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Our recent Office of Finance benchmark research demonstrates the importance of using automation to execute finance department functions. Information technology systems do at least two things very well that make better use of people’s time, and both of them can substantially improve organizational performance. First, they eliminate the need for people to do repetitive tasks, which frees them to spend time on more valuable work that requires judgment and skill. IT systems also can be programmed to focus only on relevant information while eliminating the need to get immersed in detail. The latter capability supports a “management by exception” approach, which enables executives and managers to better allocate how and where they spend their time.
Our research shows that in finance operations many companies don’t take advantage of these capabilities. Only half of participating organizations have automated a significant percentage of their finance processes. In particular, just 11 percent have nearly or fully automated their financial close, while almost half (48%) apply some automation and 36 percent little or none. It also reveals automation’s positive impact on performance: 71 percent of companies that nearly or fully automate their close process are able to close their quarterly books in six or fewer business days whereas 43 percent those that have only partially automated are able to do so and just 23 percent that use little or no automation have this ability. Another example is the automation of reconciliation, which is an essential element of the close process. It’s a repetitive task that lends itself to automation, and affordable software for managing the task is mature. Yet just 37 percent of companies have applied automation to their reconciliation process. Automation of reconciliation also correlates with how quickly a company closes its books: 57 percent of companies that use software for this purpose close their quarters within six business days and 30 percent do it in four business days. By contrast, 73 percent of the companies that do not automate reconciliation take seven or more working days to close.
Spreadsheets are a valuable tool for many finance department tasks, but they are out of place when used for repetitive, collaborative enterprise-wide processes. Indeed, they are both a symptom and a cause of dysfunctional processes, systems and data. A symptom because they frequently become the default option to put a bandage over, for example, issues that arise because systems are not properly integrated or a process is not supported by the appropriate technology such as a dedicated application. But spreadsheets remain the tool of choice for a variety of finance department tasks. Almost all midsize and larger companies (those with 100 or more employees) use them for management accounting analysis and nine out of 10 use them to manage their long-range and strategic planning process and to do financial analysis. More than eight in 10 use spreadsheets for direct and indirect tax provisioning as well as treasury management. Spreadsheets have their place, but our research demonstrates that they are frequently misused.
The close is a useful process to benchmark because almost every company does it and there’s a measurable outcome: the number of days after the period’s end in which the company completes the process. To be sure, this metric does not represent the full amount of time companies spend on executing the close. Corporations that close their books the day after the period ends usually have already started parts of the process before the end of the period, and some of these processes are performed weekly or even daily in order to balance workloads over the month. Yet to focus on the total hours spent is to miss the point: Managing to a faster close is not just about efficiency, it’s also about getting the numbers to executives and managers so they can react quickly to issues and opportunities. The research demonstrates a close correlation between when the close is completed and the timeliness of communicating that information to the rest of the company.
Time is the critical ingredient that determines the overall performance of finance and accounting departments. Poorly performing organizations usually are mired in an endless cycle of fighting fires – for example, dealing with the impact of processes that are poorly designed or not properly executed. These departments are constantly contending with the impact of information sources that are unreliable, difficult to access or both. Poorly designed systems add to the problem, generating hours of work in the form of manual reconciliations done in spreadsheets. Think of a finance department that does not apply automation and that has poorly designed or executed processes and systems as a caged hamster running on a wheel. It expends a great deal of effort on repetitive manual processes that are only marginally productive.
Software automation by itself will not address all of the challenges of a finance and accounting organization. To optimize performance companies almost always must deal with an interrelated combination of people, process, technology and data issues in a holistic fashion. Yet confronted with the day-to-day struggle of meeting deadlines, many finance executives put off addressing their productivity and effectiveness issues. They shouldn’t, because a continuous improvement process involving a steady set of small advances can yield impressive results over time. Identifying the biggest time sinks that can be readily eliminated and then eliminating them can free up the resources needed to address the next set of significant problems. Even something as straightforward as uncovering unnecessary work or replacing the worst spreadsheets with better technology (for instance, implementing automated or self-service reporting) will be beneficial. For this to happen, though, senior finance and accounting executives must make automation a priority.
Robert Kugel – SVP Research
Finance and accounting departments are staffed with numbers-oriented, naturally analytical people. Strong analytic skills are essential if a finance department is to deliver deep insights into performance and visibility into emerging opportunities and challenges. The conclusions of analyses enable fast, fully informed business decisions by executives and managers. Conversely, flawed analyses undermine the performance of a company. So it was good news that in our Office of Finance benchmark research 62 percent of participants rated the analytical skills of their finance organization as above average or excellent.
The research finds that having strong analytical skills is associated with good analytic practices. It’s important to have an effective process for creating analyses that enable effective management of a corporation. Having strong analytical skills is a key ingredient of being able to manage that process. Having skills and having an effective process are linked. Almost all (89%) companies with excellent analytic skills have a process for creating finance analytics that works well or very well, compared to half of organizations in which skills are average and none in those where they are below average. Furthermore, almost all (92%) companies with excellent or above-average finance analytic skills have been able to use analytics and performance indicators to improve individual or business performance. By comparison, fewer than one-third (30%) of those with average or below average skills were able to do so.
Having these skills is good, but the research suggests that most finance departments don’t use them to full potential. When we dug into some of the underlying data, a less rosy picture of the state of analytics in finance departments emerged, including somewhat pedestrian use of analytics. Most companies are good at handling the basics, such as financial statement analyses, and in creating and assessing models used in forecasting and planning. However, very few (just 12%) of those that have above-average or excellent skills use predictive analytics; only one-fifth of them apply relevant economic and market indicators or price optimization techniques; and just one-third apply profitability analysis to products and customers on a regular basis. Staying above average or better in applying analytics in today’s environment means going beyond well-established financial analyses. Corporations today have vast amounts of business data that demand the application of advanced techniques. Predictive analytics is a valuable tool that can harness this big data to create more nuanced and more accurate forecasts as well as alert executives and managers to threats and opportunities earlier than ever. In addition greater availability and accessibility of external information enables organizations to produce better insights into how economic, market and financial markets affect their performance.
Another issue that can hinder a finance department’s efforts in delivering valuable analytics is the timeliness with which they provide it. Only one-third (31%) are able to provide information on a timely basis. Just over half (56%) said that the information they provide is somewhat timely, which in practice can mean a day late and a dollar short when key decisions have to be made immediately. Two related reasons why information may not be timely are a lack of automation and overreliance on desktop spreadsheets for reporting. Spreadsheets are indispensable for personal productivity and ad hoc analysis and reporting. However, they are almost always the wrong choice for routine business analysis and periodic reporting because using them can be very time-consuming. Because it takes so long to prepare the analysis and generate a report distributed through email, information is less timely and often less valuable.
Senior finance executives need better understanding of advanced analytics and how these techniques can be employed to improve the performance of the finance organization and serve the needs of the rest of the company. Desktop spreadsheets are an overused technology that wastes time when applied to collaborative or repetitive enterprise-wide analytics. In practice, they are incapable of delivering the forward-looking analytics listed above. They are not difficult to replace if there is a will to do so. Advanced analytic software is becoming increasingly more affordable and more accessible to business analysts. Often they use a Microsoft Excel interface because of its familiarity and therefore require less training to get users to a reasonable level of proficiency.
What constitutes excellent and above-average analytical skills is evolving daily as new tools and techniques become mainstream. Senior finance department executives must remain current on what’s possible and push their department to keep up. To make this possible, as I have written, they must set their sights higher and find ways to eliminate time-wasting manual processes so there’s time for their analysts to extend their highly valued skills.
Robert Kugel – SVP Research