SS12 C6 Driving Value Through Data Analysis - Combined v4 (final)

Driving Value Through Data AnalysisSession C6

Wednesday, April 25, 20123:15 – 4:15 PM

Jennifer Schilke, Michael Tuck, & Kevin NicholsonNorfolk Southern Audit and Compliance Dept.

MIS Training Institute Session C6- Slide 2© Norfolk Southern Corporation

The views and opinions are those of the author and do not necessarily represent the views of Norfolk Southern Corporation

Norfolk Southern at a GlanceOverall Statistics:

• Class 1 Freight railroad• Approximately 20,000 track miles

– 3 Operating Regions– 11 Operating Divisions

• Approximately 29,000 employees•Operates in 22 states and the District of Columbia

2011 Highlights:• Railway operating revenue -

$11.2B• Net income - $1.9B



I. IntroductionsII. Implementation of new systemIII. Long term vendor monitoringIV. Professional fees monitoringV. Continuous Monitoring – P CardsVI. Closing Summary and Questions

Agenda



Data Analysis Model

· Analyze

· Simplify· Communicate

· Listen



Implementation of New System

Role Role Role

Job Position

Transaction Transaction Transaction Transaction TransactionTransaction

Security in SAP



Implementation of New SystemSecurity in SAP

Authorization

Object

Authorization

+ =

Access




AP Invoice Entering AP Displaying AP Payment Displaying

A/P Clerk

Enter & Park Invoice

Correct Invoice

Vendor Displaying

Invoice Displaying

View PaymentHistory

Security in SAP

EBR



Implementation of New SystemPosition Number

Role Document Number EBR Build

30000000 017 01730000000 033 01703330000000 042 01703304230000000 202 01703304220230000000 239 01703304220223930000000 253 01703304220223925330000000 305 01703304220223925330530000000 306 01703304220223925330530630000000 317 01703304220223925330530631730000000 320 01703304220223925330530631732030000000 401 017033042202239253305306317320401




AP Invoice Entering AP Displaying AP Payment Displaying

A/P Clerk

Enter & Park Invoice

Correct Invoice

Vendor Displaying

Invoice Displaying

View PaymentHistory

Security in SAP

EBR=



Implementation of New SystemPosition Title Total EBRs per Position

26 Positions with more than 10 EBRs 513

615 Positions with between 2 and 9 EBRs 1869

1370 Positions with one EBR 1370

3752

General Foreman 70

Mechanical Supervisor 50

Senior General Foreman 41

Business Analyst 9

Management Trainee Mechanical 2

Manager Administration 2

Bililng Clerk 1

Conductor 1

Account Manager 1



Background:• Management Assistance Project• Approaching the end of a long term

contract• The company planned to extend the

contract• The contract’s terms were very

complex

Long Term Vendor Monitoring



Long Term Vendor MonitoringWhat is a wheel set?



Long Term Vendor MonitoringWhy is the contract complex?

• Prices adjusted quarterly• Up to 10 price variations for each size wheel

• Prices affected by volume• Prices affected by fallout• Prices affected by availability of 2nd

hand components• Prices affected by multiple indexes



Long Term Vendor MonitoringRisk Assessment:

Why do we care about wheel sets?• Safety• Efficiency• Replacement cost



Outsourcing Risk• Culture and knowhow associated

with in-house production• Control of price and supply of a

critical part


Risk Assessment:



Pricing Analysis• Basic trends over time showed steady

increases• How did we determine what was driving

the increases?• Trend analysis on individual pricing

components


Integrating Data Analysis into the Audit:



Long Term Vendor MonitoringIntegrating Data Analysis into the Audit:

Base L

ine

Period

2

Period

3

Period

4

Period

5

Period

6

Period

7

Period

8

Period

9

Period

10

Period

11

Period

12

Period

13

Trend Analysis of Price Inflation Related to Product MixChange in Avg. Price Affected by Changes in Volume

Pric

e



Long Term Vendor MonitoringIntegrating Data Analysis into the Audit:Are the Right Products Getting to the Right Places?

• Pricing model impacts how wheel sets should be distributed

• Some locations should have an above average distribution of certain wheel types

• Use ACL to verify that the vendor appropriately distributes wheel sets



Long Term Vendor Monitoring Integrating Data Analysis into the Audit:• Verify wheel sets are shipped from

appropriate locations• Verify cost efficient mode of transport

Wheels can be shipped by truck or rail Perform regression analysis on freight

charges to verify expected relationship between distance and cost



Long Term Vendor MonitoringRegression Analysis: Predicted Relationship

Between Miles and Freight Cost

0 200 400 600 800 1000 1200 1400 1600

Recalculated truck rate

Predicted Recal-culated truck rate

Distance - Miles

Cos

t of F

reig

ht



Long Term Vendor MonitoringRegression Analysis: Actual Relationship

Between Miles and Freight Cost

0 200 400 600 800 1000 1200 1400 1600

Predicted Freight_Amt

Freight_Amt

Distance - Miles

Cos

t of F

reig

ht




Management Communication:

• How do you make sense of a complex pricing model? A picture is worth 1,000 words Focus on manageable components

within a complex system



Why Professional Fees:• Management Assistance• Complexity• Legacy Vendor

Professional Fees Monitoring



Develop an understanding:• Who are the players?• What do I have to work with?• Can we talk?




Validate billing Process:• Are the bills accurate and supported?• Are we paying our share only?




Mining for anomalies:• What don’t we know?• How do we find out what we don’t know?




Value added results:• Identified higher billing hour trends

Potential “padding” by employees Potential “padding” by event




Value added results:• Identified “open” files that accrued

overhead billings Event aging by Action Date Event aging by Submission Date




Driving Value:• Timely information• Process Improvement• Future benefits




P Cards at NS:• Program Statistics• Policies and Processes• Program Risks

Continuous Monitoring – P Cards



Prior Audit findings:• Lack of Proper Approval• Missing Documentation




Applying the knowledge:• Using the right tools• Developing the “red flag” indicators• Utilize Continuous Monitoring




Timely Monitoring:• 2006 3rd Quarter review• Red flag queries in the online system• A curious set of transactions




Continuous Monitoring – P CardsTime for leg work:• Look for trends• Validate your theory



Continuous Monitoring – P CardsDriving Value:• Discipline and Consequences• Process Improvement• Additional Monitoring opportunities



Closing Summary· Analyze

· Simplify

· Communicate

· Listen



Questions?



Jennifer Schilke – [email protected]

Mike Tuck – [email protected]

Kevin Nicholson – [email protected]

Contact Information

SS12 C6 Driving Value Through Data Analysis - Combined v4 (final)

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