The 3 pillars of the consolidation process

What could be a consolidation manager’s worst nightmare?

Of course, being late for publication, or having to make last-minute plugs (not controlled journals) to restore consistency in the figures.

Most consolidation managers are sensitive to the leverages that could reduce risk, increase quality, and improve closing delays. But in general, few risk a global approach, and generally try to correct problems at the margin, without necessarily trying to correct the underlying issues.

However, the approach is simple (and doesn’t take much more time), and resides in the consideration of three pillars:

• Automation of recurring tasks: to reduce the risk of errors, save time on other tasks, and gain efficiency,
• Decentralization of operations: to make subsidiaries more responsible, help them in their reporting, and (in)train them to have quality information,
• Flow auditability: keep the link with the accounting data, facilitate analysis and understand its data,

These three pillars are intertwined and inseparable. To separate them is to carry out more expensive projects, and may cancel all the expected benefits (ROI, closing delays, …).

The automation of tasks must obviously concern recurring tasks.

But these same recurring tasks may very well concern tasks managed centrally, as well as tasks managed in subsidiaries.

In a non-exhaustive way, we can mention the following HQ tasks:

• Exchange rate feedback, automatically from public sources (e.g. ECB)
• Copy consolidation groups,
• Automation of maintenance tasks on controls and cashflow (automating the link between calculation, synthesis and explanation, controls / cashflow that can be complex to maintain, and complex to explain),
• Production of standard reports,
• Production of consolidation progress reports,

Tasks in subsidiaries can be:

• Upload of accounting balances,
• Copy flows from the previous period,
• Notifications of deadlines and percentage of completion,

Automation makes it possible to:

• Reduce process inertia, increase efficiency: provided flows must be appropriated by the end users,
• Improve auditability: ensure that the information transformation chains is not broken,
• Reduce the risk of errors: provided that qualitative criteria are determined,

On the automation of balance upload from accounting systems, should not be manual:

• inconvenient of having manual upload: think of the disadvantages of not covering these last miles in terms of auditability, risk, inertia, …

• this step is rarely the most complicated is often left aside, introducing manual extraction and loading tasks,

When it comes to automating HQ tasks, the ROI is not always easy to demonstrate, because the associated risks are forgotten:

• What is the risk of a mistake when entering exchange rates?
• What time is lost if a control has to be updated at the last moment?
• How much time is spent cross-checking critical information ?

Automation of tasks is not always possible. Some actions remain manual. The good execution of a process remains mainly in the limitation of the exchange and intermediate. Indeed, it is better to avoid manual consolidation processes where the information passes through one or more intermediaries before arriving in the final system. This type of practice should be avoided by taking care to:

• Ensuring that the end users understand what is being requested,
• Present information and input states in an intelligible manner (ergonomics), to facilitate handling,
• Train users for simple tasks,

Decentralization must also make it possible:

• To deploy more efficient solutions in subsidiaries,
• Gain auditability, by monitoring the progress of your subsidiaries, and using the statistics collected, to enter into a virtuous circle of continuous improvement (by correcting the most problematic points),

The success factors of decentralization lie in three areas:

• Investing in a comprehensible and structured application (e.g. with a workflow to visualise controls and a (numerical) explanation of calculated deviations, a reporting structure that follows the main communicated deadlines, validation and notification systems to remind people of the deadlines and the elements to be filled in),
• Support these process changes with a training plan for subsidiaries (initial and recurrent training), on best practices and the use of tools and controls,
• Measuring the performance of your subsidiaries throughout the closing process with a view to continuous improvement (for example by measuring the controls that take the longest time to be resolved, by helping the subsidiaries that close the latest, …): all these tasks must be plannable, controllable and auditable, and all the tools allow this type of reporting (but rarely performed),

The last pillar concerns the auditability of information.

Auditability makes it possible to:

• Control the efficiency of flows and subsidiaries,
• Give confidence and credit to the numbers that have come up,
• Enable analysis,

In the case of automation, auditability should be guarantee by never brooken the chain between source and target data:

• By avoiding manual actions (file modification, manual extraction / uppload, …)
• By avoiding that the tools “break” this link (by recording for example only the result of a flow, without recording the transition between the source and the target),

For decentralized tasks, a point of attention must be brought on:

• Traceability of manual actions: date of data modification, login and tasks in systems, …
• Historical KPI’s linked to the closing process, to continuously improve the process by focusing on bottlenecks, misunderstandings, …

This step should not be neglected, and small efforts can in most cases address this problem.

For example, the transfer of accounting balances in a fully automated end-to-end flow does not require special access in each ERP (to be able to transfer an accounting balance to a set of invoices for example). Nevertheless, the simple fact of including in the extractions the accounting document number (in detail of the balance) can allow the retrieval of auditable information (or even automated afterwards, by developing a query capable of querying the document in parallel). Performance issues can be taken into account but can be circumvented by implementing datamarts.

The ROI of such a project is done by evaluating the costs and benefits.

For task automation, the implementation costs incurred by automation depend on:

• The heterogeneity of the upstream systems (number of interfaces to be realized),
• The complexity of the tasks,
• The maintenance (and maintainability) of these interfaces,

The associated gains are evaluated over (generally taken over a period of 3 years, the period of amortization of the investment):

• The time saved on the execution of the tasks,
• The cost of the associated risk (in the absence of a project) which can be assessed by taking the costs of controls/audit in the absence of automation,

For the decentralization of tasks, the costs are to be assessed accordingly:

• The acquisition of licenses (for tools) can be taken into account. In this case, the cost of acquiring additional licenses must be in line with the frequency of use of the tool by these users,
• The cost of training (taking into account the number of users, the frequency of training, possibly the turnover of your staff),

… and gains can be calculated by taking:

• directly the cumulative time gains expected on the closing process,
• gains associated with cross-checking information (whether or not they are realized),

                                              

Finally for auditability, the costs concern the implementation of the tools/interfaces, and the gains are often synergies with the first two pillars:

• Gain in analysis time (to be measured by an average of users on the target system),
• Gain in controls / round trips with subsidiaries for understanding errors,

You can download our ROI evaluation template with our attached excel template (free access).

 

To conclude, the nesting and interweaving of the three pillars is inherent in the financial and closing processes.

Evaluating and taking these three pillars into account upstream of your project guarantees results and enables you to be part of a sustainable and flexible reporting solution.