Fast Close – Business Challenges
Fast close increases trust and provides competitive advantage. I discussed the business drivers behind fast close in my previous post “Fast Close – Business Drivers”. If fast close is so useful then why it isn’t the norm rather than exception? The answer to this question is in understanding the various business challenges that hinder the close process.
Close process from data processing perspective can be split into data collection, data consolidation and data reporting. Each of these stages has their own unique challenges that impose a time bound hurdle towards fast close. Business and IT staff spend so much time during close cycle in resolving these issues that a targeted fast close becomes impossible to achieve. Let’s discuss some of these challenges in detail.
Data Collection
Data collection objective is to collect data from all the data sources and translate it into one common view (data normalization) on the basis of common set of definitions.
a) Mixed IT Environment
Global Organizations often utilize multiple ERP and legacy applications. The data across these applications is often not standardized (like GL Accounts, Plant codes, etc). Mixed IT environments with non-standardized data definitions result in data mapping, transfer and reconciliation effort.
b) Data Accuracy
Period close involves data from multiple functional areas (like financial, forecasting, budgeting, etc). A lot of organizations still maintain most of the non-financial data offline in excel spreadsheets. Offline maintenance and manual entry raises data accuracy concerns.
c) Complex Business Model
Complex business models and global operations lead to complexity in data collection by multiple teams. There can be processes that extend outside the organization to supply chain partners and customers that complicate the data collection process further.
Data Consolidation
Data consolidation objective is to process the normalized data according to the accounting rules provided by the relevant accounting bodies.
a) Foreign Subsidiaries
Subsidiaries in different countries have different reporting needs that are based on currency translation.
b) Inter-company transactions
Inter-company reconciliation and eliminations is a time consuming task.
c) Accruals and other closing adjustments
Data Reporting
Data reporting objective is to provide internal (management) and external (statutory) reports on the consolidated data. The data reporting complexity arises due to the diversity of reports (Financial statements, cash flow, tax, inventory, etc) that are required by various countries in different formats, currencies and according to different accounting standards.
The various business challenges have a cumulative impact on close timelines. The reason why majority of the organizations have not been able to achieve fast close is because of the drain these challenges impose on resources and timelines. However, these challenges can be resolved from people, process and technology perspective. Wait for my next post on what SAP has to offer to automate and resolve these challenges.
