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| Management Briefings
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Forecasting with confidence: Nick Mountcastle, KPMG (November/December 2008)
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Many organisations will currently be frantically re-running their budget models in a vain attempt
to try and reflect the unprecedented market turbulence in commodity prices, exchange rates
and credit constraints. There will be little or no time for intelligent review of the underlying value
drivers as all available effort is spent crunching and re-crunching the data. And sadly, within
hours it will probably be out of date again.
Is there a better way? The short answer is yes. KPMG’s recent Forecasting with Confidence
research report shows there is a small pocket of companies who get this right through flexible
planning models that can better sense the environment and lock in the course of action more
quickly and effectively.
Even in more ‘normal’ times, planning, budgeting and forecasting is a process which business
executives rarely get enthused about. Time-consuming, tiresome and just a tick in the box, very
few see forecasting as a worthwhile process or one they look forward to. This goes a long way
to explaining why so many companies are so poor at it.
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Not so fast: Jim O'Connor, Archstone Consulting (September 2008)
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The benefits of a fast close are well-known. However, speed without supporting structural changes can increase the risk to
organisations instead of improving their situation.
This article challenges the hypothesis that a fast close equates to operational excellence, and offers an alternative approach to
achieving faster close cycles and the associated nimbleness gained through a fast-close process. The drive for a quick close process has pervaded finance literature for a decade. The ability to close financial books rapidly
serves companies’ strategic need to access real-time information, so that problems and opportunities can be identified and
addressed in a timely manner, and financial results can be reported to analysts and regulatory agencies.
This has also become a key performance measure for analysts and investors in terms of how they perceive the quality of the
information presented and the quality of the management team.
Yet very few companies recognise that the simple ability to close the books and report quickly does not yet truly reflect the
organisational excellence of the close-to-consolidate (CTC) process.
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Surviving tough times: W Mincey, M Janssen & E Dorr, The Hackett Group (June 08)
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Whenever tough economic conditions loom, companies usually aim to cut the costs they have most control over, such as their
general and administrative (G&A) expenditure and working capital. But instead of arbitrarily cutting costs across the board –
which can lead to serious deterioration in service-delivery capacity – it is vital to make the cuts in ways that minimise the
impact on business value delivery, both in the short and long term.
For senior finance executives, one of the biggest challenges is knowing when to pull back on costs, where to make the cuts,
and by how much. Being indecisive or slow about cuts can put the entire business at risk; but cutting too fast or too deep can
leave companies unable to grow again when financial seas are once again calm.
In avoiding across-the-board cuts, organisations should look for savings in areas where they are significantly out of line
compared to world-class efficiency organisations, and therefore have a relatively low exposure to risk. So before considering
how much to cut, be sure you know what is considered a ‘normal’ spend level.
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In search of the truth: Bill Fuessler & Steve Rogers, IBM (February 2008)
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Globalisation opens up significant opportunities for companies, but also exposes more risks. And a surprising number of
enterprises are not well-prepared to handle the impact of a major risk event to their organisation, according to a recently
published IBM study. This is a major concern to chief financial officers (CFOs) who, the study finds, are increasingly viewing
themselves as the ‘owners’ of risk management within their enterprise.
The IBM Global CFO Study, of over 1,200 CFOs and senior finance executives from 79 countries, reveals that over the past
three years, 62% of enterprises with over $5 billion in revenue have encountered a major risk event. But when a major event
did occur – such as strategic, operational or geopolitical risk – 42% of these enterprises were not well-prepared for the
event.
The situation at smaller enterprises was better, but not much. Of enterprises with revenues under $5 billion, 46% experienced
a major risk event and 39% were not well-prepared.
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Rise and rise of XBRL: Masatomo Goto, Fujitsu (December 2007)
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XBRL – the international standard for computerising financial reporting information – is being increasingly adopted across
Europe, North America and Asia-Pacific.
XBRL dates back to 1999, when the specification for producing financial statements in XML was first published. Shortly after, XBRL International was founded and certified public accountants, users and software vendors joined the
consortium. Development and application of the specification is ongoing.
A key technical feature of XBRL is to have a set of data definitions called a taxonomy. By using a taxonomy, companies can
customise the required items of financial statements – such as the accounting subjects, display order or item names – even
though they differ by country, by region, by accounting rule or by company.
As the adoption and application of XBRL spreads, so users have requested more convenient features within it. To satisfy these
requests, standardisation is currently going on for three new specifications – Formula, Versioning and Rendering. But what will
these developments bring to accounting systems users?
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Counting on the costs: Alan Haines, Crystal Consulting (October 2007)
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Experience of activity based cost management (ABCM) projects has shown that this approach to costing and profitability
analysis attracts a wide spectrum of opinion. This ranges from whole-hearted support for something that will add value to the
decision-making process, to dismissal of ABCM as a costly, time-consuming and unnecessary additional expense.
The ABCM approach consists of identifying the cause-and-effect relationships between an organisation’s cost base
(resources), the procedures performed by staff and/or machinery (activities), and the products or services sold to customers
(cost objects). These relationships are then used to calculate the costs of the organisation’s products or services based on how
much they utilise the resources of the organisation.
The aim is a simple one, and difficult to argue against. The counter-argument would presumably be that an organisation
wouldn’t want (or need) to understand what it is spending its money on. But do such organisations exist? And if they do, for
how much longer?
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Getting the most out of outsourcing: Bloch/Narayanan/Seth, McKinsey (June 2007)
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The quality of offshore finance & accounting service providers has never been higher. Many have made significant investments
in the control and monitoring mechanisms needed for high-end functions, regulatory requirements, and complex finance
processes such as valuation reviews, legal-entity control and tax preparation. Some have even hired risk-and-control officers to
deal with Sarbanes-Oxley, Basel II and SEC reporting.
More sophisticated vendors enable companies to cut their labour costs by as much as 30-70% for offshored functions, to raise
productivity by at least 5% a year, and to improve their control and risk management. What’s more, these vendors offer
people-constrained finance operations flexibility – the ability to meet proliferating business needs quickly by tapping into a
highly skilled workforce.
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How not to do it: Mark Cracknell, Emcee Consultancy (April 2007)
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Something has finally driven you over the edge and you’ve decided that it is time to
change your finance system. But is this really the answer or a mistaken diagnosis? And,
even if your diagnosis is correct, what mistakes are made during the process of selection
and implementation of the new system?
Emcee has seen errors committed during both stages of the process that have cost the
organisations concerned significant time and money. To help you avoid making these
mistakes, here are our Top 10.
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The ABC of shared services: Mark Hixon, CAW (February 2007)
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During the late 80s and early 90s, businesses tended to focus on re-engineering their core business processes such as
‘developing new products and services’ or ‘providing customer service’. However, many have re-engineered these processes
past the point of diminishing returns. This has involved eliminating non-value adding activities, using new technology to get
customers to undertake more of the processes and designing products and services to pre-defined cost targets.
Companies have therefore returned to the old chestnut of how to reduce costs and improve service within the more traditional
‘overhead’ functions and processes such as finance, information systems, compliance and HR. As part of this process,
organisations are taking a more radical look at how these areas operate and how they can be measured.
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Cutting the red tape?: Martin Webster, Pinsent Masons (January 2007)
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After eight years of commissions, consultations and compromise, the UK Parliament finally
produced in November 2006 a new Companies Act. With over 1,200 sections this is reputedly
the largest piece of legislation ever put through Parliament, in the UK or indeed anywhere in the
world. The Act represents a major reform of UK corporate law, scrapping many fundamental
concepts and introducing just a few new ones.
A good starting point to grasping the significance of the Act is to understand some of the
motives behind these changes. Chancellor Gordon Brown has been keen to champion the UK
as the jurisdiction of choice for entrepreneurs looking to locate in a business-friendly
environment. So a strong deregulatory push does away with unnecessary obstacles to
business.
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SOX is good!: Phil Toohey, Adventus (November 2006)
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The Sarbanes-Oxley Act (SOX), introduced in the US in 2002, is constantly being described as
expensive to comply with whilst delivering zero benefits or value. It is very easy to support this
view and produce a multitude of facts and figures on the costs and effort expended by
companies in achieving compliance. It’s been done many times already.
Perhaps it is inevitable that as memories fade of how appalling corporate financial practice was,
how widespread it was, and how outraged were investors, some companies and pundits see
the costs and burdens and ignore the benefits…
In March 2006 General Motors (GM) announced it would be delaying its SEC filings due to an
accounting error and that its losses were $2 billion more than estimated for 2005. GM is not
alone. US analyst Glass Lewis & Co reported that 1,295 companies – that’s 8.4% of all SEC
registered firms – had to restate their accounts in 2005. Without SOX, says the company,
investors would “still be relying on false financial statements”.
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Not so simple: Yvette Lamidey, Paris&Parks Consulting (September 2006)
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Many companies run sophisticated financial and accounting systems with complicated and/or multiple payrolls, and
virtually all organisations will be old hands at end-of-year returns.
Yet, despite this, HM Revenues & Customs (HMRC) has found deficiencies in the systems being used for online
accounts filing by even large and/or experienced employers. Part of the problem may be that companies have operated
these processes for many years and haven’t been challenged on them, even though they do not meet all of the
legislative requirements.
If your organisation uses a bureau or payroll agent, or your payroll has been fully outsourced, you may feel the
guidelines in this article will not be relevant to you. But don’t completely switch off – make a note to check with the third
party to ensure each side is clear about who is doing what and when. And if you have changed payroll provider or
moved to a new bureau/outsourcer during this tax year, it is even more important that you check who is doing what for
this year end.
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Taking on the world: Sean Murphy, Xansa (July 2006)
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Every finance department is under pressure to reduce its costs and continuously enhance the service it delivers to the
business. The agenda is driven, as ever, by competitive pressures but also by the fact that the potential for making efficiency
gains so clearly exists in the finance function. With IT-based financial processes advancing, and geographical constraints
dissolving, the finance function of the future will be characterised by: fewer, more highly qualified staff taking on business advisory roles; increased automation of routine transaction processing; service level agreements (SLAs) between finance and its customers, with clear transaction-based pricing; a greater focus on financial control and risk management; and a virtual finance organisation using outsourcing to provide flexibility of resource.
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At the sharp end: Steve Chandler, Cornwell Management Consultants (May 2006)
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So, you think you need a new general ledger system? Are you sure? If so then read on
and learn about some of the major pitfalls that await you on your journey.
Cornwell’s own journey began at the end of 2004 when we decided that we needed a new
general ledger and job costing system. We were having difficulties with the speed of the
billing process and in extracting useful management information on which to base business
decisions. Surely a new system would solve all our problems at a stroke; or so we thought.
Unfortunately, the reality is that there is a lot of hard work involved in moving to a new
system and a lot of issues to be resolved along the way. Sharing some of the issues we
encountered with you will hopefully help you plan for them before you start your own
implementation.
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SOX: more red tape or the ultimate black mark?: John Hookham, Adrelia (March 06)
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In the summer of 2001, Enron’s share price plummeted to 20 cents as investors lost all
confidence in the company and its management. Mistrust of the auditors would come
later – a massive financial scandal was unfolding and it would not be the last to shake
the foundations of Wall Street.
Based on market capitalisation, the US is the world’s largest stock market, accounting
for over 50% of global worth – and so desperate measures were needed to re-instil
investor confidence. In July 2002, the US Government passed the Public Company
Accounting Reform and Investor Protection Act, sponsored by US Senator Paul
Sarbanes and US Representative Michael Oxley. This is the Sarbanes-Oxley Act, often
referred to as SOX.
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Famous five solutions for finance: Mark Cracknell, Emcee Consultancy (Nov 05)
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Many finance functions have IT systems that collect data in incredible detail and want to deliver the information to the
business. But where do they find a solution to this problem? Where once there were limited reporting solutions on the
market, there are now literally hundreds of options. This explosion in choice is largely due to relational database
designs built on open platforms multiplying the options open to the user.
Our work as vendor-independent consultants allows us to see many of the management information system (MISs) and
financial reporting solutions, what they can deliver and how they function. It has led us to conclude that despite the
number of vendors and products available, there are only five distinct solution options and that all offerings fall into one
of these distinct categories. Three of these solutions we would label ‘reporting systems’ and two are true ‘MISs’.
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Back in the black: John Bronjewski, Resources Global Professionals (Sept 2005)
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Two major product types now dominate the accounting systems market – enterprise resources planning (ERP) and
business performance management (BPM) software. ERP systems are a collection of application programs, closely
integrated into one technology platform, that tie together an enterprise’s various functions, such as finance/accounting,
HR, marketing, production and sales. They allow organisations to standardise and automate their transactions,
processes and reporting.
BPM systems are a collection of closed-loop management and analytical processes underpinned by technology that
support financial and operational activities. Core BPM processes include financial and operational planning,
consolidation and reporting, modelling, analysis, and monitoring of key performance indicators (KPIs) linked to
organisational strategy.
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From post-mortem to predictive planning: Mark Hixon, CAW (March 2005)
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Financial departments are continually under pressure. Previously well-delineated markets are merging, products are
becoming commodities and regulation gets ever more stringent. In the days when the returns on investment portfolios
were in double digits, most organisations would have weathered the storm. But today that safety net, which previously
might have masked operational inefficiencies and organisational ineptitude, simply isn’t there.
The pressures are forcing many organisations to reconsider their business models. For example, supply chains are
being disaggregated; functions, processes and product manufacture are being outsourced. Coupled with this, new
customers have to be acquired (and maintained) at minimal cost in order to generate shareholder value.
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