“Done right” doesn’t mean doing it yourself

8 January 2015  •  Source: Neil Kinson, VP EMEA, Redwood Software

Neil Kinson, VP EMEA, Redwood Software, explains how CFOs and financial directors can cement their positions of leadership as growth picks up. 

Neil Kinson, VP EMEA, Redwood Software

Neil Kinson, VP EMEA, Redwood Software

As the New Year rolls around, it’s often a time for reflection and analysis as thoughts turn to personal and professional resolutions for the year ahead. 2014 was arguably the year that CFOs and financial directors claimed their role as strategic pillars within the business, having navigated their organisations through recession to growth. In the UK, economic recovery is forecast to continue into 2015 and 2016. It’s driven by consumer spending and business investment; so, the smart CFO will now consider how to add maximum value to their business and cement their position of leadership.

The latest CNBC Global CFO Council poll revealed that IT is firmly on the agenda to help achieve this goal, with Information Technology topping the list of current capital expenditure priorities. This conversation has developed further amongst CFO communities, leading debate as to whether we will see a new role emerge in the coming months – the CFO of IT. This new role would be to build a strong connection between two teams that haven’t traditionally collaborated.

Research from Genpact earlier this year echoes the untapped potential for technology and process re-engineering to improve the finance function’s ability to address the most strategic enterprise challenges. If CFOs are to find the time to develop strategy and guide key business initiatives, all while keeping their focus on cash flows, controls, costs and risk, then they must ensure that their time and resources are prioritised and deployed wisely.

From number crunching to analysis

The financial close is a critical process for understanding the business and its growth potential. It requires rigorous governance, accuracy, auditability, and most important of all – consistency. Data integrity and complete confidence in the numbers that drive and underpin the business is key, but this should not mean that finance teams spend their time so absorbed in repetitive manual tasks that they lose sight of the crucial post-close analysis that supports their long-term goals.

The labour-intensive and demanding close process typically depends on the sheer manual effort of the accounting and finance groups to compile, validate, reconcile and consolidate vast amounts of transactional business data manually. Needless to say, reliance on spreadsheets, manual activities and offline reporting all contribute to an ineffective close. This situation can lead the finance team into the trap of following the age-old mantra of the sales team – “Always Be Closing.” The endless and unnecessary repetition of key tasks has major implications for the quality of information delivered, with recent research from Redwood Software showing that companies dedicate more than 8,300 full personnel days to the close each year as the activity sprawls for days and even weeks around the actual close date.

These piecemeal manual business and IT processes are commonplace, particularly in growing companies. With enormous pressure on IT teams to deliver round-the-clock value with ever-diminishing budgets, processes and their supporting technologies have more often than not, evolved in siloes. That is, systems are designed, structured, supported and run completely independently of one another. This is particularly true in high-growth global businesses, or those that have grown by acquisition. Despite its position at the strategic core of a business, the financial close process has not yet escaped this fragmented evolution. It’s all hands on deck, but does the left hand know what the right hand is doing?

It’s all too easy to concentrate most of the finance team’s effort and resources into producing the numbers. But without an adequate post-close analysis, what purpose do these numbers serve?

Perception is the enemy of progress

If other industries and business functions have been able to move ahead by automating repetitive manual tasks, why is it that the close process is still stuck in manual limbo? Part of the issue here is overcoming the perception hurdle when it comes to automation – a technology which has arguably over-sold and under-delivered over the years, particularly with regard to the finance function.

Many people see the core issue with the close process as data quality, stemming from a desire to complete the financial close as quickly as possible. As a result, the solutions that they put in place to combat this are often process governance or workflow tools to map out individual tasks. Although these solutions control the order of work and allow improved awareness of where the company is in the close process overall, they don’t reduce the level of manual intervention required. If anything – these tools actually increase the manual requirement by continually asking staff to update the status of their activities into a central dashboard. It’s the equivalent of creating an automated “to-do” list for an assembly line – and then having employees lined up watching the machine to prompt them to do manual tasks. It becomes a case of “remind me to remind you whether or not I need to remember to remind someone else to do the task.”  Real automation isn’t about reminding you with a list. It’s about process execution.

Truly automating close processes means that validation can be built-in, so that only exceptions need to be tackled manually. If the rules and logic of a task are pre-defined, it’s even possible to establish automated remediation as the system recognises differences based on pre-agreed tolerances, and makes the change. This approach guarantees integrity of the source data, freeing up financial professionals to analyse the information and derive all important insight from the numbers.

The new last mile of finance

Tighter compliance regulations and growing pressure to achieve more for less–all while maintaining complete accuracy— is driving businesses to scrutinise every part of the financial close. In the past, corporate finance has spoken about the “last mile” of finance, meaning the consolidation and disclosure phases. We now expect to see a shift in focus, as organisations wake up to the fact that manual steps across complex entity close processes take up around two-thirds of the time and effort associated with the entire close. This area is ripe for improvement and a topic we expect to see in the spotlight in 2015.

With valuable visibility into the very core of the business, CFOs should be looking to transform the finance function in 2015, shifting finance and accounting roles away from production work towards more value-added financial and business analysis. It is only then that the CFO position as “transformation agent” can be truly realised.

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