Sample Financial Analysis Report

RE-INVENTING XYZ

Financial Analysis Report

Finance Team

Prepared for:

XYZ BPE Project

XYZ Ministry of Government Services

November, 1994

XYZ BPE Project Financial Analysis Report

November, 1994 Page I

Table of Contents

Executive Summary ...................................................................................................................................................................................1

Financial Model Review ............................................................................................................................................................................3

Financial Baseline Review .........................................................................................................................................................................4

Base Case Financial Analysis ....................................................................................................................................................................4

Significant Costs and Benefits .................................................................................................................................................................5

Forecasted XYZ Operating Expenditures ..............................................................................................................................................14

Forecasted Operating Expenditures Comparison ...................................................................................................................................15

Cash Flow Analysis ...............................................................................................................................................................................17

Discussion ..............................................................................................................................................................................................19

Sensitivity Analysis ..................................................................................................................................................................................20

Cost + 25 ................................................................................................................................................................................................21

Benefit - 25 ............................................................................................................................................................................................22

Redeployment ........................................................................................................................................................................................23

Late Completion.....................................................................................................................................................................................24

Conclusions ...............................................................................................................................................................................................25


November, 1994 Page II

Table of Exhibits

Exhibit A: XYZ Financial Baseline (1994/95 Budget) ..........................................................................................................................27

Exhibit B: Summary of Financial Model Calculations ........................................................................................................................29

Exhibit C: Base Case Financial Analysis ...............................................................................................................................................42

Exhibit D: Cost + 25 Financial Analysis ................................................................................................................................................63

Exhibit E: Benefit - 25 Financial Analysis .............................................................................................................................................75

Exhibit F: Redeployment Financial Analysis ........................................................................................................................................84

Late Completion Financial Analysis ..................................................................................................................................................... 92


November, 1994 Page 1

Executive Summary The Finance Team is responsible for all financial modeling and analysis of the observations and recommendations of the Process, Organization, Technology, and Communications teams in the XYZ BPE project. Members of the team included representatives from XYZ, Finance and Administration, and Company ABC. The key deliverable of the team is the Cost-Benefit Analysis, illustrating the estimated impact of implementing the recommendations of the XYZ BPE project teams. The analysis is illustrated using two key models:

• A forecasted Cash Flow Analysis; and, • A forecast of XYZ’s Operating Expenditures for the budget years 1994/95 to 1995/98.

It is important to note that the analysis is not a definitive and/or detailed study of all the costs and all the benefits. It quantifies, at a high level, recommendations having the largest financial impact, their value, and their timing. All budget forecasts are based on the estimated results of this project only and do not anticipate the costs and benefits of other XYZ’s projects and initiatives. For these reasons, it must be seen as an input only to future XYZ Budgets. The XYZ Operating Expenditures Forecast is particularly important as it measures the progress against one of the key performance measures of the XYZ BPE project, outlined by the Deputy Minister at the Project Design Meeting in August:

“a significant reduction in the cost base of the XYZ Division from existing levels” Here, existing levels have been defined as the XYZ 1994/95 Operating Budget and, to permit more accurate comparisons to date, the Forecasted Operating Expenditures for 1994/95 as of September. During the re-design phase of the project, the Finance Team was responsible for helping the other teams to quantify, in financial terms, the impact of their recommendations so that they may make choices based on the performance measures of the project. At the completion of the Transition Workshop, the value and timing of each of the major costs and benefits were finalized and incorporated into the Financial Model for analysis. The result is the forecasted operating expenditures for the budget years 1994/95 to 1997/98. This report provides a complete Financial Analysis of the XYZ BPE Project. To enhance decision-making, several variations of the analysis are represented to demonstrate financial impact under the following assumptions:



• Base Case - the best, most realistic, estimates provided by each of the teams; • Cost + 25 - a case in which costs are increased by 25% to estimate the impact of significant cost overruns; • Benefit - 25 - a case in which benefits are decreased by 25% to illustrate the impact if benefits have been overestimated; • Redeployment - a case in which some employees are redeployed by the government thereby reducing severance costs; and, • Late Completion - a case in which projects on the critical path are assumed to take one quarter longer than expected producing

an overall delay of 6 months for complete implementation.. The % change (reductions expressed in parentheses) in the XYZ Total Operating Expenditures, from 1995/96 to 1997/98, versus the 1994/95 Baseline Operating Budget for each case is provided in the table below: Case 1995/96 1996/97 1997/98 Base Case (0%) (14%) (45%) Cost + 25 1% (12%) (43%) Benefit - 25 1% (5%) (34%) Redeployment (3%) (22%) (45%) Late Completion (5%) (7%) (32%) It is the opinion of the Finance Team that these results fairly represent the estimated costs and benefits resulting from the implementation of the recommendations of each of the XYZ’s project teams. Based on these results, the Finance Team recommends that XYZ proceed with the implementation of the project recommendations in partnership with a systems integrator able and willing to finance the investment in technology necessary to realize the long-term benefits of the change.



Financial Model Review The work of the Finance Team began with the development of a Financial Model - a framework for analysis identifying the major cost and benefit drivers of the XYZ Division. In the end, two frameworks were developed: • The Forecasted Operating Expenditure Model to indicate progress against the stated financial performance measure; and, • The Cash Flow Model to illustrate the financial impact in a format easily understood by business and financial institutions. Each model shares the same cost and benefit categories and the same estimates of financial impact provided in association with the other BPE Project teams; the only difference is the final presentation of the numbers. The major sources of cost and benefit detailed in the Financial Models are:

One-time Impact Periodic or Annual Impact • Severance and Outplacement • Manpower Reductions • Information Technology • Supplies and Services Savings

• Acquisition • Information Technology • Custom Software Development • Maintenance Costs • Project Management • Operating Costs

• Communications • Telecommunications Costs • Training • Outsourcing Costs • Consulting

• Human Resources • Implementation Management



Financial Baseline Review The next objective of the Finance Team was to develop the Financial Baseline - an explicit definition of “existing levels” of cost in the XYZ Division. Development of the Financial Baseline was based on the following principles: • The baseline must focus on costs that are within the scope of the project. i.e. only costs that may be impacted by the

recommendations of the project teams should be considered; • The baseline must not contain estimates of future cost reductions based on assumptions made prior to the project and that may

change as a result of the project; • The baseline must be verifiable through publicly available records; and, • The baseline must recognize costs and savings known at the time of writing to permit reconciliations with activities parallel to the

BPE Project. As of September 1994, the total number (actual number) of FTE’s in XYZ is 600, a reduction of 50 FTE’s from the budgeted figure due to long term disability, retirement, and the transfer of information technology employees through the Company ABC Agreement.

For these reasons, the Finance Team recommended that the Financial Baseline be represented by the complete 1994/95 XYZ Operating Budget and the September 1994 Forecast to permit comparisons against the most current budget. Both are summarized below with details of the complete XYZ 1994/95 Budget presented in Exhibit A.

XYZ Financial Baseline 1994/95 Budget 1994/95 Forecast

Manpower $ 25,000,000 $ 22,000,000 Supplies and Services 15,000,000 15,000,000 Implementation Costs 1,000,000 500,000 Other Costs 2,000,000 2,000,000 Total Operating Budget $ 43,000,000 $39,500,000



Base Case Financial Analysis The purpose of the Cost Benefit Analysis is to provide an informed estimate of the financial impact of implementing the BPE Project recommendations. This analysis is not a definitive study of all the costs and all the benefits. It attempts to quantify, at a high level, the recommendations having the largest financial impact, their value and their timing. The Base Case Financial Analysis is developed using the best estimates of each of the XYZ BPE Project teams. Here, “best” is defined as most realistic, most likely, and/or most comfortable. As a result, it represents the “best” estimate of financial impact.

The Base Case is also highly dependent on the Transition Plan as it determines the timing of costs and benefits. The Transition Plan Gantt Chart for the Base Case is provided in Exhibit C.

Significant Costs and Benefits

The following is a discussion of the major costs and benefits, their assumptions, values, and timing for the Base Case Financial Analysis presented in Exhibit C. For details on line items and interim calculations not discussed here, please see Exhibit B.

Manpower Savings

The implementation of the re-designed processes and technologies, together with functional outsourcing, results in a 85% reduction in total budgeted FTE’s from 650 in 1994/95 to 100 by the end of the 1997/98 Budget year. The reduction in force translates to a $18.9 million annual savings in the XYZ budget. Against the September forecast, the reduction in force is 500 FTE’s or 83%. Estimating the timing and number of the reductions in force by category is based on the assumption that the new organization will be built gradually from the existing organization according to the following events: • Service A Integration • Service B Integration • Service C Integration • Service D Integration • Service E Integration



• Organizational Infrastructure completion For the purposes of determining financial impact, it is also assumed that: • the completion of each event enables a corresponding reduction in force to be completed; • events are completed at the end of a budgetary quarter; • the reduction in force for the event is completed as a whole; and, • the benefits of the reduction begin to accrue in the quarter following event completion. In summary, the total number of FTE’s impacted by employee category and budget year is:

Category 1995/96 1996/97 1997/98Management (1.3) (20.0) (30.0)Professional/Technical (1.3) (20.0) (30.0)Clerical (31.3) (345.0) (440.0)Total (33.8) (385.0) (500.0)



and the total number of positions impacted by employee category and budget year is:

Category 1995/96 1996/97 1997/98 TotalManagement (5.0) (25.0) (30.0)Professional/Technical (5.0) (25.0) (30.0)Clerical (125.0) (315.0) (440.0)Total (135.0) (365.0) (500.0)

A detailed description of the steps and assumptions used to estimate the timing and number of reductions in force by employee category is contained in Exhibit B.

Supplies & Services Savings

In the 1994/95 Budget, $975,000 of supplies and services, or approximately $1,500 per FTE, was considered directly dependent on FTE’s. Thus, each displacement produces a savings in Supplies and Services such that, by 1997/98, displacement produces an annual savings of $750,000 in Supplies and Services. The teams believe that there are no other significant savings in Supplies & Services have been achieved by the XYZ BPE project.

Severance Costs

Due to the size of the reductions in force, the total cost of severance is significant at $2,967,500 in the 1995/96 budget year and $8,665,000 in 1996/97. All separation compensation is assumed to be taken immediately and completely in the quarter it is offered for the Base Case (please see the Redeployment Scenario in Sensitivity Analysis for results that assume that some redeployment is achieved without severance).



According to the transition plan and FTE calculations for Manpower reductions, the following chart illustrates the number of positions expected to accept severance by category and year.

Category 1995/96 1996/97 1997/98 TotalManagement 5.0 25.0 30.0Professional/Technical 5.0 25.0 30.0Clerical 125.0 315.0 440.0Total 135.0 365.0 500.0

Information Technology Operating Costs

Information Technology Operating Costs cover the annual costs of hardware and software maintenance, software licensing, etc. Telecommunications costs, however, have not been included as they are dependent on the final configuration and volume discounts available independently or through an outsourcing partner. The annual costs provided in the table below are assumed to be incurred evenly over each budget year and beginning immediately in the quarter each is completed.

1994/95 1995/96 1996/97 1997/98Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

Common System Infrastructure 75.0 75.0 75.0 75.0 75.0 75.0 300.0 75.0 75.0 75.0 75.0 300.0Service A 50.0 50.0 50.0 150.0 50.0 50.0 50.0 50.0 200.0Service B 50.0 50.0 50.0 50.0 50.0 50.0 200.0 50.0 50.0 50.0 50.0 200.0Service C 25.0 25.0 50.0 25.0 25.0 25.0 25.0 100.0Service D 50.0 50.0 100.0 50.0 50.0 50.0 50.0 200.0Service E 25.0 25.0 50.0 25.0 25.0 25.0 25.0 100.0Office Automation 25.0 25.0 25.0 25.0 25.0 25.0 100.0 25.0 25.0 25.0 25.0 100.0Total 150.0 150.0 150.0 200.0 300.0 300.0 950.0 300.0 300.0 300.0 300.0 1,200.0



AnnualOperating Cost

($000's/year)Common System Infrastructure 300.0Service A 200.0Service B 200.0Service C 100.0Service D 200.0Service E 100.0Office Automation 100.0Total 1,200.0

Training Costs

Many of the re-designed processes require that the people involved be re-trained in broader and more advanced skills to maximize productivity. With the outsourcing of training for the Private Agent Network, XYZ is responsible for the cost of training its employees only. Based on the Organization Design teams estimates, all retained employees will receive approximately $3,000 of training and education (please see Organizational Design Report for details).



The timing of the training is assumed to correspond with the completion of the major transition events following the reductions in force. The following chart illustrates the estimated number and timing of FTE’s requiring training.

Category 1995/96 1996/97 1997/98 TotalManagement 1.0 9.0 10.0Professional/Technical 11.0 49.0 60.0Clerical 3.0 27.0 30.0Total 15.0 85.0 100.0

In addition to skills training for retained FTE’s, the Organizational Design team anticipates the provision of one paid training course for skills upgrade available to any FTE in XYZ. The cost of the training is estimated at $300 per employee, or $90,000 in each of 1995/96 and 1996/97 when the largest training requirements may be expected.

Outsourcing Costs

The process designs recommend the outsourcing of three activities to focus on core competencies and take advantage of the performance benefits offered by external providers. However, they are not expected to impact operating expenditures. Technology

Earlier this year, XYZ entered into a multi-year outsourcing agreement with Company ABC, transferring the bulk of the IT Group to Company ABC. All development must be performed by a third party on behalf of XYZ. The Technology Team has assumed all IT costs to be the price required by third parties.



Service Delivery

In an effort to shed all direct delivery responsibilities, the process teams envision the private agent network delivering all services on behalf of XYZ. Outsourcing service delivery introduces severance costs, salary savings, supplies and services savings, and a reduction in revenues now that they must be shared with the private agent network.

Training

XYZ intends to engage a third party vendor to provide training and certification to the private agent network and to XYZ employees. The cost of outsourcing training is dependent on the arrangement struck with the private agents: • XYZ pays for all training program design and delivery; • Private Agents pay for all training program design and delivery; or, • XYZ pays for training program design and Private Agents pay for delivery on a cost recovery basis to XYZ and the

third party.

The third option is considered the most likely for the purposes of the Base Case. With the exception of timing and initial investment issues, it is assumed that a contract with an external provider could be struck such that there is no net cost to XYZ.

Consulting Costs

The Communications team anticipate the use of one or more consultants to provide Outplacement Services estimated at $5,000 in 1995/96 and $25,000 in 1996/97.



Communications Costs

All communications costs are the responsibility of Ministry of Government Services, which qualifies as an agency external to the XYZ Cost Benefit Analysis.

Capital Investments

The Technology team has recommended a total capital investment for technology of $15,000,000 over the next two years, as shown in the following chart. This figure includes the cost of hardware and software purchase, custom software development, configuration, and deployment.

Capital Invest.($000's)

Common System Infrastructure 3,800.0Service A 4,200.0Service B 3,600.0Service C 2,100.0Service D 3,000.0Service E 2,700.0Office Automation 600.0Total 20,000.0

For the purposes of the cost benefit analysis, an even distribution of costs over the life of each of the development projects is assumed according to the transition plan. These costs will then be amortized over 7 years reflecting the anticipated life of the systems and beginning in the year they are incurred.

1994/95 1995/96 1996/97 1997/98Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

Common System Infrastructure 950.0 950.0 950.0 950.0 950.0 2,850.0Service A 700.0 700.0 700.0 700.0 700.0 700.0 2,800.0 700.0 700.0Service B 900.0 900.0 900.0 900.0 900.0 2,700.0Service C 700.0 700.0 700.0 700.0 1,400.0Service D 1,000.0 1,000.0 1,000.0 1,000.0 2,000.0Service E 900.0 900.0 900.0 900.0 1,800.0Office Automation 150.0 150.0 150.0 150.0 150.0 450.0Total 2,700.0 2,700.0 2,700.0 2,700.0 2,700.0 3,300.0 11,400.0 3,300.0 2,600.0 5,900.0



Benefits External to XYZ

With the 85% reduction in total FTE’s, a corresponding reduction in occupancy costs should be expected by sub-leasing the available space or canceling the lease. However, all occupancy costs are the responsibility of the Public Works Department. Therefore, no savings in the XYZ budget may be directly accrued. This savings has not been estimated given its timing and negotiation complexities although they are expected to be considerable.

Costs External to XYZ

The Private Agents are expected to pay for all new training in XYZ skills and in using the new XYZ systems. Investments External to XYZ

As well, Private Agents are expected to invest in the necessary desktop technology to effectively use the software and graphical user interfaces anticipated by the technology team.



Forecasted XYZ Operating Expenditures The following is the estimated XYZ Operating Expenditures for the budget years 1994-98 based on the full implementation of all recommendations and assumptions as outlined by the Process Designs, the Technology Report, the Organizational Design Report, and the Base Case Discussion above.

Forecasted Operating Expenditures

Baseline Forecasted Forecasted Forecasted Forecasted1994/95 1994/95 1995/96 1996/97 1997/98

Category ($000) ($000) ($000) ($000) ($000)

Operating Expenditures

Manpower 25,000.0 22,000.0 20,762.5 7,625.0 3,150.0

Supplies and Services 15,000.0 15,000.0 15,099.4 15,372.5 15,450.0

Implementation Costs 1,000.0 500.0 3,095.5 9,047.0

Other (Amortization) 2,000.0 2,386.1 4,016.3 4,860.0 4,860.0

Forecasted Operating Expenditures 43,000.0 39,886.1 42,973.7 36,904.5 23,460.0

Forecasted Capital Investments 4,000.0 2,700.0 11,400.0 5,900.0

Forecasted FTE's 650.0 600.0 566.3 215.0 100.0



Forecasted Operating Expenditures Comparison The next two charts compare the Forecasted Operating Expenditures for XYZ to the 1994/95 Baseline Budget and the September Forecasted 1994/95 Operating Expenditures indicating the percentage reduction anticipated for each line item.

Forecasted Operating Expenditures Comparison - 1994/95 BaselineBaseline Forecasted Forecasted Forecasted1994/95 1995/96 1996/97 1997/98

Category ($000) ($000) % Chg ($000) % Chg ($000) % Chg


Manpower 25,000.0 20,762.5 (17%) 7,625.0 (70%) 3,150.0 (87%)

Supplies and Services 15,000.0 15,099.4 1% 15,372.5 2% 15,450.0 3%

Implementation Costs 1,000.0 3,095.5 210% 9,047.0 805% (100%)

Other 2,000.0 4,016.3 101% 4,860.0 143% 4,860.0 143%

Forecasted Operating Expenditures 43,000.0 42,973.7 (0%) 36,904.5 (14%) 23,460.0 (45%)

Forecasted FTE's 650.0 566.3 (13%) 215.0 (67%) 100.0 (85%)



Forecasted Operating Expenditures Comparison - 1994/95 Sept. ForecastSept. Forecast Forecasted Forecasted Forecasted

1994/95 1995/96 1996/97 1997/98Category ($000) ($000) % Chg ($000) % Chg ($000) % Chg


Manpower 22,000.0 20,762.5 (6%) 7,625.0 (65%) 3,150.0 (86%)


Implementation Costs 500.0 3,095.5 519% 9,047.0 1709% (100%)

Other (Amortization) 2,000.0 4,016.3 101% 4,860.0 143% 4,860.0 143%

Forecasted Operating Expenditures 39,500.0 42,973.7 9% 36,904.5 (7%) 23,460.0 (41%)

Forecasted FTE's 600.0 566.3 (6%) 215.0 (64%) 100.0 (83%)



Cash Flow Analysis The following is the Base Case Cash Flow Analysis.

Forecasted Cash Flow

Budget Years Category 1994/95 1995/96 1996/97 1997/98 Totals

Benefits:Manpower Reduction Savings 1,237,500 14,375,000 18,850,000 34,462,500Supplies and Services Savings 50,625 577,500 750,000 1,378,125

Total Benefits 1,288,125 14,952,500 19,600,000 35,840,625Costs:

Severance (2,967,500) (8,665,000) (11,632,500)Information Technology Operating (150,000) (950,000) (1,200,000) (2,300,000)Training (123,000) (357,000) (480,000)Consulting (5,000) (25,000) (30,000)CommunicationsOutsourcing

Total Costs (3,245,500) (9,997,000) (1,200,000) (14,442,500)Capital Investments:

Information Technology (2,700,000) (11,400,000) (5,900,000) (20,000,000)Total Capital Investments (2,700,000) (11,400,000) (5,900,000) (20,000,000)

Total Forecasted Cash Flow (2,700,000) (13,357,375) (944,500) 18,400,000 1,398,125

Cumulative Cash Flow (2,700,000) (16,057,375) (17,001,875) 1,398,125Payback Period 3.2



Operating Expenditures Comparison

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98

Budget Years

Ope

ratin

g Ex

pend

iture

s ($

000

's)

Baseline Operating Expenditures


Forecasted Expenditures 1997/98

Supplies and Services

66%

Manpower13%

Other (Amortization)

21%

Implement. Costs0%

Cumulative Cash Flow

-20,000.0

-10,000.0

0.0

10,000.0

20,000.0

30,000.0

40,000.0

1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Years

Cum

ulat

ive

Cas

h F

low

($ 0

00's

)

Discussion The following observations and conclusions are significant:



• The Forecasted Operating Expenditure Comparison to the 1994/95 Baseline shows the forecasted operating expenditures falling to $23,460,000 by 1997/98, a 45% improvement.

• Manpower Costs have been reduced by 87% to $3,150,000 from $22,000,000. Combining Manpower and Supplies and Services

Costs gives the best representation of long term operating costs. By 1997/98, the combination decreases from $37,000,000 to $18,600,000, a 50% improvement.

• There is a spike in the forecasted operating expenditures in the 1995/96 Budget Year. This is due primarily to the $3 million cost

of severance in the third quarter and the $2 million increase in amortization from the bulk of the systems development work. The cost of technology can be managed further through a partnership with a systems integration firm willing to forego some development revenues until later in the projects. As well, the Base Case represents a worst case scenario for the severance costs by assuming that all employees affected by the reduction in force would receive a separation payment. The scenario in which some staff is redeployed by the government and separation payments are avoided is illustrated in Exhibit F.

• The Cumulative Cash Flow graph illustrates that, assuming XYZ pays for all costs up-front, including technology, the investment

in the recommended changes will not pay back until late in the 1997/98 budget year. This produces a 3.2 year payback period measured from January, 1995. However, following 1997/98, the manpower reductions will provide an annual positive cash flow of $18.4 million after accounting for the increased cost of information technology operations.

Overall, the Base Case illustrates a positive scenario for XYZ. The large investment required to achieve the one window vision is more than compensated by the benefits of the reduced manpower requirements, improvements in customer service, and the potential to increase the number of products and services provided through the Private Agent Network.



Sensitivity Analysis All numbers provided by the XYZ BPE Project teams are estimates and must be treated as such. Although each team employed approaches that were rigorous, logical, and ultimately satisfactory, the breadth and depth of the re-engineering necessitates grouping, rounding, and averaging. With more time and more detailed analysis, the precision of the estimates can be improved, but they will still be subject to unanticipated events and human nature. As mentioned earlier, the primary objective of the Financial Analysis is to develop a best estimate of the financial impact of implementation based on the most realistic estimates of each of the other teams. This estimate then becomes an important input in deciding the next steps for XYZ. However, more informed decisions can be made through sensitivity analysis. By testing different assumptions and scenarios, further insight can be gained into the behavior of the Financial Model, the downside risk, and the upside potential. For the XYZ BPE Project, four cases are tested. Each case is based on the Base Case, the case that represents the best estimates from each of the teams. The numbers are then varied as follows: Case Scenario Costs Benefits Base Case Realistic Estimate Best Estimates Best Estimates Cost + 25 Significant Cost Overruns Best Estimates + 25% Best Estimates Benefit - 25 Benefits Overestimated Severance Reduced Best Estimates - 25% Redeployment 200 FTE’s Redeployed without Severance Severance Reduced Best Estimates Late Completion One-Two Quarter Delay in completion of all events Best Estimates Best Estimates Each case and its results are described in more detail in the following sections.



Cost + 25 Description: The estimated financial impact of implementing the recommendations of the XYZ BPE Project teams where

actual costs exceed best estimates by 25%. Costs increased include Information Technology Operating Costs, Training Costs, Consulting Costs, and Capital Investments.

Reference: Please see Exhibit D. Results: 1995/96 1996/97 1997/98 Forecasted Operating Expenditures 43,547.3 37,952.5 24,475.0 % Change from 1994/95 Baseline 1% (12%) (43%) Payback Period 3.5 years


0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98

Budget Years

Op

erat

ing

Exp

end

itu

res

($

000'

s)





64%

Manpower13%


23%

Implement. Costs0%


-30,000.0

-20,000.0

-10,000.0

0.0

10,000.0

20,000.0

30,000.0

40,000.0

1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Years

Cum

ulat

ive

Cas

h F

low

($ 0

00's

)

Discussion: An increase in the costs predictably increases the payback period out to the beginning of the 1998/99 Budget

Year and increases the forecasted operating expenditures for the years 1997/98 and on. However, with the costs of technology amortized over a seven year period, the BPE Project recommendations still produce a net savings of 43% over the 1994/95 Baseline Budget. Under this scenario, the Operating Expenditures spike in 1995/96 is slightly more pronounced, eclipsing the 1994/95 budget. Again, this can be managed through the partnership of a financing systems integrator.



Benefit - 25 Description: The estimated financial impact of implementing the recommendations of the XYZ BPE Project teams where

benefits have been overestimated such that actual benefits are 25% less than in the Base Case. Reference: Please see Exhibit E. Results: 1995/96 1996/97 1997/98 Forecasted Operating Expenditures 43,295.7 40,642.6 28,360.0 % Change from 1994/95 Baseline 1% (5%) (34%) Payback Period 3.8 years


0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98

Budget Years

Op

erat

ing

Exp

end

itu

res

($

000'

s)





55%

Manpower28%


17%

Implement. Costs0%


-25,000.0-20,000.0

-15,000.0-10,000.0-5,000.0

0.05,000.0

10,000.0

15,000.020,000.0

1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Years

Cum

ulat

ive

Cas

h F

low

($ 0

00's

)

Discussion: The Benefit - 25 scenario produces results that are worse than the Cost + 25 scenario. Here, the payback period

is again lengthened to 3.8 years from the 3.2 years of the Base Case. However, the annual cash flow from manpower reductions beginning in 1997/98 is only $14.7 million versus $19.6 million in the Base Case. With only a 69% savings in the Manpower Budget, XYZ forecasted Operating Expenditures in the years 1997/98 and on are only 34% lower than the Baseline. Unless all reductions in force are achieved at the bottom of the pay scales, this scenario should prove to be highly unlikely.



Redeployment Description: The estimated financial impact of implementing the recommendations of the XYZ BPE Project teams where 12

Management, 12 Professional/Technical, and 176 Administrative Support positions are redeployed without severance.

Reference: Please see Exhibit F. Results: 1995/96 1996/97 1997/98 Forecasted Operating Expenditures 41,786.7 33,438.5 23,460.0 % Change from 1994/95 Baseline (3%) (22%) (45%) Payback Period 2.9 years


0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98

Budget Years

Op

erat

ing

Exp

end

itu

res

($

000'

s)





66%

Manpower13%


21%

Implement. Costs0%


-20,000.0

-10,000.0

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Years

Cum

ulat

ive

Cas

h F

low

($ 0

00's

)

Discussion: The ability to redeploy 200 FTE’s allows XYZ a continuous year over year reduction in Forecasted Operating

expenditures to 45% of the Baseline Budget. Cash flow is much improved as well with the achievement of a 2.9 year payback period. These benefits are due to the significantly reduced total severance cost from $11.6 million to $7 million.



Late Completion Description: The estimated financial impact of implementing the recommendations of the XYZ BPE Project teams where

projects are delayed by one budget quarter to produce a two quarter total completion delay.. Reference: Please see Exhibit G. Results: 1995/96 1996/97 1997/98 Forecasted Operating Expenditures 40,758.0 39,930.4 29,205.0 % Change from 1994/95 Baseline (5%) (7%) (32%) Payback Period 3.7 years


0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

1994/95 1995/96 1996/97 1997/98

Budget Years

Op

erat

ing

Exp

end

itu

res

($

000'

s)





52%

Manpower11%


17%

Implement. Costs20%


-20,000.0

-15,000.0

-10,000.0

-5,000.0

0.0

5,000.0

10,000.0

15,000.0

20,000.0

1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000

Budget Years

Cum

ulat

ive

Cas

h F

low

($ 0

00's

)

Discussion: While late completion of the projects in 1996/97 and 1997/98 results in an increased payback period, it permits

all Forecasted Operating Expenditures to be lower than the Baseline 1994/95 Budget year. However, the full benefits of the FTE reductions are not felt until the 1998/99 Budget year.



Conclusions The following chart summarizes the results of the financial analysis of the recommendations of the BPE Project teams under a variety of scenarios. Case 1995/96 1996/97 1997/98 Base Case (0%) (14%) (45%) Cost + 25 1% (12%) (43%) Benefit - 25 1% (5%) (34%) Redeployment (3%) (22%) (45%) Late Completion (5%) (7%) (32%) It is the opinion of the Finance Team that these results fairly represent the estimated costs and benefits resulting from the implementation of the recommendations of each of the XYZ’s project teams. Based on these results, the Finance Team recommends that XYZ proceed with the transformation according to the transition plan and engage a partner capable of providing the necessary capital investment distribution to permit continuous improvement in the year over year operating expenditures (i.e. permit the financing of development through the savings achieved). Severance costs have a tremendous impact as well, so opportunities for redeployment should be actively pursued to shrink the high implementation costs of 1995/96 and 1996/97.



The following charts illustrate the progress of the BPE project against the XYZ’s portion of the Ministry of Government Services Business Plan (draft 1, July 29, 1994). With the help of an information technology financing agreement and active redeployment to smooth the operating expenditure spike in 1995/96 and 1996/97, the BPE project provides the necessary cost and FTE reductions to permit XYZ to meet its stated financial targets, FTE targets, customer service goals, and one window vision.

0.05,000.0

10,000.015,000.020,000.025,000.030,000.035,000.040,000.045,000.0

1994/95 1995/96 1996/97 1997/98

Business Plan Op.ExpendituresBPE Project Op.Expenditures

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

1994/95 1995/96 1996/97 1997/98

Business Plan FTE'sBPE Project FTE's

XYZ BPE Project Financial Analysis Report - Exhibit A - Financial Baseline


Exhibit A

XYZ Financial Baseline (1994/95 Budget)

XYZ BPE Project Financial Analysis Report - Exhibit A - Financial Baseline


XYZ 1994/95 Operating Expenditure Details

Manpower 25,000,000 58%

Supplies & ServicesTravel Expenses 400,000 1%Advertising 5,000 0%Freight & Postage 1,100,000 3%Rentals 200,000 0%Telephone & Communication 400,000 1%Repairs & Maintenance 800,000 2%Memberships 45,000 0%Data Processing Services 10,850,000 25%Forms & Printing 1,200,000 3%

Implementation 1,000,000 2%

Other 2,000,000 5%

Total Operating Budget 43,000,000 100%

XYZ BPE Project Financial Analysis Report - Exhibit B - Financial Model Calculations


Exhibit B

Summary of Financial Model Calculations



The following are descriptions of major line items and their calculations as found in the XYZ BPE Project Financial Models and specifically in the Base Case.

Manpower Reduction Savings

Manpower Reduction Savings is the benefit derived from a reduction in the total FTE (full time equivalent) requirements of XYZ as a result of productivity improvements and/or functional outsourcing. The number and timing of each reduction in force was determined in the Transition Workshop according to estimates of the workforce required at each stage of the XYZ integration. The number of FTE’s displaced is multiplied by an average annual compensation figure to determine the total savings due to manpower reductions each year.

. Based on an assessment of the worked performed by each employee and the distribution of work by registry across employee groups, each of the forecasted 1994/95 FTE’s was allocated to one of the following four events.

1994/95 ForecastEvent FTE'sService A 150.0Service B 150.0Service C 45.0Service D 120.0Service E 45.0Organizational Infrastructure 90.0Total 600.0

.



Next, an estimate of the number of FTE’s from each grouping that would be represented in the re-designed organization was made.

Re-designedEvent FTE'sService A 15.0Service B 15.0Service C 10.0Service D 15.0Service E 10.0Organizational Infrastructure 35.0Total 100.0

. The reduction in force at the completion of each event is estimated as the difference between the two allocations.

1994/95 Actual Re-designed ImpactEvent FTE's FTE's FTE'sService A 150.0 15.0 (135.0)Service B 150.0 15.0 (135.0)Service C 45.0 10.0 (35.0)Service D 120.0 15.0 (105.0)Service E 45.0 10.0 (35.0)Organizational Infrastructure 90.0 35.0 (55.0)Total 600.0 100.0 (500.0)



4. Next, the reduction in force for each category was estimated for each group.

FTE's Service A Service B Service C Service D Service E Org. Infra. Total94/95 De- Im- Impact Impact Impact Impact Impact Impact Impact

Category Fcast sign pact # # # # # # #Managers 40.0 10.0 (30.0) (5.0) (5.0) (3.0) (5.0) (3.0) (9.0) (30.0)Professional/Technical 90.0 60.0 (30.0) (5.0) (5.0) (2.0) (5.0) (2.0) (11.0) (30.0)Clerical 470.0 30.0 (440.0) (125.0) (125.0) (30.0) (95.0) (30.0) (35.0) (440.0)Total 600.0 100.0 (500.0) (135.0) (135.0) (35.0) (105.0) (35.0) (55.0) (500.0)

5. Finally, the timing of each reduction in force was considered to determine the weighted average number of FTE’s for each budget year. Each reduction in force is assumed to occur at the beginning of the quarter immediately following the completion of the associated event. This is shown on the following page.



1995/96 1996/97 1997/98Event Q1 Q2 Q3 Q4 Avg. Q1 Q2 Q3 Q4 Avg. Q1 Q2 Q3 Q4 Avg.Service A

Management (5.0) (5.0) (5.0)Professional/Technical (5.0) (5.0) (5.0)Clerical (125.0) (125.0) (125.0)

Service BManagement (5.0) (1.3) (5.0) (5.0)Professional/Technical (5.0) (1.3) (5.0) (5.0)Clerical (125.0) (31.3) (125.0) (125.0)

Service CManagement (3.0) (1.5) (3.0)Professional/Technical (2.0) (1.0) (2.0)Clerical (30.0) (15.0) (30.0)

Service DManagement (5.0) (2.5) (5.0)Professional/Technical (5.0) (2.5) (5.0)Clerical (95.0) (47.5) (95.0)

Service EManagement (3.0) (1.5) (3.0)Professional/Technical (2.0) (1.0) (2.0)Clerical (30.0) (15.0) (30.0)

Organizational InfrastructureManagement (9.0) (4.5) (9.0)Professional/Technical (11.0) (5.5) (11.0)Clerical (35.0) (17.5) (35.0)

Total (135.0) (33.8) (135.0) (230.0) (385.0) (500.0)

1995/96 1996/97 1997/98Category Q1 Q2 Q3 Q4 Avg. Q1 Q2 Q3 Q4 Avg. Q1 Q2 Q3 Q4 Avg.Management (5.0) (1.3) (5.0) (20.0) (20.0) (30.0)Professional/Technical (5.0) (1.3) (5.0) (20.0) (20.0) (30.0)Clerical (125.0) (31.3) (125.0) (190.0) (345.0) (440.0)Total (135.0) (33.8) (135.0) (230.0) (385.0) (500.0)



Supplies & Services Savings - FTE Related

In addition to Manpower Reduction Savings, each reduction in force also provides savings in Supplies and Services. The savings takes the form of an allocation of travel expenses, communications expenses, etc. averaging to $1,500 per FTE as shown in the following calculation. The number and timing of the reductions in force are determined by the Transition Plan.

Supplies & Services Costs Per FTE

Supplies & Services Costs attributable to FTE’s

$ 975,000

Total FTE’s 650 Supplies & Services Costs Per FTE $ 1,500

Supplies & Services Savings

Supplies & Services Savings consists of all savings as a result of process design or technology impacting one or more of the following costs:

• Travel • Advertising • Freight and Postage • Rentals • Telephone and Communication •

Contract Services • Data Processing Services • Hosting • Other Purchased Services • Materials and Supplies

GovServ BPE Project Financial Analysis Report - Exhibit B - Financial Model Calculations


Severance Costs

Employees impacted by each reduction in force are entitled to a one-time separation payment. XYZ has elected to offer all employees the SPR separation package, one of two separation packages available, as follows: • Separation Payment Under Article 15 - Position Abolishment in the ‘Master Agreement between The Government and the Union of Employees’,

permanent bargaining unit employees impacted by a position abolishment are entitled to one and one half weeks severance pay per full year of service to a maximum of 25 weeks.

• Separation Payment for Restructuring (SPR)

In the event of permanent staff position abolishment, the Separation Payment for Restructuring is available to managers, opted out and excluded employees in the Government. The package is also available to bargaining unit employees at the discretion of the Deputy Minister. SPR is based on the number of full years of continuous service as illustrated in the following table.



Full Years of Continuous

Service Weeks of Pay at Regular Rate of

Pay 1 14 2 15 3 16 4 17 5 19 6 22 7 25 8 28 9 31 10 34 11 37 12 40

13 plus 43 In addition to the separation payment, employees are entitled to unused vacation pay amounting to an average of 7 weeks of regular pay per manager and 5 weeks for all other employees. The following chart illustrates the average severance cost per employee category, assuming all employees accepting severance accept the SPR. It is based on the average severance for each category based on actual employees to date, for each year on April 1, and rounded off to the nearest $100.

1994/95 1995/96 1996/97 1997/98 Management 50,000 50,500 51,000 51,500 Professional/Technical 30,000 30,500 31,000 31,500 Clerical 20,000 20,500 21,000 21,500

Information Technology Operating Costs



Information Technology costs are those periodic expenses resulting from the implementation of new technologies to enable the re-designed processes such as hardware and software maintenance and licensing.

Training Costs

Many of the re-designed processes require that the people involved be re-trained in broader and more advanced skills to maximize productivity. The necessary training programs are identified by the Organizational Design team and their estimated timing are determined at the Transition Workshop.

Outsourcing Costs

Together with process re-engineering, the XYZ BPE Project is responsible for the consideration of functional outsourcing opportunities. Outsourcing is most often considered where: • the performance of an external service provider exceeds the performance achievable through re-engineering (e.g. economies of

scale, expertise, flexibility, etc.); and/or • the function does not represent a core competency of XYZ in the long term.

Consulting Costs

It is anticipated that some additional expertise and experience will be required from consultants external to XYZ to help with the detailed organizational design and the transition period.


In order to ensure as smooth of a transition as possible, a great deal of communication, both internal and external, will be necessary. The Communications Team has developed the following estimates of cost in their communications strategies for implementation.



Capital Investments

Capital Investments are all costs related to the acquisition of machines, computers and computer-related equipment, and/or office furniture made by XYZ as a result of the re-engineering project.


Benefits External to XYZ are all estimated benefits resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.


Costs External to XYZ are all estimated costs resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.

Investments External to XYZ

Investments External to XYZ are all estimated changes in investments resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.



Amortization

All Capital Investments made by XYZ are amortized over a period of seven years on a straight line basis to reflect the anticipated life of the asset.


Benefits External to XYZ are all estimated benefits resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.


Costs External to XYZ are all estimated costs resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.

Investments External to XYZ

Investments External to XYZ are all estimated changes in investments resulting from the implementation of the project recommendations that impact government budgets outside of XYZ.

Total Benefits

Total Benefits is the sum of: • Manpower Savings; • Supplies and Services Savings; and, • Benefits External to XYZ (for the XYZ & External Divisions Cash Flow Model)

Total Costs

Total Costs is the sum of:



• Severance; • Information Technology; • Training; • Consulting; • Communications; • Outsourcing; and, • Costs External to XYZ (for the XYZ & External Divisions Cash Flow Model)

Total Capital Investments

Total Capital Investments is the sum of: • Information Technology Investments; and, • Investments External to XYZ (for the XYZ & External Divisions Cash Flow Model)

Total Cash Flow

Total Cash Flow is equivalent to Total Benefits less Total Costs and Total Capital Investments. Cumulative Cash Flow

Cumulative Cash Flow is the year over year sum of Total Cash Flow.



Payback Period

Payback Period is the number of years after the commencement of implementation at which the project breaks-even. i.e. when cumulative cash flow becomes positive.

Total Operating Expenditures

Total Operating Expenditures is the sum of: • Manpower; • Supplies and Services; • Implementation Costs; and, • Other Costs in the XYZ Budget.

Total XYZ Budget

Total XYZ Budget is the sum of: • Total Operating Expenditures; and, • Capital Investments in the XYZ Budget.

% Chg.

The “% Chg.” column in the XYZ Budget Comparison indicates the estimated percentage increase (decrease) in each line item of the XYZ Budget when the Baseline and Forecasted budgets are compared by year.

GovServ BPE Project Financial Analysis Report - Exhibit C - Base Case


Exhibit C

Base Case Financial Analysis



Parameters

Category Value

Financial Variables

Inflation Rate 0.00%

PeriodsPeriod 1 1994/95Period 2 1995/96Period 3 1996/97Period 4 1997/98




Budget YearsCategory 1994/95 1995/96 1996/97 1997/98 Totals

ManagementPositions Displaced 5.0 25.0 30.0Weighted Average FTE's Displaced 1.3 20.0 30.0Average Cost per FTE 65,000 65,000 65,000 65,000

Subtotal: Manpower Savings 81,250 1,300,000 1,950,000 3,331,250

Professional and TechnicalPositions Displaced 5.0 25.0 30.0Weighted Average FTE's Displaced 1.3 20.0 30.0Average Cost per FTE 50,000 50,000 50,000 50,000


Administrative SupportPositions Displaced 125.0 315.0 440.0Weighted Average FTE's Displaced 31.3 345.0 440.0Average Cost per FTE 35,000 35,000 35,000 35,000

Subtotal: Manpower Savings 1,093,750 12,075,000 15,400,000 28,568,750

Total Manpower Reduction Savings 1,237,500 14,375,000 18,850,000 34,462,500

Net FTE Impact (33.8) (385.0) (500.0)



Supplies & Services Savings - FTEs


Manpower Reduction FTE's

Net FTE Displacement 33.8 385.0 500.0Avg. Supplies & Services Cost per FTE 1,500 1,500 1,500 1,500

Total Supplies & Services Savings - FTEs 50,625 577,500 750,000 1,378,125



Severance Costs


ManagementPositions Displaced 5.0 25.0 30.0Positions Eligible for Severance 5.0 25.0 30.0Severance Cost per Position 50,000 50,500 51,000 51,500

Subtotal: Severance Cost 252,500 1,275,000 1,527,500

Professional and TechnicalPositions Displaced 5.0 25.0 30.0Positions Eligible for Severance 5.0 25.0 30.0Severance Cost per Position 30,000 30,500 31,000 31,500

Subtotal: Severance Cost 152,500 775,000 927,500

Administrative SupportPositions Displaced 125.0 315.0 440.0Positions Eligible for Severance 125.0 315.0 440.0Severance Cost per Position 20,000 20,500 21,000 21,500

Subtotal: Severance Cost 2,562,500 6,615,000 9,177,500

Total Severance Costs 2,967,500 8,665,000 11,632,500



Info. Tech. Operating Costs


Common System Infrastructure 75,000 300,000 300,000 675,000

Service A 150,000 200,000 350,000

Service B 50,000 200,000 200,000 450,000

Service C 50,000 100,000 150,000

Service D 100,000 200,000 300,000

Service E 50,000 100,000 150,000

Office Automation 25,000 100,000 100,000 225,000

Total Info. Tech. Operating Costs 150,000 950,000 1,200,000 2,300,000



Training Costs


Skills Upgrade for Re-designed Processes

Positions requiring Training 11.0 89.0 100Average Training cost per Position 3,000 3,000 3,000 3,000

Training Cost for Re-designed Processes 33,000 267,000 300,000

General Skills Upgrade Training 90,000 90,000

Total Training Costs 123,000 357,000 480,000



Outsourcing Costs


Total Outsourcing Costs



Consulting Costs


Outplacement Consulting 5,000 25,000 30,000

Total Consulting Costs 5,000 25,000 30,000





Total Communications Costs



Benefits


Manpower Reduction Savings 1,237,500 14,375,000 18,850,000 34,462,500

Supplies & Services Savings 50,625 577,500 750,000 1,378,125

Total Benefits 1,288,125 14,952,500 19,600,000 35,840,625



Costs


Supplies & Services Costs

Information Technology Operating Costs 150,000 950,000 1,200,000 2,300,000Outsourcing Costs

Total Supplies & Services Costs 150,000 950,000 1,200,000 2,300,000

Implementation Costs

Severance 2,967,500 8,665,000 11,632,500Training 123,000 357,000 480,000Consulting 5,000 25,000 30,000Communications

Total Implementation Costs 3,095,500 9,047,000 12,142,500

Total Costs 3,245,500 9,997,000 1,200,000 14,442,500



Capital Investments


Common System Infrastructure 950,000 2,850,000 3,800,000

Service A 700,000 2,800,000 700,000 4,200,000

Service B 900,000 2,700,000 3,600,000

Service C 700,000 1,400,000 2,100,000

Service D 1,000,000 2,000,000 3,000,000

Service E 900,000 1,800,000 2,700,000

Office Automation 150,000 450,000 600,000

Total Capital Investments 2,700,000 11,400,000 5,900,000 20,000,000



Amortization


Capital Investments 2,700,000 11,400,000 5,900,000 20,000,000

Amortization (7 years Straight Line) 14.30% 386,100 1,630,200 843,70014.30% 386,100 1,630,200 843,70014.30% 386,100 1,630,20014.30% 386,10014.30%14.30%14.30%

Total Amortization 386,100 2,016,300 2,860,000 2,860,000 8,122,400



Forecasted Cash Flow (Including External Divisions)


Benefits:Manpower Reduction Savings 1,237,500 14,375,000 18,850,000 34,462,500Supplies and Services Savings 50,625 577,500 750,000 1,378,125External Division Benefits


Severance (2,967,500) (8,665,000) (11,632,500)Information Technology Operating (150,000) (950,000) (1,200,000) (2,300,000)Training (123,000) (357,000) (480,000)Consulting (5,000) (25,000) (30,000)CommunicationsOutsourcingExternal Division Costs


Information Technology (2,700,000) (11,400,000) (5,900,000) (20,000,000)External Division Capital Investments

Total Capital Investments (2,700,000) (11,400,000) (5,900,000) (20,000,000)







Category ($000) ($000) ($000) ($000) ($000)


Manpower 25,000.0 22,000.0 20,762.5 7,625.0 3,150.0






Forecasted FTE's 650.0 600.0 566.3 215.0 100.0






Manpower 25,000.0 20,762.5 (17%) 7,625.0 (70%) 3,150.0 (87%)



Other 2,000.0 4,016.3 101% 4,860.0 143% 4,860.0 143%


Forecasted FTE's 650.0 566.3 (13%) 215.0 (67%) 100.0 (85%)






Manpower 22,000.0 20,762.5 (6%) 7,625.0 (65%) 3,150.0 (86%)





Forecasted FTE's 600.0 566.3 (6%) 215.0 (64%) 100.0 (83%)



Summary

Category ($000s)

ParametersInflation Rate 0.00%

Budget (1997/98)Manpower 3,150.0 (87%)Supplies & Services 15,450.0 3%Implementation Costs 0.0 (100%)Other Costs (Amortization) 4,860.0 143%

Forecasted Operating Budget 23,460.0 (45%)

Forecasted Capital Investments 20,000.0

Forecasted FTE's 100.0 (85%)

Total IT Investment (1994/95-1997/98) 20,000.0Severance (1994/95-1997/98) 11,632.5

Payback Period 3.2

GovServ BPE Project Financial Analysis Report - Exhibit D - Cost + 25


Exhibit D

Cost + 25 Financial Analysis





Common System Infrastructure 93,750 375,000 375,000 843,750

Service A 187,500 250,000 437,500

Service B 62,500 250,000 250,000 562,500

Service C 62,500 125,000 187,500

Service D 125,000 250,000 375,000

Service E 62,500 125,000 187,500

Office Automation 31,250 125,000 125,000 281,250

Total Info. Tech. Operating Costs 187,500 1,187,500 1,500,000 2,875,000



Training Costs









Consulting Costs






Costs



Information Technology Operating Costs 187,500 1,187,500 1,500,000 2,875,000Outsourcing Costs

Total Supplies & Services Costs 187,500 1,187,500 1,500,000 2,875,000




Total Costs 3,315,000 10,330,000 1,500,000 15,145,000



Capital Investments


Common System Infrastructure 1,187,500 3,562,500 4,750,000

Service A 875,000 3,500,000 875,000 5,250,000

Service B 1,125,000 3,375,000 4,500,000

Service C 875,000 1,750,000 2,625,000

Service D 1,250,000 2,500,000 3,750,000

Service E 1,125,000 2,250,000 3,375,000





Amortization



Amortization (7 years Straight Line) 14.30% 482,625 2,037,750 1,054,62514.30% 482,625 2,037,750 1,054,62514.30% 482,625 2,037,75014.30% 482,62514.30%14.30%14.30%








Severance (2,967,500) (8,665,000) (11,632,500)Information Technology Operating (187,500) (1,187,500) (1,500,000) (2,875,000)Training (153,750) (446,250) (600,000)Consulting (6,250) (31,250) (37,500)CommunicationsOutsourcing



Total Forecasted Cash Flow (3,375,000) (16,276,875) (2,752,500) 18,100,000 (4,304,375)

Cumulative Cash Flow (3,375,000) (19,651,875) (22,404,375) (4,304,375)Payback Period 3.5





Category ($000) ($000) ($000) ($000) ($000)


Manpower 25,000.0 22,000.0 20,762.5 7,625.0 3,150.0






Forecasted FTE's 650.0 600.0 566.3 215.0 100.0






Manpower 25,000.0 20,762.5 (17%) 7,625.0 (70%) 3,150.0 (87%)



Other 2,000.0 4,520.4 126% 5,575.0 179% 5,575.0 179%


Forecasted FTE's 650.0 566.3 (13%) 215.0 (67%) 100.0 (85%)






Manpower 22,000.0 20,762.5 (6%) 7,625.0 (65%) 3,150.0 (86%)





Forecasted FTE's 600.0 566.3 (6%) 215.0 (64%) 100.0 (83%)



Summary

Category ($000s)







Payback Period 3.5

GovServ BPE Project Financial Analysis Report - Exhibit E - Benefit - 25


Exhibit E

Benefit - 25 Financial Analysis





ManagementPositions Displaced 5.0 25.0 30.0Weighted Average FTE's Displaced 1.3 20.0 30.0Average Cost per FTE 48,750 48,750 48,750 48,750

Subtotal: Manpower Savings 60,938 975,000 1,462,500 2,498,438

Professional and TechnicalPositions Displaced 5.0 25.0 30.0Weighted Average FTE's Displaced 1.3 20.0 30.0Average Cost per FTE 37,500 37,500 37,500 37,500

Subtotal: Manpower Savings 46,875 750,000 1,125,000 1,921,875

Administrative SupportPositions Displaced 125.0 315.0 440.0Weighted Average FTE's Displaced 31.3 345.0 440.0Average Cost per FTE 26,250 26,250 26,250 26,250


Total Manpower Reduction Savings 928,125 10,781,250 14,137,500 25,846,875

Net FTE Impact (33.8) (385.0) (500.0)






Net FTE Displacement 33.8 385.0 500.0Avg. Supplies & Services Cost per FTE 1,125 1,125 1,125 1,125

Total Supplies & Services Savings - FTEs 37,969 433,125 562,500 1,033,594



Benefits


Manpower Reduction Savings 928,125 10,781,250 14,137,500 25,846,875

Supplies & Services Savings 37,969 433,125 562,500 1,033,594

Total Benefits 966,094 11,214,375 14,700,000 26,880,469





Benefits:Manpower Reduction Savings 928,125 10,781,250 14,137,500 25,846,875Supplies and Services Savings 37,969 433,125 562,500 1,033,594

Total Benefits 966,094 11,214,375 14,700,000 26,880,469Costs:










Category ($000) ($000) ($000) ($000) ($000)


Manpower 25,000.0 22,000.0 21,071.9 11,218.8 7,862.5






Forecasted FTE's 650.0 600.0 566.3 215.0 100.0






Manpower 25,000.0 21,071.9 (16%) 11,218.8 (55%) 7,862.5 (69%)



Other 2,000.0 4,016.3 101% 4,860.0 143% 4,860.0 143%


Forecasted FTE's 650.0 566.3 (13%) 215.0 (67%) 100.0 (85%)






Manpower 22,000.0 21,071.9 (4%) 11,218.8 (49%) 7,862.5 (64%)




Forecasted Operating Expenditures 39,500.0 43,295.7 10% 40,642.6 3% 28,360.0 (28%)

Forecasted FTE's 600.0 566.3 (6%) 215.0 (64%) 100.0 (83%)



Summary

Category ($000s)







Payback Period 3.8

GovServ BPE Project Financial Analysis Report - Exhibit F - Redeployment


Exhibit F

Redeployment Financial Analysis



Severance Costs











Costs



Information Technology Operating Costs 150,000 950,000 1,200,000 2,300,000Outsourcing Costs

Total Supplies & Services Costs 150,000 950,000 1,200,000 2,300,000




Total Costs 2,058,500 6,531,000 1,200,000 9,789,500










Total Forecasted Cash Flow (2,700,000) (12,170,375) 2,521,500 18,400,000 6,051,125






Category ($000) ($000) ($000) ($000) ($000)


Manpower 25,000.0 22,000.0 20,762.5 7,625.0 3,150.0






Forecasted FTE's 650.0 600.0 566.3 215.0 100.0






Manpower 25,000.0 20,762.5 (17%) 7,625.0 (70%) 3,150.0 (87%)



Other 2,000.0 4,016.3 101% 4,860.0 143% 4,860.0 143%


Forecasted FTE's 650.0 566.3 (13%) 215.0 (67%) 100.0 (85%)






Manpower 22,000.0 20,762.5 (6%) 7,625.0 (65%) 3,150.0 (86%)





Forecasted FTE's 600.0 566.3 (6%) 215.0 (64%) 100.0 (83%)



Summary

Category ($000s)







Payback Period 2.9

GovServ BPE Project Financial Analysis Report- Exhibit G - Late Completion


Exhibit G

Late Completion Financial Analysis





ManagementPositions Displaced 10.0 20.0 30.0Weighted Average FTE's Displaced 8.8 30.0Average Cost per FTE 65,000 65,000 65,000 65,000

Subtotal: Manpower Savings 572,000 1,950,000 2,522,000

Professional and TechnicalPositions Displaced 10.0 20.0 30.0Weighted Average FTE's Displaced 8.8 30.0Average Cost per FTE 50,000 50,000 50,000 50,000

Subtotal: Manpower Savings 440,000 1,500,000 1,940,000

Administrative SupportPositions Displaced 250.0 190.0 440.0Weighted Average FTE's Displaced 218.8 440.0Average Cost per FTE 35,000 35,000 35,000 35,000

Subtotal: Manpower Savings 7,658,000 15,400,000 23,058,000

Total Manpower Reduction Savings 8,670,000 18,850,000 27,520,000

Net FTE Impact (236.4) (500.0)






Net FTE Displacement 236.4 500.0Avg. Supplies & Services Cost per FTE 1,500 1,500 1,500 1,500

Total Supplies & Services Savings - FTEs 354,600 750,000 1,104,600



Severance Costs



Subtotal: Severance Cost 510,000 1,030,000 1,540,000










Common System Infrastructure 300,000 300,000 600,000

Service A 100,000 200,000 300,000

Service B 200,000 200,000 400,000

Service C 100,000 100,000

Service D 200,000 200,000

Service E 100,000 100,000


Total Info. Tech. Operating Costs 700,000 1,200,000 1,900,000



Training Costs









Outsourcing Costs


Total Outsourcing Costs



Consulting Costs








Total Communications Costs



Benefits


Manpower Reduction Savings 8,670,000 18,850,000 27,520,000

Supplies & Services Savings 354,600 750,000 1,104,600

Total Benefits 9,024,600 19,600,000 28,624,600



Costs



Information Technology Operating Costs 700,000 1,200,000 1,900,000Outsourcing Costs

Total Supplies & Services Costs 700,000 1,200,000 1,900,000



Total Implementation Costs 185,000 6,395,000 5,745,000 12,325,000

Total Costs 185,000 7,095,000 6,945,000 14,225,000



Capital Investments


Common System Infrastructure 760,000 3,040,000 3,800,000

Service A 600,000 2,400,000 1,200,000 4,200,000

Service B 720,000 2,880,000 3,600,000

Service C 2,100,000 2,100,000

Service D 3,000,000 3,000,000

Service E 2,700,000 2,700,000





Amortization



Amortization (7 years Straight Line) 14.30% 314,600 1,258,400 1,287,00014.30% 314,600 1,258,400 1,287,00014.30% 314,600 1,258,40014.30% 314,60014.30%14.30%14.30%






Benefits:Manpower Reduction Savings 8,670,000 18,850,000 27,520,000Supplies and Services Savings 354,600 750,000 1,104,600

Total Benefits 9,024,600 19,600,000 28,624,600Costs:

Severance (6,070,000) (5,745,000) (11,815,000)Information Technology Operating (700,000) (1,200,000) (1,900,000)Training (180,000) (300,000) (480,000)Consulting (5,000) (25,000) (30,000)CommunicationsOutsourcing

Total Costs (185,000) (7,095,000) (6,945,000) (14,225,000)Capital Investments:






Forecasted Cash Flow (Including External Divisions)


Benefits:Manpower Reduction Savings 8,670,000 18,850,000 27,520,000Supplies and Services Savings 354,600 750,000 1,104,600External Division Benefits

Total Benefits 9,024,600 19,600,000 28,624,600Costs:

Severance (6,070,000) (5,745,000) (11,815,000)Information Technology Operating (700,000) (1,200,000) (1,900,000)Training (180,000) (300,000) (480,000)Consulting (5,000) (25,000) (30,000)CommunicationsOutsourcingExternal Division Costs

Total Costs (185,000) (7,095,000) (6,945,000) (14,225,000)Capital Investments:

Information Technology (2,200,000) (8,800,000) (9,000,000) (20,000,000)External Division Capital Investments

Total Capital Investments (2,200,000) (8,800,000) (9,000,000) (20,000,000)







Category ($000) ($000) ($000) ($000) ($000)


Manpower 25,000.0 22,000.0 22,000.0 13,330.0 3,150.0


Implementation Costs 1,000.0 500.0 185.0 6,395.0 5,745.0




Forecasted FTE's 650.0 600.0 600.0 363.6 100.0






Manpower 25,000.0 22,000.0 (12%) 13,330.0 (47%) 3,150.0 (87%)

Supplies and Services 15,000.0 15,000.0 15,345.4 2% 15,450.0 3%

Implementation Costs 1,000.0 185.0 (82%) 6,395.0 540% 5,745.0 475%

Other 2,000.0 3,573.0 79% 4,860.0 143% 4,860.0 143%


Forecasted FTE's 650.0 600.0 (8%) 363.6 (44%) 100.0 (85%)






Manpower 22,000.0 22,000.0 13,330.0 (39%) 3,150.0 (86%)

Supplies and Services 15,000.0 15,000.0 15,345.4 2% 15,450.0 3%

Implementation Costs 500.0 185.0 (63%) 6,395.0 1179% 5,745.0 1049%


Forecasted Operating Expenditures 39,500.0 40,758.0 3% 39,930.4 1% 29,205.0 (26%)

Forecasted FTE's 600.0 600.0 363.6 (39%) 100.0 (83%)



Summary

Category ($000s)


Budget (1997/98)Manpower 3,150.0 (87%)Supplies & Services 15,450.0 3%Implementation Costs 5,745.0 475%Other Costs (Amortization) 4,860.0 143%





Payback Period 3.7

Sample Financial Analysis Report

Documents

Transcript of Sample Financial Analysis Report