Sample Telecommunications Business Model

TELCOMMUNICATIONS BUSINESS MODEL Lifestyle Trends Regulators New Entrants National/International Politics Customers Stockholders Suppliers Competitors Economy Technology Capital Markets
Strategic Management Process
Process     Description	Strategic management is the process of defining the vision of the company, formalizing it into a mission statement and converting the statement into objectives that identify market niches and products and services to be offered. The mission may be singular or multiple. The community served may be local, regional, national or international and may be different for each objective. The objectives will then be codified into a strategic plan for the company. The strategic plan is co-ordinated with shorter-term operating plans (operating budgets, capital budgets, etc.).
Process Objectives	Develop and communicate mission and vision Determine strategic objectives (ie, profitability / market growth) Identify and allocate resources necessary to execute business strategy Manage performance Measure business performance against strategic objectives Promote culture of continuous change / improvement Communicate values and behaviour

Inputs

Technology Trends Competitive positioning Market Needs, wants and trends

Customer design concepts Economic factors Prior long-range plans

Demographics Global markets Previous track record for success

Outputs

Vision         statement Mission     statement and long range plan Information     technology strategy

Human     resource needs Investment     strategy Financial capital strategy

R&D strategy Organizational structure Entity level     communications needs and plan

Systems

Executive     information systems

Competitor     database

Project     management system

Classes of Transactions

Routine         None

Non-routine             Mergers & acquisitions Non-routine investments Executive    compensation contracts Divestitures

Accounting  Estimates             Recover-ability     of existing physical assets Capital needs / requirements Recover-ability of intangible assets

   

Risks     Which Threaten Objectives	Controls Linked to Risks
Poor communication of mission and vision Poor operating capabilities / lack of appropriate resources	Formal board approval of strategy and establishment of targets and objectives through the organization to support its delivery
Inadequate co-ordination between resource management and core business processes	Competitive bench-marking, customer surveys and performance evaluation Regular board review of performance against strategic plan using balanced scorecard approach
Missed opportunities / unforeseen threats (new competitors) / changing customer needs	Monitoring and responding to external forces
Lack of access to required capital and ability to service department	Proper capital     planning and management
Loss of focus or inability to foster change	Planned performance reviews, disciplined change management
Critical Success Factors (CSFs)	KPIs     Linked to CSFs
Creating and sustaining an appealing proposition to target customer / markets Maximize stakeholder value Successful change management Effective capital management Adequate resource management processes	Market     share; customer surveys Share     price; analyst ratings Percent completion to scheduled improvement in affected process KPI Return on equity; return on assets Satisfaction surveys of internal customers
Other Symptoms of Poor Performance Unclear direction Lack of employee involvement Undefined responsibilities Consistent failure to introduce new products / line    Weak market position Poor financial results
Key issues and considerations for the tel-communications industry             Impact of regulatory environment (eg ability to put through price     changes, target different market segments) Increasing liberalisation of global tel-communication markets Need to be able to measure business performance by appropriate segments (e.g. ROCE, ROI varies significantly by business area    Move towards alliances (with both suppliers and competitors), particularly on a global basis Rapid pace of technological change impinges on ability to carry out effective long term strategic planning                            Convergence of markets and technology (eg multimedia, software) Broad or narrow strategic focus (e.g. be a pure network supplier or offer full range of telecom services)

    CORE BUSINESS PROCESSES

core business process: customer care and billing

Process     Description

The customer care and billing process covers the end-to-end process associated with (1) handling an initial customer order, (2) fulfilling that order, (3) generating a bill and (4) collecting cash for the service provided. It is also concerned with: maintaining customer satisfaction to ensure they do not switch to another provider or cease service; and providing different types of customer services    It is important to view     the above as one process rather than four separate processes, as inefficiencies or problems any where along the chain impacts the level of collection and customer satisfaction.

Process Objectives

Meet specific needs and service levels required by new and existing customers Attract and retain customers Deliver tailored services through appropriate distribution channels Meet management information requirements Prevent fraud and bad debts Deliver adequate structured billing data on expected media

Activities
Record customer data and new customer order or order change request Perform customer credit check Issue service order for technical processing Issue service change request Enter billing data (eg master file details) Process order forms from all sources (e.g. help-desk requests, system sales, routine volume/traffic driven sales) Ensure order process triggers billing runs	Handling of inquiries from potential customers Handling of inquiries from existing customers Analyze and control customer churn rate Perform     customer retention measures	Record internal/external     problem statement Issue trouble report Analyze problems Track and report trouble tickets Remedy problems/process	Collect call record data from internal/external networks Classify, analyze and rate call data record Produce subscriber, service provider and carrier bills Process and control customer payment data Issue invoice - both     “one-off” (e.g. system sales) and regular volume sales	Reconcile call data records to bills raised Issue     credits as appropriate

Systems

Service order processing Message     processing Automatic call     distribution

Billing system Customer     remittance processing

Customer inquiry and error correction Service provisioning system

Classes     of Transactions

Routine Service order processing (SO) Access service requests (ASR) Held order processing Billing and collection Cash     application Settlements Billing     adjustments (fraud, etc.) Trouble ticket processing Interconnection billing

Non-routine System     implementation and upgrades Rating         table changes (can also be a routine transaction) Tariff structure changes Settlement     process changes Service level     changes

Accounting Estimates Bad debt / credit adjustment reserve Earned and unbilled revenue Billed and unearned revenue Accruals for     interconnect billing

Risks Which Threaten Objectives        Inadequate service level Improperly trained customer service representatives Delays in service and/or repair provisioning Provisioning errors Billing / cash processing errors Fraud Billing delays

Controls Linked to Risks        Customer interviews             Setting quality targets Monitoring performance targets Accountability     and responsibility assignments Reconciliations Customer credit analysis Monitoring performance targets

Critical Success Factors (CSFs)	KPIs Linked to CSFs
Provide the following to stated performance levels with respect to cost timeliness and quality: Service order processing	Span of time to activate the customer Service order ageing Held order levels and ageing
Customer service level and quality	Customer satisfaction Churn rate
Subscriber billing expectations	Change requests concerning delivery of billing data
Cash processing	Days outstanding analysis
Installation and repairs expectations Billing adjustments	Trouble ticket ageing Customer billing inquiry levels Customer and service profitability Churn     rates Rate of bad debts / credit adjustment

Other     Symptoms of Poor Performance

Deterioration in service order, held order or trouble ticket ageings

Undesired levels of customer churn

Undesired levels of customer complaints, Billing adjustments, etc

Performance Improvement Opportunities

Strategy     consulting Business process re-engineering

Billing         system evaluation and selection Billing system     implementation

Revenue assurance Controls assessment Call center     process consulting

Key issues and considerations for the tele- communications industry

Fortelcos with a retail element to their business, the billing     process is typically a ‘business critical’ function and maybe seen as a strategic asset. This is because a flexible and effective billing system is essential to maintaining competitiveness and may represent a competitive advantage (e.g.                 ability to offer customers different pricing packages, cope with “Air miles” schemes). Need to ensure that billing system is capable of supporting products and services promoted by sales/ marketing personnel (eg schemes promoted by sales functions are often not supported by the billing systems thereby requiring manual workarounds which are inefficient). Order fulfilment differs significantly depending on service provided (e.g. mobile/cellular is relatively straightforward whilst frame relay         or VPN service process will be more complex)

A key issue facing most telcos is their ability to accurately and quickly process changes through their billing system (eg tariff updates or amendments to services provided). Delays lead to inaccurate billing and customer dissatisfaction. Risk of customer billing commencing when paperwork has been processed instead of when service is activated (i.e. lost revenue) Risk and significance of fraud is higher than most industries and therefore fraud detection/prevention controls are critical Billing between operators (particularly internationally) may be done significantly in arrears (eg up to 6 months for some PTTs). Need to ensure billing capabilities are able to cope with proposed changes in services/ products

Revenue assurance function is critical due to the nature of the billing process (e.g. processing of call data records off a switch). Depending on the products and markets served, there may be more than one billing system. Involvement of External Consultant IS specialists is usually required due to the automated and integrated nature of most billing systems (e.g. bills are raised from traffic data and not a sales order). Strong controls need to be in place to ensure that when a customer is lost, the service is deactivated immediately Need to ensure that billing system for “project work” (e.g. network build) captures all associated costs (e.g. labour, overhead, design costs)

Resource Management Processes   

Resource Management process: financial / treasury management

Process Objectives

Timely, accurate budgets and financial and regulatory reports Relevant, timely and accurate information to management Maximize cash flow / investment earnings Provide low cost / reduced cycle time and increased accuracy for     transaction processing activities Optimize the entity’s capital structure Optimal tax structure to minimize overall taxes Comply with financing agreements / covenants and minimize financing costs Manage foreign currency and hedging transactions

   

   

Inputs

Strategic Plan Functional budgets Process budgets

Currency     requirements Financial     resources Debt/lease     agreements

Economic     environment Capital budgets “Customer”     requirements Market data

Activities

Outputs

Budgets / forecasts Internal     reports External     financial reporting data

Investment     management data Tax returns

Capital     resources Capital     disbursements

Systems

Cash         management Tax         compliance Disbursement / payable

Payroll Investment     management Financial     reporting

General Ledger Budgeting

Classes of Transactions

Routine Cash receipts / disbursement

Non-routine Equity offerings Debt offerings Refinancing     arrangements

Accounting         Estimates Tax provision Deferred taxes Tax valuation allowance Unrealized     foreign exchange gains / losses

   

   

Risks Which Threaten Objectives

Controls Linked to Risks

Inaccurate financial / management information Debt agreement / covenant violations Excessive exposure (interest, tax, counterparty, foreign currency) Mismatched investments / debts Excessive tax exposure / non-optimal structure Changes in market conditions External pressure to obtain results

Strong information systems; controls over reconciliations / suspense     accounts, internal audit Periodic covenant analysis Exposure reviews with “expert” assistance Treasury management system; strong cash forecasting system Tax exposure review vs. external environment; “expert” assistance in tax structure review Infrastructure to track and react to market changes Review of accounting policies; audit committee oversight

   

Critical Success Factors (CSFs)

KPIs     Linked to CSFs

Timely, relevant, accurate financial information Relationships with financing sources Efficient operations / qualified personnel Matching of cash requirements with forecasts Compliance with tax and loan regulations Foreign exchange currency exposure is managed

Cycle time for monthly close “Customer” satisfaction levels; information systems costs as % of sales; variances between initial close and final amounts; suspense         account analysis Number/quality of financing sources Cost per vendor invoice processed Finance department headcount cost as % of respective tools Yield on investments/effective interest rate on borrowings Amendments to tax returns required / effective tax rate / default notices on covenants Foreign currency translation and transaction results

   

   

Other     Symptoms of Poor Performance

Capital shortages High debt / equity transaction costs High effective tax rates

Lack of action following internal / external audit recommendations Inaccessible     information Manual systems / workflow

Too many / few controls Reports done outside financial systems Decentralized     sales / use tax administration

   

Performance Improvement Opportunities

Change     management Performance     measurement Work process simplification State tax minimization Management reporting review Internal audit     review

Activity-based management study Electronic data interchange Treasury     review Sales tax planning Global reporting

PROCESS ANALYSIS TEMPLATE

A process analysis template is used throughout this business model to document the strategic management, core business and resource management processes. The following three pages explain the components of the template.

Process Analysis Template

Process     Description

The process description provides an overview of the entire process and provides focus for the process analysis.

Process     Objectives

The objectives of the process are statements that define the direction needing to be taken with respect to the process. Objectives often relate to items such as customer satisfaction, efficient use of resources and compliance with applicable regulations.

Inputs

The inputs to a process represent the elements, materials, resources, or information needed to complete the activities in the process.

Activities

The activities are those actions or sub processes that together produce the outputs of the process. For some processes, arrows are omitted due to the  non sequential nature of the activities.

Outputs

The outputs represent the end result of the process - the product, deliverables, information or resource that is produced.

Systems

The systems are collections of resources designed to accomplish process objectives. Information systems produce reports containing operational, financial and compliance related information that make it possible to run and control the process.

Classes of Transactions

The classes of transactions are data and information that are related to the process for use in one or more reports to management or third parties. The classes of transactions, which are broken down into routine and non-routine transactions and accounting estimates, provide a linkage from the process to the audit procedures.

Risks Which Threaten Objectives	Controls Linked to Risks
A process’s risks are the risks which may threaten the attainment of the process’s objectives.	Controls are the policies and procedures, which may or may not be put in place, that help provide assurance that the risks are reduced to a level acceptable to meet the process’s objectives.

Critical Success Factors (CSFs)

KPIs Linked to CSFs

Critical success factors (CSFs) are the prerequisites and areas of dependency for a process to be successful. CSFs may be inputs, parallel or supporting activities or aspects of a business’s philosophy or infrastructure necessary to ensure the proper delivery of the process.

Key performance indicators (KPIs) are the quantitative measurements, both financial and non-financial, of the process’s ability to meet its objectives through trend analyses within a company or bench-marking against a peer of the company or its industry. The KPIs listed are not all of the KPIs that exist relative to each process, but rather are examples that the company may or may not measure. While most KPIs can be linked to CSFs, this may not always be the case.

Other         Symptoms of Poor Performance

Other symptoms of poor performance represent other evidence which may exist that indicates the process may not be operating to its most effective level. The items listed here should lead to performance     improvement opportunities listed below.

Performance Improvement Opportunities

Performance improvement opportunities are areas for performance or process improvement. This improvement may be achieved internally by the client or through External Consultant or other third-party assistance.

Key issues and considerations for the telecommunication industry

For each core business process, common key issues and considerations specific to the telcommunications industry have been highlighted to assist audit teams in identifying potential issues that need to be monitored and followed up during the course of their audit. It should benoted that the issues identified are not intended to be an exhaustive list of all telecommunication issues that may exist for that process and audit staff must use their judgement in determining what issues are applicable to their clients.

ENTITY-LEVEL BUSINESS MODEL

Entity–Level Business Model

As shown on the next page, the entity–level business model is used to describe the interlinking activities carried out within a business entity, the external forces that bear upon the entity, and the business relationships with persons outside the entity. The items included in the entity–level business model include the following components:

• External forces and agents are those factors, pressures and forces from outside the entity that often are threats to the attainment of the entity’s objectives.
• Markets/formats are the segments of an industry that are applicable to the entity. Formats identify the design and location of the facilities.
• The strategic management process is the process that:
• develops the entity’s mission;
• defines the entity’s business objectives;
• identifies the business risks that threaten attainment of the business objectives;
• manages the business risks     by establishing business processes; and
• monitors progress toward meeting the business objectives.

• Core business processes are the processes that develop, produce, sell and distribute an entity’s products and services. These processes do not follow traditional     organizational or functional lines, but reflect the grouping of related business activities.
• Resource management processes are business processes that provide appropriate resources to the other business processes.    
• Alliances are established by an entity to attain business objectives;
• expand business opportunities; and
• reduce or transfer business risk.    

•     Core products and services are the entity’s products and services.
• Customers involve relationships that are usually the entity’s primary focus.

Core Business Processes

Strategic Management Process

Direct Sales, Agents, Company-owned, Stores, Telemarketers, Resellers, Bills/Bill Inserts, Direct Mail, Debit Cards, Advertising, Cellular, PCS, Cable, Long Distance, CLEC, ILEC, Energy Companies (Electric utilities, Gas utilities), Railroads, Content Providers, Vendors, Equipment Mfrs., International

Resource Management Processes

Financial / Treasury Management, Legal & Regulatory Management, Information Management, Channels’ Alliances’ Core Products/ Services, Customers (Domestic & Int’l), Human Resources, Developing new services & products, Managing & operating the network

EXTERNAL FORCES & AGENTS

TELCOMMUNICATIONS BUSINESS MODEL

Lifestye, Trends, Regulators, New Entrants, National/International, Politics, Customers, Stockholders, Suppliers, Competitors, Economy, Technology, Capital Markets,

Strategic Management Process   

Process Description

Strategic management is the process of defining the vision of the company, formalizing it into a mission statement and converting the statement into objectives that identify market niches and products and services to be offered. The mission may be singular or multiple. The community served may be local, regional, national or international and may be different for     each objective. The objectives will then be codified into a strategic plan for the company. The strategic plan is co-ordinated with shorter-term operating plans (operating budgets, capital budgets, etc.).

   

Process     Objectives

Develop and communicate mission and vision Determine strategic objectives (i.e. profitability / market growth) Identify and allocate resources necessary to execute business strategy Manage performance Measure business performance against strategic objectives Promote culture of continuous change / improvement Communicate values and behaviour

   

Inputs

Technology Trends Competitive positioning Market Needs, wants and trends

Customer design concepts Economic factors Prior long-range plans

Demographics Global     markets Previous track record for success

   

Determine communications and message Identify resource needs Identify and prioritize consumer needs and products Develop mission statement and long-range plan Determine vision statement Adjust where appropriate Determine measurements and monitor performance Assemble model and economic research Activities

Outputs

Vision statement Mission     statement and long range plan Information technology strategy

Human     resource needs Investment    strategy Financial capital strategy

R&D strategy Organizational structure Entity level     communications needs and plan

Systems

Executive     information systems

Competitor     database

Project     management system

       

Classes of Transactions

Routine         None

Non-routine             Mergers & acquisitions Non-routine     investments Executive     compensation contracts Divestitures

Accounting Estimates             Recover-ability of existing physical assets Capital needs / requirements Recover-ability of intangible assets

   

Risks Which Threaten Objectives	Controls Linked to Risks
Poor communication of mission and vision Poor operating capabilities / lack of appropriate resources	Formal board approval of strategy and establishment of targets and objectives through the organization to support its delivery
Inadequate co-ordination between resource management and core business processes	Competitive bench-marking, customer surveys and performance evaluation Regular board review of performance against strategic plan using balanced scorecard approach
Missed opportunities / unforeseen threats (new competitors) / changing customer needs	Monitoring and responding to external forces
Lack of access to required capital and ability to service department	Proper capital     planning and management
Loss of focus or inability to foster change	Planned performance reviews, disciplined change management

Critical Success Factors (CSFs)	KPIs Linked to CSFs
Creating and sustaining an appealing proposition to target customer /     markets Maximize stakeholder value Successful change management Effective capital management Adequate resource management processes	Market     share; customer surveys Share price; analyst ratings Percent completion to scheduled improvement in affected process KPIs Return on equity; return on assets Satisfaction surveys of internal customers

   

Other         Symptoms of Poor Performance

Unclear     direction Lack of employee     involvement

Undefined     responsibilities Consistent     failure to introduce new products / line

Weak market position Poor financial     results

Performance Improvement Opportunities

More rigorous planning and communication Visioning or     needs assessment analyses

Introduce    performance management systems Balanced     scorecard EVA

Merger and acquisition assistance More detailed     market and competitor research to identify improvement     opportunities

Key issues and considerations for the tel-communications industry

Impact of regulatory environment (e.g. ability to put through price changes, target different market segments) Increasing     liberalization of global tel-communication markets Need to be able to measure business performance by appropriate segments (e.g.     ROCE, ROI varies significantly by business area)

Move towards alliances (with both suppliers and competitors), particularly on a global basis     Rapid pace of technological change impinges on ability to carry out effective long term strategic planning

Convergence of markets and technology (e.g. multimedia, software) Broad or narrow strategic focus (e.g. be a pure network supplier or offer full range of telecom services)

   

    TELCO CORE BUSINESS PROCESSES

    Core business process: Customer care and billing

Process     Description

The customer care and billing process covers the end-to-end process associated with (1) handling an initial customer order, (2)     fulfilling that order, (3) generating a bill and (4) collecting cash for the service provided. It is also concerned with: maintaining customer satisfaction to ensure they do not switch to another provider or cease service; and providing different types of customer services It is important to view     the above as one process rather than four separate processes, as inefficiencies or problems any where along the chain impacts the level of collection and customer satisfaction.

Process    Objectives

Meet specific needs and service levels required by new and existing customers Attract     and retain customers Deliver tailored services through appropriate distribution channels Meet management information requirements Prevent fraud and bad debts Deliver adequate structured billing data on expected media

Activities

Record customer data and new customer order or order change request Perform customer credit     check Issue service order for technical processing Issue service change request Enter billing data (eg masterfile details) Process order forms from all sources (eg helpdesk requests, system sales, routine     volume/traffic driven sales) Ensure order process triggers billing runs

Handling of inquiries from potential customers Handling of inquiries rom existing customers Analyze and control customer churn rate Perform customer retention measure

Record internal/external problem statement Issue trouble report Analyze problems Track and report trouble tickets Remedy problems/ process

Collect call record data from internal/external networks Classify, analyze and     rate call data record Produce subscriber, service provider and carrier bills Process and control customer payment data Issue invoice - both     “one-off” (eg system sales) and regular volume sales

Reconcile call data records to bills raised Issue     credits as appropriate

Systems

Service order processing Message processing Automatic call     distribution

Billing system Customer remittance processing

Customer inquiry and error correction Service     provisioning system

Classes     of Tansactions

Routine    Service order processing (SO)    Access service requests (ASR) Held order processing Billing and collection Cash     application Settlements Billing adjustments (fraud, etc.) Trouble ticket processing Interconnection billing

Non-routine        System     implementation and upgrades Rating         table changes (can also be a routine transaction) Tariff structure changes Settlement     process changes Service level     changes

Accounting Estimates Bad debt / credit adjustment reserve Earned and unbilled revenue Billed and unearned revenue Accruals for interconnect billing

Risks Which Threaten Objectives	Controls Linked to Risks
Inadequate service level Improperly trained customer service representatives Delays in service and/or repair provisioning Provisioning errors Billing     / cash processing errors Fraud Billing delays	Customerinterviews             Setting quality targets Monitoring performance targets Accountability and responsibility assignments Reconciliations Customer credit analysis Monitoring performance targets

Critical Success Factors (CSFs)	KPIs Linked to CSFs
Provide the following to stated performance levels with respect to cost timeliness and quality:        Service order     processing	Span of time to activate the customer Service order ageing Held order levels and ageing
Customer service level and quality	Customer satisfaction Churn rate
Subscriber billing expectations	Change requests concerning delivery of billing data
Cash processing	Days outstanding analysis
Installation and repairs expectations Billing adjustments	Trouble ticket ageing Customer billing inquiry levels Customer and service profitability Churn     rates Rate of bad debts / credit adjustment

Other     Symptoms of Poor Performance

Deterioration in service order, held order or trouble ticket ageings

Undesired levels     of customer churn

Undesired levels of customer complaints, billing adjustments,

Performance Improvement Opportunities

Strategy consulting Business process re-engineering

Billing     system evaluation and selection Billing system     implementation

Revenue assurance Controls assessment Call center process consulting

Key issues and considerations for the tele- communications industry

For telcos with a retail element to their business, the billing process is typically a ‘business critical’ function and may be seen as a strategic asset. This is because a flexible and effective billing system is essential to maintaining competitiveness and may represent a competitive advantage (eg ability to offer customers different pricing packages, cope with “Air miles” schemes). Need to ensure that billing system is capable of supporting products and services promoted by sales/marketing personnel (eg schemes promoted by sales functions are often not supported by the billing systems thereby requiring manual workarounds which are inefficient). Order fulfilment differs significantly depending on service provided (eg mobile/ cellular is relatively straightforward whilst frame relay or VPN service process will be more complex)

A key issue facing most telcos is their ability to accurately and quickly process changes through their billing system (eg tariff updates or amendments to services provided). Delays lead to inaccurate billing and customer dissatisfaction Risk of customer billing commencing when paperwork has been processed instead of when service is activated (ie lost revenue) Risk and significance of fraud is higher than most industries and therefore fraud detection/ prevention controls are critical Billing     between operators (particularly internationally) may be done significantly in arrears (eg up to 6 months for some PTTs). Need to ensure billing capabilities are able to cope with proposed changes in services/ products

Revenue assurance function is critical due to the nature of the billing process (eg processing of call data records off a switch). Depending on the products and markets served, there may be more than one billing system. Involvement of External Consultant IS specialists is usually required due to the automated and integrated nature of most billing systems (eg bills are raised from traffic data and not a sales order). Strong controls need to be in place to ensure that when a customer is lost, the service is deactivated immediately Need to ensure that billing system for “project work” (eg network build) captures all associated costs (e.g. labour, overhead, design costs)

RESOURCE MANAGEMENT PROCESSES

Resource Management Process: Financial / Treasury Management

Inputs

Strategic Plan Functional budgets Process budgets

Currency     requirements Financial     resources Debt/lease     agreements

Economic     environment Capital budgets “Customer”     requirements Market data

Activities

Outputs

Budgets     /forecasts Internal     reports External     financial reporting data

Investment     management data Tax returns

Capital     resources Capital     disbursements

   

Systems

Cash         management Tax compliance Disbursement / payable

Payroll Investment     management Financial     reporting

General     ledger Budgeting

Classes of Transactions

Routine Cash receipts / disbursement

Non-routine Equity offerings Debt offerings Refinancing     arrangements

Accounting         Estimates Tax provision Deferred taxes Tax valuation allowance    Unrealized     foreign exchange gains / losses

Risks Which Threaten Objectives

Controls Linked to Risks

Inaccurate financial / management information            Debt agreement / covenant violation    Excessive exposure (interest, tax, counter party, foreign currency)    Mismatched investments / debts    Excessive tax exposure / non-optimal structure Changes in market conditions External pressure to obtain results

Strong information systems; controls over reconciliations / suspense     accounts, internal audit Periodic covenant analysis Exposure reviews with “expert” assistance Treasury management system; strong cash forecasting system Tax exposure review vs. external environment; “expert” assistance in tax structure review Infrastructure     to track and react to market changes Review of accounting policies; audit committee oversight

Critical Success Factors (CSFs)

KPIs Linked to CSFs

Timely, relevant, accurate financial information Relationships with financing sources Efficient operations / qualified personnel Matching of cash requirements with forecasts Compliance with tax and loan regulations Foreign exchange currency exposure is managed

Cycle time for monthly close “Customer” satisfaction levels; information systems costs as % of sales; variances between initial close and final amounts; suspense     account analysis Number/quality of financing sources Cost per vendor invoice processed Finance department headcount cost as % of respective tools Yield on investments/effective interest rate on borrowings Amendments to tax returns required / effective tax rate / default notices on covenants Foreign currency translation and transaction results

Other         Symptoms of Poor Performance

Capital shortages High debt / equity transaction costs High effective tax rates

Lack of action following internal / external audit recommendations Inaccessible     information Manual systems / workflow

Too many / few controls Reports done outside financial systems Decentralized     sales / use tax administration

Performance Improvement Opportunities

Change     management    Performance     measurement Work process simplification State tax minimization Management     reporting review Internal audit     review

Activity-based management study        Electronic     data interchange Treasury     review Sales     tax planning Global reporting

Bench-marking study        Foreign sales corporation review Activity     value analysis Payroll tax planning Unemployment tax planning