Executive Summary
The Contract Cost Management project at HR Block has successfully optimized costs and mitigated risks associated with a large contract portfolio many of which represented variable rate usage billing. Since October of 2023, the project has avoided $3.6 million in overages, significantly impacting the current year's budget and forecasts. With 47 contracts and an annual spend of $35 million, the project ensures efficient management of both fixed and variable rate contracts. Through formalized usage forecasts and a robust model, HR Block can accurately track contract usage and make informed financial forecasts proactive avoiding overages and providing peak usage projections. This strategic initiative not only guides future renewal strategies but also underscores HR Block's commitment to financial efficiency and strategic decision-making.
Strategic Aspects
- Avoidance of $3.6 million in overages since project inception, demonstrating immediate financial impact.
- Optimization of contract terms and mitigation of risks through strategic alignment with the Sourcing Department. This included managing licenses that better modeled HR Block Tax season (5 months out of the year, rather than 12 months) and less fiscal impact to peaks during tax season.
- Enhancement of long-term financial forecasting accuracy by tracking historical performance and guiding business owners on predicting usage.
- Demonstrated commitment to financial efficiency and strategic decision-making within HR Block's executive leadership.
- Monitor effective utilization of spend, monitoring what we thought we needed vs what we actual used.
Tactical Aspects
- Formalization of usage service contract forecasts with all related business units that relate to the contract's usage.
- Implementation of a robust forecasting model for accurate financial predictions tied to internal usage metrics (such as customer service agents) and not the contract unit (such as a license for a service).
- Establishment of monthly meetings with product stakeholders to review forecasts and actuals. Stakeholders include executive level sponsors, sourcing leads, and businessowners.
- Partnership with the Sourcing Department for alignment of contract terms and risk management. This effort help guide problematic contract, negotiating terms when possible.
The following example shows a simplified cost management model for a single variable rate SKU. This type of data model exists for all contracts in my portfolio.
The "LIGHT GRAY" represents the contracted usage amount, usage above this amount would imply an overage representing unplanned additional cost to the organization.
The "LIGHT BLUE" represents the forecasted usage that business provided based on the aspects like business seasonality, business related events, etc. The "RED" represents actual usage, you can see that for the months of January and March, we exceed our "contracted amount" implying an overage.
The "RED" represents actual usage, you can see that for the months of January and March, we exceed our "contracted amount" implying an overage.
This specific example would trigger internal action with myself and sourcing to address this overage immediately, and would drive a discussion with business owners as to why the forecasted amount was far below the actual usage.
