“CostPerform is more capable than I am as a user”
Martin Pallot, Finance Business Partner at JT Group, a global telecommunications firm, has been using CostPerform since 2014, so we are curious about his experiences with our software. Main question: is he – and his company – using CostPerform to its full extent? The answer can be found here, so do read on.
So, you’ve been using CostPerform since 2014: for what exactly?
“Back then we used it for regulatory accounting, to deliver a detailed analysis that our regulator required. It was broken down to a network component level, to show the profitability by component. But at the end of 2015, we wrote to the regulator and suggested a more pragmatic approach than production of audited separated accounts at this level of detail. Also, because of the level of detail it had, it made no sense from a commercial perspective. Now, we still have a regulatory obligation, but we are not submitting a full set of separated accounts. What we agreed upon with the regulator, is that we would keep Activity-based Costing data and that we would, in the event of an investigation, provide that data to the regulator. We agreed to this back in 2016, and we’re now at the end of 2020 and it’s the first time, actually this month, where we’ve ever had to go as deep in CostPerform.”
Okay, and why’s that?
“That’s partly because we’ve gone through a few iterations. Back in 2017, we engaged with an accounting firm and told them that producing those separated accounts costs us a lot of money in consultancy and time (6 months a year). Part of that is down to our records: they’re not structured in a very accessible way, often due to being located across disparate systems. We don’t have a logical inventory system where we keep this data, although we would like to eventually. Things like floorspace allocations became very complicated – we needed a team of people to run it – which took us away from our general analysis work. Ultimately, it produced a number of accounts which didn’t produce a profitability at the commercial product level since it was focused on regulatory reporting.”
“Most of the time this comes with more expensive packages, but CostPerform has good value in what it's capable of, unlike comparable software where you get a really capable system that’s really expensive”
“So, we said to the accounting firm that we want to slim it down, we want to reduce the number of allocations – or at least simplify the allocations – and we want to reduce the number of layers in the model. At that time we used about 27 layers, which prevented us from looking across it at particular levels and extract data. Not that we weren’t able to, but if we have needed to, then it would’ve had value. We weren’t doing that, so we decided to go back to basics. We don’t have another allocation system, and we don’t have ERP which is capable of doing product profitability. The accounting firm came back with a very simple 3-layer model, where the first layer was the general ledger, the second layer the allocation layer and the third layer the reporting layer.”
From 250 to 1
In April 2020 JT worked with the Government of Jersey, Digital Jersey and the Island’s telecom operators to increase all fibre broadband connections to 1 Gbit/s at no extra cost. This joint initiative supported the community as a whole when an increase in home-working, home-learning and home-isolating became the new norm during COVID-19.
And did this cost model work for you?
“Well, we soon realized that it hadn’t achieved the objective of reducing the burden on the business. Because, essentially, what we needed was every single cost owner to do an allocation for every single cost. Also, the reporting layer contained all the products, which was fine for our commercial development areas that manage the products directly. However, this became more difficult for departments positioned more downstream, especially in the networks area where people are doing, for instance, backend IT and serving a number of cost centers. They could do an allocation, but they’d get into a position where they were allocating their time within an allocation so it got to the product level. We tried to do this, but we never got to the point where we got an output because our level of engagement from the business was far too low, and it was too labour intensive for us to do it ourselves.”
“Because it is stand-alone and so tailorable, I’m not having a knock on impact on any of our accounting systems”
So how did you solve this?
“Again, we went back to the accounting firm – that was in 2018 – and we said that we wanted to make it a bit more complex – but not too complex. We also mentioned that we wanted it to be more internal cost driver-based where possible, to really leverage the data which we do have easily accessible. They then came back with a 4-layer model. At that time, we did a lot of matrix-type work in the actual Excel allocations that feed in, partly because we didn’t want everyone going into CostPerform to update things. We wanted to maintain a central control, and we wanted Excel as a universal tool because most of the people know how to use it. So, IT now has platforms and they have a matrix of these platforms serving these products. They can tick and then we will run a pivot table and it will update the allocations. That worked quite well, but we since found that we needed to add an intermediate layer, so now we’ve got 5 layers, and we’ve actually produced our first – it was only six months ago – product profitability using the same product set that we used for our management accounting. We’ve also gone from a gross margin perspective to a net margin at fully allocated cost, which reconciles down to our EBIT and includes our depreciation and amortization because we’re infrastructure heavy; we have about 20 million pounds worth of capital expenditure each year.”
And what could be improved?
“Well, we currently use SQL lookups to create a general ledger with transactions. We have that in Excel and then we import it. If there’s a way to automate it without having to do mapping in Excel, that would be a great improvement. We now do this manually each month, which costs us a lot of time. But I wouldn’t be surprised if the solution to this is already in CostPerform.”
Note: Yes, CostPerform has the option to automate data preparation through the extensive ETL (Extract, Transform, Load) functionality.
Final question: what are you planning on doing with CostPerform in the future?
“As I said earlier: CostPerform is more capable than I am and I’m starting to realize that I’ve only been using about 15% of CostPerform’s capabilities, so for the future we need to work on upgrading and exploiting the system to be able to use it to full effect.”
That’s it Martin, thank you for your time and for your trust in CostPerform.