copyright © 2001-2005 six sigma academy international, llc all rights reserved financial assessment...

Copyright © 2001-2005Six Sigma Academy International, LLCAll Rights Reserved

Financial Assessment Workshop


Presentation Name Pg 2

Module Contents

• Financial Assessment Overview• Financial Assessment Example• Annual Report Exercise• CA Exercise



= f ( , , ,X)

P&L Analysis (Flow Down To Projects)

Y = f ( x, x, x … x)

FinancialPerformance

BusinessProcesses

MarketConditions Mgt. Eff

P&L

Perform Analysis• Comparative • Trends• Variance to Budget• External comparisons• Product line data

BusinessProcesses

With some high-level financial data

Cluster(s)Drill down - Why?

Y = f ( x, x… x)

Project



Finance Pathway

• Interview Finance Champion- Identify known or obvious project opportunities- If not identified, ask about common project areas (Accounts Receivable,

Inventory, SG&A expense)- Identify other key Finance people to interview



Finance Pathway

• Product Line Analysis- Get Product Line Financials from

Finance Champion- Look for high margin products –

Potential projects = increase sales volume

- Look for low margin products – Potential projects = improve profitability (cost reduction)

- Look for high-volume products – Potential projects = productivity improvement

Group Product YTD Margin $(000) YTD Net Sales $(000) COSG $(000) GM %

2717 Diclofenac ER 1,044 1,091 47 96%

2127 Clonidine 5,662 6,001 339 94%

Kadian $60,105 $64,896 4,791 93%

3067 Clorazepate 438 471 33 93%

2620 ISMN IR 769 860 91 89%

2221 Hydrochlorothz. 4,600 5,217 617 88%

2051 Diazepam 825 942 116 88%

2358 Proprn./ Hctz. 53 64 10 84%

2027 Alprazolam 10,161 12,173 2,012 83%

3016 Phentermine 699 843 144 83%

2023 Butalb. w/ Asp. & Caf. 366 448 82 82%

2269 Metoclopramide 553 693 140 80%

2657 Metformin 2,998 3,761 762 80%

2672 Spironolactone 8,521 10,809 2,289 79%

2067 Oxazepam 3,374 4,283 908 79%

Jan - Nov 2003



Finance Pathway

• Financial Ratios Get Financial Ratios for client (from

Finance Champion and from external source – e.g. Yahoo Finance)

Look for high improvement opportunities by comparing client to industry averages

Discuss/review with Finance Champion to identifypotential clusters


Financial Assessment Example



Process Utilized

• 4 wk assessment completed at various sites of client

• Interviews completed with all staff members at each location

• Data requested from each location and HQ prior to interviews- Regional balance and P and L sheets

- AR and AP data requested from each location

- Headcount and budget data requested

- Employee survey

- Key performance and financial metrics for each area of the company

- Competitive information and benchmarking analysis

- Gap analysis of client vs. company information

- Value Stream Maps (if available) and any identified gaps

• CTQ Flow Downs completed with each site mgmt team and projectclusters identified



Project Clusters Identified

• Days Sales Outstanding and Unapplied Cash• AR over 90 days• Shipped not Billed• Company specific project clusters• Billing Quality• Order Fulfillment



Cluster Data

Days Sales Outstanding (DSO) & Unapplied Cash

What we heard:

1. “Varies anywhere between 43 – 82 days in the different regions

2. “Customers do not pay for a reason …”– Verbal

3. “60 days for AR … target is 40 days”– Verbal

4. “60% of orders kicked back for errors … contact #’s missing”– Verbal

5. “$200 K in revenue impact … can’t get orders to customers”

6. Client Comp. (top 3 causes) Billing Equipment Issues, Need Equipment Invoices, Bad Debt Recovery – AR

7. AR (top 3 causes) overpayment due to CM andduplicate payments

DSO AndUnapplied

Cash



Dashboard DSO – Global

DSO (AR Balance/ Ave. Days Sales)Region Jan. Feb. MarchNE 46.1 42.1 43.4SE 73.6 77 81.5South 50.7 51.7 47.5SW 54.5 52.4 52.7Total 52.5 52.5 52.4Target 46 46 46

SAMPLE FIN

ANCIAL DATA



DSO – NE Region

North FY'00 FY'01 FY'02 FY'03

1 26 442 65 503 46 454 49 49 42 545 51 49 25 536 44 39 39 437 47 48 42 468 43 39

9 50 48 36 41

South FY'00 FY'01 FY'02 FY'03

10 66 5211 70 44 47 4312 4813 65 45 46 6214 59 39 5515 37 4216 44 40

17 56 47 41 42

NE - DSO

0

10

20

30

40

50

60

00 01 02 03

DSO

FY DSO00 5601 4702 4103 42

SAMPLE FIN

ANCIAL DATA



Over 90 By AR Type – January (Region X)

29.8%

33.1% 33.0%

$4,538,09025.6%

18.0%16.3% 16.7%

18.4%

$1,710,22037.7%38.2%

$5,574,69112.3%

10.4%10.4%

8.1% 8.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

September October November December January

SAMPLE FIN

ANCIAL DATA



Projects Identified

• 70% Reduction in AR over 90 days in Region x• 70% Reduction in DSO and unapplied cash in Region y• 70% Reduction in SG& A in Region z• 70% Reduction in T and L for Region a



Annual Report Exercise

• Please review the provided annual reports• Please answer these questions:

- What is the organization’s strategy ?- What are their issues ?- What have you learned from this exercise ?



CA Financial Exercise

• Please review the data provided by CA Finance• What are your conclusions from this data ?• What are your strategies ?



Objectives Review

Participant should now be able to understand:

• Financial Assessment Overview• Financial Assessment Example• Annual Report Exercise• CA Exercise



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copyright © 2001-2005 six sigma academy international, llc all rights reserved financial assessment...

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