This is the process of assessing impact and priorities I mentioned
---------------------- Forwarded by Mike Jordan/LON/ECT on 04/10/2000 14:23 
---------------------------


Mike Jordan
26/09/2000 19:18
To: Fernley Dyson/LON/ECT@ECT, Mark Pickering/LON/ECT@ECT, Richard 
Sage/LON/ECT@ECT
cc: Steve Whitaker/LON/ECT@ECT, Sandip Joshi/LON/ECT@ECT 

Subject: Preparation for tomorrow 's meeting at 9 am ( Fernley FYI )

This is a note we should send to John, Richard, Joe and Michael - explaining 
HOW we are going to justify the program beyond our current agreement in 
principal!

We should go back to them with 1 and 2 reasonably quickly ( Joe and Richard 
will be big buyers of 1 at least )

Introduction
Enron is expanding rapidly and continuing to grow, both in its current 
business and in acquiring new business lines
This has highlighted a number of problems, not least of which is the lack of 
transparency in the underlying cost structure within Enron
We need to focus on the root causes of these costs rather than the symptoms.

Objectives
CURRENT COSTBASE - We need to establish each business units' End to End 
Direct Support costs.   See spreadsheet below an example - worksheet "E2E 
Direct Support Headcount"
MODEL OF COSTBASE AS WE MOVE FORWARD  - We need to develop a cost model that 
will provide
A qualitative description of the cost drivers within the organisation, which 
answers
What are we doing - What are the key activities/ functions within each 
business unit and functions across all business units
Why are we doing this - what are the main cost/ activity drivers for carrying 
out these activities/functions
What headcount cost is attributable to each activity/function  - Establish a 
quantitative cost measure
We need to be able to report on current Operational Leverage and Efficiency 
ratios 
Efficiency ratio - what is the percentage of rework for each 
activity/function - implies an estimate of how far we are from STP process
Operational Leverage - Ratio of headcount increase to activity increase
USE COSTBASE MODEL TO PREDICT QUANTIFIABLE BENEFITS - using headcount cost 
data and ratios
We need to understand how many quick hits will accrue from business process 
changes to current environment  - impact on efficiency ratio
We need to understand how functionality developments will change required 
headcount cost - impact on operational leverage ratio
INVESTMENT COST - the specific costs associated with changing the operating 
platform
Development costs - people [and hardware]
Business analysts, time
Line management time
User time (including time for UAT)
Consulting costs
[Opportunity cost]
PREPARE COST BENEFIT ANALYSIS  - use 3 and 4
IDENTIFY QUALITATIVE BENEFITS
reduction in operating risk - process will be exception based with up front 
controls
reduction in number of operational errors
Trading errors that should be charged to the Middle Office
Client costs
Funding errors
MO and IT support base focused on value adding tasks
More effective management.
Better management information.
Quicker identification of exceptions should leader to quicker resolution.
People benefits - increased job satisfaction as processes are now more 
investigative
Improved control standards as standard processes will stretch across all 
businesses.
Eliminates costs and difficulty of maintaining various systems, e.g. 
spreadsheets.
Easier to cross train staff and provide cover.

UTILISE ALL INFORMATION ABOVE TO CALCULATE AN ACTUAL AND TARGET UNIT COST PER 
TRANSACTION ( VANILLA AND COMPLEX ) AND MONITOR AS KEY SUCCESS FACTOR FROM 
PROGAM



The spreadsheet below shows what we should be looking to complete - worksheet 
"Costs Model Input".  We need to do this by product - ONE SPREADSHEET PER 
PRODUCT

EXAMPLE!! - Sally, this is updated now

Next steps - 

Confirm Scope
E2E direct support costs - Enron Europe Limited
Cost model
Middle office
Products
Gas
Power
Credit
Structured Commodities
IT
Not in scope - although could be expanded
EGM
Metals
EES
EBS
EIM
Steps and responsibilities - for 1and 2
E2E direct support costs - FinOps
Establish and agree scope - Mike Jordan/ Steve Whitaker
Define departmental activities - Initial draft - Steve Whitaker/ Sandip Joshi
Confirm Departmental activities - Department heads - James New, Ian Sloman, 
Gail Hill etc.
Determine key drivers for each activity for each product - departmental heads
Add weightings to each driver - Departmental Heads
Collate information - Sandip Joshi
Consolidate spreadsheets and send back for comments - Sandip Joshi
Plan for steps 3+


Steve and Mike