Fast Close

Why and How

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Fast Close Ground Rules

• It is not an IT project• You don’t need external consultants• It is not very useful on its own, unless your

ambition is simply wage-bill• It is important or essential for a modernised

finance team

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What is “fast close”?

• When is it fast enough?• How do we know we achieved it? • How much money and effort should be spent on it?

These questions mean we need an objective behind “fast close”.

Why are we doing it?

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Write 3 to 4 desirable outcomes of a fast close project.

Share with your neighbour“It sort of makes you stop and think, doesn't

it?”© New Yorker Magazine

Stop and Think (5 min)

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About your speaker

Tim Richardson, CPA

Career in IT & senior Finance roles in South East Asia and Europe. Major transformation projects.Founded GrowthPath in 2011, works mainly with SMEs $10m to $50m

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Play Presenter Bingo!I like to talk about Competitive

Difference, Diminishing Returns and Opportunity Cost.

Finance Transformation

Fast Close is interesting to profit engineering because it enables finance transformation• It frees time• It builds stronger links to the business• It forces closing and reporting to be more

relevant and useful

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About this presentation

“tasks ”: guidance for doing a fast close project.“Toolkit” slides are key ideas

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What we discuss today

• Technical steps• The link to finance transformation• How to define what you want from fast close• The project team

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Three possible outcomes of a technically successful fast close1. Finance team moves ‘up the food chain’2. Finance team gets more compliance and

control activities (scale up)3. Finance team is down-sized

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Fast Close: Some Technical Bits• Define, Measure, Benchmark & Set Targets• Evaluate, Streamline• Process Optimisation

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Step 0:

Define your close: Scope

• What is your month end close? • When does it begin? • When does it end? • What does it deliver? (margin, operational results, cash flow rec …)

• Are non-accounting KPIs included?• Who says it is finished?

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Step 0:

Define your close:Measure, Benchmark, Set Targets

Measure: see next slide

Benchmark: this is harder than it seems Target: Ultimately, you have to start from where you are and choose a level of ambition balancing stretch and reality

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Toolkit: Process Optimisation in 5 minutes

Task Dependency

Make a list of the tasks in closing. Work out which tasks depend on earlier tasks. Give each task an owner. Estimate time for each task. Then record a few closings. Tip: Owners sign-off completed steps on whiteboard/poster visible to all.

Precedent mapping: can use http://www.ganttproject.biz/ (free)

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Step 1:

We don’t aim for “No Close”

Closing is useful, it has a purpose.Purpose varies by organisation (listed, minority shareholders, banks, …)

• Task: define & minimise the must-do reasons you do month end closing

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Fast Close Toolkit:

About information & reporting• Useful information is information which influences useful decisions.

• The importance of information is a function of two things:its influence on a decision, and how important the decision is.

• Information needs change, and they change quickly.Compare with traditional “report pack”

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Step 2:

The Onion Layers of your close

• Task: Split the outcomes of your closing process into Must Haves, Should Haves and Nice to Haves.

• Then Process optimisation

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Toolkit: Process Optimisation

Faster vs SoonerIt’s not quite about doing it faster. Rather, it’s about finishing sooner.And having processes which take a predictable amount of time. (less risk)

How to make any step finish sooner:

1. Start sooner. Finding what inputs can be done earlier, even mid month2. Speed up the process itself though more capacity, more automation or more

efficiency3. Make the process more reliable by looking for variations in how long it takes over

different closings. High-variance steps need attention.

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Toolkit: Process OptimisationReduce variation, value reliability more than haste

Predicable, reliable processes are a better launchpad for steady reduction in cycle time than an initial “blitzkrieg” on process speed. The tortoise beats the hare.

Read more …six sigma ‘Black Belt’ (pioneered by GE). Six sigma is beloved by consultants, but it is not rocket science. Use it to supplement common sense. It combines some good ways to describe processes with some basic statistical tools to iteratively improve.

A good starting pointhttp://asq.org/learn-about-quality/six-sigma/tools.html

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Toolkit: Process Optimisation

Measure Quality (errors and variation)

A key insight from advanced process optimisation is that your Fast Close project should measure quality:• Number of errors (e.g. nbr of journals/rebookings after closing is

“finished”)• Variations in the time taken to finish, or better, in the time to

complete key steps.

• Errors and unpredictable durations are the signs of broken processes

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Step 3:

Who does closing depend on?

• Task: What are the key steps outside the Finance team which have to completed and handed-over before closing can begin, or before it can finish

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Fast Close: the bigger picture

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Step 4:

How is closing linked to budgeting, forecasting, business reviews and bonus targets?

Task: How is your closing effort “burdened” by comparatives and measurements from other financial or management processes?

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Time to revisit this slide…

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Make a distinction between two types of fast close project

1. Process OptimisationWhere the goal is to be faster, justified by operational reasons linked to the finance function

2. Transformative: as part of a project to change the finance function

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Fast Close:Making the Business Case…

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Fast Close: Easy to sell benefits

• Faster access to key information• Fewer errors due to better controlled process• A more scalable finance team: delay the need for head

count increases in a growing business• (or) Headcount reductions in the finance team

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Fast Close: transformation

Fast Close will always mean faster information. But it doesn’t guarantee better information.

Strong business cases behind a fast close project are mostly based on better use of the freed-up capacity of the Finance team.

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What is “Finance Transformation”?

Metaphors of “navigators”, “co-pilots”, “internal consultants”, “profit engineers” • What: Influencing the future: defined as commercial decision making• How: use finance core skills to define leading indicators and KPIs based

on competitive difference and business drivers, build business models and apply analytical skills

• … • If you have a CFO than wants to do this, Fast Close frees up Finance team

firepower to realise the vision. Because closing happens each month, it is an obvious source of capacity.

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Step 5

Opportunity cost

In other words, the higher the opportunity cost of the finance team, the stronger the business case of a fast close.

Task: define the opportunity cost of a day of your finance team

Think about the commercial decisions your business makes. What’s the value of 5% more GM on a typical deal? What’s the value in improving the product mix to shift to more profitable products? Etc.

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Transformation boosts a Fast Close project

1. It sets goals that are not arbitrary2. It gets resourcing and senior support3. It motivates people for change (rather than

scaring them that it’s about headcount reduction)

4. It is cross-functional

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Step 6:

Push your goals beyond a “2 day close”

When proposing a business case, you need to combine “transformation benefit” with pure and simple process improvement.Transformation benefits are much more $ but take more convincing arguments

Tip: aim high with transformation (what you will do with the saved time) and less on how much time you save

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Step 7:

Your credibility capitalFinance needs high credibility in delivering its core function before doing a fast close project.

Task: Decide via internal discussions if you have the support for a fast close project. If not, what are the starting conditions?Tip: justification for a fast close project can be quality improvement in the process

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Change management & resistance

A fast close means doing things differently.For example:• More accruals to estimate unknown expenses.• A reduced reporting pack.• Higher IT/automation skills expected of staff• Much stronger discipline about deadlines and

administrative processes

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The Finance Team after a fast close project

Less dominated by transactional work. Less rigidly functional. Better with IT. More embedded in the business.

Fast Close does not always mean headcount reductions, but it should always mean a different finance team.

Not everyone will be comfortable with this.

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The Fast Close project team

Representatives or mentors:IT, Senior finance, HR, Supply Chain, compliance

Skills:Accounting Process, reporting, system, change management, process analysis

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When is a fast close project finished?

Never: It is a classic case of continuous improvement

But effort spent must be tempered by …

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Toolkit

The law of diminishing returns

What is it? How is it relevant to a fast close project?

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The law of diminishing returns

Don’t over invest in a fast close project if there are easy wins elsewhere on the road to finance transformation

The budgeting, forecasting and business review process are key suspects.

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Think again about 3 to 4 desirable outcomes of a fast close project.

Have they changed?“It sort of makes you stop and think, doesn't

it?”© New Yorker Magazine

Stop and Think (5 min)

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QuestionsSend contact details to fastclose@growthpath.com.au to get slides and other resources

Book on process optimisation aspects:Fast Close: A Guide to Closing the Books Quickly, Steven Bragg (available from Kindle and Google Books)

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