Lean

Monthly, quarterly and annual Closes and Discloses are an integral part of the business cycle. When you have a great month, quarter or year you want to share the great news, describe the success and give credit to your team for a job well done. When things don’t go well you need to explain why and, more importantly, detail the preventative actions being taken to return to success.

In many organizations the close to disclose cycle can be up to 25 business days.  Why?  What causes delays?  Delays have many sources – interminable hours of Variance Analysis, changing management assumptions, waiting for data, endless reviews and approvals, etc.

As a result of these delays critical information is not available when needed and the quality of that information is suspect. A scramble ensues to interpret results and disclose uncertain guidance. Credibility could be compromised.

Process quality is “multiplicative.”  Said differently, the true measure of your close to disclose process quality is to multiply the quality of each successive step in the overall process.  This is called “Rolled Throughput Yield” or RTY.  In our experience we have seen RTY for Finance processes frequently less than 40%! The impact of poor close to disclose process quality can be:

• Delays in providing crucial information to leadership and investors
• Terrible quality of life for your finance team due to frequent 80 hour weeks and constant scrutiny from auditors, leading to poor morale and greater than 50% turnover in many companies
• Uncertain guidance can have a negative impact on shareholder returns

There is a light at the end of the tunnel. Operational excellence processes are available for us to implement that can eliminate delays and dramatically improve the Financial Close to Disclose process quality, often improving current RTY by 50%.

By focusing on standardizing processes and eliminating waste, Financial professionals can enhance greatly enhance the business value of the Close to Disclose cycle and significantly improve credibility in the marketplace.

Look for our next blog, Financial Close to Disclose: The “One Day Close” and more information about optimizing your financial processes and our webinars at www.leanhorizons.com.

Is your finance team under enormous stress that leads to burnout? Is there low morale and high turnover? Lately this seems to be the rule rather than the exception. Increasing regulations, poor data integrity, demanding Boards of Directors, and outdated accounting systems and processes all contribute to long lead-times to close and disclose financial data. This is a major cause of the extreme pressure felt by financial departments.

Let’s say, for example, that the close occurs on day 15 and disclosure to “The Street” on Day 21 of the next month. In this case, the finance team becomes “historians” of old financial data by explaining variances, correcting errors, etc. The opportunity to be navigators toward success by quickly making competitive decisions and enacting countermeasures is missed.

Our experiences show that long accounting close cycles are the key factor contributing to this unfortunate state of affairs. Frequently, there is a large variance when comparing lead-time (total duration) to the actual effort time to close the books each month. Some companies have spent over 900 person-hours on their close with departments of roughly 50 people. This means each person contributed only about 2.25 total days of effort… but the closing process took as long as 17 days!

Not all is lost. We can deploy operational excellence optimization processes that can reduce the accounting close to less than a week… and in some cases to one or two days. In addition to accounting close, we can use optimization methodologies that can dramatically reduce the forecasting process lead-time for the FP&A (Financial Planning & Analysis) team.

Compressing lead-time from close to disclose enables financial professionals to transform their roles from “historians” to value-added “navigators” – management team members who successfully navigate toward future success for the business.

Look for our next blog, Financial Close to Disclose: Impact of Delays and Poor Quality, and more information about optimizing your financial processes and our webinars at www.leanhorizons.com.

Metrics…every company has them. Not all metrics are created equal, and quite frankly, some metrics can derail a Lean transformation.

I was with the CEO and CFO of a rather large industrial manufacturing company, and I learned that they measured their plant management on Machine Efficiency. When asked why, the CFO responded: “we paid a lot of money for these machines, and we want to make sure we fully utilize them”. [Read more…] about Are Your Metrics Holding You Back?