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Written by Sarah Warren
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Monday, 01 March 2010 14:19 |
Effective Financial Management
Part 1 - Make Financial Management an Entitywide Priority
According to a 1997 study performed by a major public accounting firm most CFOs in 1989 were spending 75 to 80 percent of their time on legal issues, essentially external reporting. Today, the
goal of many leading organizations is to spend about 20 percent of their time on legal issues and the remaining time performing strategic support activities, such as cost analysis or business performance analysis. Furthermore, a 1996 report by the Institute of Management Accountants found that over the previous 5 to 10 years, management accountants were increasingly being asked to supplement their traditional accounting role with more financial analysis and management consulting.
This series of posts discusses the goals, success factors, and practices associated with establishing world class financial practices.
Make Financial Management an Entitywide Priority
Practices
1. Build a foundation of control and accountability.
2. Provide clear strong executive leadership.
3. Use training to change the culture and engage line managers.
An organizational culture that has not fully recognized the value of good financial management (not even at its most basic level) as a means of ensuring accountability will suffer greatly. Making financial management a priority throughout involves changing the organizational culture.
Although, the views about how an organization can change its culture vary considerably, leadership has been identified as the most important factor in successfully making cultural changes. Top management must be totally committed in both words and actions to changing the culture, and this commitment must be sustained and demonstrated to staff.
Leading organizations made financial management improvement an entitywide priority by building a foundation of control and accountability that supports external reporting and performance management, providing clear strong executive leadership, and using training to change the organizational culture and engage line management.
Practice 1: Build a Foundation of Control and Accountability That Supports External Reporting and Performance Management
A solid foundation of control and accountability requires a system of checks and balances that provides reasonable assurance that the entity's transactions are appropriately recorded and reported, it's assets protected, it's established policies followed, and it's resources used economically and efficiently for the purposes intended.
To ensure that decision makers have useful, relevant, timely, and reliable information, leading finance organizations establish accountability goals that extend well beyond receiving an unqualified audit opinion. In addition, the internal controls at these organizations are designed to efficiently meet the control objectives necessary for performance measurement and management as well as external financial reporting.
Similarly, according to a 1998 survey of CFOs, finance organizations continue to expand their focus from audited financial statements to include performance measurement and strategic planning.
Strategies to Consider
To build a foundation of control and accountability, senior executives could:
- Leverage audit resources and the financial statement audit process to improve data reliability and increase accountability.
- Increase accountability by establishing goals for producing financial and performance reports for major programs and/or business segments and moving the organization toward more frequent financial reporting (e.g., quarterly, monthly).
- As part of the performance planning process, establish efficiency criteria that measure the cost associated with program outcomes and develop an approach for assessing and improving internal controls over finance-related efficiency measures.
- Use accounting and operational performance data to support budget formulation and strategic planning.
Practice 2: Provide Clear, Strong Executive Leadership
A powerful, visionary leader can change the direction, culture, and perceptions of the finance organization. The chief executive officers (CEO) of leading organizations understand the important
role the CFO and the finance department play in improving the entity's overall business performance. Consequently, the CFO is a central figure on the top management team and heavily involved in strategic planning and decision-making. In addition, the senior executives at these organizations should demonstrate their sustained commitment to finance-related improvement initiatives by using key business/line managers to drive improvement efforts, attend key meetings, ensure the necessary resources are made available, and create a system of rewards and incentives to recognize those who support improvement initiatives. In fact, the committed support of the CEO and line management are critical to the success of finance-related improvement initiatives.
Strategies to Consider
To demonstrate and reinforce commitment to improving financial management, Financial Directors and Senior Executives could:
- Form an executive management team to establish a vision, fundamental goals and provide support for each major financial management improvement project.
- Involve key program /business managers in driving financial improvement initiatives.
- Develop a plan to ensure that all key personnel visibly support financial management improvement initiatives.
- Actively market the program benefits of financial management improvement efforts to secure the necessary resources and support.
- Establish an expectation that top financial executives, as part of the top management team, provide forward looking analysis that creates a link between accounting information and budget formulation and contributes to strategic planning and decision-making.
Practice 3: Use Training to Change the Organizational Culture and Engage Line Management
Improving financial management hinges upon leadership's ability to manage change and create an organizational culture that values good financial management. The key to successfully managing change and changing organizational culture is gaining the support of line management. To change the organizational culture and enlist the support of line managers, many organizations utilize training programs. Some are generic in nature and are intended to help people anticipate and cope with change and ensure that every person in the organization understands the need for change. Others are specifically geared towards providing line managers with a greater appreciation of the financial implications of their business decisions. Through these interactions, financial managers gain a better understanding of business problems and non-financial managers gain an appreciation of the value of financial information. This not only produces better managers, it also helps break down functional barriers that can affect productivity and impede improvement efforts.
In addition, these organizations provide tools to facilitate and accelerate the pace of the change initiative. The opinions of some towards change initiatives are that if they are implemented slowly
they generally fail because staff have too much time to contemplate the potential negative effects that change might bring and rally opposition that ultimately undermines the effort.
Strategies to Consider
To engage line management and create a culture that values good financial management, Finance Directors and senior executives could:
- Identify key financial and non-financial managers and staff whose support is critical to the success of financial management improvement initiatives.
- Develop guidelines and provide training that teaches key non-financial managers and staff how to use financial information to improve operational planning and decision-making and how legislation will affect operating unit roles, responsibilities, and processes.
- For all key managers and staff, develop a framework and tools that can be used to facilitate and accelerate the pace of change initiatives.
The next blog post in this series will focus on the need to Redefine the Role of Finance To Better Support Strategic Objectives.
Information Edge - ProVe
At Information Edge we have been assisting companies across the globe with managing and meeting their financial management needs with ProVe, a purpose-built solution, designed by accountants for accountants. If you would like to find out more about ProVe please click here to view the brochure. If on reading it you are interested in knowing more please get in touch.
Sarah Warren
Marketing Manager
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
07771714093
Information Edge
Token House
11-12 Token House Yard
London, EC2R 7AS
0207 073 2715
www.informationedge.com
http://twitter.com/InformationEdge
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Written by Sarah Warren
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Thursday, 25 February 2010 16:27 |
Demands and pressures finance professionals face:
The impact of the recession
Firstly, we must consider the impact of the current recession on Finance Departments as budgets have been cut and managing cashflow has become an even more stringent activity.
Many companies turn to centralization of jobs or just plain cutbacks in bad economic times. What they don't realize is that the people left are taking on more responsibility and working longer hours.
Accountability
Accountability refers to the completeness, accuracy, timeliness and reliability of the information finance provides. Finance professionals are being held to higher levels accountability so it must therefore be clear who is responsible for what, who makes what decisions, who has been responsible for a certain action, what the action was and when it took place.
Growing expectations to provide access to quality 24-hour information
Providing business intelligence to management and the Board of Directors that goes beyond just basic financial statement reporting is a demand faced by most finance departments these days.
Alongside producing timely, quality and meaningful management information, expectations must also be managed.
The finance department plays a central role to an organisations success
Finance professionals are involved in the business as a whole and operate in the front line more so than ever before. This is particular true in small and medium sized companies.
Finance is leading strategic decision making
Finance professionals are now involved in strategic decisions alongside the CEO and participate in risk planning. Finance departments are expected to move away from transactional activities (like processing), so that more resource can be freed up to help strategically or analytically. The big challenges for the function are around making that transition.
Limited time and resources
Time (or more poignantly lack of it) is a big issue. Reporting requirements and close times have been reduced significantly in recent years at the same time resources have also been reduced.
Fast changing regulatory landscape
Staying on top of a changing regulatory environment can be all encompassing.
Office politics
Interdepartmental difference must be carefully managed - resolving disputes between departments in an unbiased manner.
How things are changing and can be different
The role of a finance professional, particularly in business, is changing in response to technological advances that have significantly reduced the amount of time it takes to produce financial reports. Those who have employed software can now perform more data analysis and use it to offer senior managers ideas on how to maximize profits. Technology has increased the efficiency of their firm's financial operations.
Information Edge - ProVe
At Information Edge we have been assisting companies across the globe with managing and meeting their consolidation, reporting and modelling needs with ProVe, a purpose-built solution, designed by accountants for accountants.
If you don’t want to invest hundreds of thousands or even millions into software but need an easy to implement solution that is more sophisticated and manageable than spreadsheets and addresses key financial activities like financial consolidation, reporting and modelling at a sensible price, then ProVe is the solution for you.
Download the ProVe brochure
If you would like to have an informal conversation with our Sales Director, Phil Canning, about how ProVe could make your life much easier for much less than you might think, please let us know.
Kind regards
Sarah Warren
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
07771714093
Marketing Manager
www.informationedge.com
http://twitter.com/InformationEdge
Information Edge
Token House
11-12 Token House Yard
London, EC2R 7AS
0207 073 2715
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Written by Sarah Warren
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Monday, 22 February 2010 16:26 |
Consolidation & reporting
Enterprises face disparate financial systems, complex ownership structures, multiple business units, cost centres and consolidation structures that make consolidating financial data a time consuming and resource-intensive process.
Inter-company reconciliation
Demands for swifter closes in the annual and monthly reporting cycles continue to grow. Compliance-related pressures and economic challenges will ensure this remains the case.
Workflow management
As Groups grow in size and complexity, the monthly and annual reporting processes become much more than a basic accounting exercise. The company needs to know where it is in the reporting cycle on a group-wide basis.
Changes in GAAP
Enterprises today are under constant pressure to speed up reporting under a variety of changing standards and formats. There is a constantly growing need to comply with and meet requirements such as GAAP and IFRS and the needs of Sarbanes Oxley and Basel II at the same time as making important financial information available to the business.
The ability to report on the same underlying set of validated financial data according to multiple reporting standards both rapidly and to a deep level of granularity is greatly important.
Mergers, acquisitions and restructuring
Mergers, acquisitions and divestures are just some of the strategies that organisations employ to grow and optimise their businesses. The effect of such changes must be managed and forecasted for.
Modelling capabilities
Modelling and data manipulation capabilities are crucial for taking the business forward and decision making. They allow you to answer such vital questions as:
- What effect will a change in the production schedule have on corporate cash flow?
- What will our projected borrowing requirements be over the next two years?
- What impact will a major capital investment have on company finances?
- How will exchange rate movements affect our profit profile from imports and exports?
Summary
Due to the complexity, breadth and depth of work and an increasing demand from stakeholders for quality and meaningful information there is a real need for software solutions to help parts of the finance function to optimally run.
Information Edge - ProVe
At Information Edge we have been assisting companies across the globe with managing and meeting their consolidation, reporting and modelling needs with ProVe, a purpose-built solution, designed by accountants for accountants.
If you don’t want to invest hundreds of thousands or even millions into software but need an easy to implement solution that is more sophisticated and manageable than spreadsheets and addresses key financial activities like financial consolidation, reporting and modelling at a sensible price, then ProVe is the solution for you.
Download the ProVe brochure
If you would like to have an informal conversation with our Sales Director, Phil Canning, about how ProVe could make your life much easier for much less than you might think, please let us know.
Kind regards
Sarah Warren
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
07771714093
Marketing Manager
www.informationedge.com
http://twitter.com/InformationEdge
Information Edge
Token House
11-12 Token House Yard
London, EC2R 7AS
0207 073 2715
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Written by Sarah Warren
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Thursday, 18 February 2010 16:13 |
Kevin Reed, Accountancy Age, 15 Feb 2010
Higher paid finance functions with more analytical focus outperform the rest, says PwC
Most of the UK's top businesses are unhappy with the level of management information they receive from the finance function.
A survey by PwC of more than 100 of the top 200 FTSE companies found that 63% regard the finance function as playing a lead role in the strategic planning process, yet 80% said they were dissatisfied by the quality and meaningfulness of the information they receive from finance.
As operating models and competitive challenges continue to evolve, the findings from the study clearly show that both CEOs and finance professionals have some significant hurdles to overcome before the finance function truly becomes the effective strategic partner the business requires," said Nick Jarman, partner in the finance effectiveness consulting practice.
More than 65% of the most effective finance functions had established shared service centres or had consolidated transaction processing.
Finance staff were higher paid and more resource was invested in analytical activities in the best-performing companies. |
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Written by Sarah Warren
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Thursday, 18 February 2010 14:37 |
Making the transition from Excel to a Software Solution for the management of your Financial Consolidation, Management Reporting and Modelling activities
Is it all down to size?
Excel is the tool of choice for smaller organisations because it’s inexpensive (you probably already have it!) and it’s easy to use (you've used it for years!). In fact, the universally-known Excel user interface makes consolidation work easy to implement. It also offers the user-friendly data manipulation tools like sorting, filtering, and pivot tables.
So, if you are a small organization, with relatively few entities and a stable consolidation structure, then Excel is fine. However, as an enterprise becomes larger, you may find that it becomes challenging to maintain and update the spreadsheets associated with an Excel approach. For example, adding an entity might require many formula changes in the consolidation spreadsheet.
If, you are struggling with any of the following process inefficiencies surrounding the use of spreadsheets then it may be time to consider a more structured solution:
- inability to store and query large volumes of data
- lack of detailed sorting and querying abilities
- inability to efficiently identify data errors
- having to re-copy data over and over again to maintain it in separate data files
- absence of a workflow engine to manage the intricacies of budget distribution submissions and approvals using Excel workbooks.
- sharing violations among users wishing to view or change data at the same time
- restricted to a finite number of records, and can require a large amount of hard-drive space for data storage
- duplication of data
- easy to corrupt data as historical data is not secure, so a slip-up can change reports and formulas can quickly become very complex, so formula changes may have adverse (and difficult to discover) consequences.
- spreadsheets create versions as a date and time compared to real time information management in a software solution
- no audit trail as unable to determine what information has been changed and by which user
Larger enterprises require the power, capabilities, and analytical features associated with more sophisticated solutions. They also require features like currency translation, drill-down capabilities, and flexibility with regard to data uploads, all of which are standard elements within software solutions.
Information Edge - ProVe
At Information Edge we have been assisting companies across the globe with managing and meeting their consolidation, reporting and modelling needs with ProVe, a purpose-built solution, designed by accountants for accountants.
If you don’t want to invest hundreds of thousands or even millions into software but need an easy to implement solution that is more sophisticated and manageable than spreadsheets and addresses key financial activities like financial consolidation, reporting and modelling at a sensible price, then ProVe is the solution for you.
Download the ProVe brochure
If you would like to have an informal conversation with our Sales Director, Phil Canning, about how ProVe could make your life much easier for much less than you might think, please let us know.
Kind regards
Sarah Warren
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
07771714093
Marketing Manager
www.informationedge.com
http://twitter.com/InformationEdge
Information Edge
Token House
11-12 Token House Yard
London, EC2R 7AS
0207 073 2715
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