With the president of the client organization the primary contact person, an 8-month engagement reviewed the work processes associated with generating and managing the client’s cash flow.
Overview of the Client
The client was a non-General Fund, quasi-governmental agency which serves as the provider of last resort of workers’ compensation coverage for employers within the state. Although a state agency, the client competed freely with and conformed with all the regulation of conduct of other insurance companies. It insures approximately one-half of the eligible employers and between one-fourth and one-fifth of the eligible workers in the state.
Included within the scope of the Cash Flow project were five Home Office departments and the 24 field offices. The Home Office departments included: Insurance Services, Credit and Collections, Data Processing, Fiscal Services, and Underwriting/Marketing. These departments perform such functions as premium determination, premium billing, payroll report processing, payment processing, and cash management. At the time of the engagement, the client had 1,660 staff, supervisory, and management personnel assigned to functions or departments associated with cash flow (of 7,174 total non-Executive staffing).
The specific areas of study were:
- Application and initial premium processing in the districts, including sales and underwriting.
- Premium and payroll report processes in the Credit & Collections and Insurance Services.
- Payroll audit processes in the districts.
- Payroll audit processes in Insurance Services.
- Policy cancellation and collection activities, districts, and Home Office.
The project’s charter was to thoroughly review current processes to develop a comprehensive flow chart of cash flow activities; identify all related activities, including time requirements and annual frequency; evaluate all pending improvement efforts related to cash flow; and analyze potential untapped opportunities which could either reduce costs associated with administering the cash flow or improve the cash flow itself.
The primary tools used in this project were flow-charting, interviewing, and observation. Activities were identified as to the flow of work, the reasons for the work, the frequency of the work and the time required to perform the work.
Deliverables consisted of both tangible products and actions recommended to improve cash flow or its associated cost.
A flow chart consisting of over seven hundred separate activities was presented to management as a tool for evaluating future improvement opportunities. This flow chart began with activities prior to underwriting and issuing a policy and concluded with collecting and investing premium payments, cancelling policies for non-payment, issuing of dividends, and collecting delinquent accounts.
During the project the flow chart was used to identify fifteen specific recommendations with aggregate savings of $4,765,303. These recommendations included:
- automating the collection of payroll data (essentially through electronic data interchange);
- increasing the number of scanable documents (rather than documents requiring keying of data);
- eliminating special handling through enhanced automation;
- eliminating the need for the client’s personnel to rely on paper documents by electronically transferring data which could be transfer electronically to user software;
- replacing manual sorting with computer sorting of output;
- electronically linking numerous inter-related sets of databases;
- reengineering specific processes;
- basing staffing on measurable work volumes;
- shortening the lead time for evaluation of process improvement recommendations;
- pursuing direct deposits to claimants bank accounts; and
- working in cooperation with others in the state’s workers’ compensation industry to combine payroll reporting for workers’ compensation insurance purposes with payroll reporting for payroll tax purposes.
In addition, the complete automation of those processes which are already semi-automated would allow the client to reduce its total staffing by approximately 4% (its cash flow-related staffing by 17.5%) representing a savings of over $8 million annually.