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Forensic analytics - slicing through cost

Forces at work

Justin GiulianoThe current economic climate is a volatile one, characterised by the impacts of a relatively recent global financial crisis (and fears of a double dip), previously strong countries struggling to find their way out of the mire, a mining boom that appears to be peaking and business and consumer sentiment struggling to get out of first gear.

At the same time, technology isn’t slowing down. As per Deloitte’s recent ‘Digital disruption: Short fuse, big bang?’ publication, almost a third of the Australian economy is expected to face pressing challenges brought about by technological advancements. A new or significantly improved iPhone hits the market before users have mastered its predecessor, mobile apps are being developed at a frenetic pace and more and more data is being captured about everything we do.

Data captured from a forensic perspective can serve a multitude of purposes. Traditionally it has been to meet regulatory requirements such as financial or compliance reporting. But it is also now being used to generate a better understanding of customer behaviour - to meet future demands and expectations and, just as importantly, to maximise revenue growth.

In the current environment, where business is increasingly focused on cost management, data can be used to optimise an organisation’s cost structure from the ground up.

Broad brush or fine strokes

Drastic cost reduction can be a quick remedy to struggling profits, and workforce or procurement spend are usually the first areas of an organisation to feel the effects. Large scale employee retrenchments or broad range cost cutting across departments are usually undertaken via top-down process or system improvement projects. Such projects can have immediate short-term effects on the bottom line, however they may also lead to undesirable long-term effects on organisational productivity (and profitability) driven by employee uncertainty and disengagement.

With the wealth of transactional-level data being captured by organisations across all business processes covering ordering, purchasing, payments, corporate cards, tax, capital expenditure, projects, sales, receipting and payroll, and an enhanced ability to utilise technology to analyse such data, there is an opportunity to take a bottom-up approach to cost reduction.

And while there are challenges with data being disparately stored and understanding what data can be used to provide relevant insights, the right knowledge and tools can quickly target areas for focus.

Using data analytics to cut workforce and procurement spend

Accessing, digging into and analysing transactional data generated by an organisation’s key processes has become increasingly sophisticated. Analytical tools can consolidate, cleanse and interrogate data in a detailed, granular way, and the results of forensic analytics can be communicated in a visual way that quickly highlights opportunities for cost optimisation.

When this is applied to key workforce and procurement processes and using a bottom-up approach, there is potential for significant cost savings.

Examples identified by Deloitte Forensic include:

  • $40 million in GST timing adjustments for a mining company
  • A $10 million improvement in working capital due to inventory replenishment optimisation for a retail company
  • $3 million in potential over-charge of supplier contracts for a mining company
  • $1 million of recovered duplicate payments over six years for a manufacturing company
  • $750,000 of overpaid superannuation for a local government organisation
  • $400,000 of Enterprise Bargaining Agreement and payroll discrepancies for a mining contractor.

A variety of factors can explain how these cost savings can go unidentified - from limited resources, human error and poor data quality and process controls, to overly complex business arrangements, employee disengagement, and fraud.

In our experience, identifying 3 to 5% of savings on procurement spend and 2 to 3% of savings on workforce spend is not unusual - in fact it is common.

Author

Justin Giuliano
Partner, Deloitte Analytics
Tel: +61 3 9671 6906

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