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19 Robertson, J A (1994) Using Activity Based Financial Management Systems to Achieve Self Auditing Capability for Increased Audit Precision and Reduced Costs Paper presented at Conference on Developing and Measuring the Effectiveness of Internal Audit, Johannesburg, June 1994.
18 Paton, G J and Robertson, J A (1994) Designing and Implementing an Integrated Risk Management System that Effectively Minimizes your Exposure Paper presented at the Risk Management Conference, Johannesburg, June 1994.
Integrated Risk Management Conference
A small, rapidly designed and built loss management software solution with accompanying Precision Configuration built and deployed in a matter of a month delivered very substantial strategic management information value together with unexpected dramatic efficiencies
By Dr James A Robertson PrEng and George J Paton, Director, CRM Risk Control Consultants
The management of risk in organizations today is becoming of increasing importance as insurance premiums and liability risks increase and as the hidden costs of risk in areas such as down-time, customer dissatisfaction and other factors increase.
Effective management of risk is therefore becoming a strategic necessity. Risk management in the area of physical risk is an aspect of business that is frequently overlooked or is approached on an ad-hoc basis. This paper sets out some of the factors that should be taken into account in implementing risk management solutions and identifies the need for such solutions to be holistic in nature. In particular, it is noted that the physical and financial components of risk management should be tightly integrated and that the management of maintenance on a risk containment basis is highly desirable.
It is concluded that the effective application of information technology in the form of an integrated loss acquisition database and management information system is vital to achieving the full potential of risk management in any organization. Some of the benefits of this approach are discussed together with a case history of a successful implementation.
It is concluded that the application of these techniques can give rise to a considerable improvement in profitability and should be a vital component of most organizations business strategy. Effective risk management supported by effective information systems can play a significant role in creating and sustaining competitive advantage.
The management of risk in business today is a many faceted and complex task. Traditional approaches to risk management have focused on funding and financial issues rather than managing risk at source. As with maintenance, risk management has tended to concentrate on treating the symptoms rather than the cause. Events giving rise to large losses tend to originate from apparently insignificant occurrences with regard to wear and tear, maintenance and personnel which, with time, escalate to a point of giving rise to a major incident. The use of appropriate techniques to track small losses in a manner that enables management to analyze trends in such a way that proactive action can be taken to anticipate and prevent major losses and to identify the true cause of recurrent losses is vital to effective risk management that offers bottom line benefits.
In developing and implementing a risk management solution, it is important to recognize that a prime objective of the risk management function is to create a risk awareness culture in the organization in which there is an understanding of the adverse effects that risk exposure will have on the organization. As a consequence of this awareness and understanding, deliberate measures to minimize the potential impact on the organization should be implemented. A fundamental principle of risk management is a change in emphasis from an approach of contingency planning in the event of occurrence to proactive management directed at preventing risks from materializing. Risk management is therefore primarily a management function aimed at dealing mainly with uncertainties whilst taking cognizance of the consequences of pure risk and it's impact on business activities.
In designing a risk management solution, a number of tasks must be performed:
a. The potential impact of hazards on the effective operation of the business must be considered.
b. Steps necessary to achieve predefined objectives must be defined.
c. Risk improvement programs to reduce the probability of occurrence of risks must be developed.
d. Alternative strategies for controlling the consequences of risk and their impact on the organization must be developed.
e. These strategies must be integrated into the general decision framework of the organization.
Management activities associated with this process will include risk identification, risk evaluation, risk control and risk monitoring. Risk control involves selecting and implementing the solution most appropriate to achieving the given objective while risk monitoring focuses on determining the outcomes in order to assess the validity of the decisions made. Risk management must take place at all levels in the organization.
In determining the cost of risk, in order to measure the effectiveness of a risk management programme, factors such as insurance premium costs, retention costs such as risk control expenditure, maintenance programmes, training costs, fire protection, security and administration costs must all be taken into account. An optimum risk management solution will maintain a balance between the cost of risk improvement and the level of risk financing with the objective of achieving lower levels of risk in conjunction with greatly reduced overall levels of expenditure as shown in figure 1.
In accomplishing these objectives, a means of acquiring and analyzing comprehensive and detailed loss statistics in order to determine the impact of risk management decisions and to identify problem areas requiring attention, is highly desirable. In fact, it is unlikely that the full long term benefits of a risk management program will be achieved unless the risk management program is supported by a comprehensive information system capable of recording all relevant loss information in a manner that supports comprehensive analysis and enquiry.
FIGURE 1 : DETERMINING THE COST OF RISK
In discussing risk management in the context of designing and implementing a solution, the following terms are applicable (Valsamakis, Vivian, du Toit, "The Theory and Principles of Risk Management" 1992).
a. Risk management
Risk management comprises a comprehensive range of activities for dealing with risks. As a science it identifies the methods that can be adopted to handle risks and to show the interdependence between the available alternatives. As a management function, it is used to plan, direct and coordinate activities in the pure risk area.
Figure 2 illustrates the relationships between business strategy, risk management and external influences.
Figure 3, based on the work of the Society of Risk Managers, illustrates the areas covered by risk management and the overall objectives of an organisation.
b. Pure risk
Pure risk is a risk which results only in loss, damage, disruption, injury or death with no potential for gain, profit or other advantage.
c. Risk control
Risk control comprises the provision of appropriate levels and standards of protection for people and assets to avoid, transfer, control of or acceptance of the pure risks which have been identified and evaluated.
d. Risk financing
Risk financing involves the provision of funds for recovery from potential losses that do occur.
e. Risk evaluation
Risk evaluation is the expression of identified pure risks in an organisation in quantitative / qualitative terms in order to gauge the potential severity and frequency of occurrence of these risks.
f. Risk identification
Risk identification is the identification of the pure risks to which an organisation is or could be exposed.
Risk can be defined as the difference between what is expected and what is experienced. In figure 4 item (a) has a greater uncertainty than item (b) and there is therefore a greater probability that the outcome of item (a) will deviate significantly from the expected value with the resultant impact on operations and severity of loss.
g. Pure risk improvement techniques
Pure risk improvement techniques are those techniques which are used to provide appropriate levels and standards of protection for people, assets and earnings. The four main techniques are as follows:
Avoidance - taking action so as not to incur the risk in the first instance.
Retention - acceptance of the risk in its current make-up or character.
Transfer - insurance, non-insurance or contractual transfer of the consequences of risk.
Control - reducing the risk by controlling its frequency and its severity.
h. Risk finance
Risk financing is intended to provide funds to assist the business to survive and recover from losses that do occur. The two main risk financing components are internal and external financing.
FIGURE 2 : THE RELATIONSHIPS BETWEEN BUSINESS STRATEGY,
RISK MANAGEMENT AND EXTERNAL INFLUENCES
FIGURE 3 : AREAS COVERED BY RISK MANAGEMENT AND THE
OVERALL OBJECTIVES OF AN ORGANISATION
FIGURE 4 : DEFINITION OF RISK
3. PHYSICAL FACTORS GIVING RISE TO EXCESSIVE RISK
Traditionally, the focus of risk management has been on the recording and reporting of claims as they relate to insurers. As a management tool, this did not really identify the real risk exposure of the organization. The tendency today is to focus on the overall cost of risk in an organization which is not only the insurance related cost of risk.
Physical factors that can exacerbate risk are diverse and include maintenance issues, health, environmental and other issues. A few aspects are discussed below.
The maintenance of complex plant, particularly in the production environment is often undertaken on a basis of maintaining the most visible items rather than on maintaining those items that have the greatest potential to give rise to losses or increase risk. For example, a decision to save money on the price of a valve or other low cost component can give rise to greatly increased down-time or even catastrophic failure of the plant. Most maintenance programs do not take account of these factors. An effective risk-focussed maintenance management system will focus on the loss implications of failure of a particular component and prioritize maintenance accordingly. This approach requires a different mind-set in the maintenance department and the provision of appropriate tools to enable the maintenance manager to allocate maintenance resources according to the loss implications of failure rather than traditional criteria. Sophisticated computerized information systems are required in order to accomplish this objective.
In practice, it is not uncommon for losses to result from apparently unrelated circumstances. A recent example involved a major transport operator where it was found that a disproportionate number of drivers suffered from diabetes and that their blood sugar levels were dropping in the afternoons as a result of inadequate diet to a level where serious accidents were more frequent than the industry norm. In another case, drivers were waking at 1 am in order to get to work on time and were losing concentration by mid-morning as a result of exhaustion. Many of these situations are never identified or are only identified in response to a decision from insurers to increase premiums because of poor claims history.
With appropriate information systems it is possible to monitor loss experience and identify unusual trends at an earlier stage. Under certain circumstances, it is also possible to identify relationships for more direct investigation thus reducing the time required for manual investigations.
4. INFORMATION NEEDS IN ORDER TO IDENTIFY TRENDS FOR PHYSICAL RISK CONTROL
Experience has shown that major incidents are normally preceded by a number of minor incidents over a period. Typically, such minor incidents do not attract attention and, in many cases, are not reported so that their occurrence is only highlighted during the investigation that follows the major incident. Appropriate use of a loss information recording system will enable these trends to be highlighted in terms of aggregate cost of risk, frequency of occurrence, etc. Such a system will also enable management to track the full scope of losses occurring and in some cases may highlight that the real cost of small losses exceeds the cost of the high profile losses which constitute the normal focus of attention.
Conventional loss reporting concentrates on the amount claimed from insurers rather than the hidden costs associated with the loss which includes down-time, management time, lost production, lost market opportunities, customer dissatisfaction, unremunerated overtime, staff dissatisfaction and other factors.
Compounding the above difficulties, it is frequently found in many organizations that the personnel responsible for risk control and risk improvement rarely communicate with the personnel responsible for making the financial decisions regarding insurance and self-insurance levels. In order to make strategic decisions with regard to the financial component of risk management, there is a clear need for organizations to restructure these functions resulting in a single line of responsibility for all risk related management as indicated in Figure 1. Tightly integrated risk management information is a vital component for achieving this objective.
In order to fully accomplish the objectives set out above, it is necessary to establish effective communication between the risk improvement and financial functions in order to ensure an integrated approach to risk management. The effectiveness of this communication can be greatly enhanced by having systems which will enable the full financial implications of past losses to be reported thus enabling the full implications of proposed risk management decisions to be accurately projected. This will, in turn, give rise to far better decisions with a long term impact on the profitability of the organization.
A prime requirement indicated by the above discussion is the need for a single integrated database of all risk related information in order to support a single basis of risk related decision making. In addition to information pertaining to incidents that occur, this database should include planned maintenance information, risk audit statistics, information about unaccounted losses, (those losses normally recorded elsewhere but which contribute to the cost of risk such as wear and tear) and other statistics normally recorded separately.
As an example, an organization involved in the introduction of ISO 9000 certification concluded that they were not being particularly effective in their maintenance programs. It was therefore decided to create a database of all major items such as boilers, pressure vessels, etc as well as all other equipment and to associate this database with a database of all relevant legislative requirements. Based on this database, maintenance of all plant and equipment was prioritised and scheduled and it was found that, whereas when the idea was first mooted, increased costs were anticipated, the overall cost of running the plant was reduced and plant efficiency was increased.
5. THE BENEFITS OF ESTABLISHING AN INTEGRATED LOSS DATABASE
The business case in favour of establishing an integrated loss database has been set out above, some of the benefits of such a database are listed below:
a. An integrated loss database will make it possible to introduce a holistic and consistent risk improvement program across the organization in order to enable a standardised approach to be adopted toward financial, and physical risk management.
b. Accountability for losses and risk management can be effectively established by incorporation of an appropriate business model and business rules into the database in such a way that every item can be uniquely associated with a single responsible person who has final accountability. Consideration of these factors during the implementation of the system will frequently cause the organization to identify issues for which accountability has not been effectively defined.
c. The true cost of risk, including hidden costs and high frequency, low value, unaccounted losses, can be established so that management can adopt a pro-active approach centred on reducing the total cost and not only the visible cost.
d. The quality of pure risk management will be greatly improved and duplication of effort will be avoided.
e. Early identification of adverse trends will minimize the probability of the occurrence of catastrophic loses and improve the ability of management to isolate those aspects of business operation that are most at risk of catastrophic loss. This in turn will enable informed decisions to be taken with regard to the need for disaster recovery and business continuity.
f. Accurate centralized information will simplify risk management and reduce risk management costs for comparable results or, more importantly, give rise to a greatly improved return on the risk management investment.
g. Accurate loss and risk management information, centrally available, will give rise to more effective decision making and enable management to see "the big picture". A well designed information system will also support distributed operation so that unit, plant, regional and corporate management will all have access to the components of the database of relevance to them. This will also enable management to benchmark similar business units across the organization in order to identify favourable and unfavourable trends in certain units. This has the potential to greatly improve the dissemination of information with regard to risk management practices that are delivering particularly noteworthy returns.
h. These facilities will also greatly enhance the ability of risk managers at all levels to adopt a coordinated approach to risk management.
i. By providing effective summarization and drill down capability, it will be possible for management to focus on the key issues in risk management within the organization at any time.
j. An effective risk management information system will also provide the tools necessary to ensure that insurance policy endorsements and limitations are constantly monitored thus greatly reducing the risk of policies being revoked due to non-disclosure or other considerations. A comprehensive risk management information system will include policy information at a level that allows full insurance policy management including aggregate management and other funding factors to be taken into account.
6. CONCEPTUAL REQUIREMENTS FOR THE IMPLEMENTATION OF AN EFFECTIVE RISK MANAGEMENT SYSTEM
Paton (1993) has discussed in detail the requirements for implementing a risk management system while Robertson (1992 1&2 and others) have discussed the implementation of computerized information systems. These publications and other work undertaken by the authors comprehensively document the approach necessary to undertake a project of this nature.
In summary, the requirements for the implementation of an effective risk management system include the following:
a. Develop a risk exposure profile of the organization.
b. Identify core business activities impacted by risk management.
c. Analyze past losses and loss trends.
d. Determine market factors influenced by risk exposure.
e. Integrate risk management with business strategy and introduce a program to make risk management part of the corporate culture.
f. Address environmental issues as part of the cost of risk.
g. Restructure the risk management and risk finance functions of the organization.
h. Implement a centralized loss information acquisition system and database and associated risk management information system.
7. CASE STUDY OF AN IMPLEMENTATION PROCESS
A major South African corporation which had previously self-insured all losses recently undertook the introduction of a comprehensive risk management program including the implementation of an integrated risk management information system addressing many of the aspects discussed in this paper. The information system implemented was the prototype of a more comprehensive system proposed for future development. The system was developed and implemented in late 1992 and has been successfully used since then to acquire comprehensive loss statistics and as an information base for introducing comprehensive risk management and risk financing practices throughout the organization.
The system is currently being used to process in excess of 10,000 loss incidents from five regions around the country using four operators. With the statistical base that has now been developed, the basis of risk funding between insured, self-insured and uninsured losses is being optimized and a comprehensive risk improvement program is being implemented. The system is also being used to monitor the progress of insurance claims submitted. It is estimated that a staff of about 12 would have been required to process the same information using conventional techniques without providing any of the management information that the computerized system makes available. Major enhancements to the system are envisaged based on experience to date with the objective of developing a commercial software system aimed at the corporate market.
A wide range of factors applicable to risk management with particular emphasis on the management of the physical factors contributing to risk have been discussed. The need to directly associate the financial implications of losses with the physical factors giving rise to risk is identified as is the need to record losses which are traditionally not accounted for. It is concluded that this can only be effectively accomplished using a comprehensive, integrated loss database and computerized risk management information system. Some of the benefits of this approach and conceptual considerations are addressed and brief case histories are presented.
It is concluded that the effective management of risk in organizations in a manner that will produce significant improvements in loss reduction will also give rise to significant improvements in operational efficiency and substantial overall profitability improvement. These benefits will only be achieved if an holistic approach to risk management and risk finance is adopted that takes account of hidden, as well as visible costs and is associated with a restructuring of the risk management and risk finance components into a single area of accountability. The application of leading edge information technology is a vital component of this solution but must be associated with practical and effective implementation within the organization.
CRM Risk Control Consultants is a firm of specialist risk management consultants within the Price Forbes Group of Companies which specializes in providing a comprehensive risk management consulting service to clients. CRM Risk Control Consultants can be contacted on (011) 637-2148.
Differentiated Strategic Solutions (dS2) is a firm of independent business information system specialists concentrating on offering information systems consulting, software development services and strategic software products with particular emphasis on the fields of decision support and management information. They place particular emphasis on innovative solutions which enable clients to create and sustain competitive advantage and on the effective implementation of such solutions and have been involved with CRM in the development and implementation of the information system on which the case history is based. Through associates in The MaXus Group and other associated specialists they are able to provide a wide range of additional consulting and other services. Differentiated Strategic Solutions can be contacted on (011) 886-9863.
The contribution of our clients and associates without whom we would not have had the opportunity to evolve and develop these concepts is gratefully acknowledged.
Robertson (1992(1)) Effective Implementation of Executive Information Systems. Paper presented at Executive Information Systems Conference, Johannesburg, March 1992.
Robertson (1992(2)) Enhancing Information System Effectiveness: The Human Element. Paper presented at Executive Information Systems Conference. Johannesburg, March 1992.
Robertson (1994(4)) A Practical Approach to Implementing Integrated Information Systems in Real Companies. Paper to be presented at SAICE IT Division Conference on Integrated Information Solutions in Engineering Practice, Johannesburg, October 1994.
Valsamakis, Vivian & du Toit (1992) The Theory and Principles of Risk Management. Butterworths.
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17 Robertson, J A (1994) The Real Issues in Outsourcing Paper presented at the Outsourcing Information Technology Conference, Johannesburg, June 1994.
16 Robertson, J A and Cohen J R (1994) Information Warehousing : A Means of Catering for Changing FIS Requirements Paper presented at the Financial Information Systems Conference, Johannesburg, May 1994.
15 Robertson, J A (1994) Fundamentals in Designing a Financial Information System For Corporate Decision Support Paper presented at Financial Information Systems Conference, Johannesburg, May 1994.
14 Robertson, J A (1994) A Market Focused Approach to Developing an Information Technology Strategy Paper presented at Information Systems Manager Conference, Johannesburg, March 1994.
13 Cohen, J R and Robertson J A (1994) Network Systems in Support of Business Strategy Paper presented at the Networking '94 Conference, Johannesburg, February 1994.
12 Robertson J A (1993) Differentiating between Strategic, Tactical and Operational Information Systems Keynote Presentation to Computer Society of South Africa Strategic Information Delivery SIG, Johannesburg, July 1993.
11 Barry, R M and Robertson J A (1993) The Benefits of Management Information Systems to the Professional Practice Paper presented at the SAICE 15th Annual Conference on Computers in Civil Engineering, "Benefits of Information Technology", Cape Town, September 1993.
SAICE 15th Annual Conference on Computers in Civil Engineering
By Dr James A Robertson PrEng & Reg M Barry, Financial Director, V3 Consulting Engineers
Case study with regard to a fully integrated business information system (ERP) with Cubic Business Model in the financial suite which delivered exceptional benefits in terms of management information and management effectiveness as well as substantial efficiencies including head count reduction and drastically reduced audit time and cost
The advent of commercially available practice management software for the South African Consulting Engineering Industry some years ago, introduced the possibility of introducing far reaching, tailored, management information systems into the professional practice. This paper sets out to highlight some of the experiences and particularly the benefits derived from one such installation two years after implementation. The system comprises an integrated job costing, billing, debtors and creditors system linked to a comprehensive financial management system and an executive information system offering a wide range of management reports and graphical analysis.
Benefits experienced include the reliability and timeousness of the information, financial results are typically available within ten days of month end and year end financials within the same time frame at reduced audit cost and greater precision. A wide variety of reports are available and the organization can be viewed as a "Rubics Cube" of information in which the information can be grouped and examined in a wide variety of ways allowing project, client, profit center and other views of performance according to management's needs. Full activity based financial analysis and overhead distribution is supported eliminating the approximations typically made in assessing profit distribution and recognizing marketing and management contributions.
Senior management have had their workloads on mundane analysis greatly reduced while obtaining more accurate information faster. Information is also available at different levels of the organization at different levels of detail. Enquiries from a very summarized executive view to a very detailed transaction level analysis allow effective management by exception with drill down to specific problems. The variety of analyses possible offers great scope for effective management and directed marketing in a manner which should allow the company to create and sustain competitive advantage.
The evolution of computer technology in the late eighties gave rise to a situation at V3 Consulting Engineers in 1989 where the existing projects system was becoming obsolete and no longer able to cope with the demands of the firm. Over the period 1989/90, the management of the firm undertook a number of preliminary reviews of commercially available software and subsequently commissioned a detailed study of the firm's requirements in which the relative strengths and weaknesses of the commercially available software packages was evaluated (Robertson 1990).
It was established that neither of the major packages available were ideally suited to the needs of the firm and further analysis was undertaken to establish in greater detail the scope of modifications required. Following negotiations with the vendors, a scope and budget for the required changes was agreed and a final decision taken as to which system to purchase. The selected system was a South African developed package already in use at a number of consulting engineering firms.
A period of software enhancement by the developers was followed by testing and pilot operation, the system was commissioned and ran live in the Cape Region of V3 in October 1991. Thereafter the system was installed in the Free State and Transvaal regions, running live from March 1992.
This paper outlines some of the experiences with the implementation with particular emphasis on the benefits derived from the use of the system.
The system selected comprised a number of major components:
The projects system comprises a suite of programs including projects and personnel databases, salary and rates information. A company parameters module allows configuration of the system to model the organizational structure of the practice to take account of offices, departments and associated companies as well as to define the nature of the general ledger interface. A variety of set-up options allow further customization of the operation of the software.
The projects system provides full features for the entry and processing of time and expense information with comprehensive analysis of Work in Progress (WIP). WIP is maintained on an open item basis such that once captured, all items remain in the system until they are either recovered through billing to the client or written off. Full audit trails and analysis reports are available on the WIP. The project system includes a largely automated billing system.
The projects system also provides a wide range of facilities for structuring up to 5 levels of project detail and associated analysis together with activity codes and a variety of project budgeting and reporting options.
The projects system is integrated with debtors and creditors modules to allow full management of these accounting functions with project related reporting in debtors and both project and non-project expenses posted in the creditors program.
All financial components of the projects system are integrated on a batch basis with a commercial general ledger package.
The financial system comprises a commercial general ledger package together with integrated cash book software. This is linked on a batch basis to a commercial salary package. The financial system has recently been extended by the acquisition of an integrated assets register package and barcode reader. The financial system replaced 24 column manual cash books.
The general ledger chart of accounts accommodates a comprehensive, fundamental analysis of all income statement and balance sheet items in a manner that is linked to the business model of the organization in terms of cost and profit centres including physical branch offices and administrative, technical and support departments. A hierarchical, structured coding scheme is employed in order to facilitate allocation of expenses on an activity basis, and to allow progressively more detail in enquiries. Associated with the chart of accounts, a variety of financial reports allow summary or detail reporting for the region, office or department as required, including summary and detail income statements, balance sheet, cash flow projections and ratio analysis.
The financial system is linked directly to the projects system in a manner that is designed to support activity based costing and allocation of income and expenses in a manner that permits clear definition of ownership of information with a view to achieving a high level of internal auditing and a resultant improvement in accuracy and reduction in audit delays.
In the past year, procedures have been implemented to permit all financial results to be consolidated nationally at the detail level, thus permitting the extraction of a wide variety of detailed and summary analyses. Various controls on inter-region charges have also been implemented together with procedures for accumulation and distribution of corporate overheads.
Executive Information System
Recently a graphical Executive Information System (EIS) has been developed to operate on the underlying operational projects and financial systems. This EIS has been developed using a commercial, windows based tool and provides a high level of graphical summarization of certain key values in the projects and financial systems. Development is continuing.
The EIS system has been developed with the objective of enabling senior management to see key values summarized graphically in a meaningful way that allows them to rapidly identify potential problems and drill down to the detail in any way that they may consider necessary. Particular emphasis was placed on achieving a user interface that was intuitive for senior management and did not restrict enquiries on the basis of simplifying assumptions made during construction. The EIS also provides an interactive mechanism for overhead distribution on an activity basis, whereby all income and expenditure relating to non-production business units is distributed over the production units on an agreed basis. The model has been designed with a view to providing management with the means to examine the effect of alternative allocation formulae on the profitability of individual business units without altering the underlying data which has been allocated on a fundamental basis.
The ultimate objective set for the EIS is to support a "paperless board meeting" in which all relevant information is projected onto a screen in the board room so that managers can analyze and query information interactively and pro-actively thus facilitating management by exception rather than tabling large volumes of information.
OBJECTIVES FOR THE SYSTEM
A number of short term and long term strategic objectives were set for the system at the time that the initial investigation (Robertson 1990) was undertaken. Particular emphasis was placed on specifying the objectives and requirements for the system with the objective of meeting the long term strategic requirements of the firm with a view to avoiding the need to replace the system after a few years. Objectives set included:
- Provide tools to monitor and improve productivity and profitability.
- Enable profitability to be measured on a project, department and office basis using the cubic model proposed by Robertson.
- Assist the firm to offer the highest possible levels of service to it's clients.
- Ensure that charges for work were realistic and that work was performed effectively for the client.
- Provide comprehensive budgeting facilities for projects and financials.
- Assist in the evaluation of current and future directors with respect to appointment and promotion.
- Provide concise management summaries.
- Permit a global view of the practice.
- Permit detailed enquiry on all aspects of operations and job costing.
- Require minimum management time and manpower to operate system.
- System must be affordable.
All of these objectives have been met at the current time although costs have been greater than expected and would be handled differently if the project was undertaken today. Certain specific benefits are discussed in more detail in subsequent sections.
The implementation was undertaken in a phased manner, as outlined previously. Problems were experienced in terms of availability of senior personnel in-house at certain times and in terms of commissioning the system in other regions using in-house personnel. This was undertaken with a view to cost containment but ultimately gave rise to increased costs associated with correction of problems experienced.
With hindsight, more use should have made of outside assistance in the implementation in the second and third regions. In-house staff were not experienced enough and the time they spent in other regions placed pressure on their own region's operation.
Time taken to achieve understanding and commitment to the new system by managers and staff at all levels proved to be greater than anticipated and required focused and firm action by top executives before all required information was provided by project leaders and other staff and proper use was made of management reports. Experience tends to support the widely reported view that a paradigm change of this magnitude requires between three and five years to become permanent in an organization.
BENEFITS OF THE SYSTEM
The projects system has now been in operation in the Cape Region of V3 for close to two years and in the rest of the country for eighteen months while the financial system has been in use country wide for eighteen months. As stated above, the objectives set three years ago have all been met. Specific benefits are discussed in the sections that follow:
Reliability and Timeousness of Information
Information is readily available, in many cases almost instantly. For example, analysis of time sheet data and other data captured to projects is available within two working days of the end of the month.
Full analysis of project performance for the month is available immediately data capture is completed including a wide variety of budget, costing and profitability reports. Up to date sales journals are available at any stage as are debtors and creditors age analyses. The EIS projects analysis can be made available within twenty four hours of month end or updated more frequently as appropriate.
Full financial statements including summary and detailed income statements, balance sheets and cash flow projections are generally available ten days after month end and include all closing and balancing adjustments for the period in question so that there is considerable confidence in the reliability of the information. The EIS financial analysis can be made available at the same time.
Because of the wide variety of combinations and groupings in which the information can be presented and the wide variety of controls built into the system, it is possible for all information to be reported in a manner which allows recipients to accept full ownership of specific sets of data. This facilitates verification and control and allows senior management to operate on the basis that, "if all subordinate managers have accepted the accuracy of their figures, the consolidated figures must be correct". This ensures a high degree of reliability and confidence in the information.
As a result of the detailed analysis contained in the general ledger, it is possible to operate the financial system in such a way that very little additional processing is required at year end over that required at month end. While some difficulties were encountered at the end of the first year of operations since not all procedures were fully in place, it was still possible to table the year end figures 17 days after the end of the year and they were signed off without qualifications by the auditors approximately five weeks later.
The Cubic Business Model
The business model referred to earlier allows the databases to be viewed as a multi-dimensional "Rubic's" cube which can be rotated and viewed in a wide variety of different ways. This permits the financial and production information to be grouped and summarized by office, department and region. Production (project) information can also be viewed by project leader, technical director, marketing director, client market segment, project discipline and client thus providing a fully market focused information capability. This information can then be used to focus marketing efforts and identify different marketing and management styles required for different market sectors as well as enabling management to evaluate the performance of individuals in terms of marketing and management contribution as well as production contribution.
In conjunction with these facilities, the activity based allocation of administrative overhead contribution by technical staff permits an accurate measurement of true profitability of individual business units or sub-units at a level which permits "level playing field" comparisons of business units. This eliminates the traditional problem of professional service organizations where the business units of those involved in management and marketing are penalized since only the production contribution is measured. Through this approach, inappropriate management decisions resulting from incorrect cost allocation can be avoided.
The system also supports attribution (allocation) of income from professional fees to the business unit employing the person doing the work. This permits the profitability of business units to be measured in terms of true, salary linked, revenue contribution as well as by the traditional method of project profitability and reduces the dependence on relatively arbitrary, rates based, costing approaches.
Senior Management Work Load and Effectiveness
Senior management have had their work load on mundane analysis greatly reduced as many of the analyses previously performed using spreadsheets have been incorporated into the system and are therefore available automatically with greatly reduced effort. Time spent resolving problems of mis-allocation and addressing queries with regard to year end has also been considerably reduced.
The multiple levels of summarization in conjunction with the high level of detail of the underlying data enable management to receive very summarized reports for routine management while affording them the capability to rapidly "drill down" to progressively more detail in order to answer queries.
The wide variety of analyses available and the ready availability of information have freed management to be more effective while devoting less time to management and administration. At the same time, management have greatly improved scope to identify opportunities to improve operational effectiveness, increase delegation and improve profitability. They are also able to identify market related factors that can have a bearing on marketing strategy, product mix and other matters. These factors all enable the firm to offer innovative and competitive services in a competitive market. This is expected to assist the firm in creating and sustaining competitive advantage over the medium- to long- term as part of it's commitment to providing relevant, appropriate and cost effective services.
The components of a management information system (MIS) and associated financial and executive information systems have been summarized based on the experience of V3 Consulting Engineers. Certain experiences during implementation have been summarized and the objectives set for the system at the outset are reviewed. It is noted that these objectives have been met.
The benefits experienced by the firm are discussed with particular reference to issues such as timeousness and reliability of information, flexibility of analysis and control. It is noted that the work loads of senior management have been reduced while more accurate and detailed information is made available more rapidly. The ability to summarize the information in a great variety of ways while providing the ability to undertake enquiries at a very high level of detail when required, is noted as a further benefit.
It is concluded that the system has met most of the objectives set for it at the outset and that it is assisting the firm in it's objective of creating and maintaining competitive advantage through the provision of focused, appropriate and cost effective consulting engineering services.
Robertson J A (1990) Report on Investigation Into Professional Practice Management Information Systems for Vorster, van der Westhuizen and Partners Unpublished report, October 1990.
Download the V3 Consulting Engineers: The Benefits of Management Information Systems to the Professional Practice -- Article in Adobe pdf format
011 The Benefits of Management Information Systems to the Professional Practice -- by Dr James A Robertson PrEng from James Robertson
Download The Benefits of Management Information Systems to the Professional Practice v 003 -- Slides in Adobe pdf format
Download The Benefits of Management Information Systems to the Professional Practice v 003 -- Original Paper in Adobe pdf format
10 Robertson J A (1993) Cross Platform Information Integration Paper presented at Business-Led I.T. Strategies Conference. Johannesburg, May 1993.
9 Robertson J A (1993) Integrating Strategic Information Systems with Operational Systems. The Corporate Command Centre Paper presented at Business-Led I.T. Strategies Conference. Johannesburg, May 1993.
8 Robertson J A (1992) Effective Implementation of Executive Information Systems Paper presented at Executive Information Systems Conference. Johannesburg, March 1992.
7 Robertson J A (1992) Enhancing Information System Effectiveness : The Human Element Paper presented at Executive Information Systems Conference. Johannesburg, March 1992 and South African Institution of Civil Engineers Conference May 1992.
6 Robertson J A (1992) The Challenge of Applying Computers to Make Engineers More Innovative, Productive and Profitable Paper presented at 1992 SAICE Congress. Pretoria, April 1992.
5 Robertson J A (1991) What Is Your Time Really Worth? How to Manage Your Practice to Earn a Living Wage Published in the October 1991 issue of the South African Veterinary Medicine journal - Vetmed.
4 Robertson J A (1991) Experience with the Introduction of an Integrated Practice Management System into a Number of Large Consulting Engineering Practices Presented at the SAICE Computer Division 13th National Symposium on "Computing in Civil Engineering", Port Elizabeth, May 1991.
3 Robertson J A (1990) Computerised Management Information Systems for the Consulting Practice: A Structural Business Model with the Objective of Improving Profitability Presented at the SAICE Computer Division 12th National Symposium on "Computing in Civil Engineering into the 1990's", Mid Rand, May 1990, published in the October 1990 issue of the Civil Engineer in South Africa.
2 Robertson J A (1990) The Management of Computer Resources in the Business Environment with Particular Reference to the
Professional Practice Presented at the SAICE Computer Division 12th National Symposium on "Computing in Civil Engineering into the 1990's", Mid Rand, May 1990, published in the October 1990 issue of the Civil Engineer in South Africa.
1 Robertson J A, Greyling A J and Middleton B J (1989) An Integrated, Inter-active Professional Practice Management and Accounting Information System Presented at the 11th Annual Conference on Computers in Civil Engineering, "Information Systems in Civil Engineering", Bloemfontein, May 1989.
03 Robertson J A and Kirsten H A D (1988) Computer Literacy and Interactive Use of Computers to Improve Engineering Productivity and Technical Standards Presented at the 10th Annual Conference on Computers in Civil Engineering, "Computing into the 90's", Durban, May 1988.
02 Robertson J A (1986) Programming Techniques to Improve User Productivity Presented at the 8th Annual Conference on Computers in Civil Engineering, "Computers '86", Cape Town, May 1986.
01 Robertson J A (1989) Critical Limit State Hazard Management as a Technique to Control the Stability of Slopes in Mining Paper presented at the South African National Group of the Society for Rock Mechanics, Johannesburg, March 1989.
A simple confidentiality and non-disclosure agreement which you can tailor and elaborate on as you see fit and which may vary depending on your legal jurisdiction and your attorney. I recommend that this initial document is kept simple as you want ALL persons attending the initial tender briefings to sign this
You would possibly have a much more comprehensive agreement for your short list bidders and possibly more comprehensive still for your final choice although I personally hold that very detailed documents of this sort tend to be excessive
Business Systems NOT delivering?
Call the Business Systems Specialist
Dr James A Robertson -- has been involved in the effective application of Business Information Systems, including but NOT limited to ERP, since 1987 and in the profitable and effective use of computers in Business since 1981.
Drawing on a diversity of experience, including formal military training in Quick Attack techniques at the Regimental Commander level, Dr Robertson has developed highly effective methods of investigating any sub-optimal Business Information Systems situation -- be it an established system or a stalled project or any other source of Executive frustration -- quickly and concisely diagnosing the root cause of the problem and prescribing concise practical actions that Business Executives can effectively act on see the Pulse Measurement page and also the Sample Reports page for redacted real reports.
He has also developed highly effective methods of strategically enriching systems to unlock the full potential of existing investments, see the Precision Configuration page and couples this to architecting small pieces of clever software that harness the full potential of your investment, see the Software page.
If you are having problems with your systems, your project or your IT Department, call The Business Systems Specialist
Business System Failure is RIFE -- we offer insight into why this happens AND WHAT is required to prevent it.
Failure is at epidemic levels with massive damage done to client companies -- if you are NOT aware of the extent of the problem please visit the About Failure page for a catalog of major failures running to billions of Pounds and Dollars.
All evidence indicates that the established players do NOT know how to deliver stable, reliable high value solutions that WORK.
There HAS to be a better way!
This website provides information relating to that way with a large collection of white papers, presentations, standards documents, etc that you can use to start bringing the situation under control
We also offer high level advisory services with regard to the application of the principles advocated on this website
We offer an ENGINEERING APPROACH to addressing these issues
By Engineering I mean the formal, structured, highly disciplined, highly systematic, highly practical approach that consistently delivers results in ALL areas of human endeavor where formally trained and certified engineers are the ONLY practitioners permitted to operate -- think large buildings, factories, motor vehicles, aircraft -- highly complex systems that work at a level that we take it for granted that they WILL work and where failure is all but unthinkable and, when it happens, attracts immediate public attention and rigorous investigation directed at ensuring that such failures are prevented in the future -- in fact, everything that the management consulting industry that implements complex software systems is NOT
This approach is discussed further on the Engineering Approach page.
In 2003 I undertook an in-depth analysis of all the information and experience that I had gathered with regard to the factors giving rise to Business Information System failure including ERP and general IT and classified this information into a number of categories including "The Factors Causing Failure" and "The Critical Factors for Success" based on this I developed a two day Course "The Critical Factors for Information Technology Investment Success" which is still offered today.
Based on this I wrote the book of the same name, which is available in electronic form here for download:
Click here to send us an email subscribing to our free newsletter -- all articles posted by James Robertson will be emailed to you
James has a very detailed profile on LinkedIn should you require further information about him.
You can also connect with him on LinkedIn at http://www.linkedin.com/in/DrJamesARobertsonERPDoctor
James has an open networking profile -- click on "Connect" and use email address James@LinkedIn-at-JARA.com.
You can contact us on
LinkedIn at http://www.linkedin.com/in/drjamesarobertsonerpdoctor
Facebook at https://www.facebook.com/james.a.robertson.393
Mobile: +44 (0) 776-862-2875
Landline: +44 (0) 207-059-0007
Fax: +44 (0) 844 774 4580
There is a large body of white papers, articles and other content produced by Dr James Robertson available on this website
Please click here to visit the detailed listing of articles
About Dr James A Robertson PrEng -- The Business Systems Doctor -- and Other Topics
Catalogue of Major Business Information System Failures
About the Engineering Approach
James Robertson's Value Add
Attributes of a HIGH VALUE solution
Recognizing Business System Failure
The Critical Human Foundation
Old Software IS Viable
From South Africa
Competencies of Dr James A Robertson PrEng
About Professor Malcolm McDonald
Table of Contents
About my relationship with the Almighty Creator, Yah the Eternally Self-Existing
Comments relating to the Business Systems Industry and other topics
Testimonials and other positive material regarding James Robertson
List of Articles
Achieving High Value Business Information System outcomes
Executive Custody -- What is it and HOW do you get it?
The REAL Issues in Integrated Business Information System Success
Part 1: Introduction
Part 2 -- Mythology and Lack of Executive Custody
Part 3 – Strategic Alignment and Precision Configuration
Why your ERP is NOT delivering and HOW to FIX it
IT Project Management
CEO Anthony Lee Comments on his experience of the Pulse Measurement
No Charge Guarantee on the Pulse Measurement Service
Examples of Pulse Measurement Outcomes
Critical questions regarding the Pulse Measurement™
The Pulse Measurement Workflow
The Critical Factors for Business System (ERP+) Investment Success in the Pulse Measurement
Indicative Pulse Measurement Durations
What is a JAR&A Pulse Measurement?
Survival of the fittest – why it makes sense to measure the pulse of your business
Examples of Pulse Measurement Outcomes over 24 years
Sample Pulse Measurement Reports
Strategic Essence: The Missing Link in Business Information Systems
Strategic Essence: Overview
Strategic Essence: Part 1 -- Strategy Defined
Strategic Essence: Part 2 -- Differentiation
Strategic Essence: Part 3 -- The Essence IS Different
Strategic Essence: Part 4 -- The Essence should be the Point of Departure
Strategic Essence: Part 5 -- Discovering Strategic Essence
Strategy -- the Essence of the Business: What is it and how do you develop actionable strategic plans?
Simple Steps to Increase the Strategic Value of your ERP Investment
Free Strategic Snapshot Toolset and Manual
A strategy focused planning system beyond traditional budgeting
Tough IT and ERP Procurement and Contracting that Works
Robust Business Systems Procurement
Part 1 -- Introduction
Part 2 -- Bill of Services, Laboratory, Go-live Certificate, etc
Part 3 -- Executive Engagement, Bid Compliance, Adjudication and other matters
Guidance and Advisory Services
The Art of Project Leadership
Why Regular Communication with the CEO is Vital
The Business Simulation Laboratory
Precision Configuration and Strategic Business Information Architecture
Precision Configuration based on Strategic Engineered Precision Taxonomies
The JAR&A Cubic Business Model
Highly Structured Strategic Chart of Accounts -- a Vital Element of your Corporate Information Arsenal
The Product Catalogue -- an Essential Element of any Precision Configuration
Attributes -- answers to the questions you have NOT yet thought to ask
Case Studies of Notably Successful Projects with high value Precision Configuration
092 Doing things differently and better -- ASCO Case Study 2-- BPM Summit 2013
088 Strategic ERP Invesment -- ASCO Case Study -- Service Management Conference and Exhibition Africa
026 Information Architecture and Design of FIS for Rennies Group -- Financial Information Systems Conf
018 CRM Risk Control: Designing and Implementing an Integrated Risk Mgmt Sys -- Integrated Risk Mgmt Conf
011 V3 Consulting Eng: Benefits of MIS to Professional Practice -- SAICE 15th Ann Conf on Computers in Civil Eng
Strategically Enriching your Business Information Systems
Part 2 -- Principles of Data Engineering
Part 3 -- Steps in applying these recommendations
Simple Steps to increase the strategic information value yield from your Business Systems Investment
The Full JAR&A Taxonomy Manual
Part 1: Introduction, Problem Statement, Definitions and Examples
Part 2: Why Use JAR&A, Required Knowledge and Experience, Cubic Business Model and Chart of Accounts and Taxonomy Software
Part 3: How to do it, Case Studies and White Papers and other References
Example General Ledger Manual
Business Process -- Irrelevant, Distracting and Dangerous
The RIGHT Approach
Custom Strategic Software Design and Oversight of Construction
Standards for Custom Software Specification
What IS Software?
Critical Factors for I.T. Success
A Moral and Ethical Dilemma -- Systems that Fail
Case Studies examining Business Information System failures
The BBC Digital Media Initiative Debacle
The Bridgestone -- IBM Conflict
Speaking and Training
Showcase of Conference Presentations
Most Viewed Presentations
Briefings and Seminars
Why your ERP/BIS is NOT delivering and HOW to FIX it
ERP and IT Procurement that Delivers Results
The Critical Factors for IT and ERP Investment Success
Conferences and Public Presentations
Conferences 80 to 99 -- 2009 to Present
Conferences 60 to 79 -- 2005 to 2009
Conferences 40 to 59 -- 1996 to 2005
Conferences 20 to 39 -- 1994 to 1996
Conferences 01 to 19 -- 1989 to 1994
On-Line Seminars (Webinars)
Webinar on Preparing and Presenting Webinars
Contacting James A Robertson and Associates Limited