How to strategically evaluate commercial opportunities as a business partner and decision maker.

1. How to strategically evaluate
commercial opportunities as a
business partner and decision maker
Kym Williams
www.thebrsblog.com
www.brsresults.com
Email enquiries@brsresults.com for presentation slides & content

2. Session Overview
The importance of commercial acumen and how this skill is
critical for any leader within an organisation
How to understand your key cost, business and revenue drivers
and how to utilise this information in making better
commercial decisions
What commercial skills executive, operations and management
personnel are seeking from financial business partners
What commercial acumen is and isn’t and how it differs from
financial skills.

4. Commercial Acumen – a lost art?

5. What is commercial acumen?
Being able to think like a business
owner or a CEO when making decisions
Having an understanding of the cost drivers
on your business
Ensuring your decisions are aligned to
strategy
Knowing how to achieve value for money
outcomes for your organisation
Understanding the importance of
developing strong business relationships.

6. Why is commercial acumen important?
Stakeholders expect greater value for money
and more from less
We all operate in a competitive environment
where we need to constantly improve
Organisations need to deliver commercial
outcomes
More commercial partnerships
Private sector and competitors more
commercially astute
Greater public scrutiny
Greater outsourcing of services
Greater project complexity.

7. Key competency for future leaders
Source: LGC survey 2014, UK, Hay Group

8. Contract
management
Balancing Risk and Commercials
Are you getting the right balance
between risk and reward?
Is risk aversion driven by personal
risk or organisational risk?
Does the commercial model match
the desired outcomes and key risks?
Who can best manage the risk
– you or the client?

9. Mindset is the key
You’ll never develop a culture of
cost consciousness unless:
Leaders take ownership of their
costs
They also understand the link
between commercial management,
procurement and cost
consciousness
Personnel at all levels have the skills
to manage costs.

10. Embed at all levels
There is a difference between financial and commercial acumen
Educate - Your technical and non technical staff on your
commercial practices and cost drivers
Explain the why – How we make our money and what costs
drive our business
Transparency – Be as open as possible about costs and
financial performance - Trust is key
Commercial acumen – Give people the skills to make the
right decisions.

11. Commercial training to…
Promote ownership of costs at all levels in
the business
Understand cost and profit drivers
Understand strategic priorities and where
to focus resources
Identify the full cost of labour and cost of
time
Correctly stage and scope projects, and
manage variations
Understand when to use different
procurement models
Understand contract pricing strategies
used by contractors
Design the right commercial conditions from
the start.

12. Three concepts management need to be clear on:
1. Efficiency and
effectiveness
2. Allocative efficiency
3. Cost Culture and
Accountability

13. Efficiency and effectiveness
Efficiency usually refers to technical or process efficiency, i.e.
the relationship between inputs and outputs
The more efficient of two processes will generate more
outputs for the same inputs (i.e. lower unit cost), or use less
resources to produce the same outputs, which means lower
unit costs and also that it is cheaper in absolute terms as well
Effectiveness = the ability to satisfy the needs of the client.

14. Allocative efficiency
Are your resources being
used towards the most
important goals?
The ability to respond to
the changing needs of
the market by applying
resources and effort to
address these needs in a
timely and efficient
manner.

15. Cost Culture and Accountability
Management must be able to show their
proficiency in managing costs
Show they are diligently making every
possible effort to reduce costs, and not
simply avoiding the hard work and
expecting clients to foot the bill
Role model this behaviour across their teams
Cost control should be embedded as a process and a ‘way of
life’. Constant focus on the 1 %. Continuous improvement as
opposed to reactive.

16. Understanding your costs
Leaders need the tools to play their role
Knowledge
What are the major costs?
e.g. Salaries, Contracts, Plant & Equipment, Consumables/Fuel etc.
What drives the major costs?
e.g. Head count, contract scope, asset utilization, etc.
Systems, Processes and Structures
Produce forward estimates
Present current year data in context – past performance & forward estimates
Monthly Cost Review Meetings
Structured approach to cost review meetings
Actions and accountability documented & tracked.

17. What are your top three costs?
0%
10%
20%
30%
40%
50%
Wages & Salaries Depreciation Waste Management
Contract

18. Cost Driver Tree Example - Salaries

19. Contract Costs
Commercial Efficiency & VFM
Recognise contractors need to make a profit
Links contract price and variations to contractors cost structure
Reduces risk + contingency for contractor
Removes hidden margins for council
Openness and transparency
Contract price
Variable Costs
Fixed Costs
Profit
Recovered
Recovered but not over-recovered
Fair and reasonable

20. $0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Spend($m)
Time Period
Wages and Salaries
Forecast
Actuals
Show past trend plus forward estimates

21. Cost Reduction Programs
Set targets for all management team:
Communicate the bigger picture and the end result
Make necessity the mother of invention – the burning platform!
Focus on top 3 costs and implement cost controls measures
linked to cost drivers
Annual program of service and cost reviews
Monitor progress and act where necessary
Account for effort and outcomes
Engage staff

22. Set a target
Targets focus attention and effort
Set a target for annual savings in operating
expenses e.g. 3% annually
Target should be meaningful, challenging and
relevant
Twelve month change in prices (2011/12)
Adelaide CPI 2.6%
Local Government Price Index 3.7%

23. Focus on Top 3 Costs
Top 3 costs cut
across functions
and apply to all
managers

24. Supplement efforts by focusing
on specific activities or functions
Agree a prioritised program with
Audit Committee or governance
function
Driven by commercial outcomes
Focussed on driving towards
your targets.
Agree an annual program
of service and cost reviews

25. Agreeing priorities – the value/ease matrix

26. Publish forward estimates of costs and revenues
Use the forward estimates to set annual budget and
business plan targets
Cost management must be a standing item on
agendas for leadership team/management team
meetings.
Monitor costs and report progress

27. $22.08m
$38.81m
$2.23m ($1.5m)
$0.93m
$5.23m
$0.8m
$0
$5
$10
$15
$20
$25
$30
$35
Base Salary Costs Salary Increment
Increases
Vacant Positions
(resignations and
redundancies)
Overtime and
additional hours
New Positions CPI increases Total Salary Costs
Spend($m)
Monitor costs and report progress

28. Accountability/Action Plan
Item Action (what)? Who?
Measure
(when)?
Savings ($)

29. A communication plan
Account for effort and outcomes
Ensures accountability

30. Engage staff
Clarify roles and responsibilities around
commercial outcomes

31. Understanding which costs can be
removed and streamlined from the
business without impacting long term
success

32. Areas to target
Overheads – needs to be right sized to size of business – average
revenue and benchmark information is matched against actual.
Understand fixed vs. variable costs. Ideally make overheads variable
where possible/ efficient.
Centralisation of functions – streamline duplication in all areas.
Large operating contracts – mandatory vs desirable scope
definition – reduce $.
Outsourcing non-critical activities – what can be done better
outside of the business?
Compliance activities – what is really necessary? Be practical,
use common sense.
Risk Appetite - consider stakeholders appetite for risk.

33. Areas to target
Lean – do we really need to do this? Does it add value or is it just
comfortable? Challenge the norm!
Capital expenditure – is it truly aligned to our goals and targets?
What is must have?
Contractors – remove but ensure you are still flexible for the
future.
You still need to invest for the future – but on those items that are
critical.
Technology opportunities – significant and often untapped.
Consider JV arrangements for key areas rather than staffing up.
DO LESS – CHALLENGE BEING BUSY! SIMPLIFICATION! LESS IS MORE!

34. 1. What business are you in? What business are you really in?
2. What business will you be in the future, based on the current trends?
3. Who is your customer? Your ideal customer? Your perfect customer for
what you offer? Link to ratepayers.
4. What does your customer consider as value?
5. What do you do especially well commercially?
6. What are your cost drivers? Commercial targets?
7. What are the constraints on your business today?
8. What are the 20% of the activities that can account for 80% of your
commercial results?
9. Based on your answers to the above questions, what commercial plan of
action should you take immediately? What should you do now? Link to
procurement planning?
Get back to first Principles?

35. Role of Finance
What is your underlying purpose in your organisation?

36. How are we seen externally?
Finance Teams generally seen as very introverted and compliance focused
by Business Leaders?
Number of reasons for this:
A large volume of finance work by necessity is compliance based.
Finance people can feel more comfortable with task rather than people.
Finance workloads are every increasing with frequent changes to internal systems and
regulatory requirements.
Competing demands - Challenge for finance personnel to be technically competent as
well as have strong business partnership and commercial skills.

37. Finance Skills vs Commercial
Finance
Tax
Statutory Reporting
Audit
System Governance
Internal Controls
Consolidation
Finance Systems
Management Reporting
Budgeting
Commercial
Contract Negotiation
Contract Reviews
Business Analysis
Business Case Development
Cost Reviews
Planning / Forecasting
Business Performance Scorecards
Performance Improvement
Project Management
Executive Advisory
Change Management/ Influencing

38. Inside Cat vs Outside Cat

39. 3 Pillars of Finance Function
Compliance
Ensures you comply with
financial reporting, Tax,
audit, and corporate
governance requirements.
Need to be strong
technically.
Critical function in building
trust with stakeholders.
Generally task focused and
high integrity.
Be careful here that the
‘tail does not wag the
dog’. Don’t let
compliance drive your
business.
Management Accounting
Provide information to
support resource planning.
Assist with cost reporting,
budgeting, forecasting, cost
allocation etc.
Have a service provider role
to support leaders.
Need to have strong process
discipline and co-ordination
skills.
Need to have excellent
business partnering skills.
Need to be careful here that
they don’t overstep role and
that management retain
accountability for managing
costs.
Commercial
Part of management team
and may not report to the
CFO.
Aim to maximise profitability
and support executives to
make decisions.
Negotiate contracts, review
cost drivers, prepare business
cases, perform business
analysis, review contract
performance.
Need to be strong leaders
and influencers, as well as
have good strategic/analytical
skills.

40. Joint Responsibility
Effective commercial management is a joint partnership between Finance,
Line management, and Commercial Managers.
Line management need strong commercial acumen as they make day to
day, as well as strategic decisions which impact on costs. They manage the
resources.
Finance play a key role in the overall governance of costs across the
business ensuring the right reporting, systems and structures are in place
to hold managers accountable and ensure transparency.
Commercial managers/ business analysts can also play a critical leadership
role in analysing performance, planning and budgeting, influencing change
and advising executives.

41. Any questions?
Any questions?
www.thebrsblog.com
www.brsresults.com
Email enquiries@brsresults.com for presentation
slides & content