FDs tackle reporting processes
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What are the hot topics that finance directors are facing this year? In short, it’s people, performance and processes, in that order, according to recent research by BPM International, a network of business performance management consultancies, the UK arm of which is Paragon Consulting.
The research questioned group FDs, financial controllers and planning managers in more than 130 European businesses, the bulk of which had revenues in excess of E1bn. It found that people pipped performance as the agenda-topping issue: improving the skills and capabilities of finance staff was regarded by 81% of the companies taking part in the survey as a ‘hot topic’ for 2007, just slightly ahead of the need to improve performance (80%).
People issues feature in the business units as well as the corporate centre, the research found, adding that 72% of respondents ranked ‘operational excellence in the finance function’ as a priority. But with such a high proportion chasing after excellence, the report authors said it was “astonishing how many companies have still not managed to get their basics right.” Moreover, the research unearthed the fact that there is a high potential for improvement in many businesses.
Performance management, predictably enough, was almost equally high, but further investigation by the researchers suggests that corporate performance is still not good enough: the blame would appear to lie with “external distractions” such as the demands of Sarbanes-Oxley compliance, IFRS and, for financial services groups, Basel II.
Then there is the problem of speed of process. Third on the list of priorities was the need to optimise and quicken the closing process (75%), while the need to re-engineer planning and budgeting processes was cited by 60% of respondents. Intriguingly, of the 130 companies surveyed, budgeting and planning is of even greater concern for those identified as ‘Top 20’ performers than it is for the others in the sample. The need not only to measure the past but to predict the future is a key area for improvement. No wonder: the total budget cycle time was found to be around six months.
A few best practice pointers and benchmarks came out of the research. For the organisation of the group finance function, the research revealed what it thought was a surprisingly low headcount for corporate centre staff involved in group reporting processes and systems: two-thirds of respondents had no more than 10 FTEs (full-time equivalent employees) working on consolidation accounting, while an even higher percentage (85%) had no more than 10 working on group reporting systems.
The researchers analysed whether there was any correlation between headcount and the type of consolidation system used and found that those with the lowest staff levels used ‘best of breed’ packages, while the most heavily staffed used ERP systems. (They admit that the strength of this correlation is open to question because of other factors.)
Companies appear to be better at coping with new accounting standards and regulatory changes as opposed to changes/upgrades in accounting systems and organisational changes. To improve their ability to cope with change the companies suggest that they need standardised and documented processes, better and more frequent contact with reporting units and better trained staff.
Key problem areas
– Forecasting – While virtually all participants produced income statements as part of their forecasts, almost 60% also required balance sheet information – but less than 40% wanted cashflow information and other non-financial data. Moreover, the research revealed that corporate centres required a surprisingly large amount of detail, in contrast to emerging best practice view that forecasts should be more aggregated. Around 40% of respondents said they require information at more or less the same level of detail as their actual reporting.
Topping the list of problems at the corporate centre is late delivery of information by reporting units, followed by errors in the forecast income statements and balance sheets. The researchers also asked the reporting units what problems they had meeting the centre’s deadlines and found that their biggest problem was coordinating input to the forecast from local function managers, followed by the time taken to get executive approval for the final forecast. Manual inputting into the reporting format was a problem experienced by more than a third of reporting units.
– Budgeting – Similarly, the budgeting process suffers from late delivery of data, manual inputting, time taken to get executive approval and lack of appropriately skilled accounting staff.
– Reporting – One emerging trend is for companies to produce an aggregated or even a detailed balance sheet every month, or at least every quarter. The researchers believe that this results in “industrialising the process” and enables a very fast close with good quality data. The survey found that companies doing monthly balance sheet consolidation report, on average, 44 days after the year end and 20 days after the quarter end; for companies doing quarterly balance sheets, reporting times are significantly slower: 52 days and 26 days respectively.
One other important trend is that about half the companies have integrated their management reporting with their legal (ie, external) reporting, while a further 30% are planning to do so.
With such a high proportion chasing after excellence, the report authors said it was astonishing how many companies have still not managed to get their basics right
Методические рекомендации по управлению финансами компании