the next stage for reengineering financial decomposition april 20, 1993

The Next Stage for Reengineering

Financial Decomposition

April 20, 1993

- 2 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.


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



Contents

• Expense Decomposition Overview

• Expense Decomposition Breakdowns

• Reengineering Project Allocation and Assessment

• Reengineering Project Mapping to Expense Decomposition

• New Opportunities

• Key Conclusions

• Appendix


Expense Decomposition Overview



•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)


Expense Decomposition Breakdowns



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.



Business Acquisition Accounts for 49.5% of Total Budgeted Expenses

$362.5M


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



Underwriting Accounts for 1.2% of Total Budgeted Expenses

$8.9M


1. Salaries $5.3M 60% Employee Comp. $4.4M New Bus. Reeng. - Phase 1


3. Administrative $0.8M 9% Printing & Off. Supp. $0.4M 4. Outside Services $0.7M 8% Special Services $0.4M


6. Sub. & JT Reimb. ($0.2M) (2%)





Administration Accounts for 5.6% of Total Budgeted Expenses

$46.3M


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.


6. Sub. & JT Reimb. ($0.8M) (2%)





Investment Management Accounts for 1.7% of Total Budgeted Expenses

$5.9M


1. Salaries $3.7M 62% Employee Comp. $3.1M


3. Administrative $0.2M 3%

4. Outside Services $0.2M 3%


6. Sub. & JT Reimb. --





Claims Accounts for 2.5% of Total Budgeted Expenses

$18.9M


1. Salaries $4.5M 24% Employee Comp. $3.5M


3. Administrative $1.1M 6% Postage & Express $0.7M

4. Outside Services $11.3M 60% Medical & Inspection $10.4MOther General $1.5M


6. Sub. & JT Reimb. --





Technology Information Management Accounts for 15.4% of Total Budgeted Expenses

$114.1M


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


6. Sub. & JT Reimb. ($0.07M)





Corporate Administration Accounts for 15.2% of Total Budgeted Expenses

$113.1M

Page 1 of 2


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


6. Sub. & JT Reimb. ($11.7M) (10%)





Corporate Allocations Account for 6.9% of Total Budgeted Expenses

Page 2 of 2

$58.0M


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


6. Sub. & JT Reimb. ($15.3M) (26%)





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



Corporate Administration Has 54% of all the Reengineering Projects Identified

Note: #10: Equitable / Traebco Processing not included for lack of information.


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)



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



ProductDevelopment

Existing Projects Cover XX% of xxxxxxxxx’s Budgeted Expenses

% % % % % %


Corporate Support / Allocations

Under-writing

BusinessAcquisition Administration ClaimsInvest.

Mgmt.

Due to a lack of information and data gathering, this page cannot be completed.



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



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 ...



Under-writing


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

?

?

?

?

?

?

?

?


Data Not Available - To Be Completed ...Major Cost Driver &Part of Project(s)





Under-writing


Invest.Mgmt.

ProductDevelopment




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



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



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

}



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



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



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



1993 Budgeted Expenses per Value Chain Category

Source: Gemini Accounting Systems.



1993 Budgeted Expenses per Value Chain Category (Cont’d)

Source: Gemini Accounting Systems.



Value Chain 1993 Expense Decomposition

Source: Gemini Accounting and CAM Systems.



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.



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



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



New Opportunity Reengineering Projects’ Annual Expense Coverage and Savings Decomposition

ProductDevelopment

Under-writing


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






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.



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.



TIM Expense Allocation to Value Chain

ProductDevelopment

Under-writing


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*


$3.3M

$1.7M

Field Sys.

Annuity

Life & Health

Trad. & Health



ProductDevelopment

Under-writing


InvestmentMgmt.

Key:Major Cost Driver &Part of Project(s)


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




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



$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


the next stage for reengineering financial decomposition april 20, 1993

Documents