Tactical Earnings Performance

Dec 16, 2014 | by ASATS team

Driving efficiency is key to maintaining competiveness in today’s modern economy. Aon employs a specific set of tools we refer to as Tactical Cost Saving Levers to enable rapid identification and realization of hard dollar savings. Our approach focuses on areas often over looked by companies and leverages proprietary databases and analytic techniques and focuses on the following areas:

Total cost of risk (TCOR): Proprietary TCOR analytics diagnostic relies on Aon’s premium and claims database to evaluate an organization’s performance over 30 quantitative and qualitative performance indicators and benchmarks for the most significant elements of a risk program. Common levers typically considered are:

• Root cause claims analytics
• Accelerated claims closure
• Litigation management
• Leveraging spend in commodity categories such as dental or vision

This can have impact of 10-15% reduction TCOR/sustainable expense reduction.

Driving efficiency is key to maintaining competiveness in today’s modern economy. Aon employs a specific set of tools we refer to as Tactical Cost Saving Levers to enable rapid identification and realization of hard dollar savings. Our approach focuses on areas often over looked by companies and leverages proprietary databases and analytic techniques and focuses on the following areas:

Total cost of risk (TCOR): Proprietary TCOR analytics diagnostic relies on Aon’s premium and claims database to evaluate an organization’s performance over 30 quantitative and qualitative performance indicators and benchmarks for the most significant elements of a risk program. Common levers typically considered are:

• Root cause claims analytics
• Accelerated claims closure
• Litigation management
• Leveraging spend in commodity categories such as dental or vision

This can have impact of 10-15% reduction TCOR/sustainable expense reduction.

Health & benefits: Health & benefits diagnostic of key areas for cost reduction. Aon’s analysis will include:

• Maximizing provider discounts
• Optimizing employee contributions
• Redesigning benefit structures

The potential impact is a 10-15% reduction in health & benefits costs or ~US $800-US $1,200 per employee per year.

Sales general & administration (SGA): Organization analytics and proprietary cost benchmark data enable comparison to peer companies, rapid identification of SG&A cost reduction opportunities, and identification of concrete action steps to realize a sustainable cost structure based on:

• Spans of control
• Management layers
• Process activity based cost (ABC)

Typical results of 7-12% reduction in annual employee SG&A expense.

In addition, Aon’s human capital expertise in action planning mitigates the risk of hidden costs due to worker compensation claims, productivity decreases, unplanned attrition, and works council constraints.

The chart below shows Aon’s holistic approach to tactical earnings improvement

		Data collection and initial analytics		Cost savings lever identification		Develop value capture plan
Approximate timing*		2-4 Weeks		~4-6 Weeks		~2-4 Weeks
Activity		Sign required non-disclosure agreements (NDA’s) Deliver detailed data request to clients/carriers Data is typically off the shelf Will need engagement by risk management, health & benefits management, and finance		Benchmark data Perform root cause analysis Conduct interviews of key personnel to identify Develop view of key value levers/cost improvement opportunities - Lever description - Economic impact - Implementation risk Review and prioritize with management		Develop detailed work plans to capture value Syndicate with management Allocate work between client and Aon

The case study below sizes the potential impact to a middle market company of deploy Aon’s Tactical Cost Savings Levers

Overview Industry: light manufacturing Employee count: 3,000 Revenue: US $1 billion Cost of health & benefits: US $22.5 million Total cost of risk (TCOR): US $10 million Sales general & administration (SG&A): US $50 million Pretax profit margin: 10%

Annual impact       Health and benefit review   US $2.33 million (10% of total health & benefits spend) in savings Changed providers to maximize discounts Adjusted tobacco surcharges to better align with market norm       Total cost of risk (TCOR) review   S $1.5 million (15% of TCOR) in savings Predictive analytics/root cause analysis Reduced claims reporting lag time Improving litigation management       Sales general & administration (SG&A) cost review   US $5 million (10% of total SG&A) Re-engineer pay for performance Prioritize technology spend to improve SG&A efficiency

Overview US $8.33 million in cost savings Improved margin by 8% Improved value by US $50 million at a 6x multiple Cost reductions come from non-core areas