State of Kansas Financial Management System Needs Assessment

State of Kansas Financial Management System Needs Assessment Study Update Briefing for Agency CFOs October 3, 2006 1

Agenda § § § § Welcome and Introductions CFO Representation Project Overview Project Scope Key Activities Business Case Analysis Contact Information Questions 2

CFO Representation Stakeholder Agencies Sixteen agencies have been identified as “stakeholder agencies” • • • • Adjutant General Department on Aging Department of Agriculture Department of Administration Department of Health and Environment Department of Transportation Highway Patrol Department of Labor Department of Commerce Juvenile Justice Authority Department of Corrections Department of Revenue Social and Rehabilitation Services Kansas Health Policy Authority Judicial Branch Department of Wildlife and Parks 3

STA Experience Statewide ERP/e. Procurement Systems State of Arkansas State of Tennessee State of Nebraska State of Texas Commonwealth of Kentucky State of Minnesota State of Wisconsin State of Nevada State of Texas 4

Project Overview What is ERP? FMS? Enterprise Resource Planning (ERP) – A comprehensive suite of integrated modules delivered by a single software vendor that provides end-to-end support for statewide administrative services For purposes of this study, we will use the term ‘Financial Management System’ (FMS) rather than ERP since the scope of the project includes financials and procurement only – due to current / future investment in the SHARP system FMS is a proposed solution that provides functionality similar to STARS, SOKI, Central Setoff System, and other agency administrative systems, but in a fully integrated manner 5

Project Overview Why FMS? § Satisfy the needs of the agencies • Eliminate the proliferation of stand-alone agency systems • Avoid the cost associated with new agency administrative systems • Avoid the cost associated with maintenance/upgrades of current systems § Significantly improve the quality, quantity, and timeliness of information • Effective decision-making • Efficient and accurate research capabilities • Enhanced ad hoc reporting and inquiry functionality § Streamline processing and control of electronic “documents” through workflow management • Facilitates document routing, review and approval 6

Project Overview Why FMS? § Streamline and simplify State’s business processes • • Financial Budgeting Procurement Other administrative operations § Improve operational efficiency • Commercially-available FMS systems include many features representing best management practices § Support Web-enabled self-service • State employees • Vendors conducting business with the State 7

Project Overview Why FMS? § Replace existing disparate systems • Costly to maintain • Difficult to administer § Automate and integrate • State’s financial accounting, procurement, asset management, and other administrative business processes within a single database § Provide single point of entry • Eliminate duplicate points of data entry • Eliminate duplicate databases • Simplify reconciliation § Reduce/eliminate paper documents • Reduce paper and handling costs (e. g. , vouchers) • Simplify record retention and audit compliance 8

Project Overview Proposed FMS functionality for consideration PROCUREMENT HR / PAYROLL • • • Solicitations (RFx) Catalog Procurement Reverse Auctions Inventory Management Commodity Management Vendor Management • Automated Interfaces to/from SHARP Common Database CORE FINANCIAL • General Ledger / Budgetary Control • Accounts Payable • Accounts Receivable & Cash Receipting • Cash Management • Cost Allocation • Grant Accounting • Project Accounting • Asset Management BUDGET DEVELOPMENT INTEGRATION • Appropriation Budget 9

Key Activities FMS Needs Assessment § Update the system requirements for a new integrated FMS § Update the business case analysis associated with implementing a new FMS § Determine whethere is a compelling business case for procuring/implementing an integrated statewide FMS § Submit recommendations regarding: • Organizational best practices • Implementation best practices 10

Key Activities Timeline FMS Needs Assessment Update Validate Functional / Technical Requirements Project Start-Up Validate the Business Case Sept Oct Nov Dec Business Case Analysis Report Updated Needs Assessment Key Deliverables Organization / Implementation Best Practices 11

Project Scope Update/Validate FMS Requirements § Functional Components ü Procurement ü Grants / Projects ü Cash Management ü General Ledger / Cost Allocation / Activity Based Costing ü Accounts Payable / Accounts Receivable ü Inventory / Asset Management ü Budget Development / Integration ü HR / Payroll Integration ü Data Warehousing / Reporting ü General and Technical 12

Project Scope Update / Validate FMS Requirements Functional and Technical Requirements Development Process Requirements from 2001 Needs Assessment Study Project Team Baseline Focus Requirements Group Draft Requirements End User Community Final Requirements STA Requirements Toolkit 13

Business Case Analysis Costs versus Benefits Standard financial analyses will be performed using dollarquantifiable costs and benefits: - NPV (Net Present Value) - IRR (Internal Rate of Return) - Payback Period • • • FMS Costs Software 1 Hardware Implementation Upgrades Ongoing Maint. & Mgmt. Training vs. FMS Benefits/Avoided Costs System Savings 2 • Replacing current systems • Not implementing planned systems Process-Improvement Benefits • Value Pocket benefits 3 14

Business Case Analysis Financial Analysis Illustra tive 1 2 3 15

Business Case Analysis Information We Need From Agencies Information Needed 1 2 3 Data-Gathering Approach FMS Costs: Estimated costs of implementing, maintaining, and upgrading § Information provided by vendors and other statewide ERP projects § STA experience System Savings: Estimated cost savings from: § Replacing existing statewide & agency-specific systems § Not implementing planned/anticipated systems § Agency System Survey § Interviews with statewide administrative systems SMEs Process-Improvement Benefits: Estimated § Value Pocket Survey cost savings and other benefits that an FMS § Interviews with State employees system would likely enable/yield who are process/functional SMEs = Subject Matter Experts 16

Business Case Analysis Agency System Survey Walk-through of Agency System Survey 17

Contacts for Agency System Survey § If you have any questions whatsoever regarding this survey, please do not hesitate to contact: • Chip Julian at: – chip. julian@staconsulting. net – (281) 794 -1391 mobile • Mitt Salvaggio at: – mitt. salvaggio@staconsulting. net – (512) 797 -7338 mobile • Please complete and return the survey via e-mail attachment to Chip Julian no later than the close of business on October 18, 2006 18

Business Case Analysis Cost versus Benefits Standard financial analyses will be performed using dollarquantifiable costs and benefits: - NPV (Net Present Value) - IRR (Internal Rate of Return) - Payback Period • • • FMS Costs Software 1 Hardware Implementation Upgrades Ongoing Maint. & Mgmt. Training vs. FMS Benefits/Avoided Costs System Savings 2 • Replacing current systems • Not implementing planned systems Process-Improvement Benefits • Value Pocket benefits 3 19

Business Case Analysis What Are Value Pockets©? § Value Pockets • Most likely sources of significant value (i. e. , cost savings and other benefits) to be found in each process/functional area within the scope of an FMS implementation • Provide quantified justification § STA’s proprietary formulas and calculations • Used to quantify process-improvement benefits obtained through the implementation of a statewide FMS 20

Business Case Analysis Value Pocket© Categories Dollar-Quantifiable System Benefits/Cost Savings (Tangible Items) • Improved Process Outcomes/Results, for example: – Decreased cost of goods and services – Decreased inventory carrying costs • Reduced Cost of Executing the Process. For example, reassign/reduce headcount (FTEs) by: – Reducing the number of FTEs required to enter data into systems: • Avoid entering the same data/transactions into multiple systems • Avoid entering data on a form that is then entered into a system (instead of entering into system directly) – Reducing the number of FTEs require to generate needed information by no longer being required to obtain and consolidate data from multiple sources (also results in faster and better decision making) – Reducing the number of FTEs required to reconcile data among multiple systems – Reducing the number of FTEs required to track transactions spread over multiple systems (e. g. , avoid keeping tracking data in spreadsheets, using paper logs, etc. ) Non-Dollar-Quantifiable System Benefits/Cost Savings (Intangible Items) • • Reduced Cycle Times In Support of Strategic Initiative(s) Increased Accuracy Improved Usefulness of Information 21

Business Case Analysis Examples of Value Pockets© PROCUREMENT HR / PAYROLL • • • Solicitations (RFx) Catalog Procurement Reverse Auctions Inventory Management Commodity Management Vendor Management • Automated Interfaces PROCUREMENT to/from SHARP VALUE POCKETS • Reduce cost of goods and services Common • Reduce cost of conducting solicitations Database • Reduce cost to maintain vendor file • Reduce inventory carrying costs • Reduce inventory reorder cost CORE FINANCIAL • General Ledger / Budgetary Control • Accounts Payable • Accounts Receivable & Cash Receipting • Cash Management • Cost Allocation • Grant Accounting • Project Accounting • Asset Management BUDGET DEVELOPMENT • Appropriation Budget 22

Business Case Analysis Examples of Value Pockets© PROCUREMENT • Solicitations (RFx) • Catalog Procurement • Reverse Auctions • Inventory Management • Commodity Management FINANCIAL VALUE POCKETS • Vendor Management • Increased HR / PAYROLL compliance with State prompt • payment law (interest Automated Interfaces to/from SHARP • Increase collection of savings) receivables • Reduce time responding to vendor inquiries Common • Reduce time maintaining the chart of Database accounts • Reduce mailing costs CORE FINANCIAL • General Ledger / Budgetary Control • Accounts Payable • Accounts Receivable & Cash Receipting • Cash Management • Cost Allocation • Grant Accounting • Project Accounting • Asset Management BUDGET DEVELOPMENT • Appropriation Budget 23

Business Case Analysis Value Pocket© Components For each Value Pocket in each process/functional area, we identify: § Specific Nature and Source of the Value § FMS Enabler § Formula for Calculating the Value (i. e. , Benefit or Cost Savings), if applicable § Source of Value for Each Variable in the Formula 24

Business Case Analysis Value Pocket© Components – Example Source of Value FMS Enabler Formula & Source for Values of Variables Reduce the prices the State pays for goods and services Integrated FMS functionality, including e. Procurement functionality, would enable the State to better leverage its purchasing power via consolidated reporting and reduced maverick spend Relevant State spend x Savings factor Division of Purchases Experience of Other Organizations 25

Questions? 26