Only two out of five companies manage to complete the quarterly close within one week, giving companies that are more agile in their closing processes a significant advantage. A simple equation that integrates multiple variants can assess how specific initiatives will affect speed, efficiency, and accuracy in closing.
Timely, accurate financials are crucial to compliance and competitiveness, yet a recent benchmarking survey conducted by Genpact with CFO Research revealed that only two out of five responding companies complete the quarterly general ledger close within one week—a significant differentiator for enterprises that are more agile and effective in closing. A faster close means financial numbers get reported and analyzed more quickly. Some world-class companies take only four days from the close of a period to final reporting, providing more time for thoughtful analysis that drives informed decisions.
Until now, accurate assessment of how improvement initiatives have or will affect outcomes has been difficult. Most companies leverage benchmarks to evaluate improvements, but benchmarks, as they are most commonly used, may not provide the full story. Substantially greater process effectiveness—with consequent efficiency gains and lower costs—can be obtained using a simple equation that integrates multiple variants, such as process and technology, to optimize the financial close.
Beyond benchmarking: Getting the “big picture”
Traditional means of benchmarking performance in the close process usually focus on tracking metrics such as “time to close” or the “percentage of manual journals” during the close. Most companies do not analyze the dependencies that drive successful close processes, yet successful transformation of closing activities requires a thorough understanding of the end-to-end process and a holistic approach to remediation. Complex charts of accounts, limited automation, and inadequate peak workload balancing can all contribute to slow closing cycles, unreliable numbers, and higher costs.
Businesses can eliminate the uncertainties of traditional benchmarking by directly linking key performance drivers to the three critical dimensions of any close optimization project: speed, efficiency, and accuracy. The straightforward linear equation described ahead measures the effect of various tools and process improvements to understand dependencies and how each technology investment or improvement effort affects the success of the overall close optimization project.
At last, a simple means of evaluating intervention vs. benefits
The financial close optimization equation shown here expresses each parameter (speed, efficiency, and reliability) as a function of a, b, and c, with the sum of the related initiative ranging from 1 to the nth count. Here, n epresents interventions, such as suggested changes and best practices.
Reduction in close cycle time
A short, effective closing process gives management the ability to move ahead of the competition using more accurate and timely financial information to make better and quicker decisions. The joint benefits of implementing initiatives such as a1 through a6 can significantly reduce close cycle times.
Efficiency in the close process
Most finance organizations work overtime during the close, a process characterized by manual- intensive activities that tend to be inefficient and error prone. In trying to correct this, many companies fall into the technology trap, investing heavily to deploy digital technologies without implementing more effective processes and governance structures to make them work. This trap can be avoided by adopting a Lean DigitalSM approach that combines design thinking methods with Lean principles and digital technologies to create intelligent reporting operations. In many cases, focused technology tweaks can also benefit a company’s closing process. Such focused improvements include b1, b2, and b3, as well as optimizing existing ERPs with functionalities such as b4, b5, and b6.
Enhanced reliability of financial statements
Efficiencies cannot be achieved at the expense of accuracy. Seventy-two percent of respondents to the CFO survey answered no when asked, “Do you completely trust your reported number?” The financial close process has immense power to create a domino effect resulting from a minute miss or error. Close optimization therefore goes beyond efficiency or cost reduction; the ultimate objective is risk mitigation and accuracy of financials. Implementing measures such as c1 through c6 can significantly enhance the reliability of financial numbers.
This simple linear equation is a powerful tool for finance executives looking to understand exactly what to change to optimize closing processes. As an analytical exercise, it clearly demonstrates how to integrate multiple variants, including the traditional dimensions of process, policy, and technology, with the operating model and controls to effectively and reliably run the financial close process.
The impact is substantial and measurable:
- A leading publisher reduced the general ledger close from five working days to two through process standardization, automation, and the right service placement.
- The publishing arm of a global conglomerate reduced the close cycle period from 10 working days to five and reduced close efforts by 20% through streamlining the period-end closing and reporting process and optimizing the use of existing tools and technology.
One initiative, multiple benefits
Delayed reports and unexplained numbers reduce competitiveness and erode stakeholder confidence. Additionally, with the pressure on CFOs to reduce costs anywhere and everywhere, close optimization is a logical strategy for achieving multiple goals with one project. Greater effectiveness in the close process is always accompanied by the release of additional capacity, which frees staff to focus on core analysis and interpreting the data rather than transactional activities. This in turn reduces overall finance costs while ensuring the accuracy of the financial statement and enhancing compliance. The benefits derived from an end-to-end multivariant approach for holistically transforming closing activities—speed, efficiency, and accuracy—can be clearly delineated via one equation. That’s good news for every CFO looking to cut costs while increasing finance’s effectiveness in serving stakeholders.
This paper was authored by Vivek Saxena, Vice President, Record to Report and Accounts Payable.
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