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INTRODUCTION IMPACT ON SHORT-TERM PROFITS This case is based on a real-life project and takes place in For an insurance company, there are four key line items 2010 at the New York City headquarters for the United on the income statement: premium revenue, investment States operations of AC Global, Inc. (The real name has income, benefits/claims expense, and operating expenses. \begin{tabular}{l|l} been changed.) AC Global is a multinational insurance & Operating expenses provide the greatest opportunity for \end{tabular} \begin{tabular}{l|l} company with its headquarters in France and annual & short-term improvement in earnings since the other line \end{tabular} revenue ranking in the top 10 companies globally. The items are less controllable or the impacts of changes emerge \begin{tabular}{l|l} company has significant operations in the United States, & over a long period of time. Investment income is primarily \end{tabular} \begin{tabular}{l|l} Europe, Japan, and Australia, and the operations in each & composed of interest and dividends on bonds and common \end{tabular} country are separate insurance companies and operate with stock investments and is not changed through operating a large degree of autonomy. Recently, AC Global established actions. Premium revenue is composed of fees collected insurance operations and a servicing center in India. The for providing insurance coverage and is only modestly servicing center in India primarily provides some information impacted by current sales. Benefits and claims are paid to technology (IT) support for the insurance operations in the policyholders and their beneficiaries and are also difficult to United Kingdom (U.K.), Belgium, and France. The ongoing impact in the short-term. global recession has significantly decreased the profitability The global economic downturn that began in late 2008 \begin{tabular}{l|l} of AC Global, increasing the importance of reducing costs. & put intense pressure on the financial services industry. \end{tabular} AC Global's operations in the U.S. (AC-US) sell life and During 2009, U.S. sales of annuity products decreased annuity products and represent approximately 20% of the by 30% while life insurance sales fell by 15%.1 Like the group's life and annuity revenues. AC-US has approximately industry, AC Global has been negatively impacted by 3,000 employees, with about 1,000 employees based in the the economic downturn. AC-US premium revenue fell New York City headquarters. The remaining employees 8% cumulatively between 2007 and 2009. In 2010, the are located at the company's service centers in New Jersey, company's operations remained stable, but revenue was Pennsylvania, and North Carolina. expected to be similar to 2009. AC Global's operating earnings decreased over 80% from 2007 to 2008, and ACUS suffered an operating loss in 2008. \begin{tabular}{l|l|ll} IMA EDUCATIONAL CASE JOURNAL & 1 & VOL. 9, NO. 3, ART. 3, SEPTEMBER 2016 & 02016 IMA \end{tabular} COST REDUCTION ANALYSIS PROJECT over the next four days and then meet to develop their recommendations. George selects offshoring, Charleston IMA EDUCATIONAL CASE JOURNAL 2 VOL. 9, NO. 3, AAt. 3, SEPTEMBER 2016 costs are charged to accounts payable, calculate the annual savings per function through offshoring. b. What would the impact be on AC-US's costs for the next three years if the two accounting functions are performed in India instead of in the U.S.? (Be sure to include severance in the one-time costs, using information from Table 6 and assume zero inflation). 3. Electronic Processing: a. Using the information that Charleston gathered on electronic payment processing, determine the potential staff reduction and calculate the potential annual cost savings from electronic processing of 50% of the accounts payable checks. b. If AC-US outsources bank reconciliations and/ or accounts payable, what would be the maximum combined savings of electronic payments and outsourcing over the next three years, including the one-time costs? (Be sure to include severance costs, using information from Table 6 , in the one-time costs). 4. Relocation: a. Using the information that Falkirk gathered on potential real estate savings through relocation, estimate the annual cost savings available through relocating some or all of the accounting functions to New Jersey. b. What are the impacts on AC-US's costs over the next three years, including the one-time costs? (Be sure to include severance costs, using information from Table 6 , in the one-time costs). 5. Recommendation: Based on your analysis, recommend a course of action for AC-US. Remember Thomas's goal of 10% reduction in the expenses for the accounting function. Your alternatives include retaining operations as they are, adopting electronic payments for accounts payable, relocating accounting functions, and/or offshoring functions. You may recommend a combination of any of the alternative cost savings approaches. INTRODUCTION IMPACT ON SHORT-TERM PROFITS This case is based on a real-life project and takes place in For an insurance company, there are four key line items 2010 at the New York City headquarters for the United on the income statement: premium revenue, investment States operations of AC Global, Inc. (The real name has income, benefits/claims expense, and operating expenses. \begin{tabular}{l|l} been changed.) AC Global is a multinational insurance & Operating expenses provide the greatest opportunity for \end{tabular} \begin{tabular}{l|l} company with its headquarters in France and annual & short-term improvement in earnings since the other line \end{tabular} revenue ranking in the top 10 companies globally. The items are less controllable or the impacts of changes emerge \begin{tabular}{l|l} company has significant operations in the United States, & over a long period of time. Investment income is primarily \end{tabular} \begin{tabular}{l|l} Europe, Japan, and Australia, and the operations in each & composed of interest and dividends on bonds and common \end{tabular} country are separate insurance companies and operate with stock investments and is not changed through operating a large degree of autonomy. Recently, AC Global established actions. Premium revenue is composed of fees collected insurance operations and a servicing center in India. The for providing insurance coverage and is only modestly servicing center in India primarily provides some information impacted by current sales. Benefits and claims are paid to technology (IT) support for the insurance operations in the policyholders and their beneficiaries and are also difficult to United Kingdom (U.K.), Belgium, and France. The ongoing impact in the short-term. global recession has significantly decreased the profitability The global economic downturn that began in late 2008 \begin{tabular}{l|l} of AC Global, increasing the importance of reducing costs. & put intense pressure on the financial services industry. \end{tabular} AC Global's operations in the U.S. (AC-US) sell life and During 2009, U.S. sales of annuity products decreased annuity products and represent approximately 20% of the by 30% while life insurance sales fell by 15%.1 Like the group's life and annuity revenues. AC-US has approximately industry, AC Global has been negatively impacted by 3,000 employees, with about 1,000 employees based in the the economic downturn. AC-US premium revenue fell New York City headquarters. The remaining employees 8% cumulatively between 2007 and 2009. In 2010, the are located at the company's service centers in New Jersey, company's operations remained stable, but revenue was Pennsylvania, and North Carolina. expected to be similar to 2009. AC Global's operating earnings decreased over 80% from 2007 to 2008, and ACUS suffered an operating loss in 2008. \begin{tabular}{l|l|ll} IMA EDUCATIONAL CASE JOURNAL & 1 & VOL. 9, NO. 3, ART. 3, SEPTEMBER 2016 & 02016 IMA \end{tabular} COST REDUCTION ANALYSIS PROJECT over the next four days and then meet to develop their recommendations. George selects offshoring, Charleston IMA EDUCATIONAL CASE JOURNAL 2 VOL. 9, NO. 3, AAt. 3, SEPTEMBER 2016 costs are charged to accounts payable, calculate the annual savings per function through offshoring. b. What would the impact be on AC-US's costs for the next three years if the two accounting functions are performed in India instead of in the U.S.? (Be sure to include severance in the one-time costs, using information from Table 6 and assume zero inflation). 3. Electronic Processing: a. Using the information that Charleston gathered on electronic payment processing, determine the potential staff reduction and calculate the potential annual cost savings from electronic processing of 50% of the accounts payable checks. b. If AC-US outsources bank reconciliations and/ or accounts payable, what would be the maximum combined savings of electronic payments and outsourcing over the next three years, including the one-time costs? (Be sure to include severance costs, using information from Table 6 , in the one-time costs). 4. Relocation: a. Using the information that Falkirk gathered on potential real estate savings through relocation, estimate the annual cost savings available through relocating some or all of the accounting functions to New Jersey. b. What are the impacts on AC-US's costs over the next three years, including the one-time costs? (Be sure to include severance costs, using information from Table 6 , in the one-time costs). 5. Recommendation: Based on your analysis, recommend a course of action for AC-US. Remember Thomas's goal of 10% reduction in the expenses for the accounting function. Your alternatives include retaining operations as they are, adopting electronic payments for accounts payable, relocating accounting functions, and/or offshoring functions. You may recommend a combination of any of the alternative cost savings approaches