Business Process

Outsourcing
Methodology

Pemex Presentation
Ing Antonio de la
Pea

General Information
Sept 2005
Mauricio Torres/Gustavo Garcia de alba
2004 Hewlett-Packard Development Company, L.P.
The information contained herein is subject to change without notice
 Do what you do Best
Outsource the Rest
Peter F Drucker

September 12, 2017 2

Three Strategic Sourcing Questions

Strategy Finance Performance

Does the operation or Does the investment in Is the operating
asset directly contribute the operation or asset performance of the
to the organizations yield a return that is operation or asset
competitive advantage, greater than the cost of (quality of output, cost
core competency or invested capital? and cycle time)
capability? measurably superior to
relevant industry
standards?

The answer to each of these questions should be YES

if your company is going to own an operation or asset

September 12, 2017 3

Decision Model for Business Process
Outsourcing
1 Assess
Strategic
Priority & Risk

2
Market
No existing options for external provision Identify potential future suppliers
Considerations
Keep
Activity
3 Internal
Monitor/develop In-house
Versus External In-house capabilities are superior
Suitable external supplier capabilities
Capabilities
providers exist or
can be created Decide on
4
Economic Review options to internal
External suppliers Cheaper to keep in-house capabilities
Evaluation decrease costs
have equal or to be
superior capabilities built for the
5 Ability to Lack skills to Develop future
Manage manage suppliers
More cost-effective required skills
Supplier and ongoing risk
to outsource

Outsource
Have skills to manage Activity
suppliers and ongoing risk

September 12, 2017 4

Strategic Options

Superior Spin off/insource Carve out Maintain/Grow

capability

In-house Capability Organic

Inferior Divest/Outsource Outsource transformation/
capability co-source

Capability
not present Ignore JV/Alliance Acquire

Low/None Medium High

Importance to Overall Competitive Position

September 12, 2017 5

 HP Strategic Assessment Approach

September 12, 2017 6

HP Strategic Assessment Overview

The HP Assessment would involve the following steps to rapidly assess potential
business process outsourcing benefits:

Gathering and analysis of cost, organization and process data

Collaborative working sessions and interaction with a select client team
Interviews and working sessions with HP thought leaders in the associated topic areas

Assess
Evaluate Cost Evaluate Determine BPO
Analyze Current Operational
Improvement Outsourcing Business Case &
F&A Performance Feasibility of
Alternatives Scenarios Develop Insights
Outsourcing

Recommendation on outsourcing feasibility by process

Quantification of potential outsourcing benefits

September 12, 2017 7
Timeline And Approach

This approach is designed to be a rapid-paced and minimally-invasive.

Business Case
Data Gathering Analysis and Design
Development

Phase 1 Phase 2 Phase 3

Mobilize team, finalize calendar
Finalize data acquisition
approach (w/ key contact)
Aggregate, deliver and review
data (key contact)
Address data gaps, questions
(w/ key contact)
Develop high-level analysis of
F&A cost position
Construct high-level solution
design
Confirm key assumptions (w/
key contact)
Complete comparative analysis
Finalize potential economics for
outsourcing
Prepare for and conduct findings
review (w/ sponsors and key
contact)

Attributes of Approach:
High-level assessment of F&A cost position
Rapid-paced qualification of outsourcing opportunity
Minimum intrusion on client personnel and management
Can be completed in under a month

September 12, 2017 8

Baseline Data Request

Data collection is necessary to determine and analyze your current operating performance
and to quantify potential benefits from outsourcing.

Key Elements (by function and location)

Headcount / salary costs + Direct non-payroll costs
Severance assumptions
Other F&A operating costs (Direct & Indirect)
High level volume metrics and process practices
IT Systems information / Connectivity needs
Process descriptions / maps
Improvement / change initiatives with projected impact

September 12, 2017 9

Data Collection Tools And Effort

There are multiple levels of data detail that we can attempt to analyze, the baseline request
(see next page) being the easiest to complete in a short period of time. These imbedded
documents below can be launched by clicking on them, but are broader than the minimal
information we generally need.

Double-Click to View
Data Collection Tool Purpose
Document

Basic data request;

Baseline Data Request
minimal client effort

Advanced data request;

Detailed Data Request
greater client effort

Assess suitability for

Transition Scorecard
transition; driven by HP

September 12, 2017 10

Assessment Deliverables

The assessment would evaluate your current operating performance and, if outsourcing
is feasible, describe a preliminary BPO solution.

1. Performance & Best Practice Comparative Analysis

2. Transition Feasibility Assessment
3. High Level Solution Design
4. Potential BPO Economic Benefits & Sensitivities

September 12, 2017 11

High Level Performance Analysis
We will deliver a high-level benchmarking analysis of the current performance of each
client process, including a leading practices assessment (see next page).
Process Evaluated
Accounts Payable
FTE's / $ Billion of Revenue
Process Cost as a % of Revenue
AP Invoices Processed / FTE
Unit Cost / Invoice Processed
Journals & Account Reconciliation
FTE's / $ Billion of Revenue
Process Cost as a % of Revenue
Manual Journal Entries Processed / FTE
Unit Cost / Manual Journal Entry Processed
September 12, 2017
Illustrative
Client Comments
Client performance appears to compare very favorably to
external benchmarks and HP performance
3.02 Performance close to 1st quartile external benchmark
0.013% Strong performance but skewed by composition of cost baseline
(labor cost only)
25,231 Performance very close to 1st quartile external benchmark driven by
high perctage of electronic invoices (61% of total)
$ 1.69 Strong performance but skewed by composition of cost baseline
(labor cost only)
Client performance appears mixed compared to benchmarks
indicating opportunities for improvement; however,
comparisons may not be "one-to-one"
1.55 Strong performance but could be skewed by organization of actvities
0.007% Strong performance but skewed by composition of cost baseline
(labor cost only)
3,000 Performance not as strong with the perfomance metric result falling
in the the median to 3rd quartile range
$ 22.74 Performance not as strong with the perfomance metric result falling
in the the median to 3rd quartile range
12
 AP Leading Practices Assessment
Illustrative
Leading Practices (Sources: HP, Gartner and Hackett) Rating
Centralized receipt of invoices with high % of invoices transmitted electronically

Scanning / imaging of paper invoices to convert to electronic format

Automated workflow of electronic or imaged invoices and elimination of routing of invoices that
have been matched
Web based inquiry tools for supplier self service

Centralized control of vendor master

High degree of integration of the purchasing application to the accounts payable application

3% or less of AP invoices require correction

Workflow cycle to process an invoice is kept to fewer than five business days

Use of P-Card for small dollar purchases with automated transaction loading and central bill pay

Recurring payments automated and electronic methods used to settle payment of invoices

Legend Extent of adoption

Very high High Medium Low Very low
September 12, 2017 13
 Transition Feasibility Assessment
Illustrative
Using HPs Transition Feasibility Scorecard, each process can be analyzed to determine
(i) the suitability of outsourcing it and (ii) the feasibility of moving it offshore.
Process Attributes Score1 Assessment Conclusion
Accounts Primarily transaction processing Processing is rules based High degree of
91
Payable High degree of automation and routinized outsourcing and
Degree of automation off-shoring is
Minimal external inquiries feasible
facilitates remote
processing

Journals and Largely transaction processing Processing is rules based High degree of
and account reconciliation 79
Account and routinized outsourcing and
Communications / Interfaces off-shoring is
Reconciliation Clear and logical
feasible
performed electronically (e-mail) segregation of activities
Business decisions & analysis between front and back
handled by operating units office

Bank Many sub-processes are non- Process is still changing Limited

standard and manual 48
Reconciliation and being optimized outsourcing and
Extensive coordination and Activities are not all off-shoring
communication with outsourcing standardized opportunities
vendors
Complex IT systems
Multiple, disparate systems environment
Note:
(1) Highest achievable score is 120 out of 120

The results from this analysis help guide the development and final design of the overall
Business Process Outsourcing solution (e.g. staffing model, etc.).
September 12, 2017 14
 Accounts Payable
Transition Feasibility Detail
# Process Characteristics SCORE Comment 0 (Low)
Illustrative 5 (High)
Consolidation
1 Level of consolidation 5 No consolidation of activities e.g. activities distributed across High level of consolidation of activities e.g. activities already
regions integrated at a single place
2 Front End / Back End Operating Model 5 Already split and some activities outsourced FE/BE split not possible FE / BE split already achieved
3 Dependencies / Linkages to other organizations 3 Dependent on some organizations: invoices & approval High level of dependency to other organizations Low level of dependency on other organizations
Total Score 13
Maturity of Process
1 Stability factor 4 Process standardized, documentation adequate Process not standardized or routinized and no defined Process standardized and rountinized; a well define
procedure manual in place procedure manual is documented and updated with clear
roles and responsibilities
2 Business Criticality 2 Critical to business but delays not catastrophic Critical or core to business Not critical to the business
3 Operational Standards 3 Operational standards in place; some documentation No operational standards Defined & documented operational standards
4 Skill requirement 4 Minimal specialized skills required Specialized set of skills required No specialized skills required
5 Level of ops excellence (quality) 3 Still improving automation, electronic transactions & output No achievements (large backlog of Defects / Re-work) Achieved certain level of excellence (limited Defects/Re-work)
(Empl. ID, Central delivery)
6 KPI's and metrics 5 Defined KPI's with monthly report-out. No defined KPI's and metrics Defined KPI's and metrics
7 Process, Procedure and Policy Documentation 3 Not sure on documentation No documentation/SOP's available Well documented and available electronically
Total Score 24
Simplicity
1 Tasks 5 Highly standardized and repetitive Isolated / Non-standard tasks (clearing back logs) Repetitive/ standardized tasks ( Routine Jobs)
2 Local specific knowledge (e.g. Tax Rules, Tariffs, etc.) 4 Minimal local rules and reg.'s High dependency on local rules/regulations Low dependency on local rules/regulations

3 Frequency of Changes/Update 4 Assuming no frequent change in processes & activities Frequent changes in the process No frequent changes in the process
4 Level and quality of process automation 4 Fairly high automation No automation High automation
5 Turnaround time (TAT) 3 Some special/rush disbursements Requires rapid TAT (Hours) Turn around time is normal and flexible
Total Score 20
Ease of Communication
1 Internal / External Communication 3 Internal and external inquiries Interfaces complex/intricate (Numerous touch points and hand-Interfaces manageable (Minimal touch-points and internal only
offs - internal and external) / CRC not required)
2 Language 4 Specific foreign language requirements No language barriers
3 Form of interaction 3 Some phone calls. No web based self service Face to Face interaction Email / Chat / Web based tools
Total Score 10
Systems
1 Interfaces & position in network 5 One to many & many to many inputs/outputs to the system Many to one input/output or isolated system
2 Availability of IT Systems and Support 4 Proprietary, legacy system with low level of support available High support availability
3 Stability & Maturity 4 Highly unstable system. Low response time, high downtime Stable and mature system
4 System/Application Lifecycle 4 Application to be retired soon Application will run for 2+ years
Total Score 17
Management of Change
1 Management Support and Endorsement 4 Mgmt of this process is stable Less support from management and a change in structure High level of continuing support from management (Champion
likely of change identified and involved)
2 Knowledge Transfer Index 3 One month Training should be sufficient for Transition Training required will be more than a month Training required will be less than a month
Total Score 7
Grand Total Score 91

Score Note
0 Any score of '0' can mean that relocation is not
1 - 30 feasible
Standard project transition plan should be revised with additional tasks, a longer duration and/or more resources. Reconsider relocation of process to Back End (Off shore)
31-60 Ensure standard project plan addresses weak points, risks and issues. Consider longer duration and/or more resources. Process can be relocated to Back End (Off shore)
61-90 Re-assess transition weak points, risks, duration and resources in project plan. Relocation to Back End (Off shore) a desirable option
91+ Assess if project duration might be shortened or if less resources are feasible given high degree of feasibility. Relocation to Back-End (Off shore) is the best option

September 12, 2017 15

High-Level BPO Solution Design Illustrative
To the extent that outsourcing is a feasible alternative, we will develop a preliminary high-
level BPO solution (by Finance process) that addresses your business requirements and
risk tolerance.

FTEs
FTEs
F&A Process Outsourced Explanation
Retained
/ Offshored
System related transaction processing and
investigations outsourced
Accounts Payable 7 32 (82%)
Some physical activities and oversight
retained
Business acumen and financial review
Journals and retained
Account 6 14 (70%)
Reconciliation Interface runs, journal entries and account
reconciliations outsourced
Investigations and some oversight retained
Bank Reconciliation 13.9 5 (26%) Account reconciliations and transaction
processing outsourced
Totals 26.9 51 (65%)

September 12, 2017 16

Economic Model Illustrative
Finally, we will deliver an economic model which calculates the cost benefits of pursuing
the proposed BPO solution.
Transition Year 1 Year 2 Year 3 Year 4 Year 5 5 Yr. Total 7 Yr. Total 9 Yr. Total
Client View ($ k)
Baseline FTE's 93.93 93.93 93.93 93.93 93.93 93.93 93.93 93.93
Cost Baseline $ 4,597.4 $ 4,712.4 $ 4,830.2 $ 4,950.9 $ 5,074.7 $ 24,165.7 $ 34,698.9 $ 45,765.3

Total FTE's Retained 31.1 31.1 12.8 12.8 12.8 12.8 12.8 12.8
Total FTE's Outsourced 60.0 60.0 76.1 76.1 76.1 76.1 76.1 76.1

Cost Baseline Retained $ 1,617.1 $ 1,657.5 $ 780.8 $ 800.3 $ 820.3 $ 5,676.0 $ 7,378.7 $ 9,167.6
Addressable Cost Baseline $ 2,980.4 $ 3,054.9 $ 4,049.4 $ 4,150.6 $ 4,254.4 $ 18,489.6 $ 27,320.1 $ 36,597.7

HP Delivery Price $ 2,076.0 $ 2,231.1 $ 2,986.2 $ 2,888.6 $ 3,034.2 $ 13,610.1 $ 19,457.8 $ 25,548.0
CLIENT "RUN" SAVINGS $ 904.4 $ 823.8 $ 1,063.2 $ 1,262.1 $ 1,220.2 $ 4,879.5 $ 7,862.3 $ 11,049.7
Savings % 30% 27% 26% 30% 29% 26% 29% 30%

One Time Costs

HP Transition Fees (*) $ - $ - $ - $ - $ - $ - $ - $ - $ -
BE Implemantation
Reengineering Cost Costs $ 655.0 $ - $ - $ - $ - $ - $ 655.0 $ 655.0 $ 655.0
Severance Cost $ 2,769.9 $ - $ 787.7 $ - $ - $ - $ 3,557.6 $ 3,557.6 $ 3,557.6
Retention Bonuses $ 114.7 $ - $ - $ - $ - $ - $ 114.7 $ 114.7 $ 114.7
Totals $ 3,539.6 $ - $ 787.7 $ - $ - $ - $ 4,327.3 $ 4,327.3 $ 4,327.3

NET CLIENT SAVINGS $ (3,539.6) $ 904.4 $ 36.1 $ 1,063.2 $ 1,262.1 $ 1,220.2 $ 552.2 $ 3,535.0 $ 6,722.4
Savings % 0% 30% 1% 26% 30% 29% 3% 13% 18%

Investment Metrics
After-Tax NPV10 $ 6,306.1
Pay Back (Months) 50.7
Notes:
Tax Rate 33%
Discount Rate 10%
NPV Terminal Value Multiple 10.0
Pay Back period calculated with After-Tax cash flows
(*) - Transition costs of ~ 1,100K are included in the delivery price
and amortized rateably over the life of the contract.
September 12, 2017 17
September 12, 2017 18