Best Practice Financial Performance Management

… are you delivering?

 

The following Sonar article was published by the ICAEW Business Advice Service on their “Smarter Business Network” on 23 February 2015 (click here to go to their website) and on LinkedIn (click here).

 

 

The primary purpose and value of financial performance management is to be able to effectively plan, deploy and deliver against a business’s strategic objectives. Everything else is secondary. It is the management team’s core duty to put in place the people, processes and technologies required in order to achieve this.

 

Your finance department’s ability to provide insight for better decision-making is critical if your business hopes to achieve a competitive advantage against the broader market. Adding to this challenge, finance functions face a daily struggle to derive meaningful, insightful analysis from increasingly large and complex amounts of data.

 

In light of this, is your finance function managing to deliver effective performance management? Are staff bogged down in the processes of delivery or have they achieved the elusive status of “best practice”, enabling them to focus on value-adding and forward-looking analytics?

 

 

Background

 

Having spent the last 10 years working as the Head of Group Financial Planning and Analysis (FP&A) for some of the UK’s most successful multinationals, Bruce has gained first hand insight into how different businesses leverage their finance reporting capabilities.

 

During that time he experimented with a range of traditional and best practice techniques. Despite their many differences, all approaches were underpinned by the same guiding principles, requiring a robust but flexible synergy between people, technology and process:

 

  • People: Business insight is a people skill; technology alone cannot do it for you.
  • Technology: Technology brings people together and provides them with the tools to reach far into the business, rapidly assimilate information, and communicate.
  • Processes: Processes are merely the ways in which people and systems interact with each other. Done well, they deliver significant synergies and efficiencies.

 

The collective balance between these elements (in addition to the measurement of accuracy and timeliness of reporting) is often described as “best practice”, but there is more to this than meets the eye. It requires a business culture that takes finance seriously and an ability for finance and its systems to evolve as business needs change over time.

 

 

The building blocks of Best Practice

 

  1. Common language

A cornerstone of effective performance management is a business’s ability to clearly and quickly communicate its needs, share information with the right people and collate responses. Processes and procedures need to be formalised in order to avoid any loss of translation across distance and time. Focus your available time and resources on value-adding activities.

 

  • Identify and separate needs from wants from within the business.
  • Establish direct working relationships and shared ownership of output between Finance and Systems teams.
  • Maintain common systems, charts of accounts, governance and policies.
  • Formalise consistent and well-understood quality standards (i.e. service level agreements and qualitative measures).
  • Eliminate multiple versions of the same data.
  • Publish common assumptions and drivers, with consistent measures of performance across products, markets and geographies.
  • Make financial reporting visual and legible to non-finance users.
  • “Single version of the truth” reporting - eliminate confusion or duplication.
  • Reinforce written instructions with verbal communication.
  • Handle email once. Avoid cc’ing. Focus on active participants and limit spectators.

 

 

  1. Alignment

Work together towards shared goals and eliminate activities that stray from common objectives. It seems obvious, but it’s frightening how often businesses do not do this. Individual departments or teams are rarely at fault, with the root cause more commonly due to a lack of clear executive stewardship and poor top-down communication. Individual teams can quickly find themselves unwittingly working against each other, competing on duplicative projects or beavering away in silos unaware of what parallel teams are doing.

 

Senior management needs to establish clear questions, without which it’s impossible for the broader business to provide the right answers. A leadership team that routinely relies upon its managers to come up with both the questions and the answers will ultimately fail and risks losing good staff along the way.

 

  • Define and communicate clear functional roles and responsibilities.
  • Align all finance processes with the business’s longer-term strategic objectives.
  • Link planning, budgeting, forecasting & reporting to common systems and data sets.
  • Consider both centralised and ‘in-country’ FP&A structures to better serve operational and corporate needs.
  • Match the volatility of the business and its markets to forecasting frequency.
  • Establish formal links from non-finance areas into the planning process.
  • Balance the different needs of internal management reporting with external stakeholder management, but ensure that internal performance measures are aligned to external targets.

 

Critically, whist improved alignment will lead to increased resource efficiency, it must not be allowed to stifle innovation. Formally create the space and time for the exploration of new ideas. Innovation is rarely bred from focussing exclusively on existing process - people need the space in which to experiment with, test and showcase new ideas.

 

 

  1. Technology as Enabler

Technology in isolation can inhibit efficiency. Having the best or latest technology is no guarantee of success if you are simply automating bad practices or habits.

 

Its value to businesses, especially those that are very complex and geographically diverse, is its ability to bring people closer together. It provides them with the tools to reach far into the business, to rapidly assimilate information and to communicate with each other, whilst simultaneously enabling them to step back and appraise the bigger picture, both internally and externally.

 

  • Integrate technology and processes, ensuring that people interact with it appropriately.
  • Use the same systems for planning, budgeting, forecasting and reporting.
  • Simplify and automate processes, freeing up staff to spend more time on analysis.
  • Systemise validations and controls, removing manual intervention.
  • Monitor process efficiency and reporting accuracy in an open, transparent way.
  • Fully utilise available resources. Don’t keep your Ferrari in 1st gear. Equally, if you only need a Golf to get from A to B, don’t buy a Ferrari.
  • Maximise existing systems and software capabilities before considering new purchases.

 

 

  1. People: Skills, Culture, Ambition

 

Successfully changing a business’s approach to performance management comes not just from reengineering processes, but also from a cultural shift throughout the organisation. Involving the right stakeholders in the setting of strategic objectives and clarifying organisational roles and responsibilities is the first step towards collaborative working and participative planning. Indeed, bringing varied people together can provide greater insight and understanding of key drivers, reduce politics and promote synergies across the entire performance management cycle.

 

Embedding finance analysts into key operational areas of the business and developing centres of technical excellence within the organisation strengthens the partnership between finance and the business leadership. Direct collaboration also leads to a more efficient interpretation of data, better decision-making and increased organisational agility. New ideas and initiatives can quickly be evaluated and, once approved, implemented.

 

  • Ensure Executive-level stewardship and support of a broader finance role in the business.
  • Build a matrix of people, technology and best practice methodology.
  • Balance centralised with decentralised decision making.
  • Create centres of technical excellence, supporting both the finance and non-finance areas of the business.
  • Train, support and empower staff in the skills they need in order to fulfil their daily responsibilities, whilst still maintaining the enthusiasm and ability to challenge the status quo.

 

 

Thinking time

 

Before concluding, there are two final points worth remembering:

 

  • There is a difference between best practice and “best in class”. It is always good to strive for ‘better’, but for most businesses the straightforward delivery of robust, accurate, timely reporting and analytics is more than enough… so long as they are delivered!
  • People need time for free thinking. With an ever-increasing flow of information and explosion in competing technologies, our brains need their own processing time. Constantly working allows no time for refinement or the evaluation of new ideas. Making sure that "thinking time" is built into your daily routine will help people move from a reactive to a proactive approach.

 

 

Conclusion

 

Best practice management reporting is within reach of all businesses. It does not require a big bang approach to new technology. Start with the basics, involve all areas of the business, and don’t stop refining and challenging your approach until you have an operating model that works effectively and efficiently for you.

 

You’ll most likely find that your business executive will me more than willing to support a business case for change if you can demonstrate how improvements to your finance function will enable it to more insightfully and effectively help them in their strategic decision making.

 

Keep asking your self the question: Are you using your existing people, technologies and systems to their full potential?

 

Contact Sonar now, we can help you evaluate the effectiveness of your overall finance reporting, guide you along the path towards achieving "best practice" and enhance your finance team's skills.