Enabling decision-making today and tomorrow
Why is making decision-making a challenge, and why does it matter?
The bigger the company you work at, the harder it becomes to know exactly what is going on in all levels of your organization. In multinational organizations, local finance managers supply their financial result to headquarters. For group finance it is a challenge to align this information and put together the performance of the whole group, also known as ‘consolidation’. Only when this information is delivered on time and is trustworthy, the Board can use it to make decisions.
After having consolidated the local actual results of past periods, the finance department prepares periodically a forecast, often compared to their annual budgeting plan.
The budgeting process is at least executed yearly, while the restatements of the budgets through (rolling) forecasts - often referred to as ‘latest estimates’ - are prepared more frequently, in large multinationals often monthly. In this increasingly fast changing world, also in less volatile industries it is needed to finalize the periodic forecast process fast and accurately.
For example, the information group finance delivers to the Board is used to decide to:
- focus on certain products or regions because these perform better,
- enter new markets,
- buy another company,
- push off a production entity,
- take on a longterm projects and or investments.
Such decisions define the future of a company. It is critical that the Board is able to timely oversee the consequences and receives comprehensive and accurate information. Though, assembling this information can be a struggle.
Increase the quality of steering information
So how can organization really up their game and have the right information to make decisions with? First of all, the information has to be relevant and not outdated. Therefore, we need to shorten the close process. Secondly, you have to have the right information. To achieve this, insight in your business drivers is essential. Lastly, you have to be able to trust the figures. We have all had discussions over money, and it often is not pretty. Having one single source with validated figures will shut up the bullshit.
Fasten up the close process
Smaller or less complicated companies often manage their close process in Excel. This is absolutely a great way to gather and consolidate results. Just watch out when the company grows to a size that Excel is no longer your best friend but can become your biggest enemy when dealing with mismatched numbers.
More sophisticated solutions are also known as Enterprise Performance Management or Corporate Performance Management solutions. In big corporations often a large variety of solutions is used to cover all the different needs of the finance organization.
Having many different solutions will make the system harder to maintain. One organizational change or a new version update, will impact all the systems and reconciling the solutions can be a nightmare and will take loads of time. Also, data has to be pushed from one system to the other, resulting in an integration challenge resulting in decreasing the quality and trustworthiness of the financial information.
The way to really speed up your processes is to choose a one platform solution. The implementation will cost initially time to implement, but when done, it will save a lot of time. It will streamline your processes and get everybody on board with a new and more efficient way of working.
Gain insight in your business drivers
When steering information is incomplete the Board will ask the group finance team to supply extra information. Their goal is to get a complete picture of how the business is performing and why it is performing this way. The solution to this is also known as your business drivers. Those are the factors that really drive your business.
Step one is to be aware of these drivers. Are your factories the spill of your company or is it in your employee profile? We haven’t seen one company where these drivers are the same.
When you know what your drivers are, you can report on them using Activity Based Costing. This allocation methodology will result in a complete cost (or revenue!) overview for your products, factories, entities, regions, business unit, division or whatever is important for your performance and ‘drives your business’.
Deliver trustworthy figures
Every time data goes from one system to another, it has to be ‘translated’ to fit the target system’s demands and architecture. This integration between systems is often causing loss of data quality. For example, currency translation. It is often considered an error prone process when information in local currency from a general ledger in a local company, needs to be reported to the group cfo’s office for budget or consolidation purposes. With multiple systems, there is a substantial risk that data quality will be lost.
So how do you deal with this? Limit the amount of systems you use and build in validations to make sure everyone agrees upon the data in the system.
Our customers’ most heard sigh of relief is: finally, everyone agrees on the figures I supplied. They know they can trust them because they come from one single system with built in validations.
Conclusion
For this blog we have only summed up only 3 ways to increase the speed, quality and completeness of group financial reporting. All our projects are designed to achieve these objectives and found numerous way to do so.
Are you curious what we can optimize for your company? We are always interested in having a exploratory call to discuss your situation.
