forward-business-planning-case-study

"The best way to predict the future is to invent it"

Situation

My client was a private limited company whose core business was outsourced back office forward-business-planning-case-studyadministration for clients selling financial service products. The service provided was a chargeable fee for every customer call handled. A 15-year contract was taken on and after the first year financial returns began to decline due to reduction in the volume of calls.

Challenge

It was clear that the environment in which the contract had been signed up to and agreed at was now very different to that first envisaged by my client’s customer. Changes in financial services legislation resulted in the product becoming less favourable and as a consequence less attractive to the client’s customers.  Such a uncontrollable change in the external environment had a profound knock on impact to my client being the provider of the back office solution.

Method

The existing planning process of my client’s customer lacked transparency and flexibility to meet and answer the upcoming challenges that their business faced and ability to drive the appropriate decisions to address them. My client was now locked into a 15 year contract where it was apparent that two choices existed, the first being to revise the terms of the contract or the alternative to terminate it.

We began the assessment process by creating a contract evaluation model that took into consideration the following aspects

  1. Utilisation of past data and further market research to benchmark the available product against others
  2. Creation of a detailed life cycle financial projections model covering the entire duration of the contract using the current status as the opening position.
  3. Development of a number of operational KPI’s that could be flexed to determine further financial impact
  4. Calculated the customer lifetime value and the minimum amount of income required to deliver the level of back office service support in line with the original customer terms.

Solution

The formulation of the model generated tangible evidence enabling the project manager to commence discussions with the customer about the performance of the contract. In time it also facilitated the renegotiation of the terms of the contract taking into consideration the unavoidable changes versus the possibility of contract cessation which have incurred penalty charges. This was accomplished as follows:

  • Ability to use the model to measure the contract life time impact thus enabling expectations to be managed by both parties
  • Addendum agreement put in place to utilising banding fee approach relative to the volume of calls received, commencing with a minimum chargeable fee if level of sales call fell below a set threshold
  • Effective cost management by my client of associated contract running costs i.e reducing resources to a minimum level necessary to achieve the service level agreement.

Outcome

The contract was able to achieve the minimum level of return (10%) throughout its life cycle rather than potentially non-profit making. This was achieved by early intervention, implementing the agreed necessary changes to adapt to circumstances that could not have been previously forecasted. The ability to closely monitor performance over the entire life cycle of the contract safeguarded positive financial performance.

Learning

Whilst an initial business plan was put in place, changes over a longer period can have an impact on either a project or a product performance and ultimate delivery. It is therefore imperative that the forecasting covers the entirety of the contract life cycle and where appropriate adapted to ensure continuous financial viability.