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How to Improve Closing, Consolidating and

Financial Reporting Processes

Tom Willman

Global Practice Leader, Finance Advisory

The Hackett Group

Pat Calitri

Director, Financial Close Management, Presales

IBM

Tuesday, June 21, 2011


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The Journey to World-Class

How to Improve Closing, Consolidations and FinancialReporting Processes

Presented by:

Tom WillmanGlobal Practice Leader, Finance Advisory

The Hackett Group


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Page 3How to Improve the Closing, Consolidations and Financial Reporting Processes

© 2011 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Who is Hackett and What Do We Do?

Select Metrics for World-Class Finance Organizations

Challenges and Leading Practices in Closing, Consolidations and Reporting

Agenda


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The Hackett Group difference: intellectual capital and implementationexpertise that accelerates the time to sustainable benefit realization

We are the global leader in operations improvement strategies,

implementation know-how, and SG&A agility

We address both efficiency and effectiveness improvements to

enable strategic business objectives

Our insights are fact based, from over 5,000 benchmark studies

and consulting engagements

Our Best Practices Intelligence Center™ is a significant

differentiator and enabler. It contains:

– 20,000+ performance metrics updated annually

– 1,700+ best practices across 95 business processes

– 1,000+ best practice-based process maps, requirements and

configuration guides

– 1,000+ case studies, implementation examples and research

We deliver results through a global team of senior practitioners

using a consistent methodology and best practice-based toolset

Hackett Value Grid™

Hackett defines and enables sustainable world-class performance


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97%of the Dow Jones Industrials

80%of theFortune 100

88%of the Dow JonesGlobal Titans

80%of theDAX 30

49%of theFTSE 100

35%of theCAC 40

We know how the best do it,

where they do it, and the benefit of doing it.


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The Hackett Group – What do we do?Hackett analyzes both efficiency and effectiveness performance drivers to identify World-Class performers and assists our clients in achieving their improvement objectives

Hackett Value Grid™

E f f e

c t i v e n e s s

E f f i c i e n c

y

Complexity

Reduction

Operating

Excellence

C O S T

S E R V I C E

V A L U E

Strategic Business

Enablement

EFFECTIVENESS

Agility / Scalability

Alignment withbusiness

Supplier leverage

Economic return

Quality

Access to information

Working Capital

EFFICIENCY

Cost

Cycle time

Productivity

Staffing

Technology leverage


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Agenda


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World-class finance organizations have shown superior ability torespond to risk and volatility…

Financial crisis &

recession

1.50%

1.28%1.10%

1.00%0.90%

0.72% 0.74% 0.73% 0.67% 0.61% 0.59% 0.60% 0.61% 0.63%

1.90%1.70%

1.50%1.40%

1.20%1.10% 1.08%

1.26% 1.22% 1.24% 1.17% 1.13% 1.16% 1.22%

1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010 2011

Response to

Sarbanes-Oxley act

31%51%

World-Class to Peer Gap

Source: Hackett Finance Function Benchmark, 2011


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Efficiency: World-class organizations operate with fewer FTEs andlower cost within their Account-to-Report process(es)

Source: Hackett Finance Benchmark

0.176%

0.096%

Peer Group World Class

Process Cost as a Percent ofRevenueFTEs per Billion of Revenue


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Effectiveness: 28% of World-class companies close their books infewer than 4 days

Source: Hackett Finance Benchmark

17%

28%

39%


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Agenda


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Today’s Challenges

The role of finance is changing and executives are faced with increased need for fast andreliable information while meeting new regulatory requirements.

One SourceOf the Truth

Finance’s role &responsibilities /

compliance

People &Governance

RegulatoryRequirements

(e.g., XBRL, IFRS) Timeliness,Transparency

Efficiency &Effectiveness

Data Quality &Consistency

12


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Source: Hackett, Book of numbers 2006, 2007, 2008, 2009, 2010 and performance studies 2008

D e m a n

d

1. Effective deliverymodel & business

partnering

World Class companies make better use of fewer, more highly

skilled people by optimizing their service delivery model – Controllers are business partners with prior business experience, at least 2/3 of their time isspent on value adding activities (optimizes demand)

– EPM Process cost is lower by 32%

– 60% leverage Shared Services for report production

S u p p l y

2. Fast integrated

processes

World Class companies close quickly and analyze more – 5 days to close the books , 1 to 3 days to produce Statutory and Management reports

– Allocations are based on predefined estimates and / or budgets, then reconciled periodically

– Process levers are pulled – materiality policy, soft close, recurring journals, reduced reviews – Published Financial Statements is not a re-key process

3. Single view of

the truth

World Class companies focus on the vital few, key issues – 95%+ use common data definitions

– 78% report from a single data repository

– 59% less reports are produced overall

– Comprehensive policies and procedures exist and are used (e.g., intercompany)

4. On-line integrated

systems and

reporting

World Class companies rely on robust, integrated technologies – Users have access to near real-time information and transparency to source data

– 70%+ of organizations use on-line integrated systems to enable EPM processes

– 75% of organizations expect greater automation in EPM in the next 2 years

World Class - Integrated CloseWorld Class companies are distinguished with four characteristics that set them apart from their peers


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World Class - Fast Integrated ProcessesWorld Class companies close 50% quicker with first quartile companies taking less than three days. Theyachieve this through process improvement techniques and improved use of technology; with continuousimprovement and metrics integrated into the process

Process discipline and policies

– Published closing calendar with enforced cut-off dates

for transaction processing

– Standardized (and enforced) materiality levels

– Shift activities off peak

Simplification and reduction of complexity

– Use few accounts (half of peers) with “Thin ledger”

– Simplify legal structures

– Eliminate or simplify cost allocation

Use of existing tools and technology

– Automation of journal entries and allocations

– Automation of cost allocations, if they can’t be

eliminated

13.9

8.1


Legal Entities per Billion of Revenue

2,187

1,172


Manual JEs per FTE

Source: 2010 Hackett Finance Benchmark


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World Class - Single View of Truth & Integrated Systems An overwhelming percentage of world class companies (greater than 95%) have common data definitions andcoding standards – critical to a successful A2R process and downstream EPM processes

Common (or enterprise) standard COA reinforcedwith established governance of data and COA

– Common general ledger on a single platform integrated with

sub-systems and data warehouse

– Documented definitions, usages, hierarchies, and processes

(where data captured)

– Established governance (committees, COEs) with clear

authority and decision framework

Integrated and Streamlined Technology

– Front-end controls are automatically integrated into the

process to detect /correct errors at the source

– Use of a consolidation system to support multiple views(e.g., XBRL tagging) and report across entities and BUs

– Robust workflow with process monitoring

– Automated reports from central repository

% of Reports Generated

From Central Repository

% of Companies Operating with Data

Definitions and Standards

80%

96%

Peer group World Class

120%

54%

78%

144%

Peer group World Class

Source: 2010 Hackett Finance Benchmark


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Closing Thoughts

Leading organizations focus relentlessly on driving process simplification and

standardization in the face of increasing business and regulatory complexity Leading companies continue to invest in the Close, Consolidations and

Financial Reporting process which is the backbone they leverage to set

themselves apart from their peers relative to business performance reporting

and financial reporting

The building blocks of an efficient and effective enterprise close andconsolidation provide broader organizational value through more reliable

information and more business directed focus

A single version of the truth and integrated systems are critical to successful,

and flexible processes ; the adoption of enterprise-wide data standards and

associated governance are necessary foundations


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Contact Information

The Hackett Group

World Headquarters

Suite N5001117 Perimeter Center West

Atlanta, GA 30338

Phone: +1 770 225 3600

Martin House

5 Martin Lane

London EC4R 0DP

Phone: +44 207 398 9100

Torhaus Westhafen

Speicherstrasse 59

60327 Frankfurt am Main, Germany

Phone: +49 69 900217 0

8, rue de Port Mahon75002 Paris, France

Phone: +33 1 53 43 0400

Strawinskylaan 3051G, 1077 ZX

Amsterdam, The Netherlands

Phone: +31 20 301 2210

Tom Willman


Phone: +1 770 225 7286

[email protected]

mailto:[email protected]:[email protected]


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© 2010 IBM CorporationBusiness Analytics software

How to Improve Closing, Consolidatingand Financial Reporting Processes


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© 2010 IBM Corporation

Business Analytics software

• Insights into the Integrated Financial Close ManagementProcess

• IBM Cognos FSR – An Integrated CCR Solution

Agenda


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Lack of unified platform for managing the financial closemanagement steps

– Finance professionals to labour through hundreds of manual

and administrative checks

– Update and checking hundreds of offline spreadsheets

– Little or no visibility into the status of steps in closing process – Waste of time in performing redundant data checks

Excessive overtime or missed compliance deadlines

• Close activities prove to be extremely inefficient and

costly• Inconsistent data from various subsidiaries – multiple

GL, ERP, and disparate transactional systems

Current Problems with CCR Activities


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Why companies invest in integrated CCR solutions – To make efficient and effective business decisions

– Strengthen the companies ability to provide timely and accurate

data for better business decisions

– Obtain financial information in a controlled, auditable process

– Ensure data integrity and transparency needed to comply with

various regulatory requirements

– Evaluating and limiting the risks of errors

– Obtain a single platform in order to enhance and monitor

internal controls

– Automate the production of consolidated financials and external

compliance reports

Integrating the CCR process


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Automating the creation of internal and external reports – Provides a unified financial governance platform – Provides a single version of the truth

Integration to source data – GL’s, ERP, financialconsolidation, OLAP, spreadsheets, etc

Integrated XBRL tagging capabilities – tagging isembedded in within the external reporting process

Workflow and task management dashboard

Enhanced Security – control access to sensitive data

Report Consistency – ensure same numbers acrossseparate reports with same data points

Advances in Disclosure Management Solutions


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New disclosure requirements make is imperative tostreamline and automate manual tasks in the close,consolidate & report process

Companies constantly looking at improving the timingand quality of information in reports

Follow best practise to embed compliance and controlsinto each step of the financial close process

The need to maintain data integrity in a secureenvironment

Enhance decision making – flipping back and forthbetween data sources is inefficient and ineffective

Why the ‘need’ for Integrated CCR Solution


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© 2010 IBM CorporationBusiness Analytics software

Insights into the Integrated Financial

Close Management Process


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Source: IBM Institute for Business Value, The Global CFO Study 2010

Finance Efficiency

Business Insight

Demands on Finance

Help drive enterprise cost

reduction

Support risk

management

Partner in strategy and

value creation

Improve access to and

reduce cost of capital

Provide performance

insight and anticipate

Finance Capabil i t ies

Needed

A broader enterprise focused role requires core Finance efficiency be in place to reliably

support business insight and decision making

Addressing the broader enterprise focused role of finance


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CLOSE CONSOLIDATE REPORT

First Mile

Data qual i ty and contro l

system for col lect ion and

reconci l ia t ion

Consol idat ion Financia l conso l idat ion and

systems for process ing and

preparat ion

Last Mile

Leveraging finan cial data

t rapped in the close processfor report ing Cert i fy ing and

pub l ishing external

documents

Firs t Mile Conso lidation Las t Mile

• Data Inpu t &Changes

• Collect From

Subsidiar ies

Closing Process

(Consolidation System)

• Close Sub Ledgersand Systems

• AccountReconci l iat ion

• Intercompanyt ransact ions

• Prepare journalentr ies: accruals & adjustments

Closing Process

(Accounting Processes)

Compl iance & Contro l

• Create singlecurrencies

• Minori ty interest

holdings

• Intercompanyel iminat ions

• Group closing adj .

• Managementadjustments

• Al locat ions

• Advanced

formulacalculat ions

Internal con trols & comp l iance test ing

Consol idat ion


Internal Report in g

• Financial report ingadjustments

• Cash f low & otherpreparat ion

External Report in g

• Financialstatementpreparat ion

• Publ ish qu arterly,annual repor ts

• Financial report in g

• BI report ingsystems

Report ing


Report ing

(Reporting Systems)

The Close, Consolidate, Report Process


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Contributors

Approvers

Report Consumers

Reviewers

Document Managers

A closer look at the current reporting process...

Editing, updating, and review of reports done in multiple versions ofoffline Excel spreadsheets, Word docs and PowerPoint slides

– MS Office tools not integrated into processes which leads to little visibility

or auditability of data within

– Version control is a nightmare

– Pieces of data and analysis need to be shared across multiple reports for

different audiences

– Not everyone has access to same files

High risk of errors

– Report data not integrated with source data

– Requires multiple manual updates of financial or operational data in tables

and narrative commentary

– Requires time-consuming checks to ensure data in up-to-date and to

ensure integrity of data throughout the report(s)

And little security

– Primary collaboration tool is unsecured email

– No central, collaborative solution for preparing reports

– No controls, audit trail or security over using MS Office & email

– Confidential information can be easily leaked

Risks of Manual MS-Office Reporting


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Business Drivers

Close,Consolidate,and Report

Analyze &Optimize

Plan, Forecast,and Control

Performance Reporting and Scorecarding

Feature Benefit

User prior report as a template for the

next period

No need to re-apply formatting

Automatically load new data No need to re-key data

Feature Benefit

Integration to source data No re-keying of data

Variables in text Consistency across the report

Validation Rules Numbers always tie-out

One version of the truth Start reviewing the final report sooner

Feature Benefit

Security to view or edit each

object

Users only see the data they are

supposed to see

Workflow controls access

throughout the process

Users only see data when they are

allowed to see it

Access to information is controlled

Feature Benefit

Compliance Checklists To ensure that the right steps are being

followed

Audit Trail To track who did what, and when theydid it

Increased confidence in the final report

Risk of Errors

Risk of Insider Leaks

Risk of Late Filing

Risk of Non-Compliance

Financial Close Process has a High Degree of Risk


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• Manual processes dominates “The Last Mile”

– Bottlenecks in document creation

– Collaboration is tedious

– Copy and paste exercises with Word, Excel and e-mails back and forth

– Non-existent or minimal internal controls

– No detailed audit trail of activities and user modifications – Many opportunities for data accuracy issues

– Limited flexibility

Manual Processes Repeated Each Period

Monthly Reports,

Quarterly Reports,

Annual Reports,

Internal Reports,

Flash Reports

Planning

Modeling

Budgeting

Forecasting

Consolidation

Reporting

The Last Mile

3

The Last Mile


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Pat Calitri, Solutions Engineers, IBM

IBM Cognos FSR –

An Integrated CCR Solution


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32

Key features:

– Leverage the formatting capabilities of MS-Word & Excel as well asthe calculation features of MS-Excel

– Dynamically driven from a central database

– Controlled access with full audit trail

– Workflow for report reviews and approvals

– Integrated XBRL tagging is part of the process, not an after-thought

– Automated Roll-Forward of XBRL Tags for subsequent periods

IBM Cognos FSR – What it is


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SOURCESYSTEMS

T RI

C KL E

Financial Reports

Output

Requirements

EDGAR-

ready

REAL TIME

REAL TIME

C O G N O S

DIRECT TO FSR

CloseReports

Excel Reports

TM1 Explorer

Go Office

True Integrated Financial Governance


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Application Configuration Approach

Financed Owned

Rapid Time to Value

Built-in Financial Intelligence

Deep Consolidation Functions

Multi Jurisdictional GAAP Reporting

Familiar Web & Excel User Interface

Consolidation Workflow

260+ Working Reports – Out of the Box

IBM Cognos Controller Extend with:

IBM Cognos TM1

IBM Cognos BI

Performance Blueprints

IBM Cognos Controller


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Finance Consolidation Intelligence

PURPOSE BUILT directly into the solution and user interface

Allows organizations to leverage CONSOLIDATION BEST PRACTICES

Secure auditable closing

Single Application Approach - Adaptability and Flexibility

RICH APPLICATION FUNCTIONALITY out of the box

– Multiple Roll Ups (hierarchies) – Data from disparate sources

ADAPTABLE to changing business conditions and external requirements

OWNED BY FINANCE – low dependence on external consultants or IT = low total cost of ownership

Reporting, analysis, budgeting and information delivery

ON DEMAND REPORTS for understanding and certifying company consolidations

BUILT-IN, standard financial and management performance reporting LEVERAGE Cognos BI & Planning tools for analysis, budgeting and broader reporting

Low Implementation Risk

FINANCE DRIVEN solution for rapid implementation

NO CODING system design = low risk approach to system success

Cognos Controller


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36Integrated Financial Governance Solution

Business Drivers

Close,Consolidate,and Report

Analyze &Optimize

Plan, Forecast,and Control

Performance Reporting and Scorecarding

Investor

Relations

Regulatory

Reporting

Internal

Reporting

Legal

• Press Releases

• Annual Report• Prospectus

• News Wire Releases

• Board Books

• Flash Reporting

• Management Reporting

• Reporting to Federal,

State and local

agencies

• Notes & Exhibits to

Statutory Filings

• Proxy Statements

• Statutory Reporting

• SEC Filings (10K, 10Q, etc.)

• CSR Reports

36

Sharing Information Across the Organization


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Internal Reporting, including:

• Flash Reports• Board Books

• Budget Books

• Other Internal Reporting Packages

CEO/CFO Certification Process

GAAP to IFRS Conversion

Corporate Social Responsibility (CSR) Reporting

Enterprise Risk Management

Reconciliation Management

Extending the Value of FSR Beyond External Reporting


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IBM Cognos FSR

ApproversReport Consumers

Document Managers

Reviewers

Consolidations

WebData Warehouse

ERP

Contributors

Excel OLAP

A unified governance platform for automating

internal management reporting processes Integrate with any data source to ensure a single

source of the truth

Use web templates to automate data collection

from anywhere in the world

Variables in text provide real time data updates

within reports

Enhance controls and security with audit trail

reporting and embedded approval checklists

Workflow and task management tools provide

greater visibility into every step of the process

Create/update content once and automatically

update that content across multiple reports

Multi-author environment allows for

collaboration in creating content-rich reports

User friendly and familiar interface of MS Office

Business rules and embedded validation greatly

reduce risk of errors

Generate reports in multiple formats including

PDF & Powerpoint, MS Word and more

Automate Manual Internal Reporting with Cognos FSR


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Q&A

Tom Willman


The Hackett Group

Pat Calitri

Director, Financial Close Management, Presales

IBM

Slide Deck Ibm Sponsored Webcast With Cfo Publishing 06-21-11

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