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Research & Publications
Research Publications

Hot Topics in VBM, EVA and Strategic Risk Management

  • The formula for EVA is a no-brainer. But the evidence on EVA implementation is decidedly mixed. Are EVA and EVA implementation simple, or deceptively so? Review a presentation to the Icelandic Management Association on what it means to become an "EVA company," and how that definition should adapt to the coming decade.

    Demystifying EVA and EVA Implementation
    Click Here to View or Download Presentation Source

  • Finegan & Company spoke recently to a nationwide symposium on corporate finance reengineering. We were alone among presenters in distinguishing cost-cutting and systems integration initiatives, however worthy, from the real purpose of corporate finance reengineering: restoring relevance to the planning process. The presentation argues that traditional planning systems are so static and account-driven that they are ill-suited to helping line managers make better operating decisions. The presentation introduces an alternative framework for corporate governance-one which stresses real-term decision-making assistance over command-and-control initiatives, and which holds greater promise of lasting relevance throughout the planning cycle.

    Creating Value Through Corporate Finance Reengineering
    Click Here to View or Download Presentation Source

  • Enterprise risk: It’s the hottest topic in insurance and risk management, and the least practiced.

    Enterprise risk management collapses the traditionally departmentalized and decentralized functions of insurance and hedging into a unified multi-year risk management "policy." The idea is to:

    • eliminate the extraordinary administrative waste associated with overlapping and, in many instances, redundant policies;
    • improve prioritization of risk containment exercises; and
    • optimize levels of insurance based on the company’s combined exposure and appetite for risk-taking.

    Unarguable in concept. Unheard of in practice.

    First, most large companies decentralize and departmentalize insurance decisions. There are no central databases, no common platforms and no "standard" forms. Data entries, where made, are often fraught with error, yet they become the basis for far-reaching decisions about the company’s ability to withstand exposure. Next, there are organizational obstacles-ranging from bureaucratic mazes to warring fiefdoms to the chilling effect consolidation has on cooperation. Most important, there is the challenge of implementing an efficient, accessible, permanent and client-friendly process for managing risk collectively.

    Review the work product from an actual client engagement: a comprehensive, flexible Monte Carlo model of the components of risk at a major manufacturer--plus the tools to simulate almost any form of conventional or holistic insurance program.

    Project Summary        Click Here to View or Download Presentation Source
    Risk Simulator Help File    Click Here to Download

  • Much has been written about "reengineering" the finance function, yet the most common application has been cost-cutting. This ignores the original calling of reengineering-reformulating business processes to achieve competitive advantage. The reason cost-cutting practices prevail is that many finance functions, including strategic planning, are so reactive as to contribute little to shareholder value. The real objective of corporate finance reengineering should be to restore relevance to the planning function by improving management’s ability to measure and manage uncertainty, plus its ability to plan for contingencies.

    Now simulation-based planning models are being used at several companies to test growth opportunities against uncertain competitor behavior, improving the odds of costly wagers. In addition, the models have helped finance professionals assume previously unheard-of frontline responsibilities-anticipating, rather than reacting to, changing business conditions. Finally, they have been used to make objective, performance-based incentives attainable.

    Making Corporate Finance Relevant: The Real Role of Corporate Finance Re-engineering

  • An edited version of this article appears in two parts in the November 1998 and January 1999 issues of Corporate Finance Review.

    The first article explains the theory and consequences of three-dimensional modeling and decision-making for improving the finance function.

    Making Corporate Finance Relevant: The Real Role of Corporate Finance Re-engineering

    Reprinted from Corporate Finance Review (November-December, 1998), pp. 6-15.

    The second article uses a case study of a major woods products company during the 1994 to 1995 timeframe to develop an intelligent chess-like model of competitors’ behavior in a high-stakes, capital-intensive industry for improving a company’s finance function.

    Real-World Contingency Planning Keeps Plywood Production On Track

    Reprinted from Corporate Finance Review (January-February, 1999), pp. 7-14.

  • Towers Perrin and Finegan & Company addressed a group of benefits practitioners in 1998 on the subject of stock and cash-based alternatives to conventional stock options in a turbulent or protracted bear market. Ironically, many regarded us as overly bearish. Yet even then, at most companies we called on, general industry and economic factors accounted for the overwhelming majority of stock price movements-making stock options an unsettling lottery in unsettling times, and an imprecise tool for measuring value added.

    The associated slides highlight what we believe is wrong with conventional stock options as a pay-for-performance vehicle, and wrong with conventional cash-based measures like CFROI and EVA, but right about objective cash- and equity-based incentives in general. The presentation goes on to establish an alternative framework for defining objectivity (and thus corporate governance)-one which reformulates the client from an industry play into a truly differentiated management play.

    Beyond Stock Options
    Click Here to View or Download presentation source

  • Finegan & Company spoke in 1998 to the Atlanta chapter of the CFO Roundtable on the subject of exploiting uncertainty to competitive advantage. The attached slides provide an overview of our perspective. The perspective is developed more fully in the article entitled "Making Strategic Planning Relevant: The Real Role of Corporate Finance Reengineering"-cited above.

    Strategic Gains from Uncertainty and Risk
    Click Here to View or Download Presentation Source

  • The academic evidence, while solid, is hardly sufficient to persuade a large conglomerate or vertically integrated behemoth to split itself into pieces (3-5 percent announcement effect).  But what if the academicians limited themselves to large corporate break-ups — the kind that make the WSJ?  Or to break-ups of equals — not just puny equity carveouts?  And what if they differentiated proactive attempts to unleash hidden value from mere defensive posturing (ala ITT)?  Well, the results might just be more persuasive.

    The Straight Dope on Corporate Split-Offs

    Reprinted from Corporate Finance Review (March-April, 1998), pp. 26-31.

  • Towers Perrin and Finegan & Company presented their thoughts on EVA implementation to a major European manufacturer, anonymously rechristened "Alpha" Corporation.

    Developing Successful EVA-Based Incentives
    Click Here to View or Download presentation source

  • Is there a substantive difference between performance measurement specialists?

    There’s a world of difference. Some consultants have a formula and dictate how to implement EVA or CFROI. Others take a more eclectic approach, modeling performance based analysis to strategy, culture and economic reality. There is strong evidence that the metric wars are over. The real battle lines are being drawn along the tougher and differentiating challenges of calibration, implementation and lasting behavioral change.

    Metric Wars

  • What really matters in creating share value?

    If not metrics, where are all those consulting dollars going? We can’t speak for the competition, but we know what we prioritize — and why it’s truly distinctive.

    Myth vs. Reality: The Key Challenges in Developing Effective Performance-Based Incentives

  • How can you make EVA work for your company?

    The Role of Leverage in Incentives

    With restructuring again in surge, it is perhaps wise to revisit the lessons of the 1980s — not just with respect to cost containment and focus — but with respect to the powerful role of leverage (either financial, operating or incentive-based) in energizing management performance.

    Financial Incentives Resolve the Shareholder Value Puzzle

Other Topics

Adobe AcrobatNote: A number of articles available on this page have been archived using Adobe Acrobat’s .PDF format. Please click on the button to the right to obtain the latest version of the Adobe Acrobat Reader directly from Adobe.

Microsoft PowerPoint Viewer 97 The slides available on this page have been archived using Microsoft’s PowerPoint 97 .PPT format. Please click on the button to the right to obtain the latest version of the Microsoft PowerPoint Viewer 97 directly from Microsoft.

Illustrations: Warren Gebert
Photography: Wayne Takenaka

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