by Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)
In my last blog I talked about some of the steps CFOs and finance teams are taking to make sure that both the finance function and their entire organization is “future ready”. When looking at the finance function of the future, the first key thing to note is that smart CFOs have stopped 
focusing on shrinking the finance staff. Efforts to reinvent finance started over 20 years ago. The goal was to transform finance by eliminating low value tasks and replacing them with strategic decision support. If you analyzed finance team activities in the 1990s, you typically found that about two-thirds of work time was consumed by low value transaction processing with the remainder split with one-sixth going to financial control and the remaining one-sixth left for decision support.[i]
Since then, continuous waves of finance improvement projects have delivered results. When Hackett Group started benchmarking finance functions in 1992, the overall cost of the finance function as a percentage of sales were originally about 2% of revenue. Those costs have now dropped down to the current range of ½% to 1% of revenue.[ii] While that reduction is good news, the overall breakout of activities remains with two-thirds still going to transaction processing. Smart CFOs have realized the need to truly transform finance by changing the work their teams perform.
One of the areas experiencing the most change is planning, budgeting and forecasting which is transforming into next generation planning philosophies, processes and supporting systems. Enlightened finance teams are realizing the futility of spending four months negotiating annual budgets in a world that is constantly changing. A good analogy would be trying to steer a ship by looking backward at the ships wake. This is particularly true when you consider all the assumptions the budget is based on. Companies are moving to a forward-looking planning process that integrates strategic planning, forecasting, and rapid comparison of actual reporting information. This approach has several key advantages.
These include:
Constantly available – An integrated business planning system is always ready for continuous planning updates to respond to a changing environment.
Collaboration – An integrated business planning system is designed to share information across multiple functional silos. It is designed for interaction between different parts of the business.
Consensus building – An integrated business planning system allows managers to see how actions in one area impact results in another. Seeing the whole enables managers to develop combined plans that optimize potential results.
Complete picture – An Integrated business planning system provides a complete system that offers views of future horizons, and also combines to show consolidated impacts when results are closed. This includes capital plans and understanding the impacts on cash flow. Organizations are more successful when they can see all the impacts.
Cost effective – Leveraging an integrated system to eliminate the need for multiple data inputs when items inevitably change. Linking plans also helps teams communicate changes and coordinate appropriate responses. It promotes one version of the truth to be used by all.
Finance transformation truly occurs when finance teams stop doing dumb stuff (which stuff even if done correctly provides limited benefits) and utilize the time freed up to provide an integrated business plan that is robust enough to assist in multiple future scenarios. This is critical for companies like Statoil that operate in quickly changing environments. Thinking through a wide range of scenarios makes them future ready.
Next week, I will look at the new technology drivers that are enabling these more powerful systems. I will examine how in-memory processing enables these planning systems to take flight.
[i] For a detailed discussion, see the Statement on Management Accounting “Redesigning the Finance Function” published by the Institute of Management Accounting, 1997. This report uses finance metric benchmarks published by The Hackett Group.
[ii] See David Axson Best Practices in Planning and Management Reporting (Hoboken, NJ: John Wiley & Sons, 2003) p.7-8.
[iii] See “The True Measure of Finance Function Excellence: Deliver Value Efficiently” white paper published by the APQC in 2012 and Improving Decision-Making in Organizations: The Opportunity to Reinvent Finance Business Partners” report from Chartered Institute of Management Accountants (CIMA) in 2010.