Your ref xyz/001

Our ref 38412259.doc

Contact Fred Smith

October 3, 2001

October 3, 2001

Private and confidential

Mr president
Client
XYZ Corporation
123 Road
City, State Zip

IT Performance Improvement (ITPI) Assessment

Dear Mr. and Mrs. FullName:

KPMG LLP (KPMG) is pleased to present this proposal to assist XYZ Corporation (XYZ) assessing
its Information Technology (IT) operations in North America and developing a an executive
presentation of observations and recommendations.

Background
XYZ is an international, property and casualty insurance company with operations primarily in the
United States (US) and the United Kingdom (UK). XYZ’s gross written premiums are
approximately $600 million in the US. The US operation is comprised of six relatively autonomous
divisions: WesTex Insurance, John Doe Insurance, Mutual Underwriting Advisors, XYZ Insurance
Company, XYZ Federal Insurance Company, and XYZ Northeast Underwriters. XYZ employs
approximately 1,600 associates worldwide and is a “niche” underwriter, providing commercial and
personal lines coverage to the admitted as well as non-admitted markets.
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ITPRO AssessmentOctober 3, 2001

XYZ would like to have an independent, objective, and balanced assessment of its information
technology organization. KPMG would like to work with XYZ to perform this assessment. In so
doing, KPMG would assist XYZ in answering the following information technology related
questions:
 Are XYZ’s IT investments strategically aligned with business strategies?
 Is XYZ using Information Technology effectively and efficiently?

KPMG’s Risk and Advisory Services (RAS) practice routinely addresses the questions above as part
of our Information Technology Performance Improvement (ITPI) services.

ITPI engagements consist of measuring a set of characteristics and metrics that KPMG believes
represent an effective and efficient use of the IT function. Our experiences with many clients
suggest that the characteristics and metrics that indicate efficient and effective use of information
technology include the following:
 Having strong alignment with business units
 Using appropriate metrics to measure progress
 Performing formal customer satisfaction surveys
 Maintaining formal service level requirements with IT customers
 Using selective “alternative sourcing” as an effective tool for specific functions
 Employing return on investment (ROI) as the leading item in cost justification for IT initiatives
 Focusing on developing information technology core competencies that are aligned with
business needs
 Having an enterprise security architecture
 Using IT as a strategic enabler
 Researching and evaluating new technologies regularly
 Exhibiting strong relationships between IT and business executives
 Accelerating implementation of new applications and improving support of existing applications
 Using the Internet effectively for e-commerce, supply chain, etc. to improve the organizational
efficiency and link directly to the customer.

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ITPRO AssessmentOctober 3, 2001

KPMG can assist in assessing XYZ’s IT functions to determine if they exhibit the characteristics
mentioned above, and measure other performance metrics to identify opportunities for performance
improvement.

Scope and Objectives

Based on your RFP and our subsequent discussions, we have prepared this proposal for an
engagement that benchmarks or evaluates the following:
 Alignment of business and IT strategies
 Performance benchmarking
 Prioritizing projects and other IT activities
 Organization and governance of IT
 Process for making “sourcing” decisions (i.e. determining which IT activities should be
outsourced and which should be maintained in-house)
 Application portfolio
 Technology infrastructure
 Customer and user satisfaction
 IT management practices
 Organizational culture (i.e. identifying characteristics in XYZ’s organizational culture that could
affect specific recommendations or that could be beneficial or detrimental to IT improvement
efforts)

ITPI engagements also use a business “Balanced Scorecard Framework” to identify and evaluate our
clients’ business performance drivers. The use of a “Balanced Scorecard” permits various
perspectives on how the use of Information Technology may be improved and becomes part of a
continuous improvement process rather than a one-time event. The four perspectives of the balanced
business scorecard include:
 Business contribution
 Internal processes and operations
 Customer satisfaction

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ITPRO AssessmentOctober 3, 2001

 Organizational learning

The scope of the proposed engagement includes an assessment of the Information Technology (IT)
infrastructure, organization and processes that support XYZ. This assessment will address each of
the topics listed above and will include development of the “Balanced Scorecard.” Work for this
engagement will be performed primarily at XYZ’s Charlotte, Detroit, Austin, and Newark sites.

Areas specifically excluded from the scope of this project include:

 Assessment of XYZ’s e-Business strategy or the corresponding IT response
 Design and development of IT process improvements (versus specific identification of where
they can be improved)

The objective of this engagement will be to provide a written report that includes baseline metrics to
help XYZ’s IT functions improve service to users, utilize information technology more effectively
and efficiently, and to manage IT risks. One component of the report will be proposed Balanced
Scorecard metrics. The overall service delivery strategy explores cost saving opportunities and
revenue generating opportunities, while maintaining/improving customer service levels, and
permitting increased control and flexibility.

Approach and Deliverables

KPMG’s planned approach is to work closely with personnel from each identified IT function to
collect, analyze, and validate relevant information and data. The KPMG team members use a
variety of techniques including interviews, workshops, questionnaires, and process reviews to
collect information. The detailed deliverables from this engagement will include:
 An executive presentation summarizing the results of the engagement
 Documentation of baseline metrics and key performance indicators (KPIs) – the “Balanced
Business Scorecard”,
 Development of benchmark comparisons to other companies
 Recommendations regarding the structure of XYZ’s IT organization
 Recommendations regarding improving alignment between business plans and IT activities
 Results of customer satisfaction survey analysis report.

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ITPRO AssessmentOctober 3, 2001

Also, if during the course of our procedures we observe significant issues outside the scope of our
procedures, we will inform XYZ management of the substance of those observations.

Schedule
The goal for this engagement is to have the planned activities and deliverables completed within
weeks of commencing fieldwork. To support this schedule, we anticipate beginning fieldwork early
in October 200X and completing the deliverables by the end of November. A mutually agreeable
project schedule will be established shortly after XYZ’s acceptance of this proposal letter.

XYZ Responsibilities
In order to successfully complete this engagement, KPMG will require appropriate XYZ resources
to be available for the duration of the project. Such resources will include:
 A dedicated project coordinator to coordinate planned activities with the engagement director
from KPMG
 Timely access to key executives and IT leaders required for interviews and review of
deliverables
 Collection of the source data required to complete this study. Surveys and data collection forms
are to be completed and returned to the team within 10 working days of being distributed.
Exceptions are to be handled on a case-by-case basis

Any delays in making these resources available could impact the project timing and cost.

Terms and Conditions

KPMG’s standard terms and conditions are attached in Appendix A: Standard Terms & Conditions.

Qualifications
KPMG provides IT infrastructure assessments, organizational assessments, and benchmarking, and
is well qualified to assist XYZ in this effort. KPMG has built our reputation with creative thought
leadership aimed at helping IT organizations increase the value they deliver to the businesses they
support.

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ITPRO AssessmentOctober 3, 2001

We work in partnership with our clients, to gain value from their participation. Our approach leads
to improved commitment to, and support of, the results of the engagement. Also, involving XYZ
personnel extensively in the engagement will help them develop the processes and skills to
implement plans and recommendations following the completion of the engagement.

Engagement Team
KPMG has assembled a team of professionals with the appropriate skills, knowledge and experience
to assist XYZ in this important effort to enhance IT performance and risk management. The team
will consist of the following individuals:
 Insert resume of lead engagement partner
 Insert resume of client service partner
 Insert resume of engagement manager
 Insert resume of other engagement team members

Timing and Fees

Based on the objectives, scope, timeframe, and staffing plans for the project, we have estimated our
professional fees to be $xxx,xxx. Our fees are based on the length of time taken to perform certain
tasks and the experience level of the personnel doing the work. We do not intend to exceed this fee
amount without your prior knowledge and approval.

In addition to professional fees, we are reimbursed for expenses such as travel, administrative and
computer-related costs (e.g., equipment, software, administrative support, phone calls, etc.),
accommodations, etc. We expect such expenses to be approximately 15% of our professional fees.
Our costs will be billed, and should be reimbursed, on the same schedule as our professional fees.

We plan to submit invoices, which are payable upon receipt, according to the following schedule:

Payment 1 Upon approval and acceptance $xx,xxx

Payment 2 After first three weeks $xx,xxx

Payment 3 After first six weeks $xx,xxx

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ITPRO AssessmentOctober 3, 2001

Once again, we appreciate the opportunity to propose to assist XYZ in this important initiative to
improve IT performance and would be happy to discuss this proposal with you at any time. Please
call <Engagement Partner> at (555) 444-3333 or <Engagement Manager> at (555) 777-666 if you
have any questions or concerns.

In acceptance of this proposal, we ask that the enclosed acceptance copy of this letter be signed and
return to us that we may secure the necessary resources to meet your requirements and establish a
start date for this project.

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ITPRO AssessmentOctober 3, 2001

Very truly yours,

KPMG LLP

<Engagement Partner>

Accepted by:

XYZ Corporation

_________________________________________ ___________________

Name (Signature) Date

_________________________________________

Name (Please Print)

_________________________________________

Title

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ITPRO AssessmentOctober 3, 2001

REPLACE THIS PAGE WITH THE CURRENT TERMS AND CONDITIONS

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