Within finance, controls often refer to topics like roles & responsibilities, segregation of duties, staff training, documentation of standards etc. However, this article focusses on control within FP&A and how an effective corporate performance management (CPM) tool can help provide finance leaders with the control they need to be confident in their decision-making.
To be confident in the reports they present, planning processes they run, and the decisions made on the back of these, finance leaders need a few fundamental pre-requisites:
- Accuracy – to know where the data comes from, what calculations have been run and be able to trust that these are accurate
- Strategic alignment – confidence that the analysis provided is aligned with strategically important factors for the business and answers key business questions
- Visibility – having visibility on progress at their fingertips (e.g. how far through the budget or reporting cycle are you and when will you finish)
- Continuity & consistency – knowledge that the reports and processes are going to be completed as anticipated and provide the information that is expected
All of these enable finance leaders to demonstrate control to the stakeholders they interact with (both internally and externally), and confidently support effective decisions. These asks appear straightforward, but most finance teams continue to struggle with achieving them, with the frequent impact being discussions centring on ‘is this number correct?’ rather spending the time deciding what action to take.
Microsoft Excel, and increasingly Google Sheets, are ubiquitous across Finance. Finance teams know how to use them, they’re extremely flexible and almost any finance process can be run using them. However, this does not mean they should always be used. With their flexibility, errors and inefficiency are almost inevitable – 58% of midsize and large companies still use spreadsheets (this is down from just under 80% in 2003) to manage their planning and budgeting processes, and yet, 41% of Excel users say spreadsheets cannot handle their data volumes. Research also shows that 88% of Excel files contain errors. Ultimately, it is very difficult for any large-scale planning or reporting process run using Excel to deliver the trust in accuracy that CFOs and Heads of FP&A crave. This is not news to anyone, yet finance teams are so comfortable with these platforms that moving to more robust but restrictive alternatives is often met with opposition. This article by IFS on the importance of financial control highlights the benefits of saying no to Excel, it is focussed on the construction industry but the message applies to finance across industries.
The ease of use of data discovery platforms has seen their adoption expand rapidly over the last 10 years. These tools are extremely powerful, however they are typically utilised bottom up and not top down. This puts the responsibility on the user to both have a good enough understanding of the data they are using to ensure they are presenting the right information, as well as the knowledge of reporting best practice to present the information in the most effective format to enable management or executive decision making. You would expect these skills to be present within Finance teams, but not necessarily at more junior levels or broadly across other areas of the business. Additionally, where what is presented is left in the hands of someone with a personal vested interest, there is going to be a tendency to present the information they want rather than what the business needs – for example a sales manager wanting to put a positive spin on a forecast following a poor month. This can lead to decision makers being provided analysis which presents them with the wrong answer.
Budgeting, forecasting, and reporting processes are widely managed through a combination of Email, Excel (again) and PowerPoint. These are manual and directly take time away from running the process themselves. Additionally, they are often out of date or live hidden on one person’s machine – if you want to know what is outstanding, you need to go to them. This regularly leads to a lack of visibility and transparency over how processes are progressing.
Continuity and consistency in finance processes are generally less of an issue than the other areas discussed, however one aspect of this which is regularly seen is a key person dependency – everything can work seamlessly when they are available, but if that person is unavailable at short notice an essential finance whole process can rapidly fall apart as the knowledge isn’t shared across the team.
Corporate performance management platforms are specifically aimed at solving these challenges for finance teams, providing:
- One version of the truth – bringing multiple data sources into an application and being the one source of reporting helps ensure businesses are using the correct data
- Automation – as well as drastically increasing efficiency, removing manual tasks helps to ensure the risk of errors creeping in is minimised
- Codification and standardisation of calculations – this helps to alleviate the risk of an incorrect calculation or an accidentally hard-coded number fundamentally altering the key messages
- Governance – provides greater data security and control over processes
- Removal of key person dependency – robust automated processes are not dependent on manual intervention and remove the risk of being overly reliant on any single person
- Workflow – good CPM platforms provide integrated workflow which provides automatic and live status updates on the progress of budgeting and reporting processes, whenever needed
- Reporting best practice – finance managers should help design the analysis to be reported, ensuring a strategic focus. Additionally, the best CPM platforms have best practice recommendations built in.
If these options are available, why are CPM platforms not used more prevalently?
One of the primary reasons CPM platforms are not more widespread is that the investment case is not always easy to articulate, especially when competing with investments in the core operations of the business. While the efficiency gains can be clearly expressed where manual effort is removed, it is much harder to put a monetary value on ensuring the numbers in your reports are correct or the impact of improved decision-making. There are countless examples of costly mistakes linked to Excel spreadsheets, such as the contribution to JPMorgan’s $6bn London Whale scandal, which should give any CFO dependent on the platform pause for thought. Additionally, there are examples of FP&A teams helping to drive the success of a business where they have the bandwidth to contribute to innovation, such as the origin of Amazon prime. This helps to highlight how important it is to articulate how improved FP&A processes can really improve the operation of a business in terms confidence and effectiveness of decision-making both at an executive level and through finance business partnering at a more micro level.
As data volumes continue to grow at record pace and the expectations around turnarounds for reporting periods continues to shrink, the strain on FP&A teams will only increase and it will become increasingly important to ensure they have the right technology in place to support them.
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