Rolling out finance automation with the right priorities
Editor’s note: This is the second article of a three-part series on finance transformation. The first article covered strategies to kick-start a finance transformation. Sign up for the CGMA Advantage newsletter to receive updates on this series.
In moving traditional finance and accounting (F&A) departments towards finance business partnering, automation becomes a key criterion. Without freeing up employee hours from routine tasks, F&A would be “trapped” producing routine reports most of the time and reporting historical numbers. Automating routine tasks frees up capacity for F&A departments to redeploy and invest time in transformative projects.
Here I describe four suggestions when phasing in automation to help increase capacity for finance business partnering activities.
1. Start with an inside-out approach
There are two main ways of approaching this process. I call them inside-out and outside-in.
Inside-out means understanding the pain points faced by an F&A team and collecting user requirements from existing reports prepared by users. Outside-in means examining state-of-the-art automation software in the market and then considering how it could be deployed internally.
In a previous project, I started taking an outside-in approach and soon realised it did not work for me because I could not “sell” the major functionality of software that does not address the F&A team’s pain points. I quickly backtracked to take an inside-out approach by collecting user requirements first. Each F&A team member was asked to list the reports they were preparing, how they were preparing them, the reports’ frequency, and the employee hours spent preparing them.
Knowing the time spent preparing these reports and their frequency enabled us to prioritise which reports to automate first and compare to functionalities of software in the market. This exercise also enabled me to propose reports that may have become irrelevant or reports servicing similar objectives that could be removed.
For example, a report on cash in the bank by currency is routinely prepared for group consolidation purposes. But the content in this report is almost identical to a report on hedging by currency prepared for group treasury. With small changes, these two reports could be combined in a report that served the purposes of both group consolidation and group treasury.
It’s important that goal-setting targets are determined upfront by using a “costs versus benefits” argument to persuade the F&A team. Having examined many state-of-the-art organisations that had gone through finance transformation through automation and digitalisation, I knew most were closing their month-end books within two to four working days. I realised emphasising these efficiencies was the “sweetener” I needed to share with the F&A team.
2. Focus on high-value reports to shorten month-end closing timeline
The process of collecting internal user requirements is also an opportunity to understand the key business activities surrounding high-value reports. High-value reports are those that require significant employee hours and are produced in high frequency, such as daily sales collection from customers. By identifying these reports, you can prioritise automation for these processes to increase efficiency.
I’ve seen three main areas of inefficiency over the years, and here are some suggested ways to improve the situation:
Inadequate data fields. Operations do not provide adequate data fields for F&A to capture the transaction directly into the enterprise resource planning (ERP) software to the general ledger (GL). This means much of the data field preparation is performed separately using spreadsheets by the operations department before data can be uploaded into ERP and captured into GL.
This could be the case because the operations department isn’t aware that the F&A team required a product mix breakdown in a certain data coding format. If this problem of inadequate data fields is identified, F&A can work closely with the operations department to create more useful data fields and link operations’ activities from the data source to the GL directly.
Missed deadlines and process improvements. In many large organisations, operations tend to work in silos. Many existing operational business processes could have been set up many years ago, and most of them could require process improvements before automation can be executed. Such business process improvements are usually uncovered during automation projects.
In a finance transformation project I was involved in, operations usually provided critical month-end closing data to F&A ten working days after each month-end closing. Operations couldn’t provide the data to F&A earlier because the department needed the time to check the data before releasing it. We also found that operations departments weren’t aware of the deadlines that the F&A teams faced. Timely information would enable F&A to shorten preparation time and speed up month-end reporting.
This issue was identified during a business process improvement that was part of an automation project. We proposed a solution to have F&A speak to the operations department to agree on an appropriate timeline that would shorten the month-end closing. With this target set, we studied how to perform business process improvement and automate the manual process of data collection and data input.
Insufficient account codes. F&A did not create sufficient account codes in its GL to store this data. As a result, many of the numbers were aggregated into one account code when transferred from the ERP system into GL. This also resulted in F&A having to re-create spreadsheets after GL data was captured in order to provide analysis. There was an opportunity to create more data fields from the ERP source to the GL, minimising or eliminating “off system” spreadsheets created along the way.
3. Strategic mapping
Next, constructing a strategic bird’s-eye view of the project from beginning to end is crucial. This big-picture view would typically include where we are now, where we want to head towards, and how to get there. This is a critical success factor for automation journeys. Failure to create a bird’s-eye view will only lead to complications down the road.
For instance, a fellow management accountant once shared that his organisation’s digital transformation failed because it did piecemeal implementation and did not map out the project from beginning to end. His team planned and implemented one module and then planned and implemented the next module. Later in the project, they had to backtrack to standardise the organisation’s chart of accounts in order to automate business processes from beginning to end. They found it extremely challenging, as all management accounting reports and the reports used to consolidate the group’s financial statements were written and business processes were modified to suit those reports. This became a disastrous issue and affected the success of their digitalisation journey.
4. Look at key functionality, price, and support when choosing automation tools
To select the appropriate software tools for a transformation project, meet with the vendors and get the information you need. In my case, I compared vendors’ offerings using criteria such as purchase price and key software functionality.
When you’re assessing software’s key functionality, focus on how easily users can operate the functions and write their own analysis reports without using the IT department’s resources. The general trend today is to allow users to write their own reports instead of relying on limited IT resources. Having this functionality will also mean that IT can focus on other software improvement projects.
It’s also vital to look at service support, such as how often the software is upgraded and how it is maintained. Other considerations include whether technical support is easily available and if the vendor has a stronger brand reputation compared to its competitors.
The return-on-investment computation can be obtained by comparing the above criteria versus employee-hour savings when the software is deployed.
Many think that once they purchase new software, the digital transformation will be successful. But the reality is, for any software implementation to be successful, it needs to be properly set up by considering business process changes and creating necessary data fields from beginning to end. This should start with knowing which report you want to generate using automation.
These four approaches helped tremendously in a finance transformation project I was part of. The F&A team successfully reduced their routine workload by 30% to 40%, and month-end reporting was accomplished within four working days. But this is not where finance transformation ends. The goal is for finance to play a bigger role as business partners.
In my next and final article on finance transformation, I will share strategies to build up business partnering skills in F&A teams.
— C.F. Wong, ACMA, CGMA, is a member of the North Asia regional advisory panel for The Chartered Institute of Management Accountants, and a principal–Greater China at the CFO Centre in Hong Kong. Previously, he led the digital transformation of a multinational manufacturer listed in Singapore and Hong Kong, involving 70 entities globally. He has more than 20 years of experience in finance, including strategic finance business partnering and mergers and acquisitions. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at AlexisSeeTho@aicpa-cima.com.