three critical financial controls for environmental reserve management

data that saves our world

ENFOS Webinarwith Environmental Risk Communications, Inc.

Three Critical Financial Controls for Reserve Management

February 24 and 25 , 2015

Contains ENFOS confidential and proprietary information.2

About Us

ERCI builds tools, training and reports for duty holders to recognize,

measure and display their environmental and asset retirement obligations.

ENFOS is a cloud software platform that expertly

manages all of the complexities of remediation and decommissioning - from the financial to the technical.


Speaker Background – Roger Well, C.P.G.

Currently leading customer deployments on over 100,000 projects and $10B in forecasts and transactions through the ENFOS enterprise platform

26 years of environmental remediation and decommissioning experience in various technical and managerial roles

Author of recent white papers:

The Case for the Enterprise Environmental Liability Management System

Operational Risk Management for Environmental Remediation

Operational Excellence for Environmental Remediation Programs

M.B.A., Keller Chicago

M.S., University of Toledo (Hydrogeology)

B.A., Monmouth College (Geology)

Roger WellExecutive Vice President & [email protected], IL

mailto:[email protected]


Speaker Background – John Rosengard

21 years at ERCI; founder/creator of Defender software suite

14 US corporate remediation teams (>60 CPA audits)

3300 unique liabilities

200 decision analysis projects

4 US port authority remediation teams (>10 CPA audits)

Counterparty/non-performance risk tracking system

MBA, Northwestern

BS, Georgetown

John RosengardPresident & CEO, [email protected], CA

mailto:[email protected]


Opportunity Statement

Financial Controls Overview

Work Breakdown Structure Control

Work Commitment Control

Spend Control

Questions and Answers

Agenda


Write the Caption Contest


Opportunity Statement


What Every Executive Wants

High Visibility (aka “No Surprises”)

Strategic Alignment with Corporate Value Drivers

Improved Effectiveness and Efficiency of Operations

Data-Driven Decision Making and Narrative

1234


Convergence of Practices & Competencies


The Charge of Internal and External Auditors

Enforce generally-accepted accounting principles

• Relevant

• Faithful Representation (fair value)

Encourage good capital stewardship

• Measure similar liabilities in similar ways

• Confirm spending matches liability burn-down

• Anticipate repeats of lessons learned


Matching Spending to Liability Burn-down

Remeasure liability periodically at “fair value”• Remedy implemented• Regulator/community accepted remedy• Counterparty default risk resolved/paid

Remember: remaining liability ≠ uncommitted funds

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

Q1 Q2 Q3 Q4

Liability Commitment Spending


Financial Controls Overview


Business Objectives(Governance, Control, Certification, Risk Management)

Operational System(front-end)

ERP System(back-end)

Inte

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Au

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C

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Rep

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Secu

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Man

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Efficient and Sustainable Operations

Technology People

A Business Model for Control Systems


Integrated Business Process Management Enables Financial Controls

Forecasting & Budgeting

Vendor Proposals

PurchasesInvoices & Recovery

Commitments can’t Exceed Plan Balance

Spend can’t Exceed

Commitments

LEVEL 1 – “Phase”

LEVEL 2 (optional) – “Activity”

LEVEL 3 (optional) – “Element”

LEVEL 4 (optional) – “Component”

WORK BREAKDOWN STRUCTURECommon thread across all processes

Finance Workflow Summary

1

2 3


Work Breakdown Structure Control


The “Harmonized” WBS Explained

Definition: A WBS that is uniformly applied across all financialactivities from forecasting through spending on every projectin the portfolio

But not necessarily applied to all WBS levels in all financial activities(to be clarified)

Do not confuse the company-wide WBS to project-level work taskscontained in a contractor scope-of-work

The more granular the detail, the more financial control (there may bea point of diminishing return)

The operational system contains the detail, the ERP system may not


The “Harmonized” WBS Example

WBS LevelForecasts &

BudgetsProposals & Purchases Invoices Example

Phase X X X Remedial Implementation

Activity X X X Groundwater Remediation

Element X X Engineering Design

Component X Direct Labor

When the work is invoiced, the lowest level of details are known and should be tracked uniformly across the portfolio

When forecasts are made, because of the uncertainty, lower levels of detail may be useful for cost buildup but not for financial control purposes

Harmonized WBS provides the highest visibility and the baseline data required for additional financial controls during project execution stages


Work Commitment Control


Definition: Monitoring and controlling the expenditure commitment against a budget and balance

A harmonized WBS is essential if the control is to be made in any detail below the overall total budget/balance

Four key financial variables used for the control:

1. Current Balance (e.g., of the Reserve or Budget)

2. Open Commitments

3. Available to Commit

4. New Commitment Request Amount (i.e., the Proposal)

All four variable amounts change through time as work progresses – many moving parts

The Commitment Control Explained


Commitment Control Example

Phase ActivityCurrent Year

PlanCY

Expenditure CY BalanceOpen

CommitmentsAvailable

to Commit

Site Characterization

Project Management $1,000 $1,000 $0 $0 $0

Subsurface Investigation $5,000 $5,000 $0 $0 $0

Monitoring & Sampling $6,500 $3,000 $3,500 $1,500 $2,000

Reporting $5,000 $2,000 $3,000 $3,000 $0

Interim Corrective MeasuresGW Plume Control $12,000 $2,000 $10,000 $5,000 $5,000

Water Disposal $5,000 $2,500 $2,500 $2,500 $0

Remedial Options Appraisal

Hydrogeological Assessment $10,000 $4,000 $6,000 $6,000 $0

Alternatives Evaluation $4,000 $0 $4,000 $0 $4,000

Engineering Study $25,000 $10,000 $15,000 $15,000 $0

Construct & Startup

GW Remedial System Install $350,000 $0 $350,000 $0 $350,000

OM&M Plan $1,000 $0 $10,000 $0 $10,000

H&S Plan $5,000 $0 $5,000 $0 $5,000

System Startup $18,000 $0 $18,000 $0 $18,000

TOTALS $456,500 $29,500 $427,000 $33,000 $394,000

Configuration Options: 1. Current Year by WBS2. Current Year by Plan Total3. Lifecycle by WBS4. Lifecycle by Plan Total

Commitment Controls

Control Monitoring

Hard Stop/Control


Spend Control


The Spend Control Explained

Definition: Monitoring and controlling expenditures against a work commitment that may be an entire project or a subproject

A harmonized WBS is essential if the control is to be made in any detail below the overall total budget and work commitment scope of work detail

Three key financial variables used for the control:

1. Commitment Open Amount

2. Available to Spend

3. Expenditure Amount being Processed

May be linked to Earned Value Management


Spend Control Example

Phase ActivityOpen

Commitments

Purchase Order 1 Balance

Purchase Order 2 Balance

Invoice 1 (PO1)

Invoice 2(PO2)

Site CharacterizationMonitoring & Sampling $1,500 $1,500 N/A $1,500 N/A

Reporting $3,000 $3,000 N/A $2,000 N/A

Interim Corrective MeasuresGW Plume Control $5,000 $5,000 N/A $6,000 N/A

Water Disposal $2,500 N/A $2,500 N/A $1,500

Remedial Options AppraisalHydrogeological Assessment $6,000 $4,000 $2,000 $4,000 $2,000

Engineering Study $15,000 $5,000 $10,000 $5,000 $12,000

TOTALS $33,000 $18,500 $14,500 $18,500 $15,500

Configuration Options: 1. PO Total2. PO and Change Order Individually3. By WBS Level4. Rate Sheet Item Quantity Level

Validated

Rejected

Spend Controls


In Summary: Putting it Back Together

Forecasting & Budgeting

Vendor Proposals

PurchasesInvoices & Recovery

Commitments can’t Exceed Plan Balance

Spend can’t Exceed

Commitments

LEVEL 1 – “Phase”

LEVEL 2 (optional) – “Activity”

LEVEL 3 (optional) – “Element”

LEVEL 4 (optional) – “Component”

WORK BREAKDOWN STRUCTURECommon thread across all processes

Finance Workflow Summary

1

2 3


Questions and Answers


Thank You for Attending

For follow-up, please contact:

Lacey Orr

(630) 689-0220 x17

[email protected]

three critical financial controls for environmental reserve management

Business

proprietary information

complexities of remediation

critical financial controls

reserve management

speaker background roger

matching spending

decommissioning experience

driven decision making