ITCE provides strategic IT services, technology solutions and managed services to leading corporate organizations from the telecommunications, banking and manufacturing sectors and the state administration. The company provides people, tools, methods, vision and experience, necessary for supporting companies in achieving their strategic goals through Information Technologies.

Due to rapid growth during the last few years, ITCE’s management team encountered difficulties in planning and tracking the financial performance of the company’s service lines and managing the increasing number of employees. These clearly shared a common source since human resource is the main asset that enables high quality service delivery, and payroll expenses are the most significant cost item influencing the company’s financial performance.

To solve the first of these two problems, company managers decided to develop and implement a costing model alongside a budgeting model that would enable them to better calculate the cost of services and plan sales and related expenses respectively, as well as to track and manage financial performance. Simultaneously, to solve the second problem, the company would develop and implement an integrated human resources management system that would comprise an employee remuneration & motivation scheme, a set of electronic performance appraisal forms, and an electronic employee information database.

ITCE engaged Forem Consulting to manage the development and guide the implementation of both improvement initiatives. Three project goals were set:

• Develop and implement human resource management (HRM) policies that drive employee development and boost employee motivation.
• Develop and implement a costing model that correctly assigns relevant costs to projects so that project profitability can be tracked by management.
• Develop and implement a budgeting model that allows accurate planning of revenues and related costs so that medium and long-term management decisions are better substantiated.

Prior to the inception of the HRM system design phase, the project team came up with a detailed communication strategy that aimed to provide assurance to employees that their interest would be protected and their opinion would be taken into account when developing the new employee remuneration scheme and performance appraisal process.

An initial survey on issues of current company remuneration and motivation policies was conducted before focused workshops with key employees took place. Subsequently, a senior management meeting was held to discuss the possible courses of action that outlined a couple of scenarios for changes to the company remuneration policy. After careful analysis of the financial and organizational impact of the alternative remuneration scheme scenarios, senior management decided upon the fundamentals of the new remuneration scheme. The company remuneration & motivation scheme was prepared by Forem’s consultants and communicated to ITCE employees by senior managers.

Next, in order to effectively administer the new company remuneration scheme, ITCE needed to revamp its performance appraisal policies. Once again, company managers took employee opinion into account by conducting a survey on the topic of performance evaluation. The survey gave ITCE senior management sufficient grounds to go forward with the design of interactive electronic employee appraisal forms utilizing MS Office InfoPath in conjunction with MS Office SharePoint Server applications. The appraisal forms had corresponding electronic personal profile forms utilizing the same technological platform. Both sets of forms were also interfaced with the company’s time reporting system. The design phase ended with the training of ITCE employees on the use of the new performance appraisal and personal profile tools. The subsequent pilot implementation of the new employee performance appraisal process in accordance with the new employee remuneration & motivation scheme took place shortly afterwards.

Phase 2 – Development of a Costing Model

Development of the ITCE costing model started with a comprehensive cost structure analysis where the occurrence of costs was associated to relevant stages of the service delivery process. After all significant direct and overhead service delivery costs were identified, the remaining company overheads were associated with the respective supporting business processes in three identifiable cost clusters – sales & marketing, finance & administration, and IT support. Next, cost behavior was statistically analyzed to determine the nature of costs (variable, fixed, or mixed) with respect to several probable cost drivers. After such classification was complete for all significant overhead cost items, suitable allocation bases were selected for all overheads that would enable accurate allocation of these costs to the project level. Finally, all cost classifications, cost driver descriptions and allocation rate formulae were documented in a logical blueprint of the company management reporting system that would be technologically developed and implemented by ITCE in order to automate the cost accounting process.

Phase 3 – Development & Implementation of a Budgeting Model

The budgeting phase began with an “as-is” analysis of ITCE’s existing forecasting & budgeting practices and proceeded with a “to-be” logical design of these processes. Based on the “to-be” process blueprints, detailed profit center and cost center operating budgets were developed in order to summarize the sales plans, project plans, training schedules and overheads projections into three distinct revenue-generating departments and three distinct supporting departments. The profit and cost center budgets would then be consolidated in a company budgeting model that took into account the use of supporting department services by the revenue-generating departments. Using the consolidated budgeting model, ITCE senior management would be able to simultaneously track company and profit center performance by analyzing profitability indicators such as gross profit margins and department profit margins alongside a companywide profit margin.

Forem’s consultants trained ITCE employees in the use of the budgeting tools and drafted a detailed manual for further reference. They also supported & advised throughout the subsequent pilot application of the new budgeting process tools.

The joint organizational impact of the initiatives that made up the project is expected to yield several results:

• disciplined, motivated and accountable middle management actions that aim to optimize resource planning and spending;
• highly motivated employees who receive regular opportunities to voice their opinion, be fairly evaluated, and plan their career development jointly with company management;
• well-informed top management that is able to delegate operative tasks to middle management, effectively track task execution, and concentrate its efforts on strategic company issues;
• a harmonious corporate environment with clearly communicated company goals and shared company values.

The joint economic impact of the initiatives that made up the project is expected to yield the following results:

• higher profit margins for the company, resulting from better pricing decisions driven by an accurate service costing model;
• improved short-term cash flow management and long-term strategic management, resulting from better planning decisions driven by the budgeting model;
• a lower employee turnover rate, higher employee motivation and productivity, resulting from the application of the integrated human resources management system.

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