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Close Fast, Close Smart

Close Fast, Close Smart

When it comes to closing the books, the benefits of speed are undeniable. And CIOs are uniquely positioned to help their organizations reap them

As long as they're meeting their regulatory reporting deadlines, most enterprises don't think a lot about closing their books more quickly.

Maybe they should start.

Increasingly, the speed with which an organization closes its books and reports its financial results is being looked at by practitioners, analysts and investors as a defining metric for evaluating whether the organization possesses the best possible processes and enabling technologies. And it turns out that many companies don't, even those making huge IT investments and supporting equally large IT departments.

World-class companies can close their books internally in five days, while top performers can do it in three, says Scott Holland, IT practice leader at the Hackett Group, a strategic advisory firm. But only about 10 percent of US enterprises are in that class, Holland says.

Ask a typical CIO how his company could improve its financial reporting and his recommendations most likely will focus on mechanics: normalizing data, collecting it and passing it on to some central repository. Some CIOs will go a little further to suggest that the data generation and gathering systems be reviewed for compliance requirements. And that's fine as far as it goes — except it doesn't go very far. It doesn't address what most CFOs need; it doesn't help the business run more intelligently; it doesn't cement IT-business alignment. No matter how integrated a company's financial streams are, CFOs will still struggle to close the books and issue the appropriate reports. Their staffs will still spend countless hours reconciling data gathered from multiple departments and systems — all under deadlines that are shrinking even as regulators ask for more information.

For many companies, meeting complex requirements, such as evaluating the effectiveness of newly required accuracy controls, in the same amount of time — or even in less time than before — forces executives to rethink their closing and reporting processes

At the very least, what the business needs from IT is a way to make the financial close and reporting process more efficient and accurate in order to lower costs and minimize the risk of providing incorrect information to stockholders and regulators.

But that's merely a tactical improvement. The real opportunities lie elsewhere. By redesigning the organization's financial processes and then implementing the technology infrastructure to execute them, business managers and executives can gain a near-real-time view of financial performance, enabling them to identify problems and opportunities much earlier. A second opportunity is to understand the relationships of all financial information so managers and executives can do analysis outside the box. Lastly, by providing accurate filings more quickly than your competitors, your company will increase investor confidence, and that will put a smile on the face of every business executive and make the CIO king for (at least) a day. (For how a faster close can lead to better business-IT alignment, see "Speeding Alignment".)

Needed: The Big Picture

Noel Gorvett is well aware of how an organization can miss the opportunities offered by speeding the close.

In 2002, Gorvett, the group business systems manager at book publisher Pearson, began exploring centralizing group reporting. The idea was to replace the more than 400 general ledgers and 80 ERP systems in use throughout the global publisher's operating units in 60 countries to track $US7 billion in annual revenue. The IT group's goal was more efficient maintenance through a common technology base. But the focus on platform integration overlooked a key business need: a way to report the financial information flowing through the systems in a meaningful, consistent way at the departmental and executive levels.

"Each Pearson department was working off its own assumptions," Gorvett recalls, such as the criteria for sales forecasts and profit margins. That made it difficult to create a consolidated financial report, much less to identify variations from plan so managers could act quickly while there was still time to do so usefully. It became clear to Pearson's group CFO in mid-2003 that a different approach was needed, one that focused on fixing inefficiencies in the financial reporting process itself and standardizing processes across Pearson. That way, executives could work from the same financial assumptions, no matter what applications they used to manage their books. This in turn would enable them to quickly identify significant differences across divisions and adjust strategies if needed. And the processes would gather the information that would be needed for compliance, regulatory and stockholder filings — no more scrambling to retrieve this information at each close from buried Excel spreadsheets or by running queries against transaction systems.

So Gorvett — working as a liaison between the CFO and the CIO — led Pearson on a tack that determined standard financial transaction, auditing and reporting processes for the whole company — creating, for the first time, a standard chart of accounts. This provided a unified list of all accounting data tracked to ensure that everyone used the same definitions and categories and that the enterprise captured all the financial information it needed at all locations.

The next step was to set up the technical requirements for what data needed to be captured from what sources, how it would be presented to the central financial reporting tool and what processes had to be followed to generate the results. That way, no matter what technology platform a division happened to use, the data that management was receiving would be consistent, accurate and timely.

The result: Pearson was able to close its quarterly books in six days (down from about 20) and reduce its year-end reporting time from eight weeks to six weeks. And because everyone was working from the same chart of accounts, financial staffers no longer had to burn the midnight oil to translate their financial information into what the executive team needed.

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