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Corporate financial management strengthens planning and risk management.

Financial decision makers now have the opportunity to play an increasingly strategic role within their organizations. Unfortunately they may be suffering from a condition that diminishes their ability to plan and manage risk effectively.

Think about it; are you experiencing any of these symptoms?

• Poor visibility into current results;
• Lack of understanding of future performance trends;
• Poor speed and accuracy of the monthly financial reporting, budgeting and forecasting processes;
• Weak alignment between company strategy and planning process; and
• Limited ability to produce business models and test impact of proposed changes.

If any of these symptoms sound familiar, you may be suffering from unhealthy planning and unmanaged – or, at least, poorly managed – risk.

To address these challenges, financial leaders are now initiating corporate financial management (CFM) programs. This comprehensive perspective covers both core and strategic financials, extending existing financial systems to include capabilities for performance management (PM) that strengthen planning. As CFOs focus on addressing their strategic and operational challenges, they must invest in CFM systems and applications that enable them to meet key objectives.

CFOs are deploying integrated financial systems that enable them to seize the strategic high ground associated with smart finance. By introducing disciplined planning approaches and integrated financial systems, they are elevating their roles as strategic advisers and planners and guiding their enterprises to new levels of performance.

Driving Performance Through Better Planning

To improve overall business performance, CFOs have reasserted their role as owner of financial and management processes in recent years. A corporation with the right processes can turn its attention to evaluating strategies, assessing how to drive top-line growth and improve bottom-line results and using assets more effectively.

They realize that most management processes are linked in some way. Planning, budgeting and forecasting, for instance, are intrinsically intertwined with consolidation, reporting and analysis. These processes, in turn, provide critical insight for managing risk, steering organizational performance and shareholder value and making strategic decisions.

But what happens when financial systems and data are poorly integrated?

Many companies rely on spreadsheets as the critical tool for managing their financial planning and operational processes. It is clear, however, that the flexibility of spreadsheets has sometimes come at a cost. Spreadsheets offer no reliable audit trail to ensure data integrity, for example. Consequently, spreadsheets are difficult – and expensive – to audit. Studies have also shown that they are rife with flawed formulas and, as a result, bad data.[1] PriceWaterhouseCoopers suggests that as much as 90 percent of spreadsheets have errors and inaccuracies.[2]

As a result of these errors and inconsistencies, finance organizations are unable to effectively engage in planning and risk management activities. They lack not only visibility into current results, but insights into future trends. They lack the ability to report current financials accurately, but they also struggle to provide valuable forecasts. According to CFO Research, 60 percent of CFOs say the budgeting and planning process takes too long.[3] This limits the ability of CFOs to rise to a strategic level within their organizations.

CFM: Core and Strategic Financials

To address planning and risk management objectives, CFOs should look to corporate finance management as a proven solution.

In a single, integrated environment, CFM provides core financial applications such as general ledger, accounts payable and receivable, cash management, asset accounting and compliance. It also extends outward to manage and automate other nonstandard applications, such as procurement, contract management, vendor management and human capital management. It supports self-service transactions for procurement, expense management and human resources purposes. And, finally, it delivers powerful capabilities for reporting, analysis and performance management, which are necessary in addressing the strategic concerns of top decision makers.

Operational excellence around core financials is certainly essential. CFOs and their teams are expected to standardize transactional processes and deploy effective and efficient financial systems. They must deliver strong performance in everything from cash management to regulatory compliance to merely address foundational financial requirements.

But finance executives can’t stop there. To differentiate their companies and take their own careers to new levels, they must focus on strategic financials. They need to provide forward-looking insight that enhances strategic planning and decision making. They must extend the capabilities of their financial systems beyond core activities into new areas, automating more processes and driving productivity gains still higher. They need applications for performance management specifically designed for planning, budgeting, forecasting and financial reporting.

Enhancing Planning Through Performance Management

Performance management is a strategic area within CFM systems. It enables finance units to improve the effectiveness of their planning processes and gain access to accurate and timely financial plans and reports.

Mature solutions for PM will provide the breadth and depth of features and functions necessary to address all business processes that can potentially have a material impact on financial reporting and results. A solid solution for PM can help organizations:

• Increase enterprise risk visibility;
• Improve data integrity;
• Increase process integrity;
• Reduce close and publish times;
• Improve security;
• Automate manual processes;
• Enhance ability to trace and audit transactions;
• Deliver key performance information in real time; and
• Create and adapt realistic plans.

Effective systems for planning and performance management enable CFOs to address an array of key challenges. Among them:

Satisfying Both Corporate and Divisional Needs

When central departments and local divisions rely on their own financial systems, there is a heightened risk of inaccurate information. Instead organizations should search for and select a planning application that meets both central and local demands, i.e., a corporate standard that divisions can adapt to their own business models. A strong planning application allows companies to govern all financial processes centrally and connect them in a systematic manner. It combines predefined modules and planning processes with the ability to integrate unique organizational requirements. It provides integrated balance sheet creation, profit and loss statement creation, cash flow planning and loan planning, along with a technological framework to integrate individual planning requirements.

Creating a Common Platform

The goal of implementing a planning system is to provide the necessary intelligence about a company’s risk situation to enable managers to steer their operations and strategy with confidence. To provide this visibility into the business, the technology solution must connect all management processes through a common platform. With this type of framework, all business applications access the same models and data. This instantly raises the level of collaboration among processes, while facilitating software maintenance and development in the long term. An effective planning solution interacts with ERP, scorecarding and other applications to help companies make better decisions and create long-term value.

Empowering Users

Technology should expedite the planning process, not extend it. An effective planning solution, therefore, empowers business users to expand and maintain their applications on their own. The process of revising models, for example, must be as user-friendly as possible. Adapting structures (e.g., business units, sales regions, etc.) and creating ad hoc reports should be as easy as clicking a mouse. By giving users control over their own systems, they gain the incentive to use them.

Integrating Facts With Figures

In planning and budgeting, numbers by themselves can provide a misleading or inaccurate picture. Effective planning and budgeting systems can prevent misunderstandings by incorporating valuable background information. For example, some systems allow users to attach text documents, presentations, emails and external hyperlinks that provide context for the raw numbers.

Automating Processes

Companies require faster feedback and responses in the planning process to respond to constant changes in the market. By automating and standardizing this process wherever possible, organizations can increase their speed and accuracy in rolling up budgets. Time-consuming, error-prone data entry, for instance, can be minimized by creating customized user interfaces that reflect the needs and requirements of a particular stage of the process. This creates a relay effect, helping users complete their part of the budget quickly and accurately before passing it on to the next higher level.

From Stronger Planning to Stronger Performance

While operational excellence is necessary to address the core aspects of finance, it’s another challenge altogether to rise to a strategic level within the enterprise. This is the point where finance provides advice, insight and analysis that can differentiate a company and generate profitable growth.

Through robust CFM systems, finance can strengthen its planning and risk management capabilities. Indeed, finance becomes more predictive, providing actionable insight into where key business opportunities lie and how they can be seized. In this way, finance helps set plans and budgets that are truly reflective of strategic priorities. This is the path that finance organizations must follow if they are to be valued as strategic advisers within their organizations. This is the path of the enterprising CFO.

Endnotes

1. Panko, R. R. (2005b). Spreadsheet Research (SSR) Website.(http://www.cba.hawaii.edu/panko/ssr/). Honolulu, Hawaii: University of Hawaii.
2. PricewaterhouseCoopers survey, 2002; PriceWaterhouseCoopers (July 2004). “The Use of Spreadsheets: Considerations for Section 404 of the Sarbanes-Oxley.”
3. CFO Research, “Budgeting and Planning at Midsize Companies,” 2004.