The Corporate Financial Planning Owner’s Manual Section: Vehicle Maintenance

A vehicle is heavily relied on for many tasks such as getting to work, traveling on vacation, or hauling home improvement items. The maintenance of a vehicle is often an intimidating or overlooked task to the average owner. By pushing off this important task, a vehicle begins to deteriorate quickly until eventually the vehicle breaks down and is in the shop for two weeks. The price of this check-up is substantially different than the collective cost of regular check-ups.

Similar to a vehicle’s importance to a person, corporate financial planning’s deliverables are critical to an organization. The numbers gathered, analyzed, and presented to executives in budget and forecast reports drive crucial decisions for a company’s future. However, one wrong input or inadequate data in the budget and forecast models can lead to big decisions doomed for failure. Just like a vehicle, corporate financial planning’s deliverables need to be well maintained to prevent costly mistakes.

  • Quality Data – Vehicles require fuel to run; quality fuel allows a vehicle to run better. The fuel for corporate planning is data. Quality data is a crucial component that enables corporate financial planning to produce quality reports to support business decisions. Inadequate data used in models will lead to unreliable reports deemed useless by executives. Without reliable planning reports, executives must make decisions for a company’s future with little support. Many factors play into determining data quality, such as the reliability of the source system, accounting for any manual changes, and the timeliness of capturing the data. By conducting a thorough analysis of the data quality used in planning models, corporate financial planning can determine the necessary steps to improve their fuel.
  • Fine-Tuned Models – Many parts of a vehicle require regular check-ups. The oil needs to be changed, the brake pads need to be replaced, and the tires need to be rotated. The model used by corporate financial planning for budgets and forecasts also has parts. The collection model that gathers data from different businesses, the revenue model, and the capital expenditure model are examples of various parts in a corporate financial planning model. Whether these models are in a million-dollar system or in Excel, regular upkeep is critical. Failure to technically maintain these models can lead to broken links, missing pieces of data for critical formulas, or version control issues. No matter how sufficient the data brought into the model is, a poorly maintained model will not produce the necessary outputs. By taking the time to regularly maintain these models, corporate financial planning will prevent a future costly mistake as a result of an insufficient model. Regular maintenance may even require completely rebuilding current parts of the model to remove legacy assumptions or recurring errors.
  • Effective Output – Accordingly, with quality fuel and regular maintenance, a vehicle should run properly for at least its intended useful life. However, just because a vehicle runs properly does not mean it is effective to its owner. For example, a convertible car may work perfectly but would be considered ineffective to a rancher. Similarly, quality data and technically sufficient models may not produce effective outputs. The outputs produced by the data and models must conceptually align with the business decision needs. Each report and metric produced by corporate financial planning’s model must be rationalized with the executive team. If considered ineffective, it’s either time to replace a part or trade-in for a new vehicle.

By following all components of this maintenance checklist, corporate financial planning can efficiently and effectively meet the needs required to make critical business decisions. In other words, no matter how efficiently a vehicle runs, the effectiveness of that vehicle plays a large role in vehicle maintenance. Vice versa, a vehicle can only run effectively for a short time without regular maintenance. So, oil change on the way home today? Or, is it time to trade-in that convertible?

To read more on data quality for planning systems, read Like Putting Gasoline in a Diesel… How Bad Data Can Ruin a Host Analytics Tenant.

Why Change Management

Notre Dame leads Georgia Tech 24-3 in the final 28 seconds of a 1975 football game in South Bend. The game is essentially over. The crowd is relatively calm and the Notre Dame Bench is quiet as the season winds to an end. Notre Dame Coach Dan Devine puts number 45 in for the last few plays of the game and the fans and players erupt in excitement. Number 45 makes an inconsequential sack on the last play of the game. The crowd goes wild and number 45 is carried off the field on his teammates’ shoulders in celebration. Why all the excitement over a trivial end of game play?

Grown men shed tears of joy seeing the moment recaptured in the film “Rudy”. Understanding why the excitement and tears requires explanation. Number 45 was Rudy Ruettiger. Rudy was the first in his family to attend college after shirking a destined life of a melancholy factory worker in an Illinois small town. Rudy’s learning disabilities did not prevent him from being admitted to Notre Dame. However, Rudy’s 5’6″ and 185 pound frame was far beneath the standard for collegiate football. Despite Rudy’s physical and mental challenges, Rudy persevered and joined the elite Notre Dame Football squad. The film “Rudy” immortalizes Rudy’s heart-warming story and helps viewers understand why the seemingly trivial football play is of importance. Understanding why makes a difference.

Introducing a change in how a corporation’s leadership wishes to conduct business is often delivered without explaining why it is important. The change is met with resistance, good people leave the organization or people decide to work around the change. One of the most common causes of change occurs when a growing organization faces the challenge of implementing new business or ERP systems. The new ERP system impacts everyone in the organization. However, the only tears shed are tears of frustration and the only eruptions are those curses hurled at computer screens.

People in the organization only see how the new ERP system is impacting them at a personal level. In most cases, the new ERP system makes their job more difficult. More information is required to process an invoice, short cuts cannot be taken and reports take longer to run. Paper is eliminated! People in an organization need to understand why the new ERP solution is being implemented.

A large oil and gas company was recently faced with the challenge of replacing all of their business systems. Prior to implementation, the organization’s leadership took the time to clearly communicate why the organization needed to implement a new ERP system.

Give everyone a reason why –There are plenty of small-framed men who break the collegiate football barriers. However, Rudy’s plight was multidimensional with physical, socio-economic and mental barriers. The “why change?” at the oil and gas company had multiple dimensions. The “why” at the CEO level was supporting acquisition growth. The “why” at the Revenue Accountant level was giving them the opportunity to clean up data to streamline prior period adjustments (one of accountings’ most significant headaches). The “why” for operations was more timely production data. The ERP team ensured that each group had their personal set of “why”.

Do more than just implement – Rudy’s academic success was attributed to befriending an intelligent, yet awkward graduate student named D-Bob. D-Bob tutored Rudy while Rudy helped D-Bob overcome his awkwardness with the co-eds. During implementation, the ERP team looked for quick wins to help sustain the excitement. For example, the ERP team found a simple way to improve the planning process and assist the Finance team with developing a plan to eliminate manual data entry. A parochial ERP team might have declared the improvement “out of scope”. However, the investment to assist the planning group was small in comparison with the benefit of improving the planning process. This gave the ERP team one more “why”.

Never Give Up – Rudy applied for admission to Notre Dame and was denied multiple times. Once admitted, Rudy did not make the roster until the final game of his senior year. Likewise, perseverance was key to the ERP implementation team’s success. During process design sessions, the team was told the new AFE process would not work. Yet, the team knew the new AFE process would improve well scheduling and accelerate production. Most ERP teams would throw in the towel, but the team persevered through the design sessions and conference room pilots and ultimately proved the new AFE process would work during user acceptance testing. This allowed the ERP team to allow a “why” to survive the pundits.

Be Passionate In the movie, Rudy makes a passionate plea to convince his doubtful family that he will play football for Notre Dame. The emotions run high yet Rudy later turns his family’s doubt by being honored at the Georgia Tech game. At the oil and gas company, the project sponsors and steering committee were not afraid to be passionate about the project. For example, one of the engineering groups started a conflicting initiative. The ERP steering team made a passionate plea in support of “why” the company is changing. This halted the conflicts and kept the ERP project on track.

The “why change” is the cornerstone of ensuring a successful change effort. Additionally, the “why” needs to be reinforced and supported throughout a large scale organization change initiative.

Trenegy works with our clients to develop and implement change programs for ERP selection, ERP implementation and acquisition integration. Read about how to execute an effective change management program in The North Wind and The Sun Change Management Approach.

The Secret to ERP Go-Live Success? Test Well and Test Often

Students from first grade on can see a direct relationship between studying for a test and the final class grade. The more preparation, the better the grade. Promising students study through repetition either through the use of note cards or flash cards. Students who postpone studying to play find themselves scrambling to learn the material the night before the big test. Come test day the grade reflects the preparation.

Implementation teams face the same situation when testing new system functionality. The more preparation and emphasis placed on testing repetition, the smoother the transition to a new system. Most project teams plan for testing but get distracted with development and at the eleventh hour spend a minimal amount of time testing. Much like cramming the night before a vocabulary test, not allowing adequate time to cover key testing objectives will result in a chaotic and unplanned go-live.

How can project managers avoid running out of time for testing? It’s essential to break down the main components of testing and plan for the critical objectives associated with each phase:

  • Unit Testing

    Unit Testing is the most simplistic testing phase during a system implementation. The objective of unit testing is to validate small pieces of functionality within a larger business process. Test scripts need to be developed to ensure all components of functionality are tested. Many teams forego developing scripts for unit tests. This is a mistake because key test steps can be missed. Done correctly, the scripts can be strung together to support subsequent testing cycles. Unit testing without scripts is like learning multiplication tables without flash cards.

  • Integration Testing

    Integration Testing is critical to determining if a combined system and business process supports the future state vision. This testing should focus on making sure transactions, interfaces, reports and business process handoffs are all working correctly. Project teams often segregate the system and business process testing which leads to issues after go live. Not including end-to-end testing is like studying for a vocabulary test but only memorizing the spelling.

  • User Acceptance Testing

    User Acceptance Testing is often the final test before go-live. User Acceptance Testing is a set of integrated tests performed by non-project team members to ensure the system will support day to day activities. To truly simulate everyday processes and activities, representatives from each functional area need to re-create the processing of historical transactions. This is the first time many users interact with the system and is also the last chance to break the system before go-live. Not performing user acceptance testing is like skipping the final exam when the student has an “A” in the class.

Companies should involve as many end users as possible during the Integration and User Acceptance Testing phases. Testing can serve as the start of training and can increase buy in of key end users; a strong change management tool. Trenegy helps companies successfully implement new systems to support growth and change. Read about how to avoid other pitfalls during system implementation “Boiling the Frog… How ERP Implementations go wrong!”

Function or Dysfunction – Elimination of the “Manage the Managers” mentality

The popular cult classic Office Space satirized a company where job functions solely existed to hand off paper work between departments. Superfluous functions ‘managed the managers’ or ‘checked the checkers’ to ensure paper work flowed smoothly. Employees were stumped when the consultant asked: “so, what do you actually do here at Initech”. Unfortunately the Office Space satire is reflected in many large organizations where superfluous functions exist to ‘manage the managers’ or ‘check the checkers’. The most common superfluous functions are Quality, Strategic Sourcing, Corporate Strategy, Process Improvement and Shared Services Administration. The existence of these superfluous functions dilutes accountability for results and become organizational crutches.

  1. Quality – Quality is important and should be a part of everyone’s job. Large organizations try to drive quality by assembling teams of people to manage and measure quality in the organization. The Quality teams dream up complex measurement systems rarely understood by the people doing the work. The common result is operational departments shirking accountability for quality. Eliminate the Quality function in non-manufacturing companies and hold operations accountable for defining, measuring and delivering quality.
  2. Strategic Sourcing – Organizations set up strategic sourcing functions as permanent bastions for vendor warfare. The fight to optimize pricing and quality oftentimes costs the organization more than what is saved. Vendors facing customer Strategic Sourcing hike up their initial bids knowing a tough negotiation is impending. As an offensive tactic, the sourcing functions develop a complex array of measures to justify their existence through overstated savings. Strategic sourcing should be an initiative instead of a permanent function. The buyers in an organization can collaborate with operations to optimize vendor spend and quality on an ongoing basis.
  3. Corporate Strategy – Defining and planning the strategy is an event, not a function. The strategic planning event actually involves several functions including market planning, financial planning and operational planning. The strategy function rarely collaborates well with each of these functions and tends to work in a bubble. For example, the financial planning assumptions rarely ties closely with the strategic planning assumptions. The discrepancies create duplication of effort. Strategic Planning and Financial Planning can be integrated and tied together into one process. Marketing should drive market planning and Operations should drive Operational planning. The CFO’s Financial Planning and Analysis function can be the glue that ties the planning processes together.
  4. Process Improvement – Many large organizations have teams of people focused on helping the organization through process improvement efforts. While it seems to make sense to improve processes internally instead of spending money for outside consulting, most organizations grow tired of the internal process improvement teams. The internal teams are rarely exposed to what peer or leading companies are doing. The lack of exposure results in a lack of innovation and the inability to achieve the step change needed to compete. Leading organizations have folded process improvement into the Internal Audit function. The combination has allowed the companies to leverage the work already performed by Internal Audit and balance process improvement with the audit assessment process. The remainder is best left to outside experts.
  5. Shared Services Administration – Shared services seems to have taken on a life of its’ own in many large organizations. Lengthy Service Level Agreements, administrative invoicing and complex process measurements have required organizations to have a team of people solely focused on the administration of the Shared Services Functions. Many of our clients have simplified service level agreements to eliminate the need for the administration of shared functions. Finance agreements are managed within the CFO’s organization and Human Resource Agreements are managed within HR. A stand-alone department focused solely on administering the Shared Services processes can be eliminated.

The bottom line is that most of the superfluous functions drive accountability away from operations and support functions. When accountability is diluted, performance declines. High performing organizations should seek to eliminate these superfluous functions and streamline. Read more at “Handcuffing the Kraken”.

“I think we should see other software”… 5 Reasons to “Break Up” with a System

There comes a time in many relationships when things are just not working out. It is important to know when to “hug it out” and when to walk away, regardless of whether the relationship is romantic, platonic or professional. Many companies are “making it work” with an old system because of the fear of starting over—the fear of the unknown. Company personnel are dissatisfied with the system, miserable when performing day-to-day tasks using the system, and as one work-around after another is forced, resentment grows. Below are five reasons to kiss an old system goodbye and start exploring other options.

  1. “We’ve outgrown one another”—Growth has exceeded the system’s ability to accommodate the number of users and transactions. Almost all systems have structural limitations based on number of users and transactions. Outgrowing software is a sign that the company is growing quickly and is the best reason to incur the cost of replacing an existing software platform.
  2. “We want different things for the future”— Existing systems may not be able to support plans to grow and change organically or through acquisitions. This is a second sign that the company may be growing quickly or is reacting nimbly in the market. Workarounds will need to be quickly developed and deployed as a new system is acquired and implemented. The company needs to take the right amount of time to choose a new system that provides more flexibility in the future. One that may not have to be replaced if the company continues to grow, change and be nimble in the market.
  3. “You’re not the same software you were when we met”—Over-customization and poor user practices have turned the system into a cumbersome, dysfunctional shell. In this case the best bet is to start over with a new system that is supported by a reliable software vendor. Flexibility is key to starting the new relationship. Change business processes to meet out-of-the-box best practices instead of over-customizing the new system to match outdated and inefficient legacy processes.
  4. “We may have rushed into this”— Sometimes companies succumb to the pressure from stakeholders to acquire and implement a system without the appropriate due diligence. In this case companies quickly select and implement a system before fully understanding the capabilities and limitations of the software. Shortly into the software relationship the company finds itself unhappy when it realizes the system cannot deliver what it originally expected it to. Most companies spend the right amount of time to determine whether a software solution will correctly support the business. In the rare case that a company selected incorrectly, it is critical to determine whether efficient workarounds can be found that do not compromise controls. If the workarounds cannot be found then new software may be acquired.
  5. “Irreconcilable Differences” – Software companies live under the mantra “update or die”. In order to fund updates many software companies force their customers to update systems by terminating maintenance and technical support. In other cases software companies go bankrupt rendering technical support impossible. Operating without technical support is risky and gives a company no choice but to explore other software options.

Key personnel know when it is time to terminate a software relationship, but the expense and disruption often delay the inevitable. Trenegy helps companies select the right software to support growth and change. To loosely borrow eHarmony’s compelling slogan, “Stop waiting. We’ll find the perfect guy [ERP System] for you.” Read how to successfully select a new solution in “The Secret Sauce for ERP Selection.”

Critical Requirements…The Gift that Keeps on Giving

ERP implementations are complex projects that demand time, energy and resources from an organization. When company leaders decide to embark on a project of such magnitude, they have a few things in mind: do it one time, do it on time, do it within budget and do it right! One of the critical components of making sure the project is done on time and within budget is to know what needs to be supported by the new system – critical business requirements.

Most project teams assume that they can gather critical business requirements during the design phase. Like the gift that keeps on giving, new requirements will be identified later in the project. Business needs change and new ideas are generated during prototyping. Ignoring the new requirements or suggesting anything identified after design should be pushed to a different phase would be a big mistake. Pushing the newly identified requirements to a future phase could result in a system not properly configured to support the business at “go-live”.

It seems counterintuitive to allow new requirements to be identified and addressed throughout the project. Successful project teams need to address new requirements throughout the implementation by:

  1. Leveraging best practices during the design phase. Initial business requirements should be gathered and documented during the ERP selection process. The critical requirements will be supplemented during the design phase. Successful project teams leverage consultants, like Trenegy, to create a future state process improvement vision, design level future state processes and draft critical requirements specific to the industry. The requirements need to be refined in a series of workshops and validated against best or usual practices. Successful project teams will assume new ideas and concepts will be developed as soon as key end users gain access to the new system.
  2. Starting prototyping and testing as quickly as possible. Traditional ERP methodologies assume that key business requirements will be determined in design and suggest anything identified after should be delayed until a future phase. The reality is very different. Successful project managers will get key end users exposed to the new system as quickly as possible. This allows the key end users to see how the new system and processes will affect day-to-day activities and spur new ideas, which will result in new requirements. Strong project teams should manage the addition of new requirements with consistent requirement documentation and solid project governance guidelines.
  3. Post go-live discovery: After the system goes into effect, stakeholders across the company get comfortable with functionality and new processes. With this increased usage, comes discovery of additional requirements for the system. Do not dismantle the project team directly following go-live. It’s crucial the team stays intact after the project, at least to some degree, to capture and address these requirements. The post go-live support model should be structured with issue resolution and requirement gathering in mind. Requirements discovered after go-live may be quick fixes, or they could be issues added to a master list for a future project.

It is rare that all critical business requirements can be identified at the beginning of the project. Team members will identify requirements throughout the project as the system and processes are tested. The project team needs to be ready to capture business requirements throughout the project.

Trenegy helps companies manage ERP implementations and leads project teams to take the right approach to gathering business requirements. Read about Trenegy’s approach to managing ERP implementations in “My Mother Was Right: ERP Implementation Dos and Don’ts Learned from Childhood Fables.”

NPO Board Governance: How to Attract and Retain Strong CEO Talent

Not-for-profit organizations (NPOs) face the challenge of maintaining strong leadership in today’s capricious economic environment. Many NPOs are experiencing a decline in contributions and funding, and lack clarity of what their organizations have set out to achieve. Bottom line—they are barely managing to stay afloat. NPOs struggle to attract strong leadership and once the Board of Directors does hire a promising candidate to lead the organization, it often cannot manage to keep him or her there for long. Leading a NPO is a tough job and not all compensate well for the amount of work required. It calls for a special type of person and must be a true labor of love. It is possible for a NPO to achieve clarity and purpose if it has a strong Chief Executive Officer (CEO) and strong Board of Directors (BOD) in place. Regardless of the formal title, the CEO of the NPO is the highest-ranking executive officer within the organization and is accountable for overall management of its day-to-day affairs under the supervision of a board of directors.

We found a NPO willing to share its success with its mission and governing style. Cypress Christian School, an accredited K-12 private Christian school in northwest Houston serving over 570 students, has been operating under a Board Governance model for nearly eight years. Consequently, the school has realized vast improvements in its overall performance, CEO retention, and growing student body.

The BOD of most NPOs reacts to the difficult economic environment and struggles to retain worthy talent by micro-managing their organizations. With a lack of true experience at the BOD level in running a NPO, the BOD’s response is often to hire a CEO and micro-manage him or her for fear of losing control of the organization. With many favorable career opportunities available outside the organization, the CEO leaves because he or she is not given the autonomy to run the organization as desired. The BOD then hires an under-qualified CEO willing to deal with the BOD’s micro-management for the short term, until he obtains the requisite experience and also moves on to another organization. The micro-management trickles down to the staff under the CEO and outstanding performers eventually leave the organization. It is a perpetual cycle that results in underperformance of the organization.

So how do NPOs combat the highly prevalent issues of finding and retaining exemplary CEO talent?

Many of the complications associated with CEO talent retention in the non-profit sector could be alleviated by organizations mastering and integrating three interrelated objectives: Attracting the Right Leaders, Board Delegation, and the Board Operating Model. We visited with Stephen Novotny, the Executive Director (CEO) of Cypress Christian School, to gain his first-hand insight on CEO talent retention and organizational leadership. The school’s BOD focuses on strategic decision-making and setting policy while providing Novotny the autonomy and freedom that he needs to run the organization. Novotny shared about his experience at Cypress Christian School and provided excellent insight in regards to establishing a healthy board governance strategy.

Attracting the Right Leaders

There are two necessary components to attracting the right CEO for the organization: 1) Knowing which characteristics to look for when identifying strong leadership talent, and 2) How to attract a promising candidate to become your next CEO. And when searching for a favorable CEO candidate there are three fundamental characteristics that boards should look for: Potential, Cultural Fit, and Heart for the Cause.

Potential indicates that the individual has what it takes to achieve positive results if given the opportunity. One important caveat to consider is that there is no such thing as a perfect candidate. Novotny provided excellent advice when he said, “a NPO shouldn’t look for a perfect person because it will never find one. Everyone has their own strengths and weaknesses, so it is important to look for people with the right qualities for the job.” The board must find the right balance between a candidate having too much versus not enough experience. While a candidate may not possess every quality you are looking for, if he has the right mix of characteristics and past experience he will still be capable of taking on new challenges – particularly those faced by your organization. Novotny offered his experience at the school as a great example of this because, “although [he is] not a classically- trained educator, [he has] been able to learn, adapt and create success in [his] role at Cypress Christian School.” Novotny arrived at Cypress Christian School with no CEO experience at a school. However, he was a strong cultural fit, a natural-born leader, and shared the school’s vision and mission. Given the opportunity to acquire new skills within school administration, the school has benefitted from Novotny’s leadership and has grown its enrollment and donor base by nearly 20%, increased the quality of its faculty, and strengthened school programming.

On the other hand, do not get too excited about candidates that are over-qualified for the job. Seasoned talent that has “been there, done that” will likely get bored and leave the organization as soon as he or she receives a better offer. High performers are often driven by their desire to master new skills and build expertise. If the job can provide the CEO with these continual growth opportunities, they will be much more successful in both attracting and retaining strong leadership talent.

When asked what the essential characteristics of a successful CEO are, Novotny provided that “a CEO must be smart enough to know how to evaluate and ask the right questions of an organization’s subject matter experts and also have a solid understanding of how a NPO operates before he or she can be successful in running it.” Novotny, in both past roles and in his current role, has made a point to “educate himself on the front-line operations, systems, processes, and other key components of the business in order to gain a holistic understanding of how the organization operates.” This curiosity and understanding has allowed him to lead with confidence and make decisions that align with the overall goals as well as the business needs of the NPO. Distinguish the essential qualities for a CEO to be successful at your organization from the “nice to have” qualities. While a NPO will need to weigh the pros and cons of each candidate on a case by case basis, determining the critical success factors upfront will improve the effectiveness and objectivity of the NPO’s talent search.

Cultural fit is a crucial factor that many boards may not recognize. Novotny describes an important aspect of a good CEO as being a “people expert,” and knowing how to manage interactions and provide leadership for different types of people and personalities. If NPOs desire to change the current culture of the organization, the new CEO is the ideal leader to spearhead the transformation. According to Novotny, “a CEO must have a clear view of the mission of the organization or what that mission should be.” Even if the new CEO doesn’t fit in with the existing culture or vision, he could be the right person for the job if he demonstrates his ability to change it for the better. Find someone who embodies what the NPO desires the organization to become and who will be a catalyst in achieving those ambitions.

The third, and arguably the most important characteristic to look for in the NPO’s search for a new CEO, is a Heart for the Cause. Novotny shares that he was drawn to Cypress Christian School because, “he knew it would provide [him] with the ability to train the next generation of leadership and that [he] would be able to work where [his] own children went to school.” He has a passion for working with children and strongly believes in the mission and goals of the school; so much so that he was willing to send his own sons there to receive an education. When asked to share what motivates him to do his job well and to stay at his organization, Novotny’s heartfelt response was that he “love(s) the idea of influencing the future through people and [that] there is nothing more exciting than helping kids grow personally and understand truth.” When an individual finds himself working in a role that supports a cause that he is deeply passionate about, it is highly self-motivating and gratifying. No amount of money is more motivating than being able to pursue one’s innate passions and desires. If an NPO can find promising CEO talent that either strongly aligns with the mission and vision of the NPO or is passionate about the cause supported by the NPO, then the organization has found itself an ideal candidate!

While finding and acquiring strong talent is not an easy task, retaining it may be the biggest challenge of all. One critical component of keeping a CEO happy and motivated is having a healthy balance of board delegation to the CEO.

Board Delegation to the CEO

The relationship between the board and the CEO can make or break an organization. John Carver, author and former CEO of several non-profit organizations, developed a board governance model known as Policy Governance (“Carver’s Policy Governance® Model in Nonprofit Organizations” by John Carver and Miriam Carver). Many NPOs have adopted board governance models to effectively retain the right CEO and leadership team and to improve the overall effectiveness of the organization. Cypress Christian is a great example of an NPO that has experienced the benefits of operating under Carver’s Policy Governance model.

In Carver’s model, the BOD sets end expectations and provides the CEO with freedom to use any means he chooses to reach those end goals— as long as he stays within the overarching BOD policies. The CEO oversees and provides direction for the staff, instead of the BOD. This allows the BOD to focus on the most important, strategic matters while simultaneously strengthening the role of the CEO. The CEO carries greater weight in the organization and is given the autonomy needed to run the business as desired. Novotny exercises his freedom to “create layers of competency throughout the organization and to build strength in managerial leadership, so that if [he were] to leave suddenly the school could operate for a year or two on their own until they found another leader to take over.” Less micro-managing of the CEO and lower staff levels by the BOD leads to greater accountability, and individuals who do not meet performance expectations can be identified and weeded out quicker; thus resulting in a more effective and efficient organization. Novotny is “held accountable for the financial and academic performance of the school, as well as the school’s social and spiritual climate. The board funnels everything through [him], and does not bypass him or involve themselves in matters that fall under [his] purview.” Empowering the CEO in his job fosters a greater sense of pride and ownership in his work and ultimately leads to better results. When asked if his compensation is evaluated and adjusted based on his performance, Novotny laughed and responded, “You bet. If I don’t perform, I will be out of a job. It’s as simple as that.”

Novotny describes his relationship with the board as being “phenomenally positive.” The school has achieved this mutually beneficial relationship through its adoption of Policy Governance. In terms of board interactions with the CEO, Novotny “formally meets face-to-face with the BOD four times per year and provides the board with performance reports and a summary of operations performance on a monthly basis. All other interactions occur informally, such as scheduling impromptu meetings with the board when important decisions need to be made and meeting sporadically with board members and the Board President. It works quite well.” Novotny fosters transparency in his interactions with the board and the information that he shares with them. The members of the board provide him with the accountability he needs to ensure that he is meeting performance goals and running operations in line with the overarching policies as set out by the board. He obtains board approval for high-dollar expenditures and all major decisions based upon a well-defined delegation of authority, while having the autonomy he needs to run the school and perform his job successfully. The relationship between the BOD and the CEO, as described above, provides an excellent balance in delegation of authorities to allow for efficient and effective operations.

How to Run Board Meetings

Across the for-profit and not-for-profit sectors, board meetings have a reputation for being long, unorganized, and ineffectual. Below are some effective practices for how to run strategic, punctual, and effective board meetings that will in-turn lead to higher CEO satisfaction and performance:

Reduce the frequency of board meetings. For example, Cypress Christian School moved from holding one board meeting per month to holding one per quarter. Novotny describes his past experience with monthly board meetings as “repetitive and unnecessary,” continuing on that “as soon as the meeting was over he was already starting to plan for next month’s meeting.” Once the BOD reduced the number of board meetings, he was pleased to find that “the length of the meetings also decreased and the school was able to increase the number of interested board candidates, since the board prospects knew they would not have to meet as often”. In addition, cutting the number of board meetings also reduced the administrative costs associated with running the meetings.

Rotate topics for each board meeting on a scheduled basis. For example, the first board meeting of the year is focused on the budget, the second is focused on development, the third is focused on operations, etc. Novotny commented further on the value of having pre-determined topics used by the board, by sharing that “everyone knows the time to speak up is now or never, and that a decision will be reached by the end of that meeting. We are actually able to get things done.” Using the rotating topics method, each board meeting fulfills a distinct purpose; promoting higher attendance and allowing for more achievable and timely results.

Rationalize CEO reporting needs. The BOD should work with the CEO to define what should and should not be reported. Many CEOs of NPOs decide that more is better and overload boards with too much information. Novotny experienced this dilemma in his early years at Cypress Christian School. He inherited a process that consisted of producing pages of highly detailed financial reports. Novotny shared that “during board meetings, someone would find an anomaly in the minutiae and the discussion would go from strategic to the insignificant minutia very quickly.” The BOD worked with Novotny to create a two-page financial report for the board providing the highlights instead of pages of granular details. The BOD financial review went from two hours of unprofitable talking to twenty minutes of effective strategic discussion and decision making. Novotny now describes formal board reports as “succinct and efficient.” They were able to achieve efficiency because “the directors at Cypress Christian School are cognizant of what the right level of detail for the board is, and [they] try to keep as close to that level as possible.”

Review BOD composition and how board work is assigned. Board diversity is essential for a board to be well-rounded and run effectively. Maintaining balance and recognizing the value of difference in qualities and backgrounds amongst board members, as well as finding board members who are committed to the cohesive mission of the board, are key aspects to an effectively run board meeting. When asked what makes an ideal board member, Novotny prescribed this member as one who “committed to the mission of the organization, clearly understands the difference between the role of the board and the role of the CEO, and is able to put aside any personal agenda they may have stemming from their own personal involvement in the organization.”


The Policy Governance model will enable the BOD to find the right CEO and offer him or her greater autonomy and a sense of meaning and purpose in the role. The BOD will be able to operate strategically rather than getting mired down in details of everyday business. By running board meetings more efficiently and in a well-structured manner, the BOD and CEO will yield powerful results and decisions in a fraction of the time. Efficiency breeds results, and results breed a healthy BOD and CEO relationship. Novotny ended the discussion with an interesting theory about board delegation. He insists that “when an organization has proper NPO Board Governance in place, the following phenomenon occurs: If an effective CEO is absent, the organization can function for a substantial amount of time without feeling negative repercussions due to the layers of competency throughout the organization that have been developed by the effective CEO. However, the long-term effects of not having the right executive leader are devastating to an organization and also can take a substantial amount of time to correct. Conversely, if a front-line employee is absent, the effects on operations are felt immediately, but are limited to that employees specific area of responsibility and can be also be remediated fairly easily with minor to no long term ramifications for the organization as a whole.” So consider this question: How long could your organization operate without your CEO in place?

Like Putting Gasoline in a Diesel… How Bad Data Can Ruin a Host Analytics Tenant

If gasoline is put into a diesel engine it will always result in irreparable damage. Diesel and gasoline are both fuels that are refined from oil so why would a diesel engine suffer such a fate? Diesel engines are compression-ignition engines that require fuel with a higher energy content. Simply put, diesel engines are not designed to use gasoline as a fuel source.

Think of a Host Analytics tenant as a well-tuned diesel engine designed perfectly to fit the needs of its users. The tenant uses data as its fuel to output useable information as power. Just like a diesel engine that tries to use gasoline, the tenant will be rendered useless if bad or impractical data is input, regardless of how well it is configured.

An engine would never be designed without its source of fuel in mind. The same principle should be applied when designing, building, and implementing a Host Analytics tenant. Ensuring data will interact with Host Analytics as intended requires three things:

  • Understand reporting weakness in the source system. Everything in the source system does not have to be translated to Host Analytics just because it exists. Do not transfer minutia level detail into Host Analytics. Focus on bringing over data that is relevant to reporting and analysis. Conversely, the dimensionality provided through Host Analytics far surpasses the dimensionality available through most source ERP or accounting systems. For example, a source ERP may only filter two dimensions at a time and three or even four dimensions are combined in the ERP. Host Analytics can break apart combined dimensions to offer improved reporting functionality and reduce the need for manual manipulation outside of the system.
  • Validate in the beginning, validate in the middle, validate at the end, and then validate some more. During implementation, data should be loaded into the Host Analytics tenant as soon as it is available. The worst time to start validating data is at the end of design and implementation. Validation needs to happen during every stage of the project. The purpose of validation is twofold. First, validation ensures the data matches the source system. Second, validation is a simple way to check progress and identify areas of disconnect between the source system and Host Analytics. Validation pinpoints problem areas to address in tenant or process design.
  • Confirm data quality. Ensuring quality data goes far beyond making sure numbers match. Quality includes a deep understanding of how data should be interacting in Host Analytics to produce information necessary to make informed business decisions. The following example questions should be answered: What information is needed on a monthly, quarterly, or yearly basis? Is the data that the source system is producing useable data? Can the source system produce the data again and again via a query without manual manipulation? Lastly, is the data producing information that means something?

Trenegy helps companies successfully implement Host Analytics using a proprietary project and change management methodology. We help our clients get value of out their system quickly. Read how to ensure the right data is being captured: Is it ‘Groundhog Day’ at Your Company? How to Improve Budgeting, Planning, and Forecasting.

Well Lifecycle Administration… Like Managing an All-You-Can-Eat Buffet

Managing the administration of a well’s lifecycle from inception to abandonment is a complex process – not unlike managing a Chinese food buffet.  Not all patrons select the same items in the same order, and eager diners jump around the buffet line for seconds and thirds. Keeping the buffet stocked with fresh food is a challenge. Likewise, the combination of landowners, multiple parties in a joint venture, take-in-kind owners, changes in property ownership, and other complexities make administering a well’s lifecycle difficult. Add third party production, revenue and billing data, consent and non-consent partners and billing out contracted field services, the situation becomes daunting. A bit like trying to manage an all-you-can-eat buffet.

Many of the well lifecycle administration challenges are external to the organization and cannot be changed. However, the internal challenges are significant and can be addressed to achieve efficiency. Each activity in well lifecycle administration is owned by different departments in the organization, who will assign multiple attributes to the wells in different systems. The attributes provide information about the well such as the well ID, well name, location, production status, spud date, completion date, and acquisition date. The hand-off between departments is often unclear and the definitions for the same well attributes become inconsistent across systems. The inconsistencies negatively impact cost tracking, production tracking, and revenue allocations.

Leading exploration and production companies respond to the complexities within well lifecycle administration processes by addressing three key areas:

  1. Defining accountability:

    Unclear accountability is the root of much frustration in the well lifecycle administration process. Leadership should collectively agree on each function’s accountabilities and responsibilities within the process. A RACI (Responsible, Accountable, Consulted and Informed) is a very effective tool to communicate roles and responsibilities and to define activity ownership. One of the first areas our clients address is aligning the planning function in the organization. Aligning development, lease operating expenses (LOE), production and general and administrative (G&A) planning allows an organization to streamline data flow and to reduce the planning cycle time.

  2. Developing clear processes:

    The organizational accountabilities should be supported with clearly defined business processes. Standard processes improve a company’s ability to address issues arising from external parties and ensure consistent well lifecycle administration. Process flows for data entry and approval should be documented, clarified and streamlined for every step of well lifecycle administration. Moreover, compliance monitoring is critical to ensure employees follow the policies and procedures. A high-impact area where our clients begin is clearly defining the process of managing and communicating the creation of and changes to the revenue decks between land and revenue accounting.

  3. Integrating tools:

    Exploration and production companies implement a variety of specialized tools to support the business, typically resulting in a ‘best of breed’ environment. Revenue accounting and joint interest billing may be on a common accounting platform yet marketing, production, land and drilling functions may be supported by independent, function-specific tools. Our clients have built technical data management and workflow capabilities to bridge the systems and to automate the synchronization of the business processes through a centralized hub. Key information required to support efficient and effective well lifecycle administration is gathered and then distributed in a timely manner through a set of integration tools. The integration tools require the alignment of department accountabilities and processes before tool implementation.

The optimal solution for streamlining the well lifecycle depends on the size, organization structure, and growth strategy of the exploration and production company. While there is no one-size-fits-all solution to the well lifecycle administration challenge, Trenegy has successfully worked with various exploration and production companies to identify and implement fit for purpose well lifecycle process improvements. Read more about how to best align the functions of your organization and read Bringing People Together: Competitive Advantage in the Oil and Gas Industry.