The Ins and Outs of Management Reporting

In recent years, companies have made significant investments in their ERP systems to improve their external reporting capabilities – investments encouraged by the push of International Financial Reporting Standards (IFRS) to more comprehensive business unit and geographic segment-based reporting. Similar pressures are being exerted by U.S. Generally Accepted Accounting Principles and tax requirements.

 
In effect, companies have become better at explaining what is happening in terms of financial results, but their ability to efficiently understand why it is happening (or what is next operationally) is lagging behind.
 
While they have made the investments in ERP, their investments in business intelligence (BI) technologies to improve internal management reporting capabilities have often been decentralized and structured in different ways by business unit and/or function, such as distribution, marketing or customer care.
 
This lack of centralization and consistency in BI capabilities means that non-value added work is needed to reconcile internal and external management reporting. This creates not only an unwanted layer of cost; it also limits the company’s visibility in terms of what is really driving growth and profitability.
 
Closing the Gap
There are a number of initiatives that companies can consider to improve internal and external reporting reconciliation. Among them:
 
  • Companies can consider establishing an enterprise data warehouse. Companies that spend a great deal of time and effort on aggregating and reconciling data can benefit most from the warehouse’s construction.

 

  • Data architecture is often a problem, because it may not be designed to meet the needs of both external and internal stakeholders. The data architecture provides a hub for a single data source and avenues to facilitate information flow between the systems of record and the financial management reporting activities.Ideally,the format of this data architecture will be understood by both the business stakeholder and decision makers.

 

  • If the company really wants to lower the cost of finance operations, it might consider a reporting center of excellence for finance, a BI competency center, or some combination of the two.

 

  • To manage the common source of information, the data architecture and the overall reporting solution, companies also need an effective governance structure.
 
No one of these initiatives should be considered in isolation. Rather, the idea is to use such innovations – along with other enterprise performance management (EPM) techniques – in concert to improve overall program structure and management.
 
Data quality is an important factor, for example, and one which can be improved by implementing consistent and complete preventive controls to ensure the “right” data is captured in the “right” account at the time of recording a transaction in the systems of record.
 
Another important element is the standardization of accounting and finance processes to enable a consistent approach to recording transactions, allocating resources and conducting efficient analysis and consolidation across the enterprise.
 
Case Studies
A well-structured and well-managed EPM program can benefit almost any company. Our field experience at Accenture has uncovered several instances.
 
  • A large European utility facing significant earnings pressure brought in a new CEO and management model to drive change. The new CEO first aligned the management team around a clear set of value drivers. He next established performance agreements to link targets for each executive with key value drivers and a standardized approach to monitor performance across the enterprise.
 
These changes resulted in an enhanced understanding of key value drivers throughout the organization and an improvement in financial performance and total return to shareholders, as business owners throughout the organization benefited from receiving the right information at the right time.
 
  • Swedish Match was facing significant challenges in achieving its growth objectives. As a result, the company transitioned from a product focused company to a customer and market driven enterprise.
 
To maintain growth targets, the client needed to optimize its profitability across both product and customer dimensions. However, it had no basis for allocating critical resources such as promotional spending and investment capital across the company based on its new profit dimension. It also lacked a qualified methodology to generate and deliver its operating results in a timely and efficient way.
 
By linking action plans to performance measures, and to the company’s strategic objectives, Swedish Match was able to make better use of available resources. It accomplished this in part by generating profitability information with the proper level of detail and reporting complexity, using robust technical solutions.
 
  • A leading pharmaceutical company operating in an increasingly resource constrained environment was burdened by duplicative reports and a growing number of competing performance metrics. Report production and issuance timelines began to lag. In response, the company optimized business reporting resource levels by deciding on a set of “endorsed metrics,” thereby eliminating the cost and effort of duplicative reports. The company also set up a robust governance process to support a sustainable ongoing reporting system.
 
  • A major retailer identified and concentrated on 12 key metrics for the business. The company established a Strategic Planning Calendar for key business outcomes and decisions, with Plans owned by the business and facilitated by Strategy/Finance groups. The company also implemented a global driver-based planning capability to test assumptions and alternative strategies on metric outcomes. The changes support development of regional business plans on a rolling basis with a focus on local market performance.
 
Enabling EPM
Getting data architecture and data management “right” is critical for enabling an effective EPM capability and operational excellence. The task is not an easy one, as multiple disciplines are involved.
 
Extensive finance and accounting skills, for example, are essential to understanding and integrating the various data needs and phases of external financial reporting. Finance defines the data standards and governance structures that are needed to get the right data in the right accounts, and to address all dimensions of the business.
 
Similarly, comprehensive knowledge of ERP and BI technologies applied to finance and performance management, human resources, supply chain and customer relationship management are required to deliver comprehensive and enterprise level internal management reporting.
 
Both our research and our field experience indicate that organizations can no longer afford to establish and maintain separate tracks for external and internal performance reporting. In an environment requiring rapid decision-making and a clear understanding of what factors drive growth and profitability, companies must be prepared to manage internal and external reporting needs through a single data source, aligning strategy, planning and forecasting to the ultimate objective of creating value for shareholders.
 
About the Author
Eric Noren is an executive in the Finance & Performance Management service line at Accenture, a global management consulting, technology services and outsourcing company.

 

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