The Next Stage for Reengineering
Financial Decomposition
April 20, 1993
- 2 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Purpose and Approach
Purpose
• Map reengineering projects to value delivered to clients
• Identify additional expense savings in same area(s)
• Show cross-functional expense opportunities
• Implement an approach to monitor and analyze progress in different impact areas
Approach
• Reconcile Gemini, CAM and MIS systems
• Meet with each Project Leader to identify and validate expenses covered by the function and by the project, and savings opportunities
• Work jointly with Carlos Gutierrez to gather and analyze data
• Validate data with Bob Fairman, Vice President for Cost Analysis and Control
Walt\Consulting IP\A&D Toolkit\15 – JUSTIFICATION\Val Chain Finan Decomp.ppt
- 3 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Contents
• Expense Decomposition Overview
• Expense Decomposition Breakdowns
• Reengineering Project Allocation and Assessment
• Reengineering Project Mapping to Expense Decomposition
• New Opportunities
• Key Conclusions
• Appendix
Walt\Consulting IP\A&D Toolkit\15 – JUSTIFICATION\Val Chain Finan Decomp.ppt
Expense Decomposition Overview
- 5 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
•Finance & Account.•Human Resources•Legal•Corporate Planning•Government and Trade Relations•Health Admn.
Value Chain Analysis Is an Insightful Way to Look at TheEquitable’s Budgeted Expenses
Note: Value Chain developed by Gemini Consulting. Source: $ and FTE’s from Gemini Accounting System.
•Asset Management
•Risk Evaluation•Pricing and Quotations•Reinsurance
•PremiumProcessing•Policyholder Services•Compliance•Actuarial
•Analysis•Processing•Payment
•Company and Product Promotion•Customer and Agent Services•New and Renewal Business Processing
•Actuarial Analysis and Pricing•Market Testing•Distribution Testing•Regulatory Approvals•Launch
$14.4M $362.5M $8.9M $46.4M $5.9M $18.9M
Value Chain
Systems and Support Chains•Distribution Channel Design and Selection•Agent/Broker Recruiting, Training and Management
•Industry and Competitive Analysis•Market Segmentation•Systems Design and Modification
Technology Information Management
Corporate Administration / Allocations
ProductDevelopment
Under-writing
BusinessAcquisition Administration
$114.1M
$171.1M
ClaimsInvest.Mgmt.
94 FTE’s46 FTE’s528 FTE’s107 FTE’s2,251 FTE’s76 FTE’s
646 FTE’s
796 FTE’s
•Asset Investment (Not included in Gemini Budget)
Walt\Consulting IP\A&D Toolkit\15 – JUSTIFICATION\Val Chain Finan Decomp.ppt
Expense Decomposition Breakdowns
- 7 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Product Development Accounts for 1.9% of Total Budgeted Expenses
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $5.8M 40% Employee Comp. $4.9M Life Products Dev. & Mktg
2. Office $3.4M 23% Metro NY Facility $2.9M NYC Leases and Strategy
3. Administrative $5.6M 40% Printing & Off. Supp. $3.3M Life Products Dev. & Mktg. Purchasing
Postage & Express $2.0M
4. Outside Services $0.4M 3% Outside Consultants $0.2M
5. Agents Expense --
6. Sub. & JT Reimb. ($0.9M) (6%)
7. Risk & Ins. Premium $0.05M
$14.4M
Note: See page 33 for Expense Categories explanation.
- 8 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Business Acquisition Accounts for 49.5% of Total Budgeted Expenses
$362.5M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $231.2M 64% Employee Comp. $63.7M Clients Srvcs, Agency Restruc., Person Data Base
$65.0M
2. Office $61.2M 17% Rent & Facilities $36.0M Client Srvcs, Agen. Restruc., Metro NY Facility $10.5M NYC Leases and Strategy
Furniture & Equip. $9.0M Gemini Reachict., WangTakeout, Life 70 Batch Over’l
3. Administrative $33.4M 9% Telephones $11.3M Purchasing Printing & Off. Supp. $10.1M Life 70 Batch Overhaul 4. Outside Services $14.6M 4% Other General $7.9M Gemini Rearchitecture
Special Sercices $4.3M
5. Agents Expense $20.8M 6% Agent Reimb. - Var. $17.5M
6. Sub. & JT Reimb. ($2.0M) (1%)
7. Risk & Ins. Premium $3.4M 1%
Note: See page 33 for Expense Categories explanation. Walt\Consulting IP\A&D Toolkit\15 – JUSTIFICATION\Val Chain Finan Decomp.ppt
- 9 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Underwriting Accounts for 1.2% of Total Budgeted Expenses
$8.9M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $5.3M 60% Employee Comp. $4.4M New Bus. Reeng. - Phase 1
2. Office $2.1M 24% Metro NY Facility $1.7M NYC Leases and Strategy
3. Administrative $0.8M 9% Printing & Off. Supp. $0.4M 4. Outside Services $0.7M 8% Special Services $0.4M
5. Agents Expense --
6. Sub. & JT Reimb. ($0.2M) (2%)
7. Risk & Ins. Premium $0.06M 1%
Note: See page 33 for Expense Categories explanation.
- 10 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Administration Accounts for 5.6% of Total Budgeted Expenses
$46.3M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $23.3M 50% Employee Comp. $18.6M Client ServicesEmployee B&T $4.3M Client Services
2. Office $13.4M 29% Metro NY Facility $9.8M NYC Leases and StrategyFurniture & Equip. $1.8M
3. Administrative $3.3M 7% Printing & Off. Supp. $1.1M Purchasing 4. Outside Services $6.9M 15% Special Services $5.3M Gemini Rearch., Sys. Maint.
5. Agents Expense --
6. Sub. & JT Reimb. ($0.8M) (2%)
7. Risk & Ins. Premium $0.4M 1%
Note: See page 33 for Expense Categories explanation.
- 11 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Investment Management Accounts for 1.7% of Total Budgeted Expenses
$5.9M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $3.7M 62% Employee Comp. $3.1M
2. Office $1.9M 32% Metro NY Facility $1.8M NYC Leases and Strategy
3. Administrative $0.2M 3%
4. Outside Services $0.2M 3%
5. Agents Expense --
6. Sub. & JT Reimb. --
7. Risk & Ins. Premium $0.02M
Note: See page 33 for Expense Categories explanation.
- 12 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Claims Accounts for 2.5% of Total Budgeted Expenses
$18.9M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $4.5M 24% Employee Comp. $3.5M
2. Office $2.0M 10% Metro NY Facility $1.8M NYC Leases and Strategy
3. Administrative $1.1M 6% Postage & Express $0.7M
4. Outside Services $11.3M 60% Medical & Inspection $10.4MOther General $1.5M
5. Agents Expense --
6. Sub. & JT Reimb. --
7. Risk & Ins. Premium $0.08M
Note: See page 33 for Expense Categories explanation.
- 13 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Technology Information Management Accounts for 15.4% of Total Budgeted Expenses
$114.1M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $42.3M 37% Employee Comp. $35.9MEmployee B&T $6.2M
2. Office $40.8M 36% Furniture & Equip. $18.2MMetro NY Facility $14.0M NYC Leases and Strategy
3. Administrative $9.7M 9% Telephones $3.9MPostage & Express $2.6M
4. Outside Services $21.0M 18% Outside Consultants $12.6MSpecial Services $6.8M
5. Agents Expense --
6. Sub. & JT Reimb. ($0.07M)
7. Risk & Ins. Premium $0.3M
Note: See page 33 for Expense Categories explanation.
- 14 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Corporate Administration Accounts for 15.2% of Total Budgeted Expenses
$113.1M
Page 1 of 2
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $52.2M 46% Employee Comp. $42.9M Law Department, Lease Procedures & Management
Employee B&T $7.5M
2. Office $35.0M 31% Metro NY Facility $29.8M NYC Leases and Strategy, Food Services
Furniture & Equip. $3.6M 3. Administrative $8.3M 7% Telephones $2.5M
Travel & Agency $2.4MPrinting & Off. Supp. $2.4M Purchasing, Forms Print. &
Postage, Report Print. Rev.
4. Outside Services $25.8M 23% Other General $9.0M Law DepartmentAdvertising $4.6MMedical & Inspection $4.5MDues & Assessments $3.6M
5. Agents Expense --
6. Sub. & JT Reimb. ($11.7M) (10%)
7. Risk & Ins. Premium $3.6M 3%
Note: See page 33 for Expense Categories explanation.
- 15 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Corporate Allocations Account for 6.9% of Total Budgeted Expenses
Page 2 of 2
$58.0M
Expense Categories 1993 Budget Major Expense(s) 1993 Budget Project(s)
1. Salaries $43.7M 75% Employee Comp. $20.9MEmployee B&T $14.9MAgents B&T $12.7M
2. Office $19.7M 34% Taxes & Fees $9.8M NYC Leases and StrategyFurniture & Equip. $8.2M
3. Administrative $2.3M 4% Postage & Express $1.0M Shareholder Services
4. Outside Services $6.4M 11% Other General $4.2MDues & Assessments $1.5M
5. Agents Expense --
6. Sub. & JT Reimb. ($15.3M) (26%)
7. Risk & Ins. Premium $1.2M 2%
Note: See page 33 for Expense Categories explanation.
- 16 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Additional Non-Budgeted Expenses Bring xxxxxxxxx’s Total Expenses to $1.03 Billion for 1993
Existing reengineering Projects should bring down budgeted expenses to $732.9M, thus overall expenses to $1.02B for 1993.
Source: 1993 Plan Reconciliation CAM vs. MIS, Statutory Basis.
Additional Non-Budgeted Expenses = $291.0 Million
($20M) $0M $20M $40M $60M $80M $100M $120M $140M
Non "9" Accounts
Capitalization
Non Qualified Pension
Plan Exp. - Liability
Non Qualified Pension
Plan Exp. - Cash
EQ Holding Co.
One Time Costs
Investment Mgmt. Fees
R/E Investment - Adm.
Expense
($11.8M)
$3.3M
$7.4M
$11.7M
$19.6M
$38.0M
$90.0M
$132.8M
Reengineering Project Allocation & Assessment
- 18 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Corporate Administration Has 54% of all the Reengineering Projects Identified
Note: #10: Equitable / Traebco Processing not included for lack of information.
Technology Information Management
Corporate Administration / Allocations
ProductDevelopment
Under-writing
BusinessAcquisition
Administration ClaimsInvest.Mgmt.
•Client Services (#7)•Printing & Postage (#105)
•Agency Restructuring (#8)•Product Development & Marketing (#6)
•New Business Reengineering (#9)•Equitable Workstation (#16)•Gemini Reachitecture (#108)•Customer Data Base (#109)•Life 70 Batchoverhaul (#111)
•Wang Takeout (#110)•Resource Pooling (#112)
Value Chain
Support Chain
Systems Chain
•Info Reporting (#1)•Law Department (#14)•Benefits/Payroll Admn. (#101)•NYC Leases (#102)•Lease Management (#103)•Purchasing (#104)•Copier Expense (#106)•Shareholder Services (#107)•Data Center Optimization (#113)•Report Printing Review (#115)•Commission Sharing (#116)•Lease Administration (#117)•Food Services (#118)
- 19 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Reengineering Project Assessment Shows Additional Analysis Required to Assure a Successful Implementation
Total Expense Savings Payback Investment
Project Function Covered Period Costs
Expense by Project 1993 1994
Law Dept. $42.0 ? ? ? ? ? #14
NYC Lease & Str $80.0 ? ? ? ? ? #102
Lease Proc. & Mgmt. $5.2 $2.0 ? ? ? ?
#103 $123.0 ? ? ? ? ?
Purchasing $35.5 $20.1 $0.1 $3.5 (?) TBD $0.6-0.8 #104
Forms Prt. & Post. % of $35.3 ? ? ? ? ? #105
Photocopiers $0.8+ ? ? ? ? ? #106
Sharehold. Srvcs $13.5 $13.5 $5.0* $0.3 ? None #107
Comm. Sharing ? ? ? ? ? ? #116
Lease Adm. Sys. ? ? ? ? ? ? #117
Food Services $6.7** $2.3 ? $1.1 (?) ? None #118
* Plus one time savings of $4.4M from Oddlot Program (instead of est. costs of $7.5M, real costs are $3.1M) , but savings will not show in the Budgeted Expenses.** An additional $900,000 was added for xxxxxxxxx Tower’s 50th floor, which is not included in the Gemini Accounting system for 1993.
($ Million)
Reengineering Project Mapping to Expense Decomposition
- 21 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
ProductDevelopment
Existing Projects Cover XX% of xxxxxxxxx’s Budgeted Expenses
% % % % % %
Technology Information Management
Corporate Support / Allocations
Under-writing
BusinessAcquisition Administration ClaimsInvest.
Mgmt.
Due to a lack of information and data gathering, this page cannot be completed.
- 22 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Reengineering Projects’ Estimated Net Savings Represent XX% of xxxxxxxxx’s Budgeted Expenses
This page will be completed at a later stage. This page will be completed at a later stage.
Total Expenses
Expense Coverage
Net Savings
* Institutional refers to activities that are mandated by regulation, non-business area specific and subsidiary generated.
ProductDevelopment
Under-writing
BusinessAcquisition
Administration ClaimsInvestment
Mgmt.
CorporateTIM Institutional
024
68
1012
1416
$ Million
0
$ Million$ Million
$ Million $ Million
0
$ Million
0
$ Million
024
68
1012
14
$ Million
? ?
??
4035
3025
2015
105
0
87
65
43
21
9
??
0
4035
3025
2015
105
45
?
?
0
6
5
4
3
2
1
??
6
120105
9075
6045
3015
??
??
??
160140
120100
8060
4020
$ Million
?
?0
1614
1210
86
42
1820
- 23 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Opportunities Exist to Reengineer Additional Major Cost Drivers in the Orgnization
* $18.3 Million allocated accordingly, based on employee compensation, plus $2.9M (business related) to Business Acquisition.** $1.6M come from Investment Office’s HQ expenses; allocated in Value Chain (page 4), in Inv. Mgmt.
Under-writing
BusinessAcquisition Administration Claims
Invest.Mgmt.
ProductDevelopment
Agency $313.6M $5.2M $3.4M
TIM $12.9M $67.1M $24.8M $9.3M
Insurance Prod. $11.6M $30.2M $4.8M $26.9M $11.9M
OCFO $6.9M $6.3M $32.2M $1.3M
Annuity Products $2.8M $15.2M $4.1M $11.5M $2.9M $7.0M $1.7M $1.2M
OCAO (Excl. TIM) $5.2M $8.3M $0.1M $0.1M $21.6M $10.2M
Central* $0.5M $8.8M $0.4M $1.7M $0.3M $0.3M $3.3M $5.9M
Residual Benefits $21.0M
Law Dept. $14.5M $3.2M $1.2M $1.8M
OCIO $1.5M $8.1M** $0.2M
Residual Rent $9.2M
TOTAL $14.9M $395.2M $16.2M $136.1M $8.0M $19.2M $5.1M $135.1M $12.6M
xxxxxxxxx CorporateTIM Institutional
287
$45.6M
167
$20.7M
330
$114.1M
30
$9.7M
1,494
$322.2M
537
$46.7M
1,053
$85.4M
0
$21.0M
0
$9.2M
0
$21.2M
646
$46.3M
Major Cost Driver &Part of Project(s)
Part of Project(s) Only
Major Cost Driver Only(Above $3 Million)
$21.6M$8.3M$5.2M
$9.3M
$10.2M
$24.8M$12.9M $67.1M
To Be Completed ...
- 24 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Under-writing
BusinessAcquisition Administration Claims
Invest.Mgmt.
ProductDevelopment
Opportunities Exist to Reengineer Additional Major Cost Drivers in the Lines of Business
Ordinary Life
Group Life
Suppl. Contracts
Credit Life
Credit Acc. & Life
Individual Annuity
Group Annuity
Group Acc. & Health
Other Acc. & Health
Investment
Line of Business CorporateTIM Institutional*
?
$ M
?
$ M
$ M
$ M
$ M
$ M
$ M
$ M
$ M
$ M
?
?
?
?
?
?
?
?
* Institutional refers to activities that are mandated by regulation, non-business area specific and subsidiary generated.
Data Not Available - To Be Completed ...Major Cost Driver &Part of Project(s)
Part of Project(s) Only
Major Cost Driver Only(Above $1 Million)
- 25 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Under-writing
BusinessAcquisition Administration Claims
Invest.Mgmt.
ProductDevelopment
Major Cost Driver &Part of Project(s)
Part of Project(s) Only
Major Cost Driver Only(Above $1 Million)
Corp. Relations $0.6M $7.1M
Adm. Services
Facilities Mgmt.
H.R. Services 6 $0.1M $0.8M $0.7M
H.R. Policy $0.5M $0.9M
OCAO Office
Quality Service $0.9M
Cost All. & Control $0.8M
Ben. Pl. Fin. Mgmt. $0.5M
Ext. Relations $0.4M
Protocol $0.4M
Curator $0.1M
Sharehol. Srvcs. ($0.02M)
TOTAL $5.2M $8.3M $0.1M $0.1M $21.6M $10.2M
Opportunities Exist to Reengineer Additional Major Cost Drivers in OCAO
OCAO (Excl. TIM) CorporateTIM Institutional*
2
$0.4M
3
$0.8M6
$0.5M
3
$0.1M
2
$0.4M
11
$0.9M
3
$0M
125
$11.9M58
$11.0M
30
$12.9M
19$2.7M
21
$2.9M
4
$1.2M
Note: See Page 39 for breakdowns.* Institutional refers to activities that are mandated by regulation, non-business area specific and subsidiary generated.
287
$45.6M
$7.1M
$1.5M$5.1M
$11.0M
$1.3M
$1.3M
$1.2M
$5.2M
$5.2M
New Opportunities
- 27 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Additional Budgeted Items Representing Significant Expenses are not Covered by any Existing Projects
Organization Function(s) Expenses Gross Potential Savings
Administrative Services* Bi-weekly Agency Payroll $1.8M $0.3 - 0.4MSemi-monthly Employee Payroll ? 0.2 - 0.3M
Advance Commission Payments 4.5M 2.3 - 3.4M Recovery Plan Elimination 19.0M 0.9 - 1.9M Investment Plan Record Keeping 0.8M 0.0 - 0.1M Expand Tesseract Check Writing 1.4M 0.1 - 0.2M ASD Sys. Integration/Rearchitecture ? 0.2 - 0.5M ASD Data Clean-up*** ? 0.1 - 0.3M
Facilities Management** Mail Services 2.2M 0.1 - 0.3M
Corporate Relations** Advertising 4.5M ? Dues & Assessment (Contr./Found.) 3.4M ?
Human Resources** H.R. Services & Policy 5.7M 0.3 - 0.7M
TOTAL $43.3M $4.5 - 8.1M
OCAO
* Administrative Services’ new opportunities identified from Peter Hart and Charlie Dvorak.** The other opportunities come from the Value Chain: represent the biggest expense items in OCAO and do not have any reengineering projects.*** ASD Data Clean-up savings become a prepetual saving if ASD Systems are not realligned/integrated. If ASD Systems are integrated, ASD Data Clean-up is a one-time savings.
Key Conclusions
- 29 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
The Financial Targets for xxxxxxxxx’s Reengineering Effort Are Extremenly Challenging
Add per annum inflation: 4% and cost of living: 8% for Compensation: $279.1M and Benefits & Taxes: $132.5M; add inflation only: 4% to the rest: $330.4M.
xxxxxxxxx’s 1995 budgeted actual expenses must be $600 million, regardless of volume
Rest of Budget Compensation Benefits & Taxes
1993 1994 1995
$274MM
1995Target
ExtrapolatedExtrapolatedBudget
$742MM+12%
+12%
+4%
+12%
+12%
+4%
$805MM
$874MM
}
- 30 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
To Ensure a Real $274 Million Reduction, Ambitious “Run Rate” Targets Must be Achieved
Annualized DecemberRun Rates
Full Calendar Year Actual Expenses
$400
$300
$500
$600
$700
$800
Dec-92 Dec-93 Dec-94 Dec-95
Million
$742 $733$724
$750
$613$600
$587
- 31 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Key Conclusions
• The Value Chain concept maps expenses to steps toward delivering value to customers
• The Value Chain concept also relates expenses to revenue drivers
• Today, reengineering projects are difficult to map to existing expense structure due to lack of project tracking and project reporting
• A significant amount of analysis for each project is still required to understand the expense covered, savings, payback period and investment costs to assure a successful implementation
• Additional opportunities exist within OCAO and through xxxxxxxxx to meet budget objectives by 1995
Appendix
- 33 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
1. Salaries– Compensation– Benefits & Taxes– Other Compensation
2. Office– Real Estate Expense– Taxes & Fees– Rent & Facilities– Furniture & Equipment– Relocation & Mort.– Depreciation EDF– Leasehold Improvement Cap– Metro NY Facility
3. Administrative– Travel & Agency Conf.– Telephones– Postage & Express– Printing & Office Supplies
Expense Categories (for Pages 7 to 15)
4. Outside Services– Outside Consultants– Legal– Advertising– Special Services– Dues & Assessments– Other General
5. Agents Expense– Agents Balance Charge– Agents Reimb. - Variable
6. Sub & JT Reimbursment
7. Risk & Insurance Premium
- 34 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
1993 Budgeted Expenses per Value Chain Category
Source: Gemini Accounting Systems.
- 35 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
1993 Budgeted Expenses per Value Chain Category (Cont’d)
Source: Gemini Accounting Systems.
- 36 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Value Chain 1993 Expense Decomposition
Source: Gemini Accounting and CAM Systems.
- 37 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Total Function Expense Breakdowns and Explanations from Page 19
Function Type of Expense Dollar Expense Explanation
Law Department Budegeted Expense (Friedman) $16.2M* HQ, Law Dept., Secretaries Dept., Board of Directors, and Compliance Dept.
Outsourcing $26.0M Mostly for Leasing and Litigation
Lease Procedures & Facilities Management (Less $5.2M HQ Staff: $0.4M, Leasing/Design: $1.1M, Management Food Services) Property Mgmt: $0.9M, Mail Srvcs: $2.1M
Adm. Support: $0.7MRent & Facilities $123.0M Total amount for xxxxxxxxx; data
given by Bob Fairman
Purchasing Office supplies & Equipment $35.5M Office/Computer Supplies: $2.5M, Furniture: $2.7M, Equipment & Premiums: $5.0M, PC’s & Accessories: $8.0M, Printing: $11.6M, Paper: $0.9M, Special Contracts: $4.8M
Forms Printing & Postage $32.0M ELAS Printing: $11.6M, Paper: $0.9M, Special Contracts: $4.8MELAS Postage & Express: $14.7M
Photocopiers $0.8M+ Does not include depreciation expense and Rector Street and New Jersey building
Shareholder Services Annual Reports $13.5M Shareholders (Annaul Reports, tracking, mailing): $8M, Admin.: $0.5M
Food Services Rent, Food, Telephones, Staff $6.7M Food Services Budget: $5.8M, 50th Floor: $0.9M (not included in 1993 budget)
* Substracted $4.6M of Legal expenses: outsourcing.
- 38 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Expense Covered and Savings by Project Breakdowns and Explanations from Page 19
Organization Type of Expense Dollars Explanation
Lease Procedures & Leasing/ Design $1.1M Management Property Management $0.9M
Purchasing Office/Computer Supplies $2.5M Not covered: $0.7M + thru Purch.: $1.8M Furniture $0.7M Not covered: $0.7MEquipment & Premiums $2.9M Not covered: $2.9MPC’s & Accessories $1.5M Not covered: $1.5MPrinting $11.6M Not Covered: $7.6M + thru Purch.:$4.0MPaper $0.9M Not Covered: $0.4M + thru Purch.: $0.5MSpecial Contracts $4.8M Thru Purchasing: $4.8M
Food Services Other General $1.1M Food Services budgetFurniture & Equipment $0.2M Food Services budgetRent & Facilities, Telephones $0.1M Food Services budget50th Floor $0.9M Not in 1993 Budget
Purchasing Benchmarking $2.1M Improve negotiations and substitutionsIncreased coverage $1.5M Through the 7 types of expenses
Expense Covered
Savings
- 39 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Reengineering Project Assessmnent - Expense Decomposition (from Page 25)
Corporate Relations Adm. Services Facilities Mgmt. H.R. Services H.R. Policy
Corp. Comm. $0.9M HQ & Staff $0.5M HQ & Staff $0.4M Staff. & Plac. $0.6M HQ Staff $0.3M
Adv./Fin. Com. $4.9M Payr. Srvcs $2.8M Leas./Des. $1.1M Empl. Rel. $0.9M Res.& Dev. $0.4M
Corp. Rel. Adm. $1.3M Purch. & Prt. $3.7M Prop. Mgmt $0.9M HR Sys. $0.1M Med. $0.7M
Cont./Found. $4.2M HR/Ben. Ad. $4.8M Mail Srvcs $2.1M Train. & Dev. $1.3M Comp. $0.8M
Ins. Comm. $1.6M Adm. Supp. $0.7M Corp. Ben. $0.5M
Food Srvcs $5.8M
Projects Covering Expenses:
Payr. Srvcs* $1.8M Leas./Des. $1.1M
Purch. & Prt $3.7M Prop. Mgmt $0.9M
Food Srvcs* $2.3M
* Excludes Metro NY Facility.
Corporate
Corporate
Corporate: $1.3MAdministration: $2.4M
- 40 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
New Opportunity Reengineering Projects’ Annual Expense Coverage and Savings Decomposition
ProductDevelopment
Under-writing
BusinessAcquisition Administration Claims
InvestmentMgmt.
Agency $313.6M $5.2M $3.4M
TIM* $11.3M $66.9M $23.7M $12.2M
Insurance Prod. $11.6M $30.2M $4.8M $26.9M $11.9M
OCFO $6.9M $6.3M $32.2M $1.3M
Annuity Products $2.8M $15.2M $4.1M $11.5M $2.9M $7.0M $1.7M $1.2M
OCAO (Excl. TIM) $17.4M $0.1M $0.1M $28.1M
Law Dept. $14.5M $3.2M $1.2M $1.8M
Central $21.2M
Residual Benefits $21.0M
OCIO $1.5M $8.1M** $0.2M
Residual Rent $9.2M
TOTAL $14.4M $382.8M $15.8M $122.1M $7.7M $18.9M $1.8M $145M $13.3M
xxxxxxxxx CorporateTIM Institutional
287
$45.6M167
$20.7M
330
$114.1M
30
$9.7M
1,494
$322.2M
537
$46.7M
1,053
$85.4M
0
$21.0M
0
$9.2M
0
$21.2M
646
$46.3M
Major Cost Driver &Part of Project(s)
Part of Project(s) Only
Major Cost Driver Only(Above $1 Million)
- 41 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Only 20% of all Projects are Defined Today as Reengineering Efforts
0
1
2
3
4
5
6
7
8
9
Miscellaneous
Reduction
Reengineering Systems Outsource/Insource Renegotiations
# of Projects
Note: Miscellaneous Reduction means staff and general administrative expense reductions that not have yet a plan to reengineer the way business is conducted.
- 42 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
88% of all Projects Are Cost Reduction Only
# of Projects
0
5
10
15
20
25
Cost Reduction Cost Reduction/Revenue
Enhancement
RevenueEnhancement
Reengineering Projects usually affect both costs and revenues.
- 43 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
TIM Expense Allocation to Value Chain
ProductDevelopment
Under-writing
BusinessAcquisition Administration Claims
InvestmentMgmt.
New Bus./Serv. S.
Agent/Ag. Sys.
Sys. Dev. Group
Assoc. Sys. Dev.
Paris Phase 2
Banding Project
Ann/Sm’l Pensions
Prod. Com. Sys.
Sgl. Prem. Prod.
UL/IL
CCA Sys. Sup.
New Life Platf.
EOC Systems
ELA Systems
Trad. Prod. Sys.
Health Sys.
TIM CorporateTIM
$3.4M
$2.3M
$2.3M
$4.2M
$2.1M
$3.7M
$1.4M
$1.7M
$5.9M
$0.7M
$0.5M
$0.2M
$1.9M
$4.9M
Institutional*
* Institutional refers to activities that are mandated by regulation, non-business area specific and subsidiary generated.
$3.3M
$1.7M
Field Sys.
Annuity
Life & Health
Trad. & Health
- 44 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
ProductDevelopment
Under-writing
BusinessAcquisition Administration Claims
InvestmentMgmt.
Key:Major Cost Driver &Part of Project(s)
Part of Project(s) Only
Major Cost Driver Only
OCAO Office
Ext. Relations
Cost An. & Control
Ben. Pl. Fin. Mgmt.
Curator
Protocol
Quality Service
Sharehol. Srvcs.
Adm. Services
Facilities Mgmt.
Corp. Relations
H.R. Policy
H.R. Services
Info. Mgmt.
OCAO CorporateTIM Institutional*
2
$0.4M3
$0.5M6
$0.5M3
$0.1M2
$0.4M11
$0.9M3
$0M125
$11.9M58
$11.0M30
$12.9M19
$2.7M21
$2.9M646
$114.1M
4
$1.2M
* Institutional refers to activities that are mandated by regulation, non-business area specific and subsidiary generated.
- 45 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
Project Total Expense Savings Payback Investment Next
Expense Covered 1993 1994 Period Costs Steps
#14 $46.0 ? ? ? ? ? B.G talk to M.B.
Law Dept.
#102 $80.0 ? ? ? ? ? ?
NYC Lease & Stra.
#103 $5.2 $2.0 ? ? ? ? COMPASS
Lease Proc. & Mgmt. $115.0 ? ? ? ? ? ?
#104 $35.5 $20.1 $0.1 $3.7 TBD $0.6-0.8 UMT (4/16) Purchasing
#105 % of $31.9 ? ? ? ? ? UMT (4/19)
Forms Pr. & Post.
#106 $0.8+ ? ? ? ? ? Tazzetta (4/16) Photocopiers
#107 $13.5 $13.5 $4.6* $0.6 ? None TBDShareholdr Srvcs
#116 ? ? ? ? ? ? Wait for #103 Comm. Sharing
#117 ? ? ? ? ? ? Wait for #103
Lease Adm. Sys.
#118 $6.7 $2.3 ? $1.1 (?) ? None 7/1: Marriott Food Srvcs
- 46 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Financial Decomposition
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1992 1993 1994 1995
Current Rate Targeted Rate
At Current Level, 1995 Annual Run Rate Will Exceed Targeted Annual Run Rate by Almost $240 Million
Million
Current Rate: Keep budget constant for $330.4M, plus add inflation and cost of living (10%) for Compensation: $279.1M and Benefits & Taxes: $132.5M.Targeted Rate: Goal set by top management; assumption: no one-time cost reduction. YAE: Yearly Actual Expenses represent the total budgeted expenses for the year.ARR: Annual Running Rate represents the annualized December budget rate to meet yearly budget.
YAE = $742M
YAE = $733MARR = $724M
YAE = $777M
YAE = $600MARR = $587M
YAE = $828MYAE = $783M
YAE = $650MARR = $613M
Annual Run Rate Delta = $241M
FocusFindings
Underwriters
Service Desks
4/26-5/7BuildValue
Chain(s)
ChangeReadiness
Assessment
Executive Interviews
FocusInterviews
Day-In-The-LifeStudies
Renewals
Applications-To-Issue
Business Process Flows
New Product Introduction
Culture ...
Interface ...
InternalSurveys
Policyholders
Agents
ServiceEffectiveness
ServiceLevel Analysis
Probes:• Costs• Roles & Responsibilities• Qualifiers & Differentiators
• Revenue Enhancement• Service: Agent Retention
• Orphan Service• Service: Share of Wallet
Key Findings
InitiativesReview
Measurements
OpportunitiesBenefitsPotential
Opportunities &Benefits Realized
... ...
...
...
Business Case
Program Design
ExternalPerspective
xxxxxxxxx Analysis & Design Strawmodel Approach
FocusFindings
FocusFindings
FocusFindings
Walt\Consulting IP\A&D Toolkit\15 – JUSTIFICATION\Val Chain Finan Decomp.ppt