Whilst Financial Close & Consolidate and Budgeting, Planning & Forecasting are key processes, they are the building blocks to the value add process of Financial Analysis, Reporting & Disclosure. The whole point of performing budgets is to set action plans and monitor progress against these plans. This is done through analysing actual performance against what we planned and understand the causation of differences. This adds real value to the organisation.
All organisations of any note perform reporting. However, each organisation will do this differently. I have experience of organisations that perform this process very well but at a high cost (more of this later), others who do not perform so well. Sometimes this is driven by the tools available, sometimes by historic continuance (“we have always done it this way”).
When I was working in industry, the Reporting process was where I realised the finance team could make a difference and get noticed within the organisation. Identifying where we were making a loss, recommending actions to improve performance. This is what the organisation looks for; a finance team who can add insight and value not just present numbers.
What are the key issues?
There are a number of key issues you need to consider:
- Data Consistency – One Version of the Truth
The first (and most important) is data consistency. Too many hours have been lost in senior management meetings arguing about data differences. This is unacceptable as it wastes valuable time. The answer is to have ‘one version of the truth’ that is the bible for the organisation. This does not have to be a single data set (although this is recommended), it could be one reporting tool (pointing at various databases). The point is, the data needs to be consistent (e.g. if revenue in the P&L = £1,000, any analysis by product/customer = £1,000). This does not just happen, this takes time and a level of data governance. A major part of any project is understanding the causes of inconsistencies and data cleansing. This task should not be under-estimated and is essential to success. Management can play a large part in this by dictating that all reports are sourced through the designated ‘one version of the truth’ – no other reports are acceptable. - Data Accessibility – One Version of the Truth
The data that you need on a day-to-day basis needs to be available at your fingertips without the requiring others to provide it to you. This includes actuals, budgets and forecasts. As well as being consistent, it also needs to be at the correct level of granularity to perform analysis i.e. actuals and budgets need to be aligned (see comments below). - Realise that data alone is not the answer
I have seen organisations that produce period end report packs which contain pages of numbers with no narrative. To me, this is missing the point completely and does the finance team a complete disservice. Our objective should be to tell a story and add value, not just provide data for others to interpret. This is the value add service, showing thought leadership.
What then?
Once the data consistency and accessibility is sorted (read more about this in my other posts, here and here), then you hopefully have the time to perform analysis, add value to the data and report to the organisation.
Again, the are efficiencies to be achieved in this final process, especially what we call ‘report assembly’, putting together data and narrative in report books and presentations. For many this is still a manual ‘cut and paste’ process into Word and PowerPoint that requires intervention as underlying data changes.
Having the right tools
This is where technology acts as a great enabler. The technology should (ideally) enable:
- Analysis of data – being able to ‘slice and dice’ data and drill to transaction level
- Automatic report assembly – create report packs in Word that update automatically against underlying data (reducing risk of error)
- Automatic presentation assembly – create report packs in PowerPoint that update automatically against underlying data (reducing risk of error)
- Excel interoperability – leveraging on skills that the finance team already have
- Control and security – over reports and report content
- Full end to end auditability – all of data and data changes
Any process should also include the capability for self-serve, however this is defined within the organisation. For some this is the ability to change report parameters (and an element of control is maintained), for others this is complete carte blance to access data and build reports. My personal preference is for the former rather than the latter – that’s the accountant in me!
Other considerations…
If you have both the time and tools, you are in a great position to start adding more and more insight and value to the organisation. Where can you go beyond this?
One of the areas for consideration is the granularity that data is held within your reporting solution. In order to perform variance analysis effectively (within one solution), you require both the budget and actual data at the same granularity level. During the development of the core processes, and as discussed in an earlier blog, a best-in-class budgeting process is driver based e.g. personnel costs at a staff level.
However, how many organisations then import actuals at this level rather than just one value? The result, you need to go outside the solution to perform variance analysis. Not only is this inefficient, it breaks the ‘one version of the truth’ principle. To achieve this you will require a technology that can hold data at a transaction level.
The final thought for me is around audit trail. Whatever we do within an organisation in terms of data we need an audit trail, showing how numbers are sourced, modified and adjusted, whether this be actuals or budgets. If we have this, we have accountability and responsibility, the cornerstones of success in any organisation.
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