Posted by Chris DeBeer on Mon, Dec 14, 2009
From reading t
he news, one might believe that restatements are fast becoming the "norm" rather than the exception. In reality the vast majority of publicly-traded companies haven't had to restate their financials and take their fiduciary responsibility seriously enough to put the right internal controls in place BEFORE things get so messed-up that they need to do a restatement.
CFO Magazine recently had an article on Sarbanes Oxley 404(b) compliance: Does Sarbox Reduce Restatements? The article states that companies that don't have their internal controls verified by outside auditors are 46% more likely to have a restatement than those that do. So, if you were the CFO of a non-accelerated filer - companies with market capitalizations under $75 million - (much less a CFO of a company with a market cap over $75 million) why wouldn't you spend the money to have your auditor verify your internal controls (and more importantly actually put adequate internal controls in place)?
To be sure, managing the balance between Time, Quality and Cost is a difficult proposition but not an insurmountable one. Below are the three things that my experience has shown companies should look for in any project you do around improved financial consolidation, planning and/or reporting:
- Flexibility - Implement a tool/technology that gives you more than just internal controls. There are many tools in the market today that are purpose-built to provide BOTH internal SOX compliance AND improved reporting.
- Scalability - Don't create something you're going to grow out of in the next three to five years. Look for tools and technologies that easily scale up and support large numbers of users both at corporate but also out in the field (they're going to want to look at the reporting after all...)
- Supportability - If it takes an army from IT to run or you need a degree in applied statistical theory to understand, it might not be the right solution. Tools and technologies that can be owned and operated by finance but supported by IT are best. This puts the power to make changes quickly in the hands of finance and ensures that it's built on a sustainable infrastructure.
If you put a tool/technology in place that's flexible, scalable and supportable you'll have a much better chance of maximizing your ROI on the money you spend (cost), getting the most capability and accuracy out of what you implement (quality) and ensuring that the time you spend isn't wasted on something that will end up as "shelfware" a few years from now (time).
Posted by Thomas Antunez on Tue, Dec 08, 2009
Let's use the 80/20 rule today.
In the hundreds of meetings I have had with CFO's, VP's of Finance, Financial Planning Manager's, etc there is one question that seems to strike fear into their respective hearts: how many reports should we have? I suppose the reason for this is twofold. First, given the simplicity of the question, Executives worry that the number they provide will be either too large or too small. Secondly, Executives worry that they will be ridiculed if they provide an answer of "I don't know". So, I'll give you the Economist's answers: it depends...but we can provide a good range for most situations. Clearly the differences between organizations drive varied reporting needs, however, if we narrow the question a bit, without diluting the end goal, we can provide some fairly good rules of thumb.
In the end, enterprise performance management is about managing the business, and it is not about reporting. If we isolate the true management of the business, using the CFO's perspective as our proxy for report volume, I believe we can provide much better guidance. In my experience, a typical CFO, and his or her direct reports, can effectively manage 80% of the business operation with the use of 10 to 20 reports. Within these 10 to 20 reports, using EPM technology, a finance professional can analyze various cost centers, roll ups, etc with extreme precision and accuracy. Relying on more than 10 to 20 reports suggests an overuse of technology and a misunderstanding of the core business.
The remaining 20% of the business can be analyzed and managed using ad hoc reporting tools and databases. Now, be sure to pay attention to these "outlier" reports because they will lay the foundation for new ways in which to analyze the numbers. Analysts are extremely crafty and resourceful, often mining millions of rows of data to secure a new insight into the business. Quite iterative, this process will yield new reports that take into account market changes, competitive movement, etc AND will also reveal holes in your current data, which is to say some of the data required to manage the changing nature of your business does not exist because it is not currently recorded...which can lead to changes in the underlying ERP system.
So, use the 80/20 rule with respect to reporting. Don't' let anyone lead you to believe that you must build thousands of reports simply because the technology can do so a bit more quickly. It's smart business and will save you a great deal of pain and effort in the long run.