Merenkov i Ekhlakova_12 TOCPA Conference_Eng_April 2014_Russia

Application of TOC

to financial management

at the insurance company:

Budget and Planning

Alexandr Merenkov, Ekaterina EkhlakovaSevernaya Kazna Insurance CompanyRussiaApril 26, 2014

12th International Conference of the

TOC Practitioners Alliance TOCPAwww.tocpractice.com April 26-27, 2014 Moscow, Russia

12th International Conference of the TOC Practitioners Alliance - TOCPAwww.tocpractice.com

Your logoAlexandr Merenkov

CEO of the Insurance Company Severnaya Kazna(Yekaterinburg, Russia) since 1996.Chairman of the board of Mediation center at UralsChamber of Commerce, mediator, coach.Associate professor of Department of EconomicsTheory at Ural State University.Works in insurance since 1994.Since 1998 acts as a strategy, negotiation and salesconsultant.

Alexander possesses vast experience in variousbusiness areas such as publishing, trade, medicalservices, telecommunications.

He also boasts various articles published in print andonline media.

phone: +7(343)262-3-316mobile: +7(909)007-3-999e-mail: [email protected]/aleksandr.merenkovskype: gurusk


Your logoEkaterina Ekhlakova

Chief Project Management Officer of the Insurance Company Severnaya Kazna

Ekaterina possesses eight years of Project Management experience.Her portfolio includes implemented projectsin various areas: telecommunications, IT,finance services and insurance.

phone: +7(800)700-13-30mobile: +7(965)548-00-55e-mail: [email protected]/ekaterina.yekhlakova


Your logoAreas for TOC application

Budget

Payment management

Motivation

Performance evaluation


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Budget.

Whats to be altered?

Budget is planned for some years ahead.Two months of planning work. No control afterwards

Payments are regulated by account balance Net cost is used in price calculation Many-years-old discussion upon OE distribution

methodology Income-TVC-Throughput lack control Throughput and OE are unrelated Budget efficiency is evaluated from the increase in gross

income


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Budget.

What are our goals?

Money is enough for operation and investment A solid performance evaluation technique Budget is a tool for decision-making A clear key point: Income-TVC-OE Headquarters pays its way OE is exactly equal to (or less than) the throughput


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Budget.

Solution

HQ becomes a separate branch with its own budget, income, TVC, throughput, and NP

Planned throughput and NP are calculated for each company branch budget

Budgets for 1 to 3 years are approved by shareholders Sliding budget for a day, week, month, two months

and a quarter Budget compliance is controlled daily, weekly, and

monthly


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Budget.

Implementation (1/4)

What we do a new way A new budget form. Throughput for planned insurance

products is calculated automatically for every month.The form is quite compact. TVC items are grouped based on their real-world relations

Planning the quantity of contracts, average premium,and average benefit payment in order to estimatewhether planned income is realistic and it is enoughto cover TVC and OE

Throughput-based budget calculation for branches,HQ and company as a whole


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Budget.


What weve done Budget items are reclassified among income, TVC, OE,

investment. The prior TOC-based classification was revised due to change in understanding. In cases of ambiguity budget items were split in two between TVC and OE

An automatic throughput-based budget calculator requiring minimal manual input was developed. Classification and grouping of budget items assists in elimination of human error. User experience is designed to be as similaras possible to that of another software pieces in use


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Budget.


Obstacles People do not identify the budget problems People oppose filling detailed forms. They tend to provide

(likely made-up) final results with no intermediate data No understanding advantages of proposed budget system Opposition to OE/TVC item reclassification


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Budget.


What weve achieved Realistic budget figures Monthly plan of throughput

Understanding of throughput-OE accordance Detection of anomalies during planning, but not at the end

of the period (when usually its too late)


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Budget. Calculation form for branches


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Budget. Calculation for the company

Company

Budget

Company

Budget

Regional

BranchesURU* HQ

Branch 1 Branch 2 Branch N SP** 1 SP 2 SP N

* Urals Regional Department branches in Yekaterinburg andSverdlovsk Oblast.** Insurance Branch


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Budget.

POOGI

Incorporation of budget calculator into ERP system Implementation of dynamic buffer management


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Payment Management.


Payment process depends on availability of funds Noncompliance to budget plans Lack of predictability, it always feels like were running out

of money We pay to those who brawl, or to those who we like Internal conflicts because of payment delays Clients and partners leave because of disordered

payments Manual payment management


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Payment Management.

What are our goals?

Payment schedule for one to three months ahead The earlier the bill, the earlier the payment Solid rules of payment prioritization Predictability of payment for our partners and clients Automation, reduction of manual control Early prediction of required funds


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Payment Management.

Solutions

Color coding of payment states Monthly, weekly and daily calculation of planned and

actual throughput and OE Monthly, weekly and daily decisions on deviations from

payment schedule Centralization of payment approval


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Payment Management.


What we do a new way Criteria of color coding of benefit payment states were

defined Color-coded report of benefit payments was implemented.

Black and red zones are to be observed first. Yellow zone also requires attention

Payment schedule structure was designed. The structure is designed to comply to budget structure


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Payment Management.


Obstacles Opposition to payment prioritization. People tend to pay

OE first, than TVC No understanding of advantages of new techniques

(mitigated by new motivation scheme)What we have achieved Payment manageability. Reduction of payments in black

and red color zones Reduction of money availability wait times in extraordinary

cases


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Payment Management.

Payment Lightbox

08.02.2013 14% 16% 13% 56%

27.03.2014 15% 25% 15% 45%

Dynamics of distribution of total paid benefits:

All payments pending, color distribution:


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Payment Management.

Weekly Throughput

Weekly payment planning:


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Payment Management.

Weekly Throughput

Payment Planning Results Total commission paid by all branches is reduced by 4%

(January 2013 December 2013)

Daily income is increasedExample: monthly average for branches of Yekaterinburgand Sverdlovsk oblast:

March 2013 2.23 million rub.

March 2014 4.42 million rub.


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Payment Management.

POOGI

100% planning of payments for three coming months Incorporation of payment color coding into ERP system 100% of payments are performed based on color Dynamic buffer management


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Performance Evaluation.


Sales departments are evaluated based on gross income Branch performance evaluation based on branch OE Personal performance evaluation based on total premium No indication of HQ performance, HQ maintenance costs

are paid by other branches Projects are evaluated based on terms and costs New products are evaluated based on OE only No throughput-based evaluation of clients and products


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What are our goals?

Branches are evaluated based on Income-Throughput-NP HQ can only spend money earned from sales of its

services to other branches, and from projects Projects started are those which increase throughput

or NP Employees, clients and products retained are those whose

throughput is positive


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Solutions

Adoption of monthly throughput-based evaluation procedures for branches, sales managers, products,and clients

Adoption of the same procedure for the HQ Evaluation of projects based on throughput, terms,

and budget


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Implementation

Sales departments are grouped by whether their income is enough to cover the following expenses:

GroupFirst Second Third Fourth

31.12.2012 47,92% 14,58% 25,00% 12,50%31.12.2013 49,02% 17,65% 21,57% 11,76%

Group population dynamics:


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POOGI

Automatic calculation of key performance indicators Transition to weekly evaluation procedure for branches

and sales managers Adoption of strategic achievements evaluation Adoption of color coding for visualization


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Motivation.


Who earned more premium, gets bigger wage(throughput and NP are unaccounted for)

Branch heads are not motivated to reduce OE and TVC Serial salespersons get more (if throughput is

unaccounted for) Only those products are sold which make bigger premium

or are easier to sale


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Motivation.

What are our goals?

Salespersons with larger throughput earn more Branch heads are interested in throughput/NP control Products with larger throughput are more interesting

for salespersons Low quality salespersons quit due to low wages


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Motivation.

Solutions

Salesperson motivation is bound to client throughput Salesperson earnings are dependent on product and

contract throughput Branch head motivation is bound to Income-Throughput-

NP New clients and agents are accepted after throughput

calculation only A minimum income per person is determined, which

should suffice to cover this persons OE and for NP generation


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Motivation.


A workgroup consisting of branch heads is created in order to adopt Income-Throughput-NP-based motivation scheme

Income-Throughput-NP-based motivation scheme is designed

A competition is organized among sales departments and salespersons to achieve the greatest income and throughput

An automatic premium calculator is created which shows the true figures for TVC, OE and minimal acceptable income


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Motivation.


Obstacles Opposition to new motivation scheme. People dont like to

get paid for throughput and NP rather than for gross income

What weve achieved Positive dynamics of branches moving between groups.

The first and second group populations are increased


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Motivation.

POOGI

Only 30% of salesperson earnings should depend on premiums. The rest should depend on throughput (and also NP for branch heads)

New organization structure and motivation system dedicated to achieve strategic goals of the company and of branches, based on S&T analysis

Total bonus for project participants should be raisedup to 20% of project throughput


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Thank youfor your attention!

Any questions?

Documents

Merenkov i Ekhlakova_12 TOCPA Conference_Eng_April 2014_Russia