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FDs tackle reporting processes

A new report into reporting and forecasting processes in European companies offers suggestions for improvement

What are the hot topics that finance directors are facing this year? In
short, it’s people, performance and processes, in that order, according to
recent research by BPM International, a network of business performance
management consultancies, the UK arm of which is Paragon Consulting.

The research questioned group FDs, financial controllers and planning
managers in more than 130 European businesses, the bulk of which had revenues in
excess of (euro) 1bn. It found that people pipped performance as the
agenda-topping issue: improving the skills and capabilities of finance staff was
regarded by 81% of the companies taking part in the survey as a ‘hot topic’ for
2007, just slightly ahead of the need to improve performance (80%).

People issues feature in the business units as well as the corporate centre,
the research found, adding that 72% of respondents ranked ‘operational
excellence in the finance function’ as a priority. But with such a high
proportion chasing after excellence, the report authors said it was “astonishing
how many companies have still not managed to get their basics right”. Moreover,
the research unearthed the fact that there is a high potential for improvement
in many businesses.

Performance management, predictably enough, was almost equally high, but
further investigation by the researchers suggests that corporate performance is
still not good enough: the blame would appear to lie with “external
distractions” such as the demands of Sarbanes-Oxley compliance, IFRS and, for
financial services groups, Basel II.

Then there is the problem of speed of process. Third on the list of
priorities was the need to optimise and quicken the closing process (75%), while
the need to re-engineer planning and budgeting processes was cited by 60% of
respondents. Intriguingly, of the 130 companies surveyed, budgeting and planning
is of even greater concern for those identified as ‘Top 20’ performers than it
is for the others in the sample. The need not only to measure the past but to
predict the future is a key area for improvement. No wonder: the total budget
cycle time was found to be around six months.

Finance function
A few best practice pointers and benchmarks came out of the research. For the
organisation of the group finance function, the research revealed what it
thought was a surprisingly low headcount for corporate centre staff involved in
group reporting processes and systems: two-thirds of respondents had no more
than 10 FTEs (full-time equivalent employees) working on consolidation
accounting, while an even higher percentage (85%) had no more than 10 working on
group reporting systems.

The researchers analysed whether there was any correlation between headcount
and the type of consolidation system used and found that those with the lowest
staff levels used ‘best of breed’ packages, while the most heavily staffed used
ERP systems. (They admit that the strength of this correlation is open to
question because of other factors.)

Companies appear to be better at coping with new accounting standards and
regulatory changes as opposed to changes/upgrades in accounting systems and
organisational changes. To improve their ability to cope with change the
companies suggest that they need standardised and documented processes, better
and more frequent contact with reporting units and better trained staff.

Key problem areas
Forecasting While virtually all participants produced income
statements as part of their forecasts, almost 60% also required balance sheet
information – but less than 40% wanted cashflow information and other
non-financial data. Moreover, the research revealed that corporate centres
required a surprisingly large amount of detail, in contrast to emerging best
practice view that forecasts should be more aggregated. Around 40% of
respondents said they require information at more or less the same level of
detail as their actual reporting.

Topping the list of problems at the corporate centre is late delivery of
information by reporting units, followed by errors in the forecast income
statements and balance sheets. The researchers also asked the reporting units
what problems they had meeting the centre’s deadlines and found that their
biggest problem was coordinating input to the forecast from local function
managers, followed by the time taken to get executive approval for the final
forecast. Manual inputting into the reporting format was a problem experienced
by more than a third of reporting units.

Budgeting Similarly, the budgeting process suffers from
late delivery of data, manual inputting, time taken to get executive approval
and lack of appropriately skilled accounting staff.

Reporting One emerging trend is for companies to produce
an aggregated or even a detailed balance sheet every month, or at least every
quarter. The researchers believe that this results in “industrialising the
process” and enables a very fast close with good quality data. The survey found
that companies doing monthly balance sheet consolidation report, on average, 44
days after the year end and 20 days after the quarter end; for companies doing
quarterly balance sheets, reporting times are significantly slower: 52 days and
26 days respectively.

One other important trend is that about half the companies have integrated
their management reporting with their legal (ie, external) reporting, while a
further 30% are planning to do so.

For a copy of Consolidation, Reporting and Planning Functions in European
Multinational Enterprises 2006,
and click on the Reporting Study link, or contact [email protected]

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