Renovating the Entity Close Process

Identifying the Problem

Given the nature of the process, it can be a challenge to definitively prove that the entity close process is broken to the more stubborn members of the company. Luckily, Deloitte teamed up with SAP to define five ways to tell when the process is broken:

• Lack of a definitive close process – is there a documented way that the close process is executed, or is it based mostly off of institutional memory? Do those in charge of the process “just know how to get things done?”
• Minimal or lack of automation – is the process executed entirely or almost entirely by hand? Automation lends levels of efficiency, transparency and speed that simply cannot be matched by manual computation. This is especially true if tasks are often delayed if team members are out sick or on vacation, or if there is continual delay on mundane tasks because of competing priorities.
  • No real-time data – are you frequently scrambling at the end of a month or other period because of surprises? This problem is not uncommon, and can spark chaos in organizations on a recurring basis. By employing automation in a real-time environment, this stressor can be avoided entirely.
• Poor integration with rest of financial department functions – is the process out of sync with the rest of the financial departments’ functionality? All efforts for a proper financial close can be lost if the organization does not ensure integrated planning.
• Manual creation of reports – do you have documents which are repeatedly copied, with new data being dropped in? Because of the lack of documentation around who changed what, when, these types of reports can cause a host of issues.

As Bill Gates so eloquently put it, “the first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”

Given the truth of the above statement, I’d like to walk you through the process of streamlining your entity close:

Step 1: Plan of Attack

The first step to improving a large – and likely entrenched – process is to first assess what is already in place, and design a template for each process by month, quarter and annual. Compare each process and evaluate what works and what doesn’t, as well as what kind of works and would be easily improved. Best case would also be to move to a more real-time environment to optimize closing process efficiency

An important piece of this step is seeing what activities can easily be automated, and which activities can be automated with minor augmentation. Use these to help determine which automation software is right for your team, and you’ll be able to make large improvements with minimal effort. Also processes that only indirectly affect the closing process (e.g. procure-to-pay) can optimally be automated, best even in a business network. Modern finance departments use integrated predictive technology) to “forecast” period-end balances or closing process inefficiencies.

Not sure where to start? Take a look at these documents:

• Process flows such as dependencies between programs and systems jobs
• Balance sheet reporting (this can usually be easily automated)
• Notes to document instructions for manual tasks outside of any system or done away from a computer
• Anything that is done as a batch process
• Anything that is waiting for data dumps not being real-time and integrated

Now that you’ve gathered your data, it’s time to take action.

• Automate what processes you can
• Set a definitive timeline guide for the process as a whole, with the new automation time frames included
• Leverage a scheduling tool to ensure that the entire set of activities stay focused and there is no confusion by those who execute. These tools also make it easy to track status information of those who are owning tasks (who, what and when).

Once you feel that your new process is ship-shape, it’s time to set it into motion and carefully analyze the results. By collecting as much information as possible, you’ll be able to identify issues, tasks that were missed and resource bottlenecks early on. Be prepared to step in and make changes or pitch in during hiccups as staff become accustomed to new protocol and weak points are discovered.

Whether you’ve chosen to leverage automation or not, create a graphical dashboard to collect an overview of the financial close process as it stands now can be an effective way to monitor the situation. Set key performance indicators throughout the cycle and use them to collect statistics such as perfect of completion of the close, time spent on various tasks, and overall progress across regions and time frames. By doing this, you’ll enable manager that are not physically present in your department to monitor your team’s progress.

Step 4: Analyze

Now that you have all of your numbers in place, it’s time to crunch. If you’ve opted for automation, this will be much easier and faster. One of the key data points to look at will be total time it took to execute the entity close process, as well as how long each individual task took. Compare the actual information to the timeline you created, find the discrepancies and their explanations. Simplification of processes and a real-time finance environment has helped e.g. SAP SE to be the “fastest closer in the German DAX 30 – this is only possible with a modern and integrated entity close model.

Additionally, you can also compare across entities if you’re part of a larger organization, and see which are closing faster than others. Have teams meet to swap best practices and brainstorm how company-wide protocol can be improved.

Once the process is fine-tuned, conduct the same analysis over again, and repeat until it meets expectations.

The moral of this story is the famous adage, “what gets measured gets managed.” Additionally, ignoring the warning signs of an outdated system will only create more work later – as technology evolves to support tasks, embrace it instead of rejecting it. You could add to it “nothing more real than real-time” when it comes to an outperforming finance organization.