Now that we’ve introduced Pitchmap, I’m returning to topics on business operation efficiency. Today’s topic is Telling stories in data: Using data to support your arguments

Yesterday, I attended the first Australian IACCM meeting of the year. The two presenters spoke on very different topics, “Clean energy laws and carbon trading” and “Utilities Benchmarking” but both presenters were equally adept at using data to underpin their arguments. Today, data is everywhere and an effective business person must be an expert in presenting their arguments using data. In my view, there’s nothing like a story to make your audience feel that change can happen and a vision can be achieved.

Storytelling in Data

Let’s look at some Pitchmap data to show how data can be used to tell a story. This data compares the procurement processes of three companies (Salamander Logistics, Melbourne Transport and Queensland Trucking) with each other and with an optimised process. The columns in the chart show the cost per transaction: the higher the column the greater the cost per transaction. The type of transaction is shown by the label above the columns.

The first story in the above data is indicated by the red arrow. It shows that Melbourne Transport is spending about the right amount on Vendor Creation processes whereas the other two companies, Salamander and Queensland, appear to be under-investing. This does not say that Melbourne Transport is doing it right, just that they are spending about the right amount on it.

The second story is indicated by the yellow arrow. The story within the data is that Melbourne is better than its peers but higher priced than optimal. Interestingly, the purple section of the column (transaction costs relating to invoice processing) is the same as the optimised process but the green section of the column (transaction costs relating to placing orders) is significantly more expensive. This indicates that Melbourne Transport should be focusing its process improvement initiatives on order placement rather than invoice processing.

The last story is highlighted by the blue arrow. Melbourne Transport and its peers are significantly more expensive than the optimised process. This should serve as a red flag in any attempt to re-engineer this process given that no one is doing it particularly well. It may well be that there is some aspect of expense processing such as regulatory requirements in this industry or geography that adds to the cost of the process and further investigation should be undertaken to ascertain whether this is so.

The keys to successful storytelling

The keys to being able to tell stories with data are four-fold:

1. The data must be clearly displayed – preferably on one page,
2. The data must show where you are now and where you could be (either by reference to an optimal state or comparison against your peers or benchmarks or all three),
3. The data must be sufficiently detailed to make the story interesting, and
4. You need to be able to dive into the details underlying the data when your assumptions are questioned.

Doing so will enable you to present a compelling picture (as in the chart above) of what needs to be changed, how it needs to be changed, and what further inquiries need to be undertaken to resolve outstanding questions.

In my next post, I’ll discuss how to collect and present variable data in a compelling manner.

At the end of January, we released Pitchmap for enterprises which allows an enterprise to quickly cost their existing people-dependant processes, create one or more “to be” cost models and compare the two.

Last week, we introduced Pitchmap for BPOs (Business Process Outsourcers), consulting firms and PMOs (Project Management Offices) which has all of the functionality of Pitchmap for enterprises, but facilitates the creation and comparison of hundreds or thousands of Pitchmaps. Coinciding with this, we also introduced our pricing model of $1,000 per user per month, regardless of the number of Pitchmaps created.

Pitchmap’s core distinction is that it allows processes to be compared across companies or across time. With the release of the benchmarking capability, organisations can now easily compare their processes with other organisation that they have agreed to connect with.

This will be of great interest to industry groups with members willing to share certain processes with each other, or to government bodies with multiple departments, or corporations with multiple subsidiaries.

For example;

• a group of universities may wish to compare their finance and administration processes
• the members of a CFO Industry Association may wish to share their reconciliation processes
• a central government body may require their departments to share their procurement processes
• a central health services body may request their members share payroll or HR processing data
• a BPO provider may use it to motivate clients to move from bespoke processes to a common platform.

With the release of Pitchmap Benchmarking, the industry group or association, or central public or private organisation can purchase a single Pitchmap license and start creating Pitchmaps for their members. Their members can log in at no charge and compare their processes with other members. This will provide a channel for industry associations to easily deliver specific and accurate benchmarking data to their members and for central public or private organisations to easily amalgamate and compare processes across their subsidiaries or affiliated organisations.

The screenshot below shows a member (Salamander Logistics) logging in to the industry association account. Here they can select which other members they want to compare their processes to.

Clicking Compare Pitchmaps, shows Salamander Logistics compared against the other organisations they selected.

The above screenshot shows the comparison on a transaction cost basis. Pitchmap also shows the annual cost of each company selected in the comparison using the transaction volumes from Salamander Logistics.

With this information, for the first time, industry association members can easily obtain benchmarking information against other association members for the processes they are willing to share.

For more information on this functionality, email Doug Hudgeon on doug.hudgeon@pitchmap.com or call +61 425 203344.

In January we released Pitchmap: Enterprise which is designed to allow an enterprise to quickly pull together business cases to support their business process improvement initiatives.

Today, we are announcing the availability of Pitchmap: BPO Edition. Using this version of Pitchmap, a Business Process Outsourcing (BPO) provider or a Project Management Office (PMO) can clearly see and articulate which projects will deliver the biggest benefits to their clients or their enterprises. This information can be linked to their CRM software and fed into your assessment of their prospects.
What is Pitchmap?

Pitchmap is a methodology and software application for quickly building robust business cases to support business process improvement projects. Any business process you are looking to automate, streamline or outsource is particularly suitable for pitchmapping.

What is the Pitchmap BPO Edition?

Pitchmap BPO Edition combines the functionality of Pitchmap Enterprise with an approach to administering pitchmaps and a licensing model that allows you to create and manage hundreds or thousands of pitchmaps.

The screenshot below shows business cases for three clients. The project cost is the cost of migrating a business process from each client to the BPO provider. The Net Present Value (NPV) is the value of the project to the client and the negative ROI risk shows the likelihood that the client will see a negative ROI from this project. Using a Monte Carlo simulation the negative ROI risk tells you how pessimistic your assumptions would need to be before the ROI became 0. So, for example, Salamander Logistics has an expected ROI of $611K and an 88% chance of being ROI positive. That is, based on the assumptions entered, in 12% of the Monte Carlo simulations your ROI comes up negative. By tightening up your assumptions, your expected ROI may not change but the likelihood of being ROI negative might.

The screenshot below shows a summary of the financial business case for one of the clients, Salamander Logistics.

The screenshot below shows the cost per transaction for the current process and BPO shared services process as well as the total annual cost for each process. Note that this view clearly shows the total savings as well as the components of each transaction that are impacted by the change. In the below chart, you can see that admin and letters are almost completely removed as an activity and call effort is reduced by half.

For more information, please contact doug.hudgeon@pitchmap.com or visithttp:://www.pitchmap.com

Stay tuned for our next newsletter where we’ll go through the Benchmarking tab.

It contains a project costing module and runs a Monte Carlo simulation over the assumptions and tells you how pessimistic your assumptions would need to be before the ROI becomes negative. So, for example, Pitchmap can tell you that over 5 years your expected ROI for migrating a reconciliation process is $1M but it will also say that you have an 86% chance of being ROI positive. That is, based on the assumptions you have entered, in 14% of the samples in the Monte Carlo simulation your ROI is negative. By tightening up your assumptions, your expected ROI may not change but the point at which you become ROI negative might.

This lets you succinctly describe any number of scenarios using two key numbers: The ROI at the 50th percentile of your assumptions and the percentile at which your ROI goes negative. This is straightforward for your business case approvers to understand and now easy for you to do.

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Are you in operations and spending time and effort building business cases to improve your business processes?

Or

Are you a consultant or BPO provider with clients who can’t get their funding together to engage you for a project?

Pitchmap can help you get your business cases funded.

How Pitchmap got started
I’m fanatical about speed in business. I love shaving a few minutes off a process by removing steps that aren’t adding value or reducing the error rate at a particular step.

Now that I’m spending most of my time building business cases to support process improvement projects I find it ironic that this is often an area ripe for improvement. I regularly see business cases where a vast amount of time and effort has been put into a project before two fundamental questions are answered:

1. Can we create a clear vision of the future?
2. Is the business case built on a solid financial foundation?

Answering the first question requires a comprehensive view of your business and deep subject matter expertise. Your business is unique and your processes must accommodate your uniqueness.

Answering the second question is much easier and can largely be automated. This is where Pitchmap comes in. Pitchmap is like a caterer for your party. It’s up to you to make the party fun (clear vision) but you don’t need to worry about serving the food or drinks (financial foundation). If you can create the vision, Pitchmap can tell you how much to invest in the project.

To find out more about Pitchmap, visit pitchmap.com.

Who can use Pitchmap?
Pitchmap is targeted at three groups of users:

1. Operations staff: If your job is to manage or improve your organisation’s processes, you can use Pitchmap to build the financial benefits component of your business case. We’ll either do it for you or provide you with training, industry standards, and guidance on doing it yourself. You can also use it to validate whether you realised the anticipated benefits from completed projects.
2. Outsourcing firms / consulting firms: If you have a potential client who has unsuccessfully tried to get funding for their project, you can use Pitchmap to build the financial business case for them.
3. Industry/professional associations: Your members face similar process improvement challenges. If your membership is willing to share their Pitchmaps then they can easily compare their processes with their peers. These benchmarks provide compelling financial justification for process improvement projects.

Why is it called “Pitchmap”?
When you’re preparing a business case, you’re not in process improvement, you’re in sales. You are no different than a Silicon Valley startup looking for funding from venture capitalists. That’s why we’ve called our application “Pitchmap”—it’s a process map designed to deliver the pitch rather than deliver the improvement.

What next?
Reply to this email and we’ll talk about how Pitchmap can help you get your projects funded. We’re particularly interested in hearing from you if you’ve already tried and failed to get your process improvement project funded. Recently, we’ve used Pitchmap to get procure-to-pay business cases approved where the big 4 accounting firms had already tried and failed. This is particularly satisfying for us and really delights our clients. If you want to speak to us in person, give Doug Hudgeon a call on +61 425203344.

Applying this calculation to a procurement process typically results in total transaction costs ranging from $3 to $90. That’s not a typo. You can have a 30-fold uplift in procurement transaction costs if you don’t structure your processes properly.

To help you evaluate your procurement processes, below is my view of the simplest possible procurement workflow:

The workflow steps 1 through 5 show PO-based purchases. Steps 7, 9 and 10 show employee reimbursements and steps 8,9 and 11 show corporate card purchases.

You’ll notice a few things about this workflow. Firstly, the limit for pre-approval (PO-based workflow) is $10K. This may seem high but if you limit the number of people who can claim employee reimbursements or who hold a company credit card and you drive home the importance of restraint and regularly re-educate those who fail to show restraint then you can have a pretty high limit here. This is not about trusting your employees but about respect for their capacity to act responsibly. Provide guidance and monitor, monitor, monitor.

Secondly, all expenses above $10K are going through a Requisition. In my view, this is only possible (or even desirable) if you have a fairly broad definition of a Requisition. There will be a lot of workflows in your company where systems other than your procurement system are used to instruct suppliers and validate the work they do for you. For example, you may use a logistics provider’s system to ship and track products. Don’t interpret the above workflow to mean that you should ditch that system and put these transactions through your procurement system. You may be better off continuing to use your logistics supplier’s system and use the transactional reporting from the system to validate a consolidated invoice. In this instance, the Requisition is really the placement of transactions in the supplier’s system. The Requisition and PO in the procurement process is only used effect payment – and that’s OK.

Thirdly, even if you follow this process, your transaction costs may be high. At each step in the process you need to ask yourself “How can I simplify this?” and “How can automate this once I’ve simplified it?” An example is the requisition approval step. This step can range from fully automated approval for transactions that fall within certain expected thresholds to a fully manual process where only Madge, an administrative assistant who has worked in your company for 30 years, knows who should approve a purchase – resulting in everything getting routed through Madge. Automate, and let Madge enjoy her retirement.

Lastly, don’t forget about the final step above: AP review. If your processes leading up to AP review are robust enough, you can largely automate the final step. If your earlier processes are not robust, you create a mountain of work for your AP staff.

By combining the Monte Carlo simulation spreadsheets along with a workflow diagram like the one above modified to show each of your procurement processes, you can comprehensively model your current procurement processes and costs and, when combined with a model of your to-be processes, create a compelling business case supporting change.

Tip #21 provided an overview of the company we are looking to prepare cost management reports for. To summarise, ABC Services

1. provide software and consulting in the facilities management sector
2. have one office in Sydney and another in Melbourne
3. the bulk of their revenue comes from the sale of asset management software but have an active consulting arm.

The significant improvement in headcount driven costs really drove the company’s performance last year.

Headcount reduction and revenue growth is possible for ABC Services because they are maturing as an organisation. Their consulting work is becoming more standardised and repeatable and well within the capabilities of more junior consultants and their software prospects are seeking them out which greatly shortens the sales cycle and reduces the effort required for lead generation.

Drilling down into resource costs, you can see that overall costs have decreased across the three types of staff in our company. Note that the lines below are negative numbers because they are tracking cost.

To understand what has led to the reduction in cost across the three types of staff, headcount is the next item to look at. The chart below shows that G&A staff numbers dropped slightly, but real change has occurred in sales and consulting staff numbers. Sales staff numbers have decreased whilst consulting staff numbers have increased. This means that fewer sales staff are generating greater sales volume (and greater commissions) and that the company’s senior (and expensive) consultants are being replaced by a larger numbers of junior consultants.

In an upcoming post, I’ll share the simple data structure that allows you to generate these types of reports from your standard financial data.

Effective management accounts are critical to a cost reduction initiative. Without it, your stakeholders can’t see that their pain is justified. It’s like the difference between running on a treadmill (without a watch or odometer) and running through the countryside.  If you have a destination and can track your progress, your motivation will be higher.

Good management accounts are different from good financial accounting in that management accounts in a cost reduction initiative are concerned with real money out the door right now whereas financial accounts are often reporting on expenditure decisions made years ago (depreciation).

I’ve prepared a sample data set that I’ll use for the upcoming series of posts. The management accounts are from the fictional company ABC Services who provide software and consulting in the facilities management sector. They have one office in Sydney and another in Melbourne and the bulk of their revenue comes from the sale of asset management software but have an active consulting arm. They kicked off a cost management initiative in November 2010. The management accounts tracks their expenses and revenue over the 12 months from July 2010 to June 2011.

ABC Services: Revenue and expenses

You can see from the orange line above that revenue has consistently increased throughout the year and from January 2011 their cost reduction program has made some headway. Now let’s take a look at the impact of this on their profit:

ABC Services

As you can see from the above chart, moderate to strong revenue growth combined with a high impact cost reduction initiative can create some stellar results.

In the next post, we’ll look at the data elements underlying the above charts and slice and dice the monthly data by location, division, expense type and headcount to see what areas of the company contributed most to this turnaround and which areas require further work.

Note that I’ll be changing the underlying data throughout the series of posts to highlight  the importance of certain elements of the data set so don’t look for consistency across these posts. I’ll do a wrap up post at the end.

In the 1970s and 80′s, skateboarding went through a renaissance. Difficult tricks became commonplace and impossible tricks became possible. The invention of polyurethane wheels in 1972 and the US drought in 1976 (which led to the draining of concrete pools) kicked off these advances but it was not until groups of skaters such as the Z-Boys began challenging each other to innovate that we saw an explosion of new tricks.

A good example is the Ollie. Within days of Alan Gelfand’s arrival in California in 1976, the Ollie became a standard part of every skateboarders repertoire. The Ollie is a trick performed off a vertical wall (such as a swimming pool wall) where the skateboard sticks to the rider’s feet as he or she flys above the lip of the wall.

Every half-decent skater can do the Ollie but it’s not until you’ve seen it that you even realize it can be done.

We’re at this same stage with enterprise software. New entrants into the enterprise software space are performing impossible feats. Some of these new tricks such as SAAS delivery require new technology but many tricks simply require you and your existing vendors to re-conceive your service requirements and their service offering. This can both improve your vendor’s capabilities and significantly reduce your costs.

Certain problems when you first look at them seem intractable. But once you understand their natural fracture lines, breaking them up and solving them is actually quite easy. Most business process problems fall into this category and cost reduction problems are no exception.

The natural fracture line for cost reduction opportunities are people and COGS. It’s easy to get lost in arguments about what is and what is not included in COGS so it’s best to simply think of COGS as costs that do not vary with the number of staff you have. In fact, I’ll call these non-People costs in this and subsequent posts. For example, desktop support costs are driven by People costs whilst marketing expenses are driven by non-People costs. Certain expenses can fall into both or either category such as data centre costs where your data centres support both your intranet and internet sites. For these, you can split them by percentage or just lump the entire expense into the biggest driver – People or non-People

Identifying your cost reduction opportunities then is just a matter of categorising each expense line in your management accounts as being driven by People or non-People. Tackle the former by considering how you can deliver the same value with fewer people and the latter by identifying the drivers of that cost and looking at ways of minimising it.

Sound simple. It is.