CFO 4.0 - The Future of Finance

229. Financial Transformation Live - Finance Record to Report Maturity Model

• Hannah Munro

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In this episode of CFO 4.0, Neil Lynchehaun unpacks the Records-to-Report (R2R) maturity model and shares hard-earned insights from decades in finance transformation. He challenges traditional finance thinking and explores how finance teams can shift from compliance to strategic enablement.

What’s covered in this episode:

  • Why maturity models are tools for inspiration, not evaluation
  • The five levels of finance maturity, from statutory compliance to strategic insight
  • How poor tagging and manual journals hold finance back
  • The mindset shift from finance-led budgeting to operational-led planning
  • Real-time accounting, continuous close, and eliminating month-end chaos
  • Building finance functions that partner with, not trail behind, the business

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Speaker 1:

Welcome to CFO 4.0, the future of finance. The CFO role is changing rapidly, moving from cost controller to strategic visionary, and with every change comes opportunity. We are here to help you take advantage of this transition to win at work, drive your career forwards and lead with confidence. To win at work, drive your career forwards and lead with confidence. Join Hannah Munro, managing Director of ITAS, a financial transformation consultancy, as she interviews key experts to give you real-world advice and guidance on how to transform your processes, people and data. Welcome to CFO 4.0, the future of finance.

Speaker 2:

Hi, good morning everybody and welcome to Finance Transformation Live. Today we're going to talk about an interesting topic. It's close to my heart for years of being in various operational leadership roles. It's understanding the record to report maturity curve. In today's session we're going to look at using a maturity model and talk about why we use a maturity model, what evaluations we use when we're looking at the maturity model, how we characterize the impacts or the characteristics of the maturity model. We're going to call out the scope of the record to report processes that we're following and talking about today. We'll have a go at attempting to define some maturity levels within that model and then we'll go through the detail of kind of characterize and progressive maturity steps. Please feel free to ask any questions during the session or save them up for the end. Whichever you prefer. I'm very comfortable either way around and, yeah, that's what we'll cover today.

Speaker 2:

Okay, a little bit about myself. Bit of an unusual career. The best way of characterizing it, I think, is that I've had the really good fortune to spend the first half of my career in really high-performance environments. Businesses and environments were the first to do something new, often applauded as being best at doing something. I was involved in one of the early finance shared services with Bristol Myers Group in the mid-90s and learned a lot there about what does great finance look like. And what does great finance look like should support the business, consulting and then independent consulting, helping businesses to transform using behavioral change, genuine lean mindset behaviors, starting in the boardroom and spreading out right across an organization to every part of an organization, driving change every day Across that career. As a bit of an unusual career, I've taken many different roles in program leadership, operating functions, operating geographies and senior leadership roles. A characteristic has been that, regardless of the role, it's always been involved in transformation and significantly finance transformation. In those roles my experience is largely in the Europe geography, although I've had various global responsibilities and worked on global programs, but mostly in Europe, and I had the really good fortune to meet a hell of a lot of people from a whole wide arena of business sectors not-for-profits as well, ranging from kind of the nuclear industry through technology, airlines, hotels, shipping a whole wonderful world of different businesses, all with their own characteristics. Whole wonderful world of different businesses, all of their own characteristics, but strangely enough, all with recurring kinds of concerns and issues and opportunities for improvement. So let's talk about those a little bit.

Speaker 2:

Why are we using a maturity model? Let's lay out right away that we're not using a maturity model to kind of assess or rank or kind of have any evaluation of a business. The real reasons that we use a maturity model are to inspire next steps, to encourage a thought process, to sort of basically find out what others do and see if it can be of value to your own organization. Basically, find out what others do and see if it can be of value to your own organization. We break the process down into building blocks so that we can have achievable next steps. So what could seem a real great ambition but we might not know how to get there, breaking it down into a maturity model might give us the smaller steps that we need to make progress. And in terms of making progress, what we've called as a typical progression path that we see happening across many organizations it doesn't have to be in this sequence. It doesn't necessarily progress the way we've called it out. It's just typical. And the kind of the real overriding piece here is that it's got to be right for your business or your organization. What suits one business does not necessarily suit another business. But the outcomes that are achieved might be portable and transportable across businesses but there might just be different ways of achieving them. So it's really that inspiring the thought process, kind of a self-evaluation and kind of what next steps can we take.

Speaker 2:

That's the reason we're talking about maturity models I'm using given that we're a finance community that's joining this call called out kind of three lenses that the finance community kind of warm to nicely. One is that we consider things in terms of what does it do for the control environment? Does it kind of give us better detective controls, better preventative controls and assurance of how our business is operating? Does it improve the efficiency or effectiveness of a process so it takes some cost out, do do things better, have a greater process, a more robust process? And then kind of also what does the value look like that it brings to a business? Does it create insight? Does it allow the business to be more agile, to take better decisions? So we're evaluating kind of the process, maturity steps as we go through those lenses.

Speaker 2:

Now I'll put this slide in here because the next slide is not going to be very palatable. I'm going to be quite controversial. My background is for a long, long time in lean organizations, genuinely in organizations where there's mindsets, behaviors, routines, habits, the way of operating, follow lean principles, and there are also what people often think of as, in terms of lean, that the tools and enablers are used habitually every day. The underlying principle of that is really understanding value, and there's a really really tough definition of value which is really hard for a lot of organizations to accept. But if you do accept it and you kind of adhere to it, it's a really valuable way, a really fantastic way, of evaluating everything that goes on in an organization. So start with kind of thinking about what's value-add, and it's really really, really, really, really hard.

Speaker 2:

In terms of value-adding activities, are those activities that a customer would gladly pay you for, Not an internal customer, a real money on the hip going to give you money to do something customer, um, and the kind of the clue is if you do more of it, more customers would give you more money. Um, if you did it better, they might give you a higher, higher amount of money for the activity. And in terms of not-for-profits, this equates into creating the outcomes that your organization seeks to create. Can you create more of them by doing more of this activity? Can you create better outcomes that have a greater impact on whatever the NFP is trying to impact. So there's a real, real tight definition of value there.

Speaker 2:

So everything else that we do, all the other activities in an organization, break down into either things that we have to do to be able to operate paying payroll, paying taxes, paying our bills, things like that, a license to operate and we are expected to do them exactly the number of times that they're required to be done no more. And we do them in exactly the way they need to be done no more. We call that necessary non-value add and hopefully we keep that low in our organization. And then everything else the rework, the failure, the waiting for things to happen, answering queries, answering complaints, overproducing stuff, overprocessing, doing spares, just-in-case kind of work. That's all waste and we should be looking to eliminate that and engineer that out. And this is kind of what gives me the perspective for, if we go into the next slide, a point of view and this is where it might be a little bit controversial, but I ask you to bear with me on this one Over the years I've seen that this particularly grows as the size of the organization grows, the finance has kind of, let's say, got a few challenges that it could overcome to improve how it works within an operating organization.

Speaker 2:

The first kind of observation is that finance massively lags behind the operating business. So in finance we're geared around month ends, quarter ends, year ends. We align a lot of our activity around month ends, quarter ends, year ends. The business is moving every day, the organization is moving every day and things are changing every day, but finances is kind of not keeping pace with that. That's been said. Historically it kind of comes from regulatory needs, statutory needs and kind of the earliest designs of how systems were put together. They were kind of batch processing systems. But we've kind of stayed in that habit. Consequently, finance is often disconnected from the operational business.

Speaker 2:

And why I say that is that for every budget or forecast plan that we have in finance, somebody in operational management has to have their real-world plan which is moving at the pace of the business. Worst-case scenario, it might be in their head. Best-case scenario it might be in some sort of system or spreadsheet or documents of some sort, but it's not connected to the finance solution. The consequence of this is that making decisions in businesses can be waiting on information and data to be created and analyzed and prepared and corrected and validated before a decision can be made. And, as we all know, business decision-making is a key factor. The pace of making a decision could be the difference between missing an opportunity and taking an opportunity could be beaten to a result by somebody else. We all know the pace of making a good, well-informed decision is really important to our organizations and there's a really harsh truth that comes at the back end of this is that in a lot of situations, finance is really not adding a huge amount of value to their organization genuine value add. I worked with a client a few years ago global leading player in their industry and they realized that kind of their finance organization is. Less than 1% of the activity was value adding. The rest of it was non-value add and necessarily non-value add and by far the majority non-value add, um. And it was quite a shock for them but it was a light bulb moment where they changed what they did. Um, and it was a real important moment for them to to figure that one else, it's a, it's a hard, it's a hard swallow, but it's um, it's. When we have that kind of self-awareness, it's a really powerful thing to start building on. So in the case of today's session, if we're talking about really mature organizations, it's a little bit strange to talk about recording and reporting distinctly away from strategic planning, deployments and forecasting and performance management. But it's only at the higher ends of the maturity that we really get a massive integration there. So for the purpose of today's session, I'm calling out that we're talking about the recording and reporting processes, so kind of the master data implications we need how we record transactions, how we verify that we've got the right information in our finance systems and then what we're doing with that reporting and how we're using it. But it is absolutely related to this how do we go about our strategic planning and deployment, how do we have the right budgets and forecasts in our organization and how do we manage performance of the organization at a very summary level and the five levels we're going to talk about in the maturity model, a kind of um starting at the most basic level which suits a lot of organizations. And again, there's no judgment involved in this, it's just calling out characteristics.

Speaker 2:

The most basic level of financial recording and reporting is to meet the statutory and regulatory requirements for an organization Necessary non-value add, all the things that we have to do to be allowed to operate, and that's generally kind of recording the financial values against nominal accounts, depending on your regime, whether that be how they are used or the nature of expenditure, for example.

Speaker 2:

Then we kind of start getting to maybe a slightly larger organization where we're recognizing there's responsibility for various parts of that organization and we start introducing other dimensions or attributes to the data that we're recording, probably cost centers, profit centers and we can start talking about maybe um, you know, some responsibility accounting for a particular cost center. So somebody in the organization now becomes responsible for the financial performance there. We're probably still in a situation where we're lagging behind the operational um business in terms of reporting. The time taken in finance will be still geared to monthly recording and reporting, but we're probably introducing the concept of budgets and performance against budget as we progress. The next level we're kind of thinking about is where we're adding more attributes to what we capture and report in terms of reflecting the reality of the business. So where, at level two, we might be recognizing there are functional units in the business and they're in their functional verticals. At level three, we might be thinking well, there's a value chain that flows through our business and let's understand what that value chain looks like.

Speaker 2:

Let's understand that we've got a particular customer segment or a supplier base that's distinct to another supplier base or particular product lines that we want to compare against each other. So we start adding various attributes to how we're recording and reporting and we're getting closer to you know, our financial reporting, matching the operation of the business, and we'll call out some characteristics in there. Um, I'll mention kind of the gap, as we get into the more detail, between the operational reporting and the financial reporting. But if we go to the next level, it's where you know what there's an absolute integration between um, the, the operational plans and performance, and the financial recording and performance information about those, about the business. They're one in the same and in fact when we get to it, I'll I'll talk about a flip-in mindset, not flipping flip-in mindset. That is critical for that to happen. We're also talking about getting towards real-time accounting and continuous close, which again we'll talk about in a bit more detail. And then beyond that, there's kind of the proactive, preemptive, strategic insight, business modeling, real decision support, even decision prompting. That happens at the highest level. So we'll go through that. So what do you think about the master data?

Speaker 2:

Our most basic level master data is fundamentally, you know our normal chart accounts and we need to make sure that it's granular enough so that it meets the regulatory and statutory reporting requirements and that it's not too granular that we kind of start thinking about the insignificance of postings in particular accounts. So we need to think about what's the significance of values that are going to be recorded. Often we see challenges where organizations, either through a limitation of the systems that they have today or through the best of intentions, overcomplicate their chart of accounts, trying to create analysis in the structure of the chart of accounts, and start to create confusing definitions in their chart of accounts. This basic level, let's keep it to the nature of expenditure, the nature of a sale. Let's keep it simple, optimize it to what is required for statutory reporting and optimize it to the reality of business that we're dealing with. This really suits super small businesses, small businesses as we get into slightly larger businesses.

Speaker 2:

We're moving into the next stage of responsibility line where we need to start thinking about other objects or dimensions that we we record against and so in our master data we need to start thinking about reflecting the organizational, organizational structure, and you know typically cost centers, so we're talking about budget holders or functional units of our organization, the profit centers that we're going to have in, so kind of. Where are we looking at the particular product lines that we're selling or services that we're selling and codifying those into the system? We might be talking about multiple locations, so these become attributes of the posting when we get into the posting. But we need to kind of reflect our organization in these structures, think about how do we want to analyze our organization and how do we want to manage it. So will I be responsible for a set of products, a set of functions or you know, locate geographical locations and kind of codify that into our master data structure?

Speaker 2:

I say master data so I'm using that quite liberally.

Speaker 2:

It could be, you know, kind of grey data or static data, but let's bundle it under the term master data, so it's the settings that allow us to code correctly.

Speaker 2:

I mean, this is great for businesses because we can start looking at cost and budget management and it gives us the very first kind of ability to analyze how our business is performing and kind of enables people in the business who are responsible for the delivery business to start taking responsibility for the financial performance of what their part of the business does, are responsible for the delivery business, to start taking responsibility for the financial performance of what they're part of the business does, as well as the operational performance.

Speaker 2:

As we start thinking about how do we build this model a little bit more. We get more business aligned, so the more attributes that we can assign to data, the more we can analyze how our business operates and we start supporting operational management in their decision-making and in their evaluation of how well things are going. So if we can add in different characteristics, maybe about particular value chains that run through an organization might be market segments or customer segments. We might talk about particular product lines, start capturing those against postings. Obviously we need to have them in our master data or static data in our settings to enable that we start thinking about how does our operational management think in terms of how we operate, and so what do we need to code in into our recordings and our reporting? The benefit of doing it and capturing it at the recording stage is that we reduce the analysis efforts at the reporting stage, that we reduce the analysis efforts at the reporting stage.

Speaker 5:

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Speaker 2:

If you think about a lot of finance organizations.

Speaker 2:

They take reports and they start split and trying to split them down by reading the contents of what's being posted to a particular account and trying to work out which part of the business it relates to or whose responsibility it relates to. So they're analyzing after the fact If we're tagging our transactions in the right way, as they get recorded, then that analysis is automated. So if we get that definition of our organization correct, it really improves the analysis piece and takes away a finance effort and services and the business well, it becomes more aligned with the customer experience. If we start thinking about how value chains work, we can start seeing if we invest in this part of the business, does it change the performance of sales or the feedback that we get from customers? So we can start seeing some cause and effect if we're tagging our transactions correctly, not correctly, reflecting our organization accurately, if we then move into kind of the next level where I won't talk about the flip just yet- well we're really getting close to how the business operates.

Speaker 2:

So it might not just be quite static attributes such as value chains or um market segments or what have you. There might also be some dynamic um actually to never still put this on the master data because it typically goes through a master data style process to be established but things like project codes associated with a particular investment or a change within an organization that might be attributed to posting so that we can evaluate the impact of an initiative. We might start attributing statistical codings to transactions which don't change the postings that are made but in reporting terms will give us an analysis that breaks up on a predefined rule, whether it be a percentage split or an activity-based split. But they help us to really understand what's going on in our organization and again it gets closer to finance being integrated with the operational management planning.

Speaker 2:

So as an operations leader I can say I've got these initiatives that I intend to see this result change in how my business, my part of the business, operates. I'd like to see transactions tagged in these ways and see it reflected in the financial reporting to see it matching my operational reporting. Actually, if we were in a superb place, my operational reporting and financial reporting would be in the same solution, and that's a big change. So a lot of attributes that would be defined by the operational leadership might be short-lived but have a master data style process in terms of being created and that really, really starts to get powerful in terms of how is the business performing, not just how we're performing financially, but what activities create performance in the organization, what activity differences create performance. It's really powerful and, of course, the step beyond that is enable all of the same kind of things but in what-if scenarios, so to be able to replicate our business model differences in it and see how the same business or amended business flow through that model would result. Would it take us closer to our strategic aims? What things do we do differently to get closer? We could start experimenting. So there's a whole piece that's at this right end of maturity about what if, modeling and playing around with parameters and how we operate. But we have to be able to reflect our business and our finance systems before that even becomes an option.

Speaker 2:

So in terms of this progression of how we record again at the most basic end of the maturity model we're probably recording transactions as manual journals we're almost certainly lagging behind reality. We're almost certainly lagging behind reality. So the recording of a transaction might be hours, days, weeks, some instances I've seen months behind when the reality really happened and we might see things that are timetabled to be posted. So a quarterly adjustment of this, that or the other. It's kind of really off the pace. In terms of the business, the quality of the supporting information allows you to make a good judgment as to whether this is reliable information might be quite weak. The quality of the integration of subledgers will be a factor here. So kind of the subledgers represent the transactions, the most common transactions of the business. If there's a really good integration and those subledger processes work well, then we're in a good shape in terms of recording the transactions and being timely reporting. But if they're not performing well, again we're lagging behind. And obviously we all have accruals in our business and reserves that we've put in anticipating real postings, reserves that we've put in anticipating real postings, the quality of those can be subject to a significant amount of human error and, again, if the backing's not there, it can also be subject to, let's say, a little bit of manipulation, a little bit of Christmas party funding and what have you. So we can build on that and be very aware of um of the limitations there.

Speaker 2:

If we start kind of thinking about responsibility, um, aligned recording, so now we're recording every transaction with an attribute of the of the business, so that we're thinking about who's responsible for this and what budget does it lie against? We can start looking at, you know, okay, why are we actually doing this? It gets easier to ask that question and answer the question why are we doing this so we can start driving the quality of the support and information. So you know, we've kind of of we've asked for an accrual um for a service that you've been, you believe has been delivered, but we've not been invoiced for it yet. We've got a purchase order in there. Are you simply accruing the difference between what we've been invoiced so far and the value of the purchase order or are you kind of really evaluating the service that you've received so we can start driving the quality of the supporting information for a journal that goes into our systems. Again, as we drive the performance of sub-ledger processes, we can start looking at how those subledger processes start to remove volumes of manual processing. So, you know, if our accounts payable is lagging 10 days behind reality, then we've maybe got 10 days of accruals to think about. If it's lagging 10 minutes behind reality, it's a different ballgame, isn't it? In terms of what we need to be thinking about recording it properly in tight timeframes. So this allows us to start thinking about, you know, eliminating human error. Start to eliminate lag, the accuracy of what's going into the system, the accuracy of what's going into the system, and we can start thinking about using recurring and reversing accruals and journals to try and reflect routines that happen within our organization. We're getting more aligned to the business. We're starting to drive quality, we're starting to have preventative controls around the accuracy. So we're starting to get to a good place if we're driving that support for manual transactions.

Speaker 2:

I went through quite a transformation with an organisation and it was one of the most impactful things that we insisted that there was no manual journals without a fully documented support for the manual journal evidencing that it was valid and if there was an attempt to get a journal through without that support, it was just rejected and it would be highlighted that there was an attempt to create a journal without the right support. As we go into a more mature step, we're starting to really eliminate the manual journals. We're looking for opportunities to reduce that volume. So, for example, I mentioned if your accounts payable is really up to time. So you've driven e-commerce, you've driven automation, you've made sure that invoices are getting to the accounts payable process at the right time. You've got smarts around the accrual calculations, so it's driven by what's actually delivered from a really accurate purchase order, delivery schedule, delivery volumes. You've got just accuracy, accuracy, accuracy in all of these sub-ledges, accuracy, accuracy, accuracy in all of these sub-ledges. Your requirement for manual transactions starts to really go down. If we think about all accruals and adjustments as being an indicator that there's an opportunity for improving the sub-process, that's a great place to think about.

Speaker 2:

Okay, in a month's end, how would I eliminate the journal for intercompany out-of-balances? You know what comes to mind. How do I make sure that I've gotten accurate? You know accruals for purchases that have not been invoiced yet. How do I drive that receipting process so that we're adjusting accruals for what's been receipted rather than what we think might be delivered within a month, based on estimates. So take away that human guesswork, the errors, and start driving the processes so that we eliminate the manual journals. So to get through this step of the maturity pattern, it's really evaluating everything that's in your month end, all the postings that happen during a month, and thinking through all of these adjustments that happen during a month and thinking through of all of these adjustments, all of these rules, reserves and what have you that's going on. How do I actually eliminate that? How do I automate that? Why am I making a manual decision when there could be a decision that's driven from how we operate transactionally in the business? That's a great place to start.

Speaker 2:

Again, in an organization I was in, we went from having a month end it's a global, multi-billion dollar organization. We started with some month ends in some countries lasting a month or more. We got it down to a global year-end close of 18 hours. It was the last time I saw it about a decade ago. So the focus really was on reducing all of these manual accruals, therefore reducing the effort in reconciliation, the challenge in reconciliation reducing the effort in reconciliation, the challenge in reconciliation, the effort in actually recording the transactions and supporting documentation and reviewing and approval.

Speaker 2:

Simply eliminating them makes finance more agile, makes it more real-time and it gets it closer to the operating business. We can do smart things, like you know, with automated allocations and settlements, so that we're taking away the human evaluation, the human analysis. Because we've got the right tagging on transactions, we can apportion expenses to the right part of the businesses, we can run projects and programs where there's a benefit for various parts of an organization and allocate costs out. We can do lots of super smart things by tagging the recording of the transaction in the right way. And, of course, we can start getting the accruals actually being proposed by the people responsible for the operation in the business, rather than accruals being originated and calculated in finance. So, again, people who are closer to the day-to-day operation, working out what the accruals are and what the reserves are and I know that might cause a few jitters in terms of are they qualified, are they capable of doing that but the answer is, with a little bit of coaching, yes, they are. And really what we're getting to is an understanding of our business more than just needing to go out and ask people what's happening. We've got a data-backed understanding of how our business operates. We've got a data-backed understanding of how our business operates and it helps us to drive assurance that our financial needs are right, that we're not hiding the Christmas party part.

Speaker 2:

I mentioned on behalf of people that it actually reflects activity in our business. If we go to the next level, where we've actually got our operational plans fully integrated with our financial planning, so financial planning becomes a function of operational planning. This is the flip in the mindset. Where are we going? What's about level three on this? Where are we going? What's about level three on this? There would be a typical process and this is where there's a disconnect, not talking about budgeting and forecasting and strategic planning that finance would typically lead a budgeting process, set targets, apportion them out, say, go and get a plan for how you deliver on that.

Speaker 2:

When we get to this higher level of maturity it's the other way around. It's the operational business to saying we could achieve a level of business and turnover based on these activities and these changes in our capability which we're driving each and every day in our organization through major investments, continuous improvement, just being smart in how we operate, our lean mindsets and behaviors, and what that means in terms of the financial results is X. We know the volume metrics for our business. We know the performance metrics. Therefore, the consequence is this financial performance. I know, by the way, to do the next things that we plan, we need Y investments. So there's my cost budget for both my standard budget and my investment budget, and it's a real flip in in the whole planning process and in terms of recording transactions, um, we start getting the business activity, creating financial postings.

Speaker 2:

So if the business plan is we've got seasonality in our activity or we've anticipated customers not being available or we've backed, those plans will create the recordings, the adjustments, the commitments, the actuals that are valuable in getting a precise and accurate view of the business. We get good commitment management. So there might be um surprises in something you might say not have a kind of a linear commitment. It might be because there's the operations are where something that's happening, um, you know a supply base going off, you know a geography that typically takes national holidays and there's not going to be any activity during July. So these realities can be built into the operational plan and reflected in the financial performance plan we're lower down on the maturity model. They're quite disconnected and so there could be surprises. So if we really connect our operational plans, we get all that commitment management. We've eliminated manual journals pretty much because the adjustment journals come from the operational plan and in comparison to the sub-ledger activity, the business activity, we get fully automated accruals driven from the operational plan and we can be posting.

Speaker 2:

What typically happens is that we're posting not only in one set of books or one perspective of the books and I say this carefully because there's different ways of achieving this same result but we're posting it with different views of our business simultaneously so that at any point in time we can say what does our business look like from the perspective of marketing? What does our business look like from the perspective of marketing? What does our business look like from the perspective of supply chain management? And it gives different views. In the past, where there was the habit of separating transactional and reporting systems because of the differences in loading, we might call that a data cube in a business warehouse. In other solutions, where that performance is not an issue in their cloud-based solutions, it would be virtual views or attributes or various dimensions that allow us to see the business in different ways, but it's the same kind of concept.

Speaker 2:

We're trying to see this same data set from different directions and if we're driving our postings from our operational plan, we're adjusting our operational plan daily for the reality of the business and we are limiting the analysis that needs to be done to understand the business because it's getting as close to what fully automated as possible and we're getting all the perspectives that we need being recorded for our business. We're getting pretty much close to continuous close. I can press the button right now, any day of the month, any day of the year, and I can see the value of our business right now, right here. This second bar a few adjustments that we were putting in the annual reports, but in terms of the reality of running our business and what it means to take good decisions, that is something that we can do right this second, right now, we've achieved continuous close. Month end is just another day, it's a button press. Year end is just another day it's a button press.

Speaker 2:

So this kind of integration of operational planning, operational reporting, operational recording and financial recording allows you to get to that continuous close and you can emulate that in different ways. You can emulate that with the simplest of systems by just making sure you update your operational plan and making sure the finance plans reflect it well, the decision-making process this just takes a leap to another level. You're looking at how your operations affect performance day to day. I've worked in this environment. It's just the easiest thing to drive performance in that kind of environment, to drive ambitious performance in that kind of environment. To drive ambitious performance. The next level up is again going into kind of that whole business modeling being able to simulate transactions in a what-if model and play around with maybe some of the decisions that you've taken and what have you taken? A different decision, play around with various scenarios, so you know in the recordings. The next level is to be able to emulate our business with different scenarios played against it, and again that allows a fabulous, fabulous, fabulous decision-making capability that outpaces the opposition. And again, you don't need to be a multibillion-dollar company to be able to do this.

Speaker 2:

There are various ways of achieving similar outcome but with different solutions, kind of if we think about reconciliation and again I've been liberal with the definition here in terms of reconcile it's not just reconcile, it's having the confidence that the financial results are correct, what we've reported is correct, what we've recorded is correct. At the most basic level, we're probably doing limited reconciliation. We're probably doing what is required to meet audit purposes. We're probably looking at trial balance in terms of does it balance? And the balance sheet in a similar way, not necessarily reviewing it and does that look right? Is it appropriate If we are taking that view on? Is it right? Is it appropriate If we are taking that view on? Is it right? Is it appropriate? It needs investigation, it needs guesswork, it needs some digging into, you know, deeper information, searching people's minds and memories. It suits small businesses, it suits a tight, small team. But you know there are limitations to that approach to reconciliation.

Speaker 2:

If we start to think at the next level in terms of reconciliation and we're starting to get into, yeah, we're going to properly reconcile our accounts, make sure they're right. One of the watchouts I would have for folks is that a lot of reconciliations are not reconciliations. Um, I've seen where kind of um, the, the supplier balance, reconciled to the list of supplier balances, and it's come from exactly the same source. So you know, I see a lot of situations where reconciliations are not proper reconciliations and, by the way, we do have a webinar available on reconciling accounts by one of our qualified accountants. It's really good. But you know watch out that we are actually reconciling our postings and our results from two reconciling resources. The next kind of in that next level of reconciliation is also making sure that we're taking actions for the reconciling items.

Speaker 2:

So haven't identified there might be reconciling items let's put an action process around it and make sure that those reconciling items are addressed, give them deadlines, have a workflow around it and make sure that the reconciliations are approved as well, that they have a second set of eyes, that it looks right.

Speaker 2:

If we achieve these things, we're kind of making sure that we've got detective controls going into our business again it's a little bit after the fact because you know a lot of things might have already happened and we might be trailing, but regardless it's a better control place. It's a nice detective control to have in place and by having a detective control you actually influence activity upstream as well. So people avoid getting a nasty control Catch on as we go into the business aligned piece so kind of. We're starting to have more tagging around how the business operates. It's closer to how the business operates. We can start building some smarts into reconciliations. We can have automated reconciliation, semi-automated reconciliation. For example, I ran an international payments function with a complex set of bank accounts. So we fully automated the bank account reconciliation by 9.15 every morning down to zero. And folks might remember from last month I talked about zero balance accounts. We did spot when our treasury function was experimenting with the euro currency and left a single cent in an account. So if you can detect a single cent in an account that handles millions of dollars or millions of euros, then your reconciliation is in a good place. So start building them, semi-automate them, Semi-automatic.

Speaker 2:

Examples folks who are in manufacturing might think of high-volume throughputs on goods received not invoiced. It can be quite a challenge to keep that account clear and well-matched. Semi-automated reconciliations can propose what the matching transactions might be. Same with cash book you might have receiving funds and you want to match them against transactions. They can be semi-automated, you can be fully automated and if you've got the right references it can be quite challenging in, say, the insurance and pensions industry where there's often no references in the cash book. So you semi-automate it to propose what might be the right reconciliations and matchings. Excuse me, as we start to mature as well in terms of the reconciliation, we're starting to add reviews of quality around the accounts, reviews of rating the accounts and, you know, start to have quality reviews around the actions taken to resolve the accounts and what worked for around that again it starts to build up the control environment and make sure that we're getting continuous improvement, that we're making sure the account's right.

Speaker 2:

Then, as we go to the next level from that, we'll start to have reviews of the business around. What's happened? Why is that happening? Let's look at the quality of the financial postings, what's affecting it, understanding how well the business is keeping its financial records and start scorecarding it. One there I've kind of added in as a specific call-out is eliminate any intercompany outbalances.

Speaker 2:

Hook up your intercompany processes so that they never result in postings in different periods, different currency rates you know they're always approved at both ends and simultaneously post. Connect all your systems. Just eliminate things. A company is the simplest piece of business but is often the most painful. And of course, as we go into business modeling, all of those auto-reconciliations can help us in terms of making sure that our simulation models are correct.

Speaker 2:

So let's move on into the reporting. So again at the most basic level, our reporting is hitting statutory and regulatory needs. It's probably basic management reporting and the reporting itself is limited in analysis and therefore requires human analysis. After the fact, as we go into kind of responsibility accounting, it's starting to align to vertical units within the organisation. We might start getting sub-ledger management reporting so that we can understand how well our sub-ledgers are performing, what's sitting in there that hasn't been recorded yet? What are we exposed to? What do we need to account for, accrue for? But the analysis is still probably being done in finance as a month-end process and the operations management almost certainly have their own separate plans and numbers and figures and activity, probably in a spreadsheet, and they are reconciling the difference between what's reported from finance and what they know is happening in the real world. We're starting to enable managers to take responsibility, but we're not really servicing them. We're giving them a reconciliation headache in terms of trying to figure out why finance thinks one number is X and according to my plan, it's Y.

Speaker 2:

If we start getting more business aligned, we start getting closer to the activities in the business and understanding where is the difference coming from. It's still lagging, but as we move towards more real-time accounting, we can start spotting exceptions. We can start getting actual reporting coming out of maybe our auto reconciliations or our matching. And what have you? The auto analysis, the operations management, reconciliations and financial reporting still happens. But we can start putting in business partners so finance can start helping business managers to understand what the gap is between the plans they have and what finance reporting. Then, as we go to the next level, the integrated operations plans and integrated finance plans there is no gap between operating plans and finance plans. They're connected together. Their finance can start doing real, real business partnering. Start to explore what affects performance within our organization. Start challenging the budget holders, the operational leadership, in terms of thinking through what can we do differently that drives the results, what impacts our ability to have more of this business? What capabilities do we need to deliver? What investment proposal do you need me to help you to build? These kind of business partnering supports and this is really important where our systems, our finance systems, reflect the structure, the operation, the initiatives of the business. We're capturing data real time. We've eliminated manual processing, manual journals, manual postings. Finances no longer follow the moon process on a monthly basis. It's a real-time, everyday, transactional business reflecting process and then finance can start stepping into roles, support in the business, which you know what could actually be classified as value adding if customers will give us money for doing them. So this is a really big, important piece where you know finance is not a separate function. It's a servant of the business and helps the business to operate well. And of course, then beyond that, we've got the what-if modelling where we're serving strategic leadership and making really great decisions that are based on the reality of our business, and it's really powerful when you get to that point wow, the world's your oyster. It's a fantastic place.

Speaker 2:

I think I've probably covered most topics there. There's a lot to go on. I hope it wasn't too much too fast. We have a break for me. In next month's session Hannah is going to be talking about future-proofing finance software and the architecture required for that. So that will be in June.

Speaker 2:

So just to recap on today we talked about why we're using a maturity model and how we evaluate or characterize the impact of moving along a maturity model. I mentioned the scope of records report processes but also reflected that in their own right they probably don't stand away from strategic planning, budgeting, forecasting and performance management. As you get to the more mature end of the maturity model and if you can emulate that with limited systems, which is possible that whole mindset of let's understand the business performance, you're in a great place. It's massively valuable. We talked about the maturity levels. Hopefully I've characterized a few what those steps typically look like.

Speaker 2:

I haven't seen any questions, but I'm more than happy to take questions or have follow-up questions if that suits. If you want to hear more from us, we do have a quiz that if you're thinking about Sage products. It's a five-minute quiz. Answer a few questions and that will suggest what might be a good route for you in terms of Sage product support in your business. We can kind of help you with a download to help you kind of spell out your requirements, help you to ask yourself questions in terms of what it is that you're after and to kind of structure your questions and your wants. And please feel free to get a discovery call with one of our sales consultants who can help you to consider the options that might be available, what solutions might work for your organization. Please do get in touch with us and if we move on, please back in. Finally, I'd like to say thank you for listening to me for an hour, and this has been Finance Transformation Live.

Speaker 3:

One of the hardest things, I think, is actually putting into words what it means to work with myself and the team here at ITAS, because not only are we a financial transformation consultancy, but we do it using Sage technology. So rather than me tell you how awesome we are, let me introduce one of our customers.

Speaker 4:

Working with ITAS has dramatically made our lives simpler because there's just such a knowledgeable team there to help us. Before we felt the consultants we were working with at another company. It was always a challenge to get information out of them, for them to understand the problem and it just didn't feel like they were on our team. Working with itas it's almost we feel like you are all employed with us to work with us to do it. It's an absolutely fantastic relationship and it's just made it such a smoother process and an absolute fun process working in Sage Intact and coming on our calls. I look forward to it now.

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Hannah Munro

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