Bottom performers spend five times more on Financial Reporting
By Clinton Jones on Sep 11, 2013
Reporting is often held up as the most pressing issue for finance executives, and in particular those that run SAP as their core system of record. This often means making significant investments in more reporting engines, better databases, etc,
The reality is that if your core system of record is really just paying lip service to your financial reporting requirements then what is the real value of that ERP system? Perhaps your problems lie in the fact that you are summarizing your data when posting it into SAP rather than posting it in detail. The best reporting systems in the world will not help you to improve this situation. You need to reconsider the way you post data in SAP.
Recent research by the American Productivity & Quality Center (APQC) from the APQC Open Standards Benchmarking Surveys database reveals some interesting facts around reporting costs.
For this view, APQC gathered the performance of 148 U.S. organizations with annual revenue greater than $1 billion that took the survey on financial reporting and answered the question about process cost.
The data shows that the bottom performers spend five times more on the process than the top performers. What the survey doesn’t reveal are all of the primary drivers, which is likely the amount of additional effort in terms of manual labour being spent on post processing analysis outside of the core system. Investing in process redesign and automation often brings cost savings in the report creation process. Until recently, the costs of automation just didn’t seem to make sense, but that is changing.
The true costs of reporting are higher than you think
Automation itself is normally a miniscule cost relative to the overall cost of sustained manually post processing in every reporting period.
In numerous conversations with organizations in Europe and North America, the same complaint arises: “My financial reporting could be better, but for it to be better I need more detail at the line level in order to do better categorization, classification and post processing analysis.” At one particular large software company, the situation was so chronic that a full time analyst was assigned from the finance department to every profit and cost center in order to help them rework their allocations every month. Part of this process involved identifying and weeding out expense transactions that should have been capitalized and performing pro-rata reallocations at the division and sub-division level based on vague metrics such as headcount.
Going Atomic is the Key
Conversations with Winshuttle customers in the utilities sector in particular, revealed that after implementing some basic automation for SAP they were able to now post costs like transportation and telephone usage with so much more detail that they could quickly identify areas where contracts needed to be renegotiated or business practices reevaluated. Up until the time that Winshuttle was implemented, these expenses had all been posted as summaries and allocated based on some general characteristics usually associated with divisional size.
Without data at an atomic level, every transaction line allocated as appropriately as necessary, the final reporting will be faulty. Having a specific level of data granularity doesn’t imply that you need to pass all this data to your BI/BW system, but it does lend itself to a higher level of precision. SAP COPA in particular, supports very granular posting of data but also supports the concept of summarization done within the COPA structures themselves.
As an illustrative example, consider a company of 10,000 employees, simplistically divided into ten divisions: 5 divisions of 1,000 employees, 2 divisions of 2,000, two divisions of 400 and one division of 200. Consider that every employee has a phone contract and that phone contract costs $100 per month. In the division that has 200 employees, the majority of their calls are overseas, and so even though the $100 per month negotiated phone contract covers all local calls, they regularly run a phone bill of $250,000 just for their division.
Taking the 10,000 employees with $100 contracts, the monthly bill for telephone services should be around $1,000,000 but when you add the $250,000 it comes in at $1.25M; using summarization you would typically allocate that across the divisions based on headcount. This means that for the 200 man division, the billing allocation for phone services would only amount to $25,000 and for the five 1000 man divisions, $125k each. Line of business managers who know that a negotiated contract exists will understandably object to the additional 25% that they are carrying in phone costs – this could all be avoided if appropriate allocations are made.
Winshuttle supports the ability to post as much or as little detail into SAP as you require. A particular advantage is that this can be done using the data natively provided by your telecom provider or credit card institution. To read more on how customers have successfully implemented improvements in their finance function around posting more detailed transactions in SAP have a read of these case studies:
- BBraun Medical Remedies SAP Data Entry Process with Winshuttle
- Wales & West Distributes Data Entry Savings Across the Company with Winshuttle
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