information. Similarly, the CFO Council, JFMIP, OMB, Treasury, and individual agencies are working to improve the integration of budget, accounting, and program information and systems. To support this process, a Program Management OfficeOffice was recently recent established to develop financial systems requirements, address system integration issues, and generally facilitate the system selection the andand procurement process. This and other measures are important; to ensure that federal systems provide meaningful information for managing and measuring cost and performance as well as preparing external financial reports. 30 sGAO/AIMD-99-45 Executive Guide: Creating Value Through World-class Financial Management and Strategies Consider * Provide to Goals, Practices, Meaningful Information Decisionmakers * Practice 7 ao Case Study Information data warehouse provides decisionmakers with a single set of financial and performance information In 1994, the Massachusetts' Office of the the warehouse: (1) make it useful by putting State Comptroller embarked on a the right data into it, (2) make it usable so groundbreaking project--to build an that decision-makers could and would use it, information warehouse that would integrate (3) make it expandable so that it could be fiscal, budgetary, human resource, and adapted to future needs, and (4) make it program data, and to make the data sensible--don't buy a Cadillac when a available to decisionmakers throughout the Chevette is what you need. During the state. However, what made this project design, development, and implementation of possible actually began 7 years earlier when the warehouse, many organizational and the state implemented its first statewide technical issues were hotly debated, but the management accounting and reporting most critical design decision related to the system. Although data entry is level of detail to be stored in the warehouse. decentralized at agencies across the state, all The greater the detail, the more flexible and processing for accounting and financial accurate the report will be. However, reporting is done centrally using one chart of storage, processing, and maintenance costs accounts on a mainframe computer. become significantly greater. The team ultimately opted for transaction-level detail, The state's accounting system houses a thereby providing enormous flexibility in wealth of data, but as with all mainframe meeting changing users' needs. technology, data access is a problem. As fast as reports are designed and built, data needs The information warehouse project has change and users are left with only half the resulted in numerous benefits to a wide data they require. Trend analysis was range of executives, legislators, managers, difficult at best and state financial managers financial analysts, budget analysts, were forced to make decisions using out-of- accountants, and operations personnel. For date, estimated, or anecdotal information. To example, managers can now project complicate matters, the state also had a long spending rates, based on previous history of dueling systems--budget numbers experience, and determine if a department were maintained in one system and will overrun its allocations in time to take accounting numbers in another. The corrective measures. For the first time, the business case for better information access state has one set of books with one set of was clear and, in 1994, funding was received universal data. With the warehouse, users to build information access improvements. spend much less time explaining why numbers from one department are different The technical and business managers had from another department and more time four primary goals in mind when designing developing solutions to business problems. GAO/AIMD-99-45 + Executive Guide: Creating Value Through World-class Financial Management 31 Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 7 Strategies to Consider To develop systems that support the partnership between finance and operations senior executives could: * Acquire and install a general ledger system adequate for external financial reporting purposes. * Develop managerially relevant cost information systems and strategic performance management systems that; access data from financial transaction systems and relevant operating systems. * Integrate the agency's financial (including budgetary), operating, and management systems and equip decisionmakers with the tools to easily access relevant information and perform ad-hoc analyses. * Ensure that financial systems comply with federal financial management systems requirements, federal accounting standards, and the U.S. Government Standard General Ledger by * establishing the goal of using a single general ledger chart of accounts (the U.S. Government Standard General Ledger) and * developing an interim approach to convert general ledger accounts not consistent with the U.S. Government Standard General Ledger. This approach should use automated cross-walks performed by those business segments responsible for the data. 32 GAO/AIMD-99-45 * Executive Guide: Creating Value Thrcugh World-class Financial Management Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakerl * Practice 7 Practice 8 Reengineer Processes in Conjunction With Implementing New Technology At many of the leading finance organizations we visited, the vast majority of financial applications were commercial off-the-shelf (COTS) packages that were implemented with limited modification to the basic application package itself. The advantages of using COTS software include (1) COTS software is less costly than developing in-house applications, (2) software upgrades are affordable and are regularly available, and (3) COTS software is designed to include best practices. The key to successfully implementing COTS systems and best practice processes, according to leading finance organizations, is reengineering business processes to fit the new software applications. In fact, productivity gains typically result from more efficient processes, not from simply automating old ones. Effectively reengineering business processes, however, requires moving from a functional-based organization to a process-based organization. For example, the procurement process in a process-based federal organization would start when a solicitation is issued, continue through contract award and signature, as well as the issuance of purchase/work orders and receipt of goods, and end when the vendor properly received payment. The business processes would be designed to maximize the efficiency and accuracy of the entire process. The Clinger-Cohen Act contains provisions requiring federal agencies to modernize inefficient administrative and mission-related work processes before making significant technology investments to support them. As a result, federal agencies are beginning to consider the merits of information technology approaches that involve reengineering business processes in conjunction with implementing COTS software without significant modification. According to a report by the Financial Systems Committee of the CFO Council, most agencies favor an approach that uses COTS software for core financial systems and other financial management applications. However, agency efforts to use COTS products have been hampered by the government's failure to communicate requirements and functionality effectively to the vendors and a proclivity on the part of agencies to modify software to meet existing business processes and to replicate previous system functionality. To encourage the use of COTS, OMB and JFMIP are working to improve (1) the testing and certification of COTS systems, (2) existing procurement schedules, and (3) processes to obtain COTS systems. GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management 33 Goals. Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 8 Case Study Reengineering core business processes across functional lines is the key to successful COTS implementation When implementing its new financial By reengineering business processes in management system rather than fitting new conjunction with implementing new technology to out-of-date processes, Owens technology, Owens Corning increased its Corning redesigned its business processes to ability to meet customer needs. In the past, fit the new technology. The objective was to for example, many of the company's improve customer service and, at the same computers were not linked, making it time, cut logistical costs related to various impossible for sales people to check on the business processes. To achieve these availability of products or address problems objectives Owens Corning formed cross- on a customer invoice. Now, all activities functional process improvement; teams for that occur from the time a customer places each major business process to improve or an order to the time Owens Corning receives replace long-standing and often ineffective payment are part of the Customer business processes. Fulfillment Process. In addition, new technology has integrated functions related During this effort, the improvement teams to the Customer Fulfillment Process, such as used many common reengineering tools, sales, ordering, production, shipping, billing, such as process mapping and process and accounts receivable, providing users modeling. However, successfully with greater access to data. As a result, reengineering its business processes had Owens Corning's salesforce not only has more to do with the parameters Owens access to up-to-date information, but more Corning placed on its process improvement efficient processes allow sales staff to teams. For example, the teams were given respond immediately to customer inquiries, compressed schedules for completing "as is" instead of handing the problem off to modeling to prevent over-analysis and to another department. force decisions. Documenting current processes should be accomplished in a Other outcomes related to process matter of a week or two. The bulk of time improvement included (1) reducing the time should be spent on defining user it takes to close the books from 13 days to 5 requirements and designing new processes. days--with a target of 1 day, (2) reducing the Another important aspect of Owens Corning chart of accounts from 2,400 to 900, and process improvement effort was its use of a (3) standardizing reporting, which allows process reengineering management council. comparisons to be made between operating The council was made up of key process and divisions. business unit executives that acted as arbitrators when conflicts developed. 34 GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 8 Strategies to Consider To reengineer processes that support new technology, senior executives could: * Form cross-functional teams to (1) examine existing core business processes and (2) define user requirements. * Compare COTS products against the agency's requirements and identify the COTS packages that most closely match the agency's needs. * Reevaluate user requirements not supported by COTS software and determine, before customizing software, whether each requirement is still valid or whether alternatives exist that may be more cost-effective. * Where software modifications are required, implement an effective configuration management system that includes (1) clearly defining and assessing the effects of modifications on future product upgrades before the modification is approved, (2) clearly documenting software products that are placed under configuration management, and (3) maintaining the integrity and traceability of the configuration throughout the system life cycle. * Implement a quality assurance process that ensures that project activities and software products adhere to management's established plans, standards, and procedures. This includes ensuring that the configuration management process is effectively implemented and that product changes are clearly documented and tested before being placed into production. * Implement an effective risk management strategy to ensure that project risks, such as customization and vendor's ability to deliver a given system, are adequately identified and effective mitigation strategies are implemented. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 35 Goals, Practices, andStrategies to Consider *Provide Meaningful Information to Decisionmakers * Practice 8 Practice 9 Ky..... Translate Financial Data into Meaningful Information While new technology has made financial data more available, without the ability to translate that data into relevant, understandable information, decisionmakers are left powerless. Traditionally, finance organizations have used voluminous paper reports, based primarily on the prior month's activity, to communicate financial information. Further, management reports were often designed around current organizational structures. Consequently, as organizational structures changed over time, many management reports became irrelevant. Today, leading finance organizations have eliminated, reduced, and/or redesigned much of their old management reporting formats to better meet the needs of the user. These organizations have designed new reporting formats around key business drivers rather than organizational structures to provide executives and managers with relevant, forward-looking information on business unit performance. During this process, one company we visited actually stopped distributing selected management reports to determine whether anyone would miss them. They used the subsequent lack of reaction as an indicator that the information in the report was no longer relevant. Further, standardized reports are designed to present information that is analyzed to bring out pertinent and fundamental points with suitable amounts of detail and explanation. For example, Owens Corning's executives and managers access a standardized monthly financial report via the company's internal area network. The report's executive summary is 10 pages long and contains executive-level reporting, forecasting, and budgeting information. However, multiple levels of detail are available, and decisionmakers can drill down to the desired level of detail. Similarly, efforts are currently underway across government to develop a meaningful, user-friendly accountability report on individual departments and agencies. These reports consolidate and integrate audited financial statements and reporting under the Results Act and other related laws to (1) show the degree to which an agency met its goals and at what cost and (2) aid the reader in determining whether the agency was well run. 36 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9 Case Study Redesigning management reports around key business drivers provides decisionmakers with relevant, forward-looking information As part of an overall initiative to better addition, information is presented in the address the strategic imperatives of Pfizer form of charts and graphs. This approach Inc, the CFO spearheaded an effort that enhances the document's readability, radically changed the company's traditional increases the impact of the message, and is management reporting process. At that sensitive to the demands on the audience's time, the finance organization prepared a time. Actual financial performance is monthly report called the "Greenbook." The supplemented with forecasts so as to provide report was very detailed, comprised of static a perspective of what has happened with a reports and schedules entirely based on what view of what is expected to happen. The "had happened" and contained no external or report also contains "peer comparisons," or a competitive perspectives. Although intended benchmarking section that compares Pfizer's as a senior management briefing document, key measurements to other companies in the the report was voluminous and very industry. For example, the report shows a accounting oriented. graphic analysis of research and development cost; operating cost; sales, In the interest of providing a more customer- general and administrative cost; and product focused document, a prototype was cost as a percentage of revenue compared developed based on the Pfizer CEO's with other major pharmaceutical firms. An management style and preferences. The new external perspective is vital to putting report, known as the "Executive Financial performance in a relevant context. The same Summary", is a 30-page report that contains operating results can be substandard or a wide array of financial and operational outstanding depending on the relevant information. Instead of containing an industry benchmarks. In general, the inventory of every data set and answer to chairman's overall visions, as well as the key every question previously asked, the objectives of the business units now drive the document features "exceptions" or those measurement and reporting of performance. items specifically worthy of focus. In GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 37 Goals. Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9 Strategies to Consider To improve management reporting of financial information, senior finance executives, as part of the top management team, could: * Meet with key policymakers and managers on an ongoing basis to define key business drivers and determine what key business information is needed for management and oversight of the agency's mission and objectives. * Determine what information is needed by program executives and managers to meet and support key business information requirements. * Present various reporting format and content options to executives, managers, and Congressional Committees. 38 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9 Build a Finance Team That Delivers Results As the finance function has evolved over the past decade, from a paper-driven, labor intensive, clerical role to a more consultative role as advisor, analyst, and business partner, many leading finance organizations have seen a corresponding shift in the mix of skills and competencies required to perform this new role. To adequately respond to these changing business needs, the leading organizations we visited developed finance teams with the right mix of skills and competencies and built finance organizations that attract and retain talent as part of an overall strategic approach to human capital planning. Similarly, the implementation of the CFO Act, GMRA, and Results Act has placed new demands on federal finance organizations. As a result, federal agencies need to reevaluate their human capital practices to ensure that federal financial professionals are equipped to meet these new challenges and support the agency's mission and goals. This executive guide along with our 1998 report on the training and qualifications of key financial management personnel at Fortune 100 companies and state governments can help provide a frame of reference for federal departments and agencies to consider as part of their efforts to strengthen the qualifications, skills, and competencies of federal financial management personnel.! Essential Elements of a Value-Creating, Customer-Focused Partner In Business Results Success . %11i factors Goals B-i|k a State -GAD-98----3 0 Govaernmens Jauay 99)team that !akera delivers results. Practices 71 10 Build a fawidftio~i l~nanQ0 stenwtha finance organization that attracts :.aat~:' 'etweet ~ and retains talent. 11. Develop a finance team Iha to~ 3U'e~flj~ prooee~ses~rn with the right mix of skills and 9 Financial Management: Profile of Financial Personnel in Lare Private Sector Corporations and State Governments (GAO/AIMD-98-34, January 1998). GAOnAIMD-99-45 Executive Guide: Creating Value Through World-class Financial Management 39 Practice 10 Develop a Finance Team with the Right . Mix of Skills and Competencies At leading finance organizations, developing a finance team with the right mix of skills and competencies starts by defining a set of skills and competencies that will enable the finance team to meet the current and future technical, management, and leadership needs of the business. The resulting competency profile is used to assess gaps in individual or group competency levels and develop human capital strategies to address current or expected future deficiencies. In this practice we discuss the training, career development, and succession-planning strategies leading finance organizations use to develop a team with the right mix of skills and competencies. The training and career development programs of the leading finance organizations we visited provided intensive 2- to 3-year entry level programs as well as midcareer and executive-level programs that used both classroom instruction and rotational assignments to develop technical, management, and leadership skills and competencies. The programs' course work focuses initially on the tools and techniques of advanced accounting and finance as well as general business skills. Then, the focus shifts to the strategic application of these tools within business-specific environments. However, the key to implementing a successful career development program is to complement course work with real-life business experience through the use of planned rotational assignments. The leading finance organizations we visited provided opportunities for staff to rotate through various positions throughout the finance organization as well as the operating divisions. Such opportunities are critical not only in developing employees that understand the whole business and, in turn, provide greater value to their customers in the operating divisions but also as a way of ensuring that an adequate supply of well-prepared financial professionals is available to fill key positions. Similarly, federal finance organizations are recognizing the need to provide a broad range of experience to its financial professionals. For example, as a way to develop a cadre of experienced and diverse leaders, the CFO Council Fellows Program was initiated in April of 1998 with the selection of nine fellows to serve 1-year appointments at host organizations. 40 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results * Practice 10 Case Study Defining finance skills and competencies as part of an entitywide approach to human-capital planning enables finance to better support business objectives As part of Pfizer's strategy to become the emphasized at all levels, not just within the preeminent finance organization in the industry, ranks of managers and executives. Financial Corporate Finance formed a leadership and professionals at all levels are expected to be career development team to redesign and innovative and proactive in providing enhance the finance organization's employee solutions to business problems. However, the development practices. The team was charged scope and importance of this competency with identifying and developing competencies increases as you rise in the organization. To that would be the foundation for all human illustrate: Innovation refers to the ability to resource management activities and decisions, improve performance by doing new things and including recruitment, succession planning, coming up with creative ideas. The corporate training, rewards and recognition, and staff controller demonstrates this ability by reductions. The team defined the knowledge, creating a climate that proactively approaches skills, abilities, and behaviors for success and change and emphasizes the need for continual grouped the competencies into three main areas: skill enhancement and learning. A staff leadership, management, and functional/ accountant, on the other hand, might technical. Within each group they identified demonstrate this ability by challenging the specific competency categories, as shown below. status quo as it relates to consolidation processing, procedures, and other routine LEADERSHIP responsibilities. * Strategy * Negotiation/influence At Pfizer, management and staff are jointly eTeam building responsible for an individual's career *Innovation development. This means providing and seeking appropriate training and experience MANAGEMENT to ensure that competency requirements are * Planning/priority setting achieved. While classroom training can often * Analytical address technical and functional · Manage/develop people requirements, experience is generally required · Communication to attain many of the leadership and management competencies needed. FUNCTIONAL/TECHNICAL Therefore, to accommodate employee *Business policies and procedures development and business needs, an integral *·Financial reporting part of Pfizer's staff planning and *Accounting principles development processes involves planned * Business alliances movement of people. Rotations, including Operational/financial analysis short-term assignments within and outside of *·Financial instruments Corporate Finance are a part of Pfizer's * Macro-economics culture. To aid this process, the leadership * Information technology and career development team produced the *Tax environment Career Track Chart that illustrates possible career moves within Corporate Finance. The Specific competency requirements and the level chart includes positions and developmental of expertise required varies depending on the assignments that move individuals both position held within finance. For example, vertically and horizontally to develop both leadership and management skills were breadth and depth in their careers. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 41 Goals, Practices, andStrategies to Consider * Build a Finance Team That Delivers Results * Practice 10 Strategies to Consider To develop a team with the right mix of skills and competencies, senior executives could: * As a part of an agencywide strategic approach to human capital planning (1) determine the leadership, management, and functional/technical competencies required for the finance organization to support agency missions, goals, and objectives, (2) evaluate the finance organization's current and future human capital capabilities, (3) identify skill gaps, and (4) develop human capital policies and practices that will allow agencies to fill the identified skill gaps. * Using both classroom training, planned staff rotations, and interagency assignments, design a career development program geared toward * improving leadership, management, and traditional financial management competencies, including the analytical skills needed to support program decisionmaking; * understanding how reform legislation (e.g., CFO Act, GMRA, FFMIA, GPRA) will affect the finance organization's roles, responsibilities, and processes within the context of specific agency operations; and * understanding overall agency operations, including program implications of financial decisions. * Establish continuing professional education requirements for financial managers similar to those required for auditors. GAO/AIMD-99-45 * Executive Guide: Creating Value Thuough World-Class Financial Management 42 Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results Practice 10 Practice 11 Build a Finance Organization As discussed in practice 10, sound training and career development strategies are needed for the finance organization to meet the current and future human capital needs of the business. Equally important, however, are recruitment, retention, and reward strategies that enable the finance organization to attract and retain talented financial professionals at all levels. Although their styles and strategies varied, the leading organizations we visited agreed that several key factors were important in attracting and retaining talent. First, recruiting a talented workforce requires the commitment of top leadership. The CFOs at these organizations are often heavily involved talent assessment and senior executive leaders are actively involved in on-campus recruiting. This sends a powerful message to potential new recruits that the position is important enough to the organization that it warrants senior executive attention. Second, attracting and ultimately keeping a highly qualified and motivated workforce involves providing meaningful career opportunities, such as the opportunity to (1) participate in exciting ground-breaking projects, (2) build a portfolio of new skills, and (3) choose a variety of career paths. These organizations often used their staff development programs to provide these opportunities. For example, as discussed in practice 10, career development programs often include rotational assignments and not only provide excellent growth opportunities but also expose staff to a variety of career path opportunities. Third, compensation is a key factor in any career decision. While, according to employee compensation surveys, compensation is fairly comparable between the private and public sectors for entry level and middle management positions, executive compensation in the private sector far exceeds that of federal executives, thereby limiting federal agencies' ability to attract and retain federal executives. (See appendix IV for compensation survey results.) However, other factors such as the desire to effect change and make a difference may attract senior executives to public service. In addition, opportunities may exist that will enhance agencies' ability to attract and retain talent at all levels. For example, the revolutionary changes that are taking place as a result of the CFO and Results Acts provide an ideal occasion to revamp the opportunities available to federal financial professionals and to market the possibilities offered by a career in federal financial management. GAOpAIMD-99-45 * Executive Guide: Creating Value Through World-Class Financial Management 43 Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results *Practice 11 Case Study Providing a variety of challenging career opportunities and experiences helps to attract and retain talented professionals The primary entry point into the General staff. GE has broadened the scope of its Electric (GE) financial community is its internal audit function and used it as a Financial Management Program (FMP). training ground for new staff. The auditor's FMP is an intensive 2 to 2-1/2 year program role extends beyond financial reviews to risk for professional staff that consists of on-the- management, due diligence, and business job experience combined with formal integration. Auditors also play a key role in classroom training. It is designed to teach a best practice sharing across business lines. combination of technical, financial, and The Experience Financial Leadership business skills that prepare staff for Program (EFLP) is another path available to financial leadership positions. While FMP select FMP graduates and midcareer hires was designed to be a training and with 5 or more years of business experience. development program for financial EFLP is a structured program comprising managers, it has also served as a valuable advanced financial classes and business tool for attracting and retaining talented projects designed to supplement on-the-job financial professionals. By providing staff development and provide cross business with valuable and exciting opportunities and exposure and interaction with senior experiences, the program sells itself--a management. EFLP also plays an important financial career, kicked off with an entry via role in accelerating the development and FMP, can take staff anywhere--not just in exposure of more experienced staff who are terms of geography, but in terms of hired from the outside. achievement. GE recognizes the value of providing staff Typically, during the 2-1/2 year program, with diverse opportunities and experiences staff rotate approximately every 6 months throughout their careers across business, into a new assignment, gaining experience in finance organizations, and outside the diverse aspects of GE's business. Staff will finance function. Therefore, GE's CFO rotate through general accounting, insists that the brightest people within manufacturing accounting, financial finance spend time outside the finance planning and analysis, auditing, and one function--in manufacturing or marketing. business process project. Staff are placed in When they come back they are challenging positions where they gain immeasurably more valuable to finance exposure to a number of different elements because they know something about the of finance. Experienced managers and FMP businesses. About one-half of the employees administrators will act as mentors, coming out of the FMP and EFLP programs supporting staff, connecting them with take management assignments in the resources, and helping them grow. operating areas-with the CFO's blessing. This is a huge change from the days when Six months prior to completion of the managers had one objective for their best program staff begin to plan their off-program people, which was to hoard them. Now, placement with the assistance of local finance trains a resource that is available for financial managers and the program the leadership of the entire company, not administrator. One of the most sought after just finance. assignments is with GE's corporate audit GAOIAIMD-99-45 * Executive Guide: Creating Value Thuough World-Class Financial Management 44 Goals, Practices, andStrategies to Consider * Build aFinance Team That Delivers Results * Practice I11 Strategies to Consider To build an organization that attracts and retains talent, the CFO and senior executives could: * Actively work with colleges and universities to (1) market the opportunities available for financial professionals and (2) include a federal accounting and financial management curriculum that will not only prepare students for careers in federal accounting but will also help promote federal career possibilities. * Continue to work with the Office of Personnel Management to provide more flexible career paths that provide opportunities for movement throughout the finance organization and agency program offices. * Utilize staff development programs and planned staff rotations to expose financial managers and staff to a variety of career paths. GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-Class Financial Management 45 Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results * Practice I Appendix I Research Objectives, Scope, and Methodology The objectives of our research were to (1) define and describe the characteristics of a world-class finance organization, (2) identify the factors that are essential for finance organizations to improve their financial management and move towards world-class standards, and (3) provide case studies which illustrate the efforts of leading finance organizations from private sector companies and state governments to improve their financial management and the overall performance of their organizations. We formed an advisory group to assist with job design, our overall scope and methodology, and case study selection as well as to critique our research findings and comment on our draft report. The group consisted of private sector executives, state and local comptrollers, academicians, and other experts and consultants outside the federal government. (Key contacts and project advisors are listed in appendix V.) We also consulted with members of various CFO Council committees and representatives from OMB and Treasury. To meet our research objectives, we performed an extensive literature search on the subject of financial management best practices using commercial best practice databases, the Internet, prior GAO reports, trade journals and magazines, federal guidelines, private sector studies, and other resources. We synthesized and analyzed the numerous documents acquired from our literature search and case study organizations-to determine the objectives essential for organizations to improve their financial management. Based on consultations with our advisory group and our case study entities, we consolidated and refined the factors to those presented in this guide. We selected six private sector companies and three state governments to serve as our case studies. We selected the private sector companies based on (1) recognition for outstanding financial management practices and/or successful financial reengineering efforts, (2) size and complexity comparable to federal government agencies, and (3) discussions with members of our advisory group. We selected the state governments based on (1) the 1995 "The State of the States" report issued by Financial World magazine and (2) discussions with members of our advisory group and the CFO Council. We interviewed various officials, including chief financial officers, chief information officers, business unit executives, state executive and legislative branch officials, treasurers, controllers, internal auditors, agency administrators, and human resource specialists. We also reviewed various company documents, including vision statements, strategic plans, core competencies for finance personnel, training and development guides, key financial reports, performance metrics, and other documents related to reengineering efforts of the finance organization. We asked officials at the private sector companies and state governments profiled in the case studies to verify the accuracy of the information presented on their respective organizations and incorporated their comments as appropriate; however, we did not independently verify the accuracy of that information. In addition, we provided a draft of this entire guide to OMB, members of the CFO Council, and our advisory group for their review and comment. 46 GAO/AIMD-99-45 *Executive Guide:' Creating Value Tlu ough World-Class Financial Management Appendix II Supplemental Case Study Information The Boeing Company's Personal Planning Guide for Developing Business Competence (excerpt) Performance Expectation: Include business process and financial information in decision-making Key elements Supporting actions Rating -Im o oaelPersonal* Use appropriate facts and data from > Locate sources of company information 3  company information systems to > Operate selected information systems 0 O support accomplishment of business > Select appropriate data and information O0 plans > Make decisions based on analysis of data 0 0 > Manage information resources to ensure ready access to information a0 Make informed decisions > Apply company integrity, values, and ethics 0 0 > Identify key components of decisions 0 0 > Collect pertinent data 0 [0 > Analyze alternatives 0 0 > Use selection criteria 0 0 > Apply wisdom, judgement, and experience 3 [ > Take action a a Create business forecasts > Lead the estimating and budgeting process 0C 0 > Develop schedules 0 0 > Apply target costing (should cost) 0 0 Apply total cost management > Monitor budgets, costs, and schedules 0 0 principles > Apply variance analysis 0 01 > Reallocate resources to meet objectives 0 0 > Predict management estimate at completion 13 0 > Use earned value 0 0 Recognize cost structure (elements of > Apply unit cost practices O 0 product cost) > Apply process cost practices 0 13 > Identify cost elements [0 0 > Use life cycle costing to identify present and future costs 0 [ > Identify components of rates [ [° Apply economic and financial > Analyze cash flow needs 0 0l principles > Explain cost of capital 0 0 > Use discounted cashflow, present value analysis, and internal rate of retum 0 0 > Explain investment management 01 0 > Explain importance of economic decisions on shareholder value 0 0 > Use financial analysis tools 0 0 > Use Boeing financial reports and statements 0 0 > Perform make/buy analysis 0 03 > Explain impact of taxes [ D > Explain billings and collections [ a Note 1: Importance Rating of the supporting action to your specific assignment (H= high, M= medium, L= low.) Note 2: Personal Rating of your level of competence for the supporting action. Use a scale of 1to 5(1=weak, 5 = strong.) GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 47 Appendix III World-class Finance Performance Metrics Table 1: Comparison of Performance Metrics--Average vs. World-class Companies Performance metric Average World-class Cost as % of revenue 1.4% 0.97% A/P productivity per FTE 12,500 15,900 Processing locations >3 1 Systems per process 2-3 1 Budget cycle 95 days 60 days Closing cycle 5-8 days <4 days Source: The Hackett Group. Table 2: Comparison of Labor Costs per Transaction--Average vs. World-class Companies Process Measure Average World-class Payables Invoice $3.55 $1.98 Receivables Remittance $0.36 $0.14 Travel & expense Expense report $6.05 $3.96 Payroll Paycheck $1.91 $1.39 Source: The Hackett Group. 48 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management Appendix IV Comparison of Selected Federal Agencies & Case Study Entities Table 1: Total Revenues/Outlays at Case Study Entities and Federal Agencies for 1998 Agency/company Total revenues/outlays (in millions) Social Security Administration $393,311 Department of the Treasury 379,345 Department of Health and Human Services 339,535 Department of Defense 288,604 General Electric Company 100,469 Boeing Company C 56,154 Department of Agriculture 52,547 Hewlett Packard Company 47,061 Office of Personnel Management 45,404 State of Texas 43,816 Department of Transportation 39,832 Department of Veteran Affairs 39,280 Commonwealth of Massachusetts 31,249 Department of Labor 30,458 Department of Education 30,009 Department of Housing and Urban Development 27,527 Commonwealth of Virginia 19,245 Chase Manhattan Corporation 18,656 Department of Energy 14,467 Pfizer Inc 13,544 Owens Corning 5,009 Department of Commerce 3,783 Federal Emergency Management Agency 3,326 National Science Foundation 3,130 Source: 1998 company annual reports, 1998 state comprehensive annual financial reports, Budget of the United States Government. Fiscal Year 1999. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 49 Table 2: Total Employees at Case Study Entities and Federal Agencies Agency/company Total employees Department of Defense 742,437 General Electric Company 276,000 Department of Veteran Affairs 242,685 Boeing Company 238,000 State of Texas 231,335 Department of the Treasury 139,794 Hewlett Packard Company 121,900 Department of Justice 117,699 Department of Agriculture 104,095 Commonwealth of Massachusetts 100,000 Commonwealth of Virginia 94,253 Chase Manhattan Corporation 69,033 Department of the Interior 68,815 Social Security Administration 66,489 Department of Transportation 64,163 Department of Health and Human Services 59,111 Pfizer Inc 49,000 Department of Commerce 34,738 Department of State 24,283 Owens Corning 22,000 National Aeronautics and Space Administration 19,816 Environmental Protection Agency 17,901 Department of Energy 16,917 Department of Labor 15,820 General Services Administration 14,323 Department of Housing and Urban Development 10,311 Federal Emergency Management Agency 4,839 Source: 1997 company annual reports, 1997 state comprehensive annual financial reports, 1997 U.S. Office of Personnel Management. 50 GAO/AIMD-99-45 * Executive Guide: Creating Value Through World class Financial Management Appendix IV * Comparison of Federal Agencies and Case Study Entities Table 3: Comparison of Revenues/Outlays In Millions with CFO Compensation (Salary and Bonus) at Selected Case Study Entities for 1997 Company Revenues/outlays CFO Bonus Total salary General Electric Company $100,469,000 $1,100,000 $2,000,000 $3,100,000 Federal Agency $72,568,000 $151,800 $151,800 (average) (max.) (max.) Boeing Company $56,154,000 $392,261 $137,700 $529,961 Hewlett Packard Company $47,061,000 $997,625 $147,804 $1,145,429 Chase Manhattan $18,656,000 $628,846 $1,168,750 $1,797,596 Corporation Pfizer Inc $13,544,000 Not available -- -- Owens Corning $5,009,000 $371,875 $795,000 $1,166,875 Source: 1998 company annual reports; Budget of the United States Govemment. Fiscal Year 1999; 1999 company proxy statements; 1998 Senior Executive Service pay schedule. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 51 Appendix IV * Comparison of Federal Agencies and Case Study Entities Appendix V Leading Organization Contacts and Project Advisor Acknowledgements We would like to acknowledge the following private sector and government executives whose advice and assistance throughout this project has been invaluable. Key contacts at leading organizations Bruce H. Adams Larry Lazicki Senior Vice President, Global Services Executive Assistant-Fiscal Mgmnt. Div. Administration Comptroller of Public Accounts The Chase Manhattan Bank State of Texas David Devonshire William Landsidle Chief Financial Officer Comptroller Ingersoll Rand Corporation Commonwealth of Virginia (formerly with Owens Corning) William C. Steere, Jr. Lynn L. Saylor Chairman of the Board & Chief Executive Officer General Electric Pfizer Inc Director-Corporate Finance General Electric Company William Kilmartin Vice President Boyd E. Givan (Retired) American Management Systems, Inc. Chief Financial Officer (formerly with the Commonwealth of The Boeing Company Massachusetts) Richard L. Hoddeson Vice President, Operations Planning and Analysis Pfizer Inc Project advisors Julia Carroll Gerald R. Riso (deceased) Chief Financial Officer Chief Executive Officer Naperville, Illinois Riso & Riso Thomas V. Fritz Cornelius E. Tierney President & Chief Executive Officer Professor of Accountancy Private Sector Council George Washington University Edward J. Mazur Patricia M. Wallington Vice President Vice President & Chief Information Officer Virginia State University Xerox Corporation John L. Puckett Assistant Vice President - Information Technology GTE Internetworking 52 GAO/AIMD-99-45 * Executivc Guide: Creating Value Through World-clas Financial Management Appendix VI GAO Contacts and Staff Acknowledgements GAO Contact * Linda P. Garrison (404) 679-1902 * Diane G. Handley (404) 679-1986 Acknowledgements In addition to those names above, Francine M.Delvecchio, Marshall L. Hamlett, and Elizabeth M. Mixon made key contributions to this report. GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management 53
Executive Guide: Creating Value Through World-Class Financial Management (Exposure Draft) (Superseded by AIMD-00-134)
Published by the Government Accountability Office on 1999-08-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)