Three Ways Accounting Can Use Process Analytics For Financial Close Improvement

Elizabeth Milne

Part 11 in the “Continuous Accounting Action Plan” series

You may have heard of “agile development.” It’s one of the biggest process changes to happen to product development organizations in decades. Don’t worry, you’re not reading the wrong article – this is still about finance and accounting.

Before they used an agile approach to developing new products, engineering teams worked on multi-month, or even multi-year projects with very little transparency into what was happening or how things were progressing. Projects were essentially a black box from start to finish. With lack of continuous visibility and granularity, it was challenging for product teams to continually improve their velocity with each subsequent product release.

Agile methodology changed all of that. Instead of multi-month opacity, each individual feature within a product release is now measured in terms of how long and how much effort it took and whether the estimates were accurate. At a granular level, or rolled up, the data provides an opportunity to shine a light on the health of the process itself and opportunities to improve.

In terms of process improvement, at the end of each “sprint” cycle (essentially a project milestone within the larger project), the teams huddle and perform a retrospective. They’ll use the metrics from the process to ask the questions “What did we do well?” and “What should have we done better?” They’ll even review a burndown chart that shows how the team tackled the workload over the course of the sprint.

How can we apply this type of methodology to finance and accounting?

A retrospective on the financial close process itself

Fundamentally, all of this comes down to a general business move to less “big bang” and more “real-time and incremental.” Whether you’re in finance, accounting, or product development, the latter is less risky, uses resources better, and typically produces better results. This could include speedier product releases for product teams, faster monthly close cycles, more accurate plans for accounting and finance, or more transparency into the process itself.

The agile development methodology is very similar to continuous accounting. Each must have its own “retrospectives” to examine the process, understand what has succeeded, and determine what requires improvement. Note, this isn’t a one-off retrospective – it’s something that ideally should be conducted quarterly. Think of it as a quarterly operations review for finance.

Tracking top-level metrics period after period can provide a coarse-grained perspective on potential issues in the close. But drilling down, there are operational metrics that aren’t just about efficiency; they also encompass accuracy and risk. Drilling down further into the process, each activity can be measured, e.g., how long it takes for approvals, bottlenecks, and dependencies.

You’ll also want to track how measures change over time to ensure that process changes are working as planned. Benchmarking can provide a useful comparison to understand areas where there is room to improve or places where efficiencies have been mostly realized or tapped out.

Now, if you’re thinking that’s a lot of data, you’re right. It’s one of the reasons process improvement measures fail, because getting the data is nearly impossible when the accounting team is using manual checklists, email-based approvals, and spreadsheets. But just as with agile development, this data is vital in continuous improvement initiatives to identify where the process is healthy or has room to improve.

Keys to implementing financial-close process improvement

  • Moving to continuous accounting and planning is practically impossible with spreadsheets and emails. Continuous improvement is required. If metrics are too hard to gather or are too high level, then the continuous improvement initiative will likely stall. Centralization, standardization, and automation are all key.
  • While software is never the only answer, financial close checklists, approval workflows, and reconciliation tools not only help streamline the processes, they typically provide analytics on the process, too. So essentially, by implementing this class of accounting tools discussed throughout this blog series, you get better process visibility “for free.” It also creates the ideal feedback loop to go from seeing an issue to taking corrective action.
  • Finally, creating a recurring “retrospective” review process is critical to identify the issues and create a plan to act. However, the truth is that if you have not ensured strong data collection around process metrics (time, accuracy, approval cycles, etc.), then each review cycle will likely create more workload with just the data gathering of it all. Closing checklist, consolidation, planning, and reconciliation software, combined with the right people and processes, typically create the process metrics automatically. With their own built-in reporting and without subjectivity, they enable the meeting to focus on what matters: the process and results.

The agile process way of doing things has come to finance and accounting – and the key to working smarter is measuring and analyzing how the team is working and how they can work better together. Done right, it’s the foundation to cut out the kinks, peaks, and troughs in the financial close. From Peter Drucker: “What gets measured gets managed.” Join us for our next post, where we’ll round up the highlights from our continuous accounting action plan series.

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Elizabeth Milne

About Elizabeth Milne

Elizabeth Milne has over 20 years of experience improving the software solutions for multinational, multi-billion dollar organizations. Her finance career began working at Walt Disney, then Warner Bros. in the areas of financial consolidation, budgeting, and financial reporting. She subsequently moved to the software industry and has held positions including implementation consultant and manager, account executive, presales consultant, solution management team at SAP, Business Objects, and Cartesis. She graduated with an Executive MBA from Northwestern University’s Kellogg Graduate School of Management. In 2014 she published her first book “Accelerated Financial Closing with SAP.” She currently manages the accounting and financial close portfolio for SAP Product Marketing. You can follow her on twitter @ElizabethEMilne