Value Creators: Cost Management and Change

by Irene Teng, CIMA, 22 August 2011

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topics:
Budgeting and Planning Management

tags:
CIMA cost-cutting financial reporting management accountants Metropolitan Retail monthly closing Network Rail

Forecasting can be extremely difficult in turbulent markets, and recent uncertainties in the global economy have made more challenging the task of predicting and developing costing models with any degree of accuracy. Most finance professionals simply resort to talking about ranges and assumptions.

But there is a growing desire amongst companies to obtain a clearer view of their costing and their cash position, in order to aid effective long-term planning. We look at how two finance professionals did this successfully: Maryvonne Palanduz, head of finance at Metropolitan Retail, and Steve Swientozielskyj, head of finance shared services at Network Rail in the UK.

We also examine how Andrew Higginson, Chief Executive of Retailing Services and Group Strategy Director, and his team transformed Tesco Personal Finance into Tesco Bank.

Metropolitan Retail, South Africa

How did Maryvonne Palanduz achieve a cost base reduction of 6% in just three years, implementing a costing model that informs strategic and tactical decision-making to support aggressive long-term cost targets?

South Africa’s Metropolitan Retail has set itself the goal of reducing its cost base by 20% over the next ten years. Palanduz, a chartered management accountant, is at the heart of measuring the effectiveness of this effort, and guiding management to opportunities in both the pricing and operational realm.

The company holds the largest life insurance customer base in South Africa, with revenues exceeding 7 billion rand (US$1.8 billion) and more than 4,500 staff. Last year, Metropolitan merged with Momentum Group to form one of the largest life insurance-based financial services groups in South Africa. The combined group is now listed as MMI Holdings.

Before the costing model was developed, line management across various cost centres in the business contributed their input regarding what they thought it was costing them to do business. As Palanduz explains, “In the absence of a solid costing model, our best guess was the accumulated best guesses of our line managers.”

“Our new model means it isn’t a guess any more – it’s an accurate science. We are well positioned to evaluate the financial impact of merger-related business plans and inform decision making.”

The working group responsible for implementation was made up of Palanduz, accountants in business, a consulting company (Cortell Intelligent Business Solutions), and a systems analyst and developer to deal with the IT role. The executive sponsor’s commitment and dedication to the working group was invaluable.

Palanduz explains: “Our consultants were selected because they are very strong in management accounting. They used CIMA students on the project team and the senior partner is an FCMA. Because we are both qualified management accountants, he was a great sounding board and we worked together as partners. The team was really good at quickly grasping our conceptual thinking to practical implementation of a solution, whilst staying focused on project scope.”

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