Transforming FP&A: Combining Process Redesign & Technology to Deliver Insights

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2 Transforming FP&A: Combining Process Redesign & Technology to Deliver Insights Session 602 IASA 86 TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW

3 Project Overview The Hanover Insurance Group (THG) is undergoing a finance transformation within their organization initially focused in FP&A THG is dependent on extensive, manual Excel spreadsheets and fragmented data sources to perform critical business functions There has historically been a limited investment in infrastructure and back office systems THG has invested in the Oracle EPM and BI set of tools support the business functions Three key threads that have been identified; Segment P&L Reporting, Financial Planning and Forecasting, and Expense Planning and Forecasting. Process Data & Information Technology Organization Preview of challenges Inefficient process, Segment P&L & Planning process development time lengthy Modest accuracy realized to date Lack of transparency of key business information to management Analysis activities secondary to development & consolidation of results Lack of enabling technology and data architecture to empower the FP&A team functions

4 Current State Architecture and Data Flows Financial Planning Segment P&L Expense Planning Number of Processes - decreases the overall flexibility of the solution Process Complexity - causes inability to leverage more strategic data sources Limited Analytical Capability - heavy reliance on Microsoft Access and Excel for reporting and analysis Data Manipulation - Majority of analysts time is spent on data transformation and validation Data Complexity - underlying complexity results in an environment that does not provide transparency Opportunity to simplify the business process, better align data sources and improve reporting, planning and analytic capabilities

5 Goals and Objectives Project Goal THG s goal is to address identified deficiencies with the current financial and expense planning, forecasting and reporting processes by designing and delivering improved capabilities while leveraging new enabling technology. These new applications will provide immediate benefits to deliver on the vision outlined by the FP&A organization. Project Objectives Improve efficiency and development time for Segment P&L by 50% Reduce planning cycle time by 50% across Personal and Commercial lines Increase Planning and Forecasting accuracy to within +/- 5% across Personal and Commercial lines Provide visibility and transparency of key business information to management Improve the allocation process Provide visibility to understand key outcomes and why they occurred The solution will be flexible to model and integrate acquisitions The FP&A team is empowered and leverages the enabling technology and applies it to their business functions

6 Work Streams Objective: Design and deliver iterative solutions that provide immediate benefits, minimize risk for implementation success, and that are flexible to support ongoing enhancements Work Stream Scope Goals 1 Segment P&L Reporting Deliver improved transparency and control of Segment P&L information, validate methodologies and improve financial controls Improved efficiency reducing development time by 50%, eliminate key-man reliance, alignment control standards 2 Financial Planning and Forecasting Improve underwriting planning capabilities, harmonizing methodologies and tools where appropriate. Scope includes P&L, key operating metrics, balance sheet and cash flow statements Shorten planning cycle-time by 50% and improve transparency of information. Improve accuracy of plans/forecasts to within +/- 5% 3 Expense Planning and Forecasting Stable, efficient and actionable expense planning capability. Focus will include an aligned vision for expense management Shorten expense planning timeline to 3 weeks (excluding review). Remove allocation pain points. Improve expense process integration 4 Reporting and Analysis Drill-down and drill-through ad hoc analysis capabilities. Right Information, Right Person, Right Way, Right Time. Harmonized reporting strategy Enable integrated reporting framework supported by ad hoc analysis flexibility, linked to key business decisions (e.g. scorecard, dashboard, and KPIs) 5 Chaucer To be determined after review of current processes and alignment of targeted future state capabilities

7 Project by the Numbers 15,938,688 14, Number of records in Hyperion Number of development team hours Defects Resolved Business Rules Adjustment Accounts in FINPLAN Requirements Workshops Dimensions Planning/Essbase Applications User Rollout Six Applications Designed, Built and Deployed within an 8 Month timeframe

8 What s Been Delivered? Workstream Segment P&L Delivery Date PL 9/23 CL 11/6 Original Scope Hyperion Essbase reporting application Simplified Segment allocation logic (assignment logic performed in data staging layer) GAAP and STAT reporting Detailed P&L account build-up Standard reporting and ad hoc analysis, final plans and forecasts stored for actual/plan reporting Highlights of Deliverables Additional Value Added Region/Branch P&L capability and Chaucer Potentially supports external financial reporting Added free capacity up to 40% of FP&A resources related to reporting and planning Data cube of meaningful information for decentralized use across organization Financial Planning PL 9/23 CL 11/6 Hyperion Planning application Full driver based premium and loss methodology Data feeds from Segment P&L and Expense Alloc Standard reporting and ad hoc analysis Expanded CL available-to-renew and in force premium data with new driver methodology Full P&L planning capability for Technology Enhanced plan methodology for PL losses Workforce / Expense Planning Plan 9/23 Enhancements delivered 11/6 Hyperion Planning applications (2) Employee level planning Detailed account level direct expense planning for non-employee related expense categories Standard reporting and ad hoc analysis Time saving plan / forecast seeding logic for non-employee related expense accounts Enhanced transfer logic to streamline employee level planning Billing assignment logic improving Allocations performance Expense Allocations Plan 11/6 Actuals planned for a Feb 14 delivery Hyperion Planning application (1) Segment/LOB/Geographic allocation logic Claims allocation Direct expense assignments Improved reporting transparency; standard reporting and ad hoc analysis Two applications for plan / actual, respectively, to support varying detail Streamlined customer billing logic simplifies allocation methodology Data Staging / Sync Layer 11/10 Data layer to insulate the Hyperion application from future data source changes Delivered revised scope, moving Segment assignment logic to the Segment P&L application

9 ETL Hyperion Load Rules / Outline load Utility Workspace Solution Architecture Data Source Data Integration Analytical Layer Presentation Layer Planning Oracle Hyperion FDR Data Sync FinPlan ExpPlan Planning Templates EDW WrkForce Alloc Orchid DRM Financial Reporting Alloc Rpt Other SegPL Smart View

10 Strategic Shifts From Limited visibility, lack of understanding of key P&L development metrics. Tactical discussion focused on the process & reconciliation Transparency To Business has full visibility & ownership to allocated & calculated costs. Foster strategic discussions Multi-level, layered allocations with an overly complex process Simplification Clear, simplified allocation methodology that is aligned to value driven business discussions Process fragmentation, the number of processes, and manual intervention has created inefficiencies Process Improvement Linear process flows supported by automation and more robust calculation flows increases accuracy, timeliness and efficiency Existing reporting environment provides limited functionality to drive timely business insight Advanced Analytics Robust reporting and analysis capabilities that provides business rapid insight Excel based solution, leveraging legacy systems that create process complexity Enabling Technology Best of breed technology enables flexibility and scalability for future planning and analysis Data stored in multiple systems, databases and spreadsheets with numerous permutations Data Alignment Data to support financial processes is organized, complete and structured to align to business needs Data gathering Culture Data analysis driven organization. Finance leveraged as trusted business advisors

11 Realized Solution Benefits Transformed the planning process across the company Process is repeatable and produces consistent results Highly leverages a driverbased planning model Planning Accuracy Process Efficiencies and Automation Significantly reduced the number of steps in the planning process Automated highly leveraged processes while providing checks within the overall process Planning and Analysis Level of Detail Lower level of detail than what was available in the prior solution Segment level available for management reporting Accuracy of allocations Budget owners were heavily leveraged during the design, build, and test of the application Increased visibility to data and processes Budget Accountability Solution leverages metadata management tools, automated application builds, and dynamic calculations, forms, and reports Application Flexibility Allocation Methodology Transparency Streamlined the allocation methodology Aligned actual and plan allocation methodology Reduced the number of allocation steps

12 Process Efficiencies and Automation Segment P&L Process Transformation Future State: 7 Steps - 4 Automated (57%) Automated Process Manual Intervention Monthly Maintenance Activities Load Source Data to Staging Area Load Manual Adjustments Load Staging Data to Essbase Load Expense Plan & Financial Plan data to Essbase Calculate and Aggregate Data Administrator Validates Data Availability Current State: 53 Steps - 6 Automated (9%)

13 Planning and Analysis Level of Detail Ability to plan and report on a full Income Statement by: Segment Line of Business Risk State Branch Customer Dimension: Ability to distribute expenses within the organization based on an internal customer for more accurate expense allocations Data & Automated reporting at a Segment Level Branch & Risk State expense data available at a granular level The additional level of detail provides insight and visibility to key performance drivers and allows for detailed analytics

14 Allocation Methodology Transparency Provides transparency and visibility to the underlying allocation logic, data, and specific steps throughout the allocation process Reduced the number of allocation steps from thousands to ~200 Consistent methodology across Plan & Actual Allocations

15 Financial Planning & Reporting Roadmap Program Goal: Develop and act upon a long-term strategy and approach to support the Finance organization by providing improved availability and transparency of information to enable better decision making 2014 Future Years Jan Feb Mar April May Jun Q3 Q & Beyond Actual Allocations Chaucer Mobilization Phase III Chaucer integration Consolidation & Close Hyperion Financial Management Phase II Specilaty Lines Continued Platform Optimization Financial Statement Integration Hyperion Planning/Essbase Extended Support Strategic Financial Modeling Hyperion Strategic Finance Rolling Forecast Hyperion Planning/Essbase Future Stages Stabilize Technology & Enhance Reporting & Analysis Enhance & Grow Leading Practice Points of View

16 Keys to Success Sourcing data is the main priority Focus on historical data than on plan data Plan for data movement across applications Consistent meeting schedule Weekly status Project leadership reviews BAM Sessions Communicate early and often Consistent communication across the team Data Integration Project Rhythm Communication Design and development decisions focused on scope Culture of give and take between the business and development team Project Discipline Create a collaborative environment Business and IT working together to build a solution One team, one goal Team Integration

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