Intelligent Cost Reduction

Developing & executing a program to reduce cost & create a

sustainable operating platform
Informational presentation for our client teams
July 2008
Strictly private and confidential

PwC
Contents

Section Page

1 Purpose & background 3

2 Point of view 5

3 Anatomy of a successful total cost management program 9

4 Beginning with the business & front office 13

5 Opportunities in the support units 19

6 Some lessons learned 22

7 PwC qualifications to help 24

Appendix 1 Methodology summary 29

Purpose & background
Purpose & background

The purpose of this document is to provide our teams a framework and compendium of specific ideas and
information regarding one of the, if not the key issue facing our clients: how they manage their cost structure in the
current environment while creating a sustainable operating platform for the longer term.
We have concentrated on concrete, actionable areas where our teams have a track record of delivering for our
clients versus generic documents regarding cost cutting.
We have attempted where possible to paint a picture of where key industry participants are in terms of a number of
these areas. This will allow the teams to not only provide useful information to our clients, but allow our clients to
compare themselves to the competition.
The thought is that our teams will be able to leverage this information and firm experts to share PwCs point of view
with key clients and, if appropriate, committees and boards.
The primary opportunity for the firm is likely to be around providing insights and advice to our clients to establish the
type of credibility in the subject areas while positioning ourselves to assist in the cost reduction efforts.
We are developing more detailed cost reduction decks in a number of areas, including back and middle office
operations, risk management, technology & key initiatives, sourcing and the like.
Portions of this deck have been presented to clients and can be used as such by our teams provided that client
names are not included. Relevant updates will be circulated as appropriate.
Please contact John Garvey or Miles Everson with any questions or to access the appropriate firm expertise.

PricewaterhouseCoopers 4 Intelligent Cost Reduction

Point of view
Point of view

Cost management is a key issue today and for the foreseeable future The market is experiencing a severe
liquidity crunch and the explosion of a global asset bubble well beyond sub-prime. At the root of this crisis is not only
asset values, but the amount of capital in the financial system today versus the size and liquidity of the balance
sheets (and off-balance sheet commitments) of financial institutions. This situation is not likely to reverse itself for a
number of years. In the environment of de-leveraging and scarcity of capital, we believe fundamental re-thinking
regarding business strategies, operating models and cost structures will be necessary.
A pre-securitization baseline may be the appropriate mindset If one assumes that the securitization markets
have significantly contracted in a permanent fashion, then the appropriate way to think about the business may be
in a pre-securitization baseline, adjusted for key acquisitions/divestitures, etc. This means that the proper mindset
to consider in the business strategy and budgeting area may be a pre-2004 or 2005 operating model and
cost structure.
An understanding true profitability of each business is essential Many institutions are in the midst of
re-thinking their fundamental business strategies. Many have expanded into proprietary trading activities, made
acquisitions and/or started new businesses (or kept old businesses) due to the overall attractiveness of the markets
and availability of inexpensive capital. Many do not understand the true profitability of those businesses today at the
proper level of granularity (e.g., desk level, product, etc.). To make the right decisions regarding the business
platform going forward, a fundamental understanding of where the institution does and doesnt make money is now
more important than ever. Of particular importance is the need to understand the interrelationships between different
businesses, products and geographies and the overall impact of curtailing or exiting certain activities on the
broader franchise.
Focusing on operational costs only will not be sufficient Organizations have focused most previous cost
cutting efforts largely on back office operating costs. Areas such as front office costs, the costs of risk management
failures and funding costs will have to be considered in new ways to achieve a cost baseline that is acceptable in
todays markets. Operating costs will also have be re-examined as well, of course, and perhaps in different ways.

PricewaterhouseCoopers 6 Intelligent Cost Reduction

Point of view (continued)

Many organizations confuse cost postponement with total cost management Many financial institutions
simply stop investing in new projects and people during difficult times in the market. Further, many simply reduce
their support teams, etc., and hire them back when the markets bounce back. There is often a price to pay for these
moves in terms of customer loyalty, heightened risk and future profitability. We consider many of these actions cost
postponement as opposed to true cost reduction. We recommend that our clients measure the quality of their efforts
through analyzing the types of reductions they are making and how they impact the platform and the company
longer term.
A well organized end-to-end program is needed Many organizations have a cost cutting czar or team, but lack
an organizational-wide approach to the issue. This leads to sub-optimal execution, missed targets and worse.
Avoiding these pitfalls requires an overall program structure with a clear executive mandate, defined targets, a
management organization for the effort and strong engagement from each of the business units and support areas.
Consistent investment is required Building a sustainable competitive cost platform requires consistent
investment, even in times of financial stress. Given the markets today, managing the program in a way that creates
investment funds through tactical, short-term savings to fund medium to longer term savings is critical.
The tone at the top is key The overall objectives, targets and business decisions made at the executive
management level are more important than ever to achieving sustainable improvement.
Create an executive dashboard to monitor results Implementing an executive dashboard with key metrics and
reporting will help management to view and gauge the overall effectiveness of their program over time.
This is a survival issue on an institution by institution basis We believe that traditional cost reduction
approaches are not going to be sufficient to ensure the survivability of many institutions during this market downturn.
Further, we believe that the markets are going to be very focused on this issue and discriminate between institutions
that are well managed in this regard versus those that are not. Therefore, how organizations manage this may well
be the difference between survival, takeover or worse.

PricewaterhouseCoopers 7 Intelligent Cost Reduction

Point of view (continued)

Other than game-changing strategic decisions, we see companies generally taking three approaches to cost reduction.
Slash and Burn
Business as usual but at less cost - by
reducing plans by set target (e.g. 10% cost
reduction)
Overall target set by CEO or CFO
Target differentiated at Dept or
Process level
Function heads responsible for execution
Reasons for failure:
- Reactive and focused on survival
- Short-term cost cutting and focus on
one-off savings (e.g. travel)
- Based on arbitrary targets; lacks
sufficient analysis
- Savings difficult to manage and track
- Negative impact on morale
and culture
Strategic Boil the Ocean
Top-down review of the business typically A bottom-up detailed analysis across all
organization and process changes required departments to identify potential
opportunities
Cost team frames available population Cost Team frames available population
of costs and strategic options of costs
Cost Team and Department Leads Cost team or department performs
responsible for analysis to identify extensive interviewing, process analysis
potential opportunities (e.g., organization & benchmarking to enhance process
alignment, re-allocation of work, etc) efficiency and leverage technology
Reasons for failure: Completely integrated and
coordinated execution
- Organization focus and betting on a
silver-bullet (e.g. shared services, Reasons for failure:
off-shoring)
- Timeframe constraint and lack
- Little consideration to the of urgency
management decisions driving costs - Greater investment required
- Complexities of reducing costs and
- Typically loses momentum
existing behaviors are not changed and focus
- Negative impact on morale
and culture

Sustainable cost reduction combines immediate cost reduction, improvements to cost management and control
processes, and performance measurement and management to drive continuous improvement and sustainability.

PricewaterhouseCoopers 8 Intelligent Cost Reduction

Anatomy of a successful total cost
management program
Anatomy of a successful total cost management program

It all starts with the strategic decisions made at the executive management level combined with outstanding execution
and constant monitoring of results:

Business strategy, cost

platform, targets, divestitures,
Executive
implementation oversight, executive
sponsor selection Management

Selection of enterprise team, overall

plan preparation and monitoring,
Executive Sponsor & Enterprise
liaison with business and support
Cost Reduction Team
function teams, reporting to executive
management

Business unit and support function

plan preparation, reporting to the
project management office Business Unit & Support Function Teams

PricewaterhouseCoopers 10 Intelligent Cost Reduction

Anatomy of a successful total cost management program
How we look at it: The cost reduction component focuses on quickly delivering tangible saving opportunities that are
owned by management.

1 2 3 4 5 6 Present results

Set environment Spend analysis Functional headcount Contracts review Rebuild financial plans
for cost control and challenge benchmarking 7 8

Eliminate waste Track results

The cost management and control component focuses on addressing weaknesses in the way costs are managed to
drive continuous improvement and sustainability.

6 Present results
1 2 3 4 5

Review historical Understand cost Cost management Third party spend Finalize gap
cost reduction ownership framework interviews management analysis 7
programs & structure
Finalize Recommendations
Roadmap

PricewaterhouseCoopers 11 Intelligent Cost Reduction

Anatomy of a successful total cost management program

Plan Mobilize Implement Monitor

Executive Management Determine overall Review and agree on Make decisions Review overall progress
business strategy & mobilization plan, regarding key vs. goals & targets
business baseline including allocation of issues/opportunities Monitor enterprise
Set specific cost key resources that arise cost reduction
reduction targets Prepare communication Drive ongoing team performance
Agree executive sponsor plan to key stakeholders communication plans
(board, employees, to key stakeholders
investors, analysts, etc.)
Enterprise Cost Identify team members Engage key Continuously monitor & Continuously monitor &
Reduction Team and assistance needed team members liaise with business liaise with business
Determine business Establish project units/support functions units/support functions
level quick hits management office Debate & resolve key Debate & resolve key
Analyze business (PMO) & liaison issues raised by the issues raised by the
performance with business business units business units
& profitability units/support functions Consolidate & report Consolidate & report
Develop target business Agree business results to executive mgt results to executive mgt
and cost baseline unit and support
function plans
Business Units & Develop plan for Determine key Execute quick hits and Monitor progress &
Support Functions quick hits team members in longer term cost key activities within
Translate targets business units and reduction plans in each business unit &
into business unit & support functions accordance with goals support function
support objectives Develop detailed and targets Take corrective actions
Engage business execution plans based Provide feedback & key as appropriate
leaders and HR in upon the strategic information to the
developing overall decisions, baselines enterprise cost reduction
strategies & and targets established team PMO
communication plans Determine assistance Surface key
needed implementation issues
to central team
PricewaterhouseCoopers 12 Intelligent Cost Reduction
Beginning with the business & front office
Beginning with the business & front office

The decisions regarding the front office set the tone for the total cost management effort The decisions
made regarding the business have the potential to either set the stage for success or failure in the program.
Divesting businesses, merging sales forces, changing the incentive compensation structure, eliminating products
and reducing country footprints are all key front office decisions that have a immense impact on the total cost of
the business.
Many organizations need to re-examine and/or establish the ground rules of organization control Basic
agreement around organizational control and alignment is key. We recommend that financial institutions examine
their existing structures and the assumptions around who makes what decisions. In times of cost cutting, authority
may have to temporarily taken away from individual business units and geographies to arrive at the right answer for
the organization as a whole. For example, the decisions regarding the compensation structure of multiple sales
forces may be need to made at the most senior level vs. at the business unit levels. Decisions about the ability of
businesses to determine their support structures would be another example where authority is temporarily moved
up in the organization.
Fact-based discussions and decision-making is often missing We often see key business decisions being
made based upon gut feeling and limited conversations and data as opposed to solid facts and analysis. In other
cases, the information is simply not detailed enough to make the most well-informed decisions for the organization.
A solid grounding in business, product and geographic level profitability is required Getting this information
is the key to having the quality discussions and making the right decisions.
Once the organization has the information, it must act upon it A number of organizations have most, if not all
of the information they need to make quality decisions, but fail to act upon it for various reasons. The markets will not
reward those that fail to act decisively in the front office and make some key decisions regarding the business,
strategy and operating platform.

PricewaterhouseCoopers 14 Intelligent Cost Reduction

Beginning with the business & front office (continued)

Business structure
- Country footprint with a bias towards reduction
- Overly complicated legal entity structures (many times after mergers and/or proliferation of tax-driven structures)
with a move towards simplification
- Organizational layers with a view to de-layering
- Analyzing strategic investments and joint ventures (value vs. cost to manage)
Business units/products
- Combining like units and eliminating redundancies
- Identifying unprofitable/marginally profitable products and businesses with a view towards divesture or creating
scale through acquisition
- Reducing or eliminating cross-product subsidization
- Analyzing and correcting inconsistent/sub-optimal pricing
- Cost of funds for business units
- Inaccurate margining practices (if one uses a prime broker/correspondent clearing firm)
Marketing & sales
- Identifying the linkage of marketing spend to strategy
- Analyzing the effectiveness of overall spend
- Reviewing management structures and client coverage models with a view to reduce duplication
- Overhauling incentive compensation structures to better link pay with business performance
- Use of the web to reduce the cost of customer acquisition.
Business linkage of support structures
- Review the appropriateness of administrative function, operations and technology structures with a view to
eliminate duplication
- Analyze sourcing/captives with goal of identifying best internal/external sourcing options

PricewaterhouseCoopers 15 Intelligent Cost Reduction

Beginning with the business & front office (continued)

Understanding true profitability of a business can drive better decision-making and significantly impact front office
compensation, a key element in the cost structure of financial institutions:
Periodic Measure Measurement Rationale
Gross Revenue 35,000,000 Includes both realized and unrealized gains
Cost of Funds 15,500,000 Allocated funding costs based upon short term funding rates vs.
matched rate, no liquidity premium
Net Revenue 19,500,000
Operating Expenses
Direct 1,500,000 Directly allocable costs excluding salaries
Allocated 6,000,000 Based upon cost allocation models (office space, technology, risk,
etc.), no adjustment for operational complexity
Pre-Tax Profit and Loss 12,000,000
Capital
Daily Average Assets 500,000,000 Sourced from Risk and Risk Capital Group
Capital to Asset Ratio 8% Capital charge not properly calibrated for credit, market & operational
risks associated with the business
Amount of Capital 40,000,000
Performance Measures
Pre-tax Return on Capital 30.0% Key determinant in investment decisions and compensation of for the
business/front office

PricewaterhouseCoopers 16 Intelligent Cost Reduction

Beginning with the business & front office (continued)

More accurate measurement can lead to very different investment results and compensation expenses:
Periodic Measure Measurement Rationale
Gross Revenue 35,000,000
Cost of Funds 18,600,000 Allocated funding costs matched rate to duration of trade, liquidity
premium added = +20% greater cost of funds
Net Revenue 16,400,000
Operating Expenses
Direct 1,500,000
Allocated 7,000,000 Specific adjustment for increased operational personnel to support
structured transactions = +$1,000,000 in cost
Pre-Tax Profit and Loss 7,900,000
Capital
Daily Average Assets 500,000,000
Capital to Asset Ratio 8.5% Capital charge adjust 0.5% for increased operational risks
in business
Amount of Capital 42,500,000
Performance Measures
Pre-tax Return on Capital 18.6% Moving from a 30% to 18.6% return will likely reduce compensation
costs in the business and may impact investment decisions

PricewaterhouseCoopers 17 Intelligent Cost Reduction

Opportunities in the support units
Opportunities in the support units

Middle and back office operations costs can be significantly reduced without impacting the business
This is historically been one of the key target areas for cost cutting. To date, the overwhelming bias in many financial
institutions has been to reduce costs, but to keep these activities in-house. We believe that in many cases this bias
will be challenged and that there will be a rapid rise in financial institutions white labeling their middle and back
office processes for the benefits of other institutions. Another area of re-thinking that is emerging is to better
understand the cost of operational errors and breakdowns. A number of our clients are beginning to understand that
the costs of errors is significant and needs to be an area of focus and consideration. With better operating loss
statistics, organizations are now equipped to address this area. Specific opportunities exist to further outsource basic
technology and operations to either third parties or best in class internal providers, reviewing off-market service
provider contracts, automating basic reconciliation and operational processes, reducing operational error rates and
better automating spreadsheet intensive operations. In terms of specific process and technology areas, replacement
or enhancement (often with additional workflow) of antiquated and manual systems in such areas as underwriting,
policy administration, loan origination, custody and servicing with rules engines and more efficient technology and
operational platforms reduce cost and drive efficiency. We are typically finding a minimum of 15-20% cost reduction
opportunities in these areas.
Risk management and compliance costs can be reduced while increasing effectiveness This may seem
counterintuitive, but rationalizing the organizational structures, eliminating duplication and applying common sense
generally leads to more effective risk management and compliance functions at a lower cost. Organizational
consolidation and creation of a single risk universe, common risk assessment process, reasonable policy framework
and a shared testing program and reporting infrastructure can significantly reduce not only the most visible risk and
compliance costs, but also the more substantial hidden costs that are buried in the business, operations and
technology functions. In our experience, there are opportunities depending upon the organization to reduce up to
25-30% in this area while improving effectiveness.
Technology and other initiative-oriented spending can be reduced by better aligning key project efforts with
business strategy Projects, once started, tend to take on a life of their own. When markets and business
assumptions change, most organizations do not revalidate project/initiative assumptions. We have consistently found
$10s of million cost reduction opportunities by re-validating existing projects and initiatives. This process often
extends beyond technology to other capital spending projects and initiatives.
PricewaterhouseCoopers 19 Intelligent Cost Reduction
Opportunities in the support units (continued)

Due to historical underinvestment, finance functions are often prime targets for process improvement and
longer term cost reduction Some short-term cost reductions are often possible by simply rationalizing the
organization, but longer term improvement usually lies in greater standardization (e.g., technology, charts of
accounts, management information). This standardization and the investment required to realize the benefits will
likely be critical to sustaining a cost effective platform in the future as the finance function is placed under the
increasing strain of ever more complex accounting standards and, for US institutions, the looming shadow of IFRS.
Sourcing remains an opportunity for savings A number of organizations have too many captives and/or
external sourcing providers. This is often a result of decentralization of decision-making to individual business units
and regions. Consolidation of captives and creation true centers of excellence is potentially a source of significant
cost savings and organizational benefit. As noted earlier, further sourcing of business processes and technology
work to those captives and third parties represents opportunities for further cost rationalization. Again, we typically
find cost reduction opportunities in the 10-20% range depending upon the organization.
A number of other opportunities exist We continue to see significant opportunities in such areas as legal costs,
corporate real estate, travel and entertainment costs, food service and other areas that, for a number of institutions,
can yield 20+% cost savings without adversely impacting the business.

PricewaterhouseCoopers 20 Intelligent Cost Reduction

Some lessons learned
Some lessons learned

Many recent and current programs are lacking critical elements to drive sustained improvement in the cost structure.
Our Advice
Overall
Clear goals & metrics set at executive level &
communicated, reconsideration of business
platform and structure
Inclusion of total costs in consideration
Senior executive sponsor on
management team, cost reduction team
working with business
Continuous & comprehensive reporting
Areas of Focus
Front office everything on the table
Middle/back office service providers,
outsourcing, automation
Risk management organization & efficiency,
not just heads
Finance & admin efficient factory, common
technology/MI
Align key projects to business &
investment strategy
Operational errors quantify & reduce
Capital & funding consider real cost of capital Pricing capital to desks in a way that more
in cost allocation to businesses
Bottom Line Results
Short-to-medium term success
Sustainable platform
Examples of recent/current programs
Financial institution #1
One-time overall goals communicated to
investors, no goals by business line beyond
outsourcing targets, no fundamental
business re-think
Back office only, reluctance to tackle
front/middle office costs
Senior executive sponsor, limited central team,
most power in business units
Sporadic beyond one or two specific targets
Not included
Focus on off-shoring, cutting consultants,
projects, vendor concessions. No
rationalization of software/hardware platforms
Some headcount reduction, limited re-think or
rationalization of functions , approaches, etc.
Creating common financial systems platform &
MI, some technology & people consolidation in
all areas
Poor alignment of key projects. Limited to
no investment funds for medium to long
term improvements
Not included
resembles cost of funds, type of transaction,
operational costs
Some limited targets met, negative impact on
analysts & shareholders
Significant opportunities for improvement
Financial institution #2
Multi-year overall goal/communicated
to investors, targets set by business
under one-firm initiative, some limited
business re-think
Back/middle office, some business
combinations/reductions considered
Cost cutting czar with central team, veto
over business with regard back and middle
office decisions
One-firm reporting significant, more
limited post-program
Some focus on combining businesses
across geographies
Same as #1 with creation of shared services in
technology infrastructure areas.
Limited headcount reduction, no re-think or
rationalizations of functions, approaches,
testing, etc
Created common systems and processes,
some people consolidation in all areas
Good alignment of key projects in certain
businesses & support units. Some investment
funds to drive longer term platform savings
Not included
Same as #1
Public targets met, some fundamental
organizational changes
Some progress, opportunities for improvement
Financial institution #3
Continuous program with targets/goals
by business/support functions,
communicated regularly & as part
of transactions, market events
Front to back office costs included although
mostly focused on back office
Senior executive sponsor with buy-in from
business heads. Middle to back in COO team.
Front office CEO-led.
Integrated into budgeting/reporting,
transaction-specific
Constant review & rationalization regardless
of markets
Same as #1 plus rationalization of many back
office services and technology platforms into
common utilities w/in company.
Limited headcount reduction, some
re-think/rationalization of functions,
approaches, testing
Created common factories, technology, etc,
consolidated central groups with business
unit support.
Excellent alignment of key projects.
Investment funds available if cost/benefit
analysis justifies expenses.
Included indirectly in business cases
Unknown
Known in the market as strong total cost
manager, rewarded by shareholders
Strong foundation, continuous improvement

PricewaterhouseCoopers 22 Intelligent Cost Reduction

PwC qualifications to help
PwC qualifications to help

Overall program assessment and support Leverage of our global Financial Services team to assess of the
program end-to-end and support in terms of program management and execution.
Specific experience in the front office Business financial analysis, divestiture and acquisition assistance:
- Analysis of global equity derivatives desks of a major investment bank to determine true profitability and whether
to keep/close the business as well as to increase/decrease investment. Resulted in several desk closures and
re-calibration of investment in the business
- Due diligence and integration assistance for the acquisition of two wealth management businesses for a major
financial institution, resulting in 50+% reduction in costs in key support areas in the acquired businesses
- Analysis of the banking and capital markets business of a global financial institution that resulted in
identification $10s of million of potential savings as a result of proposed changes in legal entity, technology and
support functions.
Deep experience in middle & back office operations Track record in assisting our clients in balancing the need
to reduce cost while continuing to operate the business:
- For an introducing broker, developed and executed upon a plan to replace current corresponding clearing
provider, reducing cost by 80% and improving service levels and product coverage
- For a major global financial institution, introduced automation and reconciliation tools into several operational
processes, significantly reducing manual intervention and headcount in the area
- For a major global financial institution, re-mediated and re-engineered key elements of a poor customer on-
boarding to reduce operational errors and nearly eliminate a multi-billion dollar IRS fine
- For a top 10 hedge fund, implemented a margin calculation engine to compare prime broker margin calls versus
internal calculations, resulting in an average of several hundred million dollars of additional available collateral per
day for the fund

PricewaterhouseCoopers 24 Intelligent Cost Reduction

PwC qualifications to help (continued)

Risk & compliance cost reduction Ability and reputation to advise and execute on cost reduction efforts in this
sensitive area with regulators, boards and other stakeholders:
- Organizational consolidation and rationalization of existing risk and compliance functions of major financial
institution, providing a roadmap to reducing overlap and compliance/risk department costs by 25-30% while
significantly reducing costs in the business units
- Consolidation and automation of risk reporting for various business units and geographies for a major global
financial institution, creating a single automated reporting process and framework, reducing efforts in this area by
up to 50% and improving senior executive decision-making and use of time
- Assisting a major global financial institution in the consolidation of multiple risk control self-assessment (RCSA)
processes and technology into a single, efficient platform, thereby significantly reducing cost and business efforts
to comply with the RCSA program
Ability to help better align initiatives & project spend with project strategy A structured methodology and
process combined independent view:
- International expansion strategy review led to 1) consolidation of common spend across business units and 2)
reduction of spending as a result of greater country focus, saving the organization $40 60m in planned spend.
- Review of technology initiatives vs. business strategy led to the identification of $40+m of cost reduction
Creating & operating an efficient finance function Combining knowledge and experience in accounting and tax
with the necessary process and technology expertise to deliver an end-to-end solution:
- Providing significant assistance to a major money center bank in the execution of its global finance transformation
program, creating a common technology basis, tools, data structures and management information needed for a
sustainable cost effective finance platform
- Executing a project to re-engineer fund accounting and reporting processes and technology for a major
private equity firm, creating the ability to reduce costs and better scale the finance function to efficiently support
future growth.
- Assisted a major global insurer in the analysis and execution of its IFRS conversion efforts, helping create an
efficient and sustainable accounting and financial reporting platform
PricewaterhouseCoopers 25 Intelligent Cost Reduction
PwC qualifications to help (continued)

Independent, global view of best sourcing options Ability to assess the best options for the client without bias
towards a solution provided by PwC:
- Assisted major money center bank in analysis to determine best in-sourced provider(s) of anti-money laundering
services and assisted them in the movement to 4 global hubs, creating significant cost synergies and more
consistent, higher quality alert investigation & reporting processes
- Analyzed and delivered cost savings of 10-20% for a number of financial institutions in the market data area
through a combination of waste elimination, cost effective product substitution and vendor negotiation.
- Advised a major hedge fund in its effort to establish a cost-effective sourcing relationship in India, setting the
stage for a 20%+ reduction in technology costs
- Assisted a major insurer in the ITO of all of their non-core applications
Other areas Diverse skill sets that can be leveraged to attack costs in a number of other areas:
- Specialists from our hospitality and leisure team have assisted a number of financial and non-financial institutions
with cost reduction efforts in the food service and travel areas.
- Our real estate professional have assisted a number of clients with cost reduction efforts in this area
- PwC procurement teams are constantly working with our financial services and non-financial service clients to
implement best-in-class processes and technology to reduce costs

PricewaterhouseCoopers 26 Intelligent Cost Reduction

PwC qualifications to help (continued)

Weve been most successful when we focus on cost reduction and cost management and control processes in parallel
to set the stage for, and perhaps self fund, more transformational activities.
Cost Reduction
Operations spend savings from cost driver and activity
level definition and challenge
Discretionary spend savings from non-critical, contingency
or unsupported balances challenge Transformation
Headcount reduction savings from functional Organizational, capability, and
benchmarking analysis behavioral changes
Contract leakage and other invoice control savings from Performance measurement and
forensic contract analysis management process improvements
Waste elimination
Cost Management and Control
Strong budget ownership, discipline, and accountability from
the budget challenge
Outline of critical cost management and control deficiencies
through a gap analysis

Value Delivered Typical cost reductions range from 20% to 30% of

On average, we find $5-20 of cost savings for every $1 the in-scope cost base resulting from productivity
spent in fees improvements, cycle time and lead time
Forensic contract reviews uncover an average of 5 to reductions, working capital reductions, etc.
10% in cost reduction opportunities for selected contracts

PricewaterhouseCoopers 27 Intelligent Cost Reduction

Appendix 1 Methodology summary
Appendix 1 Methodology summary
PwCs four step process to sustainable cost reduction
I. Spend Analysis, Cost Reduction and Cost
Management Roadmap
1. Spend analysis to define operational
cost drivers & baseline activity levels
as well as discretionary spend
2. Headcount benchmarking analysis
3. Cost management and control
framework gap analysis
4. Forensic contracts review to identify
potential leakage opportunities
5. Build go-forward sustainable cost
management roadmap
IV. Implement Company-Wide Cost Strategy
and Sustain Benefits
1. Rollout company-wide cost strategy
2. Continuous Improvement
3. Corporate Performance
Management (CPM)
4. Establish incentive mechanisms to
drive sustainable improvement
PricewaterhouseCoopers
II. Design Initiatives and Develop the
Business Improvement Plan (BIP)
1. Stabilization
Execute the immediate actions to
stabilize the key cost controls and
mitigate exposure
2. Create the Business Improvement Plan
Using the roadmap from the
Assessment phase, build the
design of each prioritized initiatives
Generate an overall Business
Improvement Plan incorporating
all initiatives
Refine the cost and
benefit analyses
III. Construct the Business Improvement Plan
(BIP) Pilots
1. Construct and execute the Business
Improvement Plan pilots
2. Incorporate learning into the plan
3. Finalize the company-wide rollout plan
29 Intelligent Cost Reduction
Appendix 1 Methodology summary
What a typical assessment looks like
Planning Stage Fieldwork Stage Reporting Stage
Work stream Activities Information gathering High level review with Detailed spend Compile revised
and preliminary leadership team analysis, challenge budget proformas and
analytical review Develop understanding and rebudget rollup results
Communicate process of cost base and Headcount Conduct challenge
to management historical cost benchmarking session
Confirm team reduction Contracts review Develop cost
and approach Cost management and management roadmap
control gap analysis
Key Milestones Kick-off call with High level review Confirmation of Confirmation of
sponsors with site leadership cost controls findings with
Submission and and finance Completion of budget owners
receipt of information Kick-off meetings gap analysis Development of
request Completion of Quantification revised budgets
Scheduling preliminary data of savings Management
of interviews analysis and view Savings captured challenge session
Selection of contracts of opportunities in revised budgets Final report

Who is Engaged Project sponsors Project sponsors Operational and Project sponsors
Leadership team Leadership team support function cost Leadership team
Financial controller Procurement and center and budget Financial controller
invoice control team owners
Procurement Procurement
Financial controller
and analysts Operational and
support function
cost center and
budget owners

PricewaterhouseCoopers 30 Intelligent Cost Reduction

Appendix 1 Methodology summary
How we look at it (1 of 2)
The cost reduction component focuses on quickly delivering tangible saving opportunities that are owned
by management.
Process Activities Outputs

Set environment 1. Set environment for cost control 1. Cost savings opportunities
1 Confirm the process Operating spend reduction
for cost control
Preliminary data analysis Discretionary spend elimination
Spend analysis and Contingency reduction and control
2 2. Spend analysis & challenge
challenge session Headcount reductions
Operating and discretionary
Functional headcount 2. Definition of operational cost drivers and
3 3. Functional headcount benchmarking baseline activity levels with linkage to
benchmarking
GBP and Saratoga financial plans
3. Prioritization matrix and approach for
4 Contracts review 4. Contracts review
contracts re-bid process
Re-bid challenge and prioritization
4. Improved third party spend control
Forensic review
5. Management challenge session to
5 Rebuild financial plans approve cost savings
5. Rebuild financial plans embedding
identified cost savings. 6. Revised current year financial plans
6. Present results to leadership for approval incorporating cost savings
6 7 Eliminate waste
7. Eliminate waste by taking action to
Present achieve cost savings
results 8 Track results 8. Track results of actual cost against
financial plan to verify results delivery

PricewaterhouseCoopers 31 Intelligent Cost Reduction

Appendix 1 Methodology summary
How we look at it (2 of 2)
The cost management and control component focuses on improving weaknesses in the way costs are managed to
drive continuous improvement and sustainability.
Process Activities Outputs

Review historical cost 1. Review historical cost reduction 1. Summary cost management themes and
1 programs, sustainability, and results findings across the business
reduction programs
2. Understand cost ownership & structure 2. Detailed cost management framework
3. Cost management framework interviews gap analysis to shine a light on
2 Understand cost
Financial management & controls significant opportunities
ownership & structure
Business process activities 3. Critical cost control stabilization actions
Contracts, suppliers, and 4. Recommendations Roadmap and
3 Cost management
supply chain prioritized opportunities
framework interviews
Performance management Immediate and controllable
Supported
4 Third party spend management 4. Third party spend management Transformational
Contractor management and invoice
controls 5. Culture of cost awareness
5 Finalize gap analysis and ownership
5. Finalize gap analysis 6. Tighter span of control for
Assess policy vs. actual spend approval
Finalize
6 7 working practice
Recommendations
Roadmap 6. Present results to leadership for approval
Present 7. Finalize Recommendations Roadmap as
results outline for Business Improvement Plan

PricewaterhouseCoopers 32 Intelligent Cost Reduction

Appendix 1 Methodology summary
Assessment Planning stage activities
Planning stage activities are geared towards preparing both the PwC and client teams for the upcoming review to
ensure an efficient and effective project kick-off.
Kick-off conference call
We propose a call with the business unit management team to introduce each others teams, understand the number
of budget owners, and to outline the process and discuss the fieldwork and meetings required.
Information request and preliminary analytical review
Business unit overview, including history of ownership, dates, operations overview, etc.
High level business unit financials (for the last 3 years) and a copy of recent financial statements.
Current management structure and responsibilities, department structure, and headcount data.
Current year budget by area, including a summary of the quantity and size of cost centers, and cost center owners.
List of contracts, including type of vendor, average annual spend, and last renegotiation date.
Details of the authorization and approval limits in operation within the business unit.
Communicate process to management
Since PwC will be meeting with a variety of managers within the business unit, we will provide a short document describing the
process in advance of the meeting. We will expect to have a working session with key managers to explain and discuss the process
in week 1.
Confirm team and approach
We recommend that at least one member from both the business unit finance and operations organizations are nominated to work
with PwC to facilitate reviews and provide additional support on a part-time basis, where necessary.

PricewaterhouseCoopers 33 Intelligent Cost Reduction

Appendix 1 Methodology summary
Assessment Fieldwork stage activities (cost reduction component)
Fieldwork activities for the cost reduction work stream will help the team to understand the nature and structure of the
business unit cost base and then to identify cost savings opportunities and embed the savings into a revised current
year budget.
Detailed spend analysis, challenge sessions, and rebudget
Work with finance to establish a cost baseline, identify budget owners, and discuss issues or gaps identified during the review, as well
as cost controls and the role of finance in controlling cost.
Conduct multiple interviews with operations and support function budget owners to understand their cost base, perform a historical
spend analysis, and use the underlying cost drivers and activity plans to identify cost saving opportunities and develop a should
cost budget.
Prepare budget owners for the management challenge session by conducting a series of internal reviews with budget owners to
challenge historical spend, budget cost drivers, and assumptions.
Budget owners complete a revised budget pro forma, detailing assumptions, risks, and rejected savings opportunities.
Headcount benchmarking
Using PwC Global Best Practices (over 2600 companies) and Saratoga HR Services (~400 benchmarks from 1200 companies
globally), complete functional headcount benchmarking to shine a light on potential areas of inefficiency and headcount reduction.
Contracts review
Forensic review of selected contracts and invoices for leakage and other contract usage and invoice control opportunities.
Conduct a wholesale review of existing contracts, including assessment of value for money, renegotiation strategies, and the
involvement of procurement services at the corporate level.

PricewaterhouseCoopers 34 Intelligent Cost Reduction

Appendix 1 Methodology summary
Assessment Fieldwork stage activities (cost management and control component)
Fieldwork activities for the cost management and control work stream help the team to assess the business unit cost
culture, identify cost management and control deficiencies, and develop overall cost management and control
recommendations to sustain identified cost reduction opportunities.
High-level review with leadership team
An introduction from business unit management to provide a top-down overview of the site, organization structure, background to its
cost heritage, performance, and management objectives.
Facilitate a working session with key managers to explain and discuss the process and agree on how to tailor the approach to the
specific business unit.
Finance function meetings to discuss the current cost base, controls, and the role of finance in controlling cost. This meeting will occur
on the first day of fieldwork, with informal follow-ups throughout the fieldwork.
Review historical cost reduction programs and understand cost ownership and structure
Understand previous initiatives to control costs, their timing, outcomes, and sustainability.
This will include a broad analysis and understanding of major spend areas, details of group recharges, one-off and exceptional costs,
and how cost accountability is managed from a business unit management perspective.
Cost management and control gap analysis
We will confirm how financial controls operate and understand how management effectively controls spend.
Review the cost management and control processes to determine inefficiencies, gaps, and opportunities for improvement across our
cost management framework:
- Financial management and control
- Business process activities
- Contracts, suppliers, and supply chain
- Performance management

PricewaterhouseCoopers 35 Intelligent Cost Reduction

Appendix 1 Methodology summary
Assessment Reporting stage activities
Reporting stage activities finalize the cost reduction opportunities through completion of a revised budget, performing
a management challenge session, and building a recommendations roadmap for implementing the cost management
controls required to sustain the benefits and achieve additional opportunities.
Compile revised budget pro formas and rollup results
Work with finance to compile revised budgets, summarize the results of the spend analysis and detailed interviews, and ensure
consistency of the various budget owner inputs - including resolving any inconsistencies, ownership, and other data issues.
Conduct management challenge session
Set the stage for the challenge session, which includes agreement on session objectives and outcomes, the information required from
the management team, and format of the revised budgets and recommendations to be presented.
Embed consistent budget assumptions and discretionary spend rules and guidance into detailed cost center budgets.
Conduct the management challenge session to gain buy-in and commitment
Develop cost management roadmap
Based on the gap analysis, summarize the stabilization (immediate), supported, and transformational recommendations actions into
a prioritized recommendations roadmap. The Recommendations roadmap considers the financial and operational impact and difficulty
to implement.
The recommendations roadmap forms the foundation for development of a Business Improvement Plan (BIP) upon completion of
assessment work.

PricewaterhouseCoopers 36 Intelligent Cost Reduction

Appendix 1 Methodology summary
Assessment Outputs and benefits
The review results in immediate cost reductions and a cost management and control recommendations roadmap to
sustain the identified savings and achieve additional opportunities.
Cost Reduction
Cost savings from spend analysis and revised budget
challenge exercise
- Operating activity level adjustments
- Discretionary spend elimination
- Contingency reduction and control
- Headcount reductions
Defined operational cost drivers and baseline activity levels
Contracts renegotiated and improved control
Culture of cost awareness and ownership
Tighter span of control for spend approval
PricewaterhouseCoopers
Cost Management and Control
Common cost management issues and risks across the
business units
Cost savings opportunities that can be achieved through
operational efficiencies and increased rigor in the
management of the cost management framework elements
Financial management and control gap analysis and spider
charts across the four dimensions:
- Financial Management and Control
- Contracts, Contractors, and Supply Chain
- Business Process Execution
- Performance Management
Recommendations roadmap and prioritized opportunities
- Stabilization (immediate and controllable)
- Supported
- Transformational
37 Intelligent Cost Reduction
Appendix 1 Methodology summary
Outputs Cost reduction
Outputs include an improved cost awareness and discipline, definition of cost drivers and baseline operating activity
levels, and revised fiscal plans incorporating the identified cost savings.
Operational and Discretionary Management Challenge Session
Spend Analysis and Challenge and Revised Financial Plans

Current Year Revised Financial Plan
Unsupported
Cost savings from $m
Actual

2005 2006
Savings

2007
(Cumulative)

2008 %
Approved cost
Balances
spend analysis Bottom-up Budgets
39.1 (4.1) (5.8) (5.9) 15.0% reduction opportunities
Current Year Financial Plan

Estimation (By cost center)

Contingency
challenge exercise Longer-term Business Cases
(0.0) (0.3) (0.8) 2.1%
Revised financial plans
Review and challenge

Inefficiencies
non- activity based budgeted
cost for necessity
Estimation
- Operating activity Procurement Savings
(0.1) (0.4) 1.0% incorporating the identified
activity based
Contingency
Inefficiencies level adjustments 39.1 (4.1) (6.2) (7.1) 18.1%
cost savings
Longer-term Business Cases
0.0 (0.8) (2.5)
Operating
Budgets Activity based budget review
to understand cost drivers and Operating
- Discretionary (Out of scope variable cost saving)

Budgets
challenge spend
spend elimination Key:
(4.1) (6.9)

Bottom-up forecast
(9.6)

- Headcount Top-down estimation pending clarification

reductions
Contracts Prioritization Matrix - Contingency
[Enter Cost centre number]
$'000

reduction GL item Cost group

FY07
actual
FY08
plan
FY08
rebudget
FY09
plan

Projected Spend/Savings Supplier Profile 2006/07

and control 671460
671510
Scrapped inventory-fg
Repair materials & supplies consumption-
701000 Educational assistance - job related
Weenas Caltech Borsig Alstom Power
701010 R&r-no tax impact
Klinger Dew Construction Schmidt & Clemens BJ Services
First Priority
Durham filtration Grosvenor Health Second Priority
Kinder James Hertel
704005
704010
Moving expense - deductible
Moving-nondeductible w/tax make-up
Ondeo Interserve Hewden
704035 Travel & entertainment - 100% deductible
Man Ghh Honeywell
704040 T&E(Only): Meals,entertainment - 50% Ded
(tbc ) temp cabins IKM
>100k

Value of Savings (in GBP)

Contracts pricing
John Crane 704041 On site working business meals - 100% de
704050 Seminar & training fees
High Johnson Controls
Luddon 704065 Rtrmnt/svc award lun
Mitsui Babcock
M. Bridge construction challenge and 704070
704100
710000
Emp'ee trade, prof & civic organiz. Mber
Incidental employee expense
Contractor-service agreement
Spend Value
Savings
12,400
1,505 12.1%
Spend Value
Savings
47,450
2,940 6.2% renegotiation 710015 Contractor services-equipment

Wellman & Graham Balfour Kilpatrick BSL

GIS
Third Priority BOC
Tyco valves
Arco
Rotork
Briggs
Aramark
Fourth Priority
Watson Norie
planning
Bentley Nevada Capture all

Low
Paralloy
Zellweger
Siemens auto.
Spirax
Chaucer
CIS Contract leakage and
Metso Albion DEI Invensys

<100k
Dron & Dickson
Ashworth Fraser
Lyreco ABB
LGH
M. Bridge
PII
Luddon
Masterton
Roevin
other invoice control
Midland Electrical
Arco
Spend Value
Raynesway

13,340 Spend Value 3,125

savings from forensic
5.9% 3.6%
Savings 790 Savings 112
contract analysis
Low Complexity High

PricewaterhouseCoopers 38 Intelligent Cost Reduction

Appendix 1 Methodology summary
Outputs Cost management and control
Outputs highlight existing cost management and control gaps and risks to the business. A recommendations roadmap
details the key changes required to monitor spend activities, sustain benefits captured during the cost reduction
exercise, and provide a go-forward cost management strategy.

Framework Gap Analysis Recommendations Roadmap

BU Chicago BU New York Systems and Transformational Changes Invoice processing

Cost
Team leader cost initiative improves
Management
and Control
cost visibility/accountability but no link
of budgets/forecast to activities
Effective FC&A/Commercial link
(driven by existing resources)
Monthly reports provide transparency
Summary themes and - Tulsa SLA updates and
process changes
- Automate approval process
of budget spend across OCM areas
Effective linkages with Commercial
business unit Supported Invoice processing
- Engage vendors for invoice
with exception parameters
structure and frequency
through monthly review meetings Contractor deployment
specific findings Immediate & Controllable Actions
- Initiate stamp approval and
coding process and
& management
- Agree and implement SPM
Asset specific targeted recommendations re-allocate resources

non-performance
Contracts,
Contractors
Minimal reliance on regional contracts
Field PSCM role is value add but
Improving coordination between
construction and production teams
Standardization, Relative
Invoice processing
-
-
Design field ticket support package
Resolve DoA interpretation and
- Define exception parameters repercussions

and Supply Contractor deployment & Integrated budget

Chain
not fully integrated into site planning
SPM activities self-scoring and no
SPU/regional vs. local contract
strategy may not be optimal simplification, and control Financial/
Operational
application issues management
- Agree Operations & PSCM
- Commence integrated
budget/forecast processes
repercussions to vendor Frequent off-contract purchasing Contractor deployment & management support roles, DoA , etc
Impact
Business
recommendations - Identify and dedicate PSCM single
points of contact
- Initiate field ticket validation
& quality control process -
using activity plans and
cost standards
Leverage WMS to
Work order level of detail could improve Daily activity planning calls completed - PSCM resource technical training - Take ownership of SPM

Process monitor monthly spend
Execution
Effective work order scheduling
(excluding BA activities)
No reports to show activity status in
conjunction with budget spent
Opportunities to improve - Design field ticket quality
control process Integrated budget
against budget
- Define routine activity cost
WMS conversion in October Activity scheduling is not consistently
established and reviewed financial and Integrated budget
- Commence job -
standards
AFE construction & Rig Schedule
execution analysis process changes
Performance
Management
DoA clearly understood and applied DoA issue-varying levels of admin
authority for invoice approval
operational performance - Formalize and document budgeting
roles and processes
FFA role is key for monitoring site cost
Performance management strong for Planning and scheduling needs
cost/production but weak for activities improvement level
and contractors loading contractors
6.2% Anticipated Degree of Difficulty
Benefits 0 to 6 months 6 to 12 months 12 to 18 months
Realization

Cost Management and Control

Detailed gap analysis, A prioritized recommendations framework, considering financial
Cost estimation and spider charts and impact and implementation difficulty
budget construction
commentary for cost The roadmap provides a cost management strategy
4
Allocation of Cost management and and timeline to carry forward into Design, Construct, and
budget construction 3 management control processes Implement activities
tools
2

0
Drivers for Cost forecasting
cost increases and reporting

Budget owner Budget owner skills, training,

organizational structure and capacity

PricewaterhouseCoopers 39 Intelligent Cost Reduction

Appendix 1 Methodology summary
After the assessment Setting the direction for transformation
The business improvement plan (BIP) design and implementation activities will further leverage the appropriate
methodology to create sustainable cost savings and capture additional financial benefits.

Recommendations Roadmap
Systems and Transformational Changes Invoice processing
- Tulsa SLA updates and
process changes Finance Effectiveness Revenue Growth
- Automate approval process

Risk Management and Compliance

Supported Invoice processing
- Engage vendors for invoice
structure and frequency
with exception parameters
- Budgeting and Forecasting
Contractor deployment

Supply Chain
- Initiate stamp approval and
Immediate & Controllable Actions
Asset specific targeted recommendations
coding process and
re-allocate resources
& management
- Agree and implement SPM - Close Process Improvement
Invoice processing non-performance
- Define exception parameters

Relative
-
-
Design field ticket support package
Resolve DoA interpretation and Contractor deployment &
repercussions
- Corporate Performance Management - Logistics and Network
Integrated budget
Financial/
Operational
application issues management
- Agree Operations & PSCM
- Commence integrated
budget/forecast processes - Finance Transformation Optimization
Contractor deployment & management support roles, DoA , etc
Impact using activity plans and
- Identify and dedicate PSCM single
points of contact
- Initiate field ticket validation &
quality control process -
cost standards
Leverage WMS to - Management Reporting - Sourcing and Procurement
- PSCM resource technical training - Take ownership of SPM
Design field ticket quality monitor monthly spend
-
control process Integrated budget
against budget
- Treasury Management - Supply Chain Risk
- Define routine activity cost
Integrated budget
- Commence job -
standards
AFE construction & Rig Schedule - Supply Chain Strategy
execution analysis process changes
- Formalize and document budgeting
roles and processes Mergers, Acquisitions, Divestitures, - Warehouse and transportation
and Spin-offs Mgmt
Anticipated Degree of Difficulty
Benefits 0 to 6 months 6 to 12 months 12 to 18 months People and Change - Tax Effective Supply Chain
Realization
- Cultural Transformation and
Communications Tax Function Effectiveness
- HR Effectiveness Technology
- Talent Management - Business Intelligence/Data
- Workforce optimization Warehousing
Business Improvement Plan - Enterprise Applications
Reorganization - Enterprise Data Management
- Back-office consolidation - IT Strategy
- Facility rationalization
- Organizational Design
- Outsourcing, Off-shoring, and
Shared Services

PricewaterhouseCoopers 40 Intelligent Cost Reduction

Appendix 1 Methodology summary
Toolkit
Our toolkit is centered around a set of basic principles, with tools are based on actual client project experience, which
are constantly updated to incorporate new approaches and lessons learned.
Spend analysis pro forma Contract prioritization matrix Management challenge Toolkit Areas
session Cost Reduction
Projected Spend/Savings Supplier Profile 2006/07
- Kick-off presentation
- Meeting approach, schedule, and agendas
Weenas Caltech Borsig Alstom Power
Klinger Dew Construction Schmidt & Clemens
BJ Services
Unsupported First Priority
Durham filtration Grosvenor Health Second Priority
Kinder James Hertel
Actual Savings (Cumulative)
Balances
Current Year Revised Financial Plan

Ondeo Interserve Hewden $m 2005 2006 2007 2008 %

Man Ghh Honeywell
Estimation (tbc ) temp cabins IKM Bottom-up Budgets
39.1 (4.1) (5.8) (5.9) 15.0%
>100k
- Spend analysis and rebudget pro forma
Value of Savings (in GBP)

John Crane
(By cost center)
Contingency High Johnson Controls
Current Year Financial Plan

Luddon Longer-term Business Cases

Review and challenge Mitsui Babcock (0.0) (0.3) (0.8) 2.1%
non- activity based budgeted M. Bridge construction
Inefficiencies cost for necessity

- Contracts review pro forma

Estimation Procurement Savings
Spend Value 12,400 Spend Value 47,450 (0.1) (0.4) 1.0%
Contingency Savings 1,505 12.1% Savings 2,940 6.2%
activity based Inefficiencies 39.1 (4.1) (6.2) (7.1) 18.1%
Wellman & Graham Balfour Kilpatrick BSL
GIS Arco BOC Aramark
Operating Third Priority
Tyco valves Rotork Briggs
Fourth Priority
Watson Norie Longer-term Business Cases
0.0 (0.8) (2.5)

- Management challenge session presentations

Budgets Activity based budget review Bentley Nevada Capture all
Operating Paralloy Siemens auto. Chaucer (Out of scope variable cost saving)
to understand cost drivers and
Budgets Zellweger Spirax CIS
challenge spend
Low Metso Albion DEI Invensys (4.1) (6.9) (9.6)
Dron & Dickson LGH Luddon
<100k Ashworth Fraser M. Bridge Masterton Key:
Bottom-up forecast
Lyreco ABB PII Roevin
Midland Electrical Raynesway Top-down estimation pending clarification
Arco
Spend Value 13,340 5.9% Spend Value 3,125 3.6%
Savings 790 Savings 112

Low Complexity High

Cost Management and Control
- Kick-off presentation
Cost management Gap analysis Recommendations - Assessment framework and maturity matrix
framework spider charts roadmap - Gap analysis and spider charts
Cost Management & Control Cost estimation and
budget construction
4
Systems and Transformational Changes Invoice processing
- Tulsa SLA updates and
process changes
- Automate approval
- Recommendations roadmap and prioritization framework
Invoice processing process with exception
Supported
Allocation Cost - Engage vendors for invoice parameters
structure and frequency
of budget 3 management - Initiate stamp approval and Contractor deployment
Immediate & Controllable Actions coding process and & management
construction 2 tools Asset specific targeted re-allocate resources
- Agree and implement

recommendations - Define exception SPM

1 Relative
Financial/
Invoice processing
- Design field ticket support
package
- Resolve DoA interpretation
parameters

Contractor deployment &

management
non-performance
repercussions

Integrated budget
Transformation
Performance Operational and application issues
- Agree Operations & PSCM
Performance 0 - Commence integrated
Impact
- Business improvement plan
support roles, DoA , etc
Contractor deployment & budget/forecast
Management
Management - Initiate field ticket processes using activity
Drivers Cost forecasting management
- Identify and dedicate PSCM validation & quality control plans and
process cost standards
for cost and reporting single points of contact
- PSCM resource technical - Take ownership of SPM - Leverage WMS to
increases training monitor monthly spend
- Design field ticket quality
control process

Integrated budget
Integrated budget
- Define routine activity cost
standards
- AFE construction & Rig
against budget
- Lean Principles Playbook (e.g., value stream mapping and waste
Business Contracts, Contractors Budget owner Budget owner skills, - Commence job

Process Execution & Supply Chain organizational training, and capacity

execution analysis
- Formalize and document
budgeting roles and processes
Schedule process changes

elimination)
structure Anticipated Degree of Difficulty
Benefits
Realization
0 to 6 months 6 to 12 months 12 to 18 months - Change management methodology and tools
Principles
- Corporate Performance Management
Simple tools to increase efficiency based on what has worked in the past,
tailored to your needs
Minimize time required to use the tools dont over-engineer the process
Cascading levels of detail as required by sponsors, team members,
and stakeholders
Rapid escalation of issues to facilitate decision-making

PricewaterhouseCoopers 41 Intelligent Cost Reduction

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