12th International Conference of the

TOC Practitioners Alliance TOCPA

www.tocpractice.com

April 26-27, 2014 Moscow, Russia

Application of TOC
to financial management
at the insurance company:
Budget and Planning
Alexandr Merenkov, Ekaterina Ekhlakova
Severnaya Kazna Insurance Company
Russia
April 26, 2014

Alexandr Merenkov

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CEO of the Insurance Company Severnaya Kazna

(Yekaterinburg, Russia) since 1996.
Chairman of the board of Mediation center at Urals
Chamber of Commerce, mediator, coach.
Associate professor of Department of Economics
Theory at Ural State University.
Works in insurance since 1994.
Since 1998 acts as a strategy, negotiation and sales
consultant.
Alexander possesses vast experience in various
business areas such as publishing, trade, medical
services, telecommunications.
He also boasts various articles published in print and
online media.

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phone: +7(343)262-3-316
mobile: +7(909)007-3-999
e-mail: merenkov@kazna.com
facebook.com/aleksandr.merenkov
skype: gurusk

12th International Conference of the TOC Practitioners Alliance - TOCPA

Ekaterina Ekhlakova

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Chief Project Management Officer of the Insurance

Company Severnaya Kazna
Ekaterina possesses eight years of Project
Management experience.
Her portfolio includes implemented projects
in various areas: telecommunications, IT,
finance services and insurance.

phone: +7(800)700-13-30
mobile: +7(965)548-00-55
e-mail: ekhlakovaes@kazna.com
facebook.com/ekaterina.yekhlakova
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12th International Conference of the TOC Practitioners Alliance - TOCPA

Areas for TOC application

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Budget
Payment management
Motivation
Performance evaluation

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Whats to be altered?

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Budget is planned for some years ahead.

Two months of planning work. No control afterwards
Payments are regulated by account balance
Net cost is used in price calculation
Many-years-old discussion upon OE distribution
methodology
Income-TVC-Throughput lack control
Throughput and OE are unrelated
Budget efficiency is evaluated from the increase in gross
income

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
What are our goals?

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Money is enough for operation and investment

A solid performance evaluation technique

Budget is a tool for decision-making
A clear key point: Income-TVC-OE
Headquarters pays its way
OE is exactly equal to (or less than) the throughput

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Solution

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HQ becomes a separate branch with its own budget,

income, TVC, throughput, and NP
Planned throughput and NP are calculated for each
company branch budget
Budgets for 1 to 3 years are approved by shareholders
Sliding budget for a day, week, month, two months
and a quarter
Budget compliance is controlled daily, weekly, and
monthly

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Implementation (1/4)

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What we do a new way

A new budget form. Throughput for planned insurance
products is calculated automatically for every month.
The form is quite compact. TVC items are grouped based
on their real-world relations
Planning the quantity of contracts, average premium,
and average benefit payment in order to estimate
whether planned income is realistic and it is enough
to cover TVC and OE
Throughput-based budget calculation for branches,
HQ and company as a whole

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Implementation (2/4)

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What weve done

Budget items are reclassified among income, TVC, OE,
investment. The prior TOC-based classification was revised
due to change in understanding. In cases of ambiguity
budget items were split in two between TVC and OE
An automatic throughput-based budget calculator requiring
minimal manual input was developed. Classification and
grouping of budget items assists in elimination of human
error. User experience is designed to be as similar
as possible to that of another software pieces in use

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Implementation (3/4)

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Obstacles
People do not identify the budget problems
People oppose filling detailed forms. They tend to provide
(likely made-up) final results with no intermediate data
No understanding advantages of proposed budget system
Opposition to OE/TVC item reclassification

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Implementation (4/4)

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What weve achieved

Realistic budget figures
Monthly plan of throughput
Understanding of throughput-OE accordance
Detection of anomalies during planning, but not at the end
of the period (when usually its too late)

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
Calculation form for branches

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
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Calculation for the company

Company
Budget
Regional
Branches

Branch 1

Branch 2

URU*

Branch N

SP** 1

SP 2

HQ

SP N

* Urals Regional Department

branches in Yekaterinburg and
Sverdlovsk Oblast.
** Insurance Branch

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Budget.
POOGI

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Incorporation of budget calculator into ERP system

Implementation of dynamic buffer management

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Whats to be altered?

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Payment process depends on availability of funds

Noncompliance to budget plans
Lack of predictability, it always feels like were running out
of money
We pay to those who brawl, or to those who we like
Internal conflicts because of payment delays
Clients and partners leave because of disordered
payments
Manual payment management

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
What are our goals?

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Payment schedule for one to three months ahead

The earlier the bill, the earlier the payment

Solid rules of payment prioritization

Predictability of payment for our partners and clients
Automation, reduction of manual control
Early prediction of required funds

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Solutions

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Color coding of payment states

Monthly, weekly and daily calculation of planned and
actual throughput and OE
Monthly, weekly and daily decisions on deviations from
payment schedule
Centralization of payment approval

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Implementation (1/2)

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What we do a new way

Criteria of color coding of benefit payment states were
defined
Color-coded report of benefit payments was implemented.
Black and red zones are to be observed first. Yellow zone
also requires attention
Payment schedule structure was designed. The structure
is designed to comply to budget structure

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Implementation (2/2)

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Obstacles
Opposition to payment prioritization. People tend to pay
OE first, than TVC
No understanding of advantages of new techniques
(mitigated by new motivation scheme)
What we have achieved
Payment manageability. Reduction of payments in black
and red color zones
Reduction of money availability wait times in extraordinary
cases

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Payment Lightbox

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All payments pending, color distribution:

Dynamics of distribution of total paid benefits:

08.02.2013

14%

16%

13% 56%

27.03.2014 15% 25% 15% 45%

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Weekly Throughput

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Weekly payment planning:

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
Weekly Throughput

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Payment Planning Results

Total commission paid by all branches is reduced by 4%
(January 2013 December 2013)
Daily income is increased
Example: monthly average for branches of Yekaterinburg
and Sverdlovsk oblast:

March 2013

2.23 million rub.

March 2014 4.42 million rub.

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Payment Management.
POOGI

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100% planning of payments for three coming months

Incorporation of payment color coding into ERP system
100% of payments are performed based on color
Dynamic buffer management

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Performance Evaluation.
Whats to be altered?

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Sales departments are evaluated based on gross income

Branch performance evaluation based on branch OE
Personal performance evaluation based on total premium
No indication of HQ performance, HQ maintenance costs
are paid by other branches
Projects are evaluated based on terms and costs
New products are evaluated based on OE only
No throughput-based evaluation of clients and products

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Performance Evaluation.
What are our goals?

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Branches are evaluated based on Income-Throughput-NP

HQ can only spend money earned from sales of its
services to other branches, and from projects
Projects started are those which increase throughput
or NP
Employees, clients and products retained are those whose
throughput is positive

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Performance Evaluation.
Solutions

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Adoption of monthly throughput-based evaluation

procedures for branches, sales managers, products,
and clients
Adoption of the same procedure for the HQ
Evaluation of projects based on throughput, terms,
and budget

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Performance Evaluation.
Implementation

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Sales departments are grouped by whether their income is

enough to cover the following expenses:

Group population dynamics:

Group
First

Second

Third

Fourth

31.12.2012

47,92%

14,58%

25,00%

12,50%

31.12.2013

49,02%

17,65%

21,57%

11,76%

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Performance Evaluation.
POOGI

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Automatic calculation of key performance indicators

Transition to weekly evaluation procedure for branches
and sales managers
Adoption of strategic achievements evaluation
Adoption of color coding for visualization

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
Whats to be altered?

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Who earned more premium, gets bigger wage

(throughput and NP are unaccounted for)
Branch heads are not motivated to reduce OE and TVC
Serial salespersons get more (if throughput is
unaccounted for)
Only those products are sold which make bigger premium
or are easier to sale

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
What are our goals?

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Salespersons with larger throughput earn more

Branch heads are interested in throughput/NP control
Products with larger throughput are more interesting
for salespersons
Low quality salespersons quit due to low wages

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
Solutions

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Salesperson motivation is bound to client throughput

Salesperson earnings are dependent on product and
contract throughput
Branch head motivation is bound to Income-ThroughputNP
New clients and agents are accepted after throughput
calculation only
A minimum income per person is determined, which
should suffice to cover this persons OE and for NP
generation

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
Implementation (1/2)

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A workgroup consisting of branch heads is created in

order to adopt Income-Throughput-NP-based motivation
scheme
Income-Throughput-NP-based motivation scheme is
designed
A competition is organized among sales departments and
salespersons to achieve the greatest income and
throughput
An automatic premium calculator is created which shows
the true figures for TVC, OE and minimal acceptable
income

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
Implementation (2/2)

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Obstacles
Opposition to new motivation scheme. People dont like to
get paid for throughput and NP rather than for gross
income
What weve achieved
Positive dynamics of branches moving between groups.
The first and second group populations are increased

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12th International Conference of the TOC Practitioners Alliance - TOCPA

Motivation.
POOGI

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Only 30% of salesperson earnings should depend on

premiums. The rest should depend on throughput (and
also NP for branch heads)
New organization structure and motivation system
dedicated to achieve strategic goals of the company and
of branches, based on S&T analysis
Total bonus for project participants should be raised
up to 20% of project throughput

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12th International Conference of the TOC Practitioners Alliance - TOCPA

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Thank you
for your attention!
Any questions?

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12th International Conference of the TOC Practitioners Alliance - TOCPA