Written by Natalia Warren Monday, July 19 2010
The concept of a world-class close has been around for decades, and with the economy booming, stalling, and then doing who-knows-what in the future, revisiting the elements of a world-class close can bring unexpected benefits to any organization. Driving toward a world-class close means by definition that IT and Finance will become more flexible, more strategically aligned with the business, adopt continuous improvement policies and practices, improve the timeliness and accuracy of financial reports, and enhance overall financial reporting and analysis. Any one of these improvements would be welcome by any organization. All five at once would be a boon, and worthy of a strategic corporate initiative sponsored by any C-level executive, be it the CEO, CFO, or CIO.
A world-class close is performed efficiently and effectively, in a few days or in some cases a few hours, with as few people as possible, using as little technology and time as possible, and with minimal use of manual or miscellaneous journal entries. After the books are closed for the reporting period (day, week, month, quarter, or year), within a few short hours final reports can be generated, the numbers are accurate, auditors check controls, and everyone goes on to focus on making money or reducing costs in the next reporting period - not on compiling and disseminating reports. A world-class close can only happen when it is a priority for C-level management. But as a corporate strategic initiative, a world-class close can also be an indicator of a world-class organization with the following characteristics:
- Management and employees are all held accountable for the business.
- Performance metrics are aligned throughout the organization.
- Continuous Improvement programs are well established.
- IT systems are highly integrated.
- The organization is nimble and can easily respond to changes in the business environment.
- The organization is committed to training and cross-training employees.
- The organization values innovation.
In an organization with a world-class close, accounting and finance teams recently described their processes and day-to-day responsibilities. Common characteristics include:
- Enter data only once at the source.
- Automate the reconciliation process.
- Control tightly any manual or miscellaneous journal entries.
- Continuously review the period-end close process and recommend improvements.
- Hold yourself accountable for the period-end schedule and process.
- Time system run-times to the hour and minute.
- Track and hold yourself accountable for any booking errors.
- Centralize the period-end process for IT, finance, and accounting teams.
- Be accountable for compliance to the period-end process.
- Move to a single, global chart of accounts if you are not already there.
- Ensure that anyone who is held accountable for their departmental budget, both revenue and cost centers, understands the close process and receives or can access updated reports whenever needed. Variances will be easy to spot and to respond to.
- Make it easy for internal and external auditors to monitor controls over financial reporting by automating virtually every step.
A world-class close can have different characteristics in different organizations depending on numerous factors. For example, one organization may perform a full close each quarter without performing a monthly consolidation. In Month One, a local close provides reporting on the operating income detail. In Month Two, they would do a partial consolidation without, for example, eliminating profit in inventory. Another organization may perform a complete close quarterly at the corporate level but with sub-units still fully closing on a monthly level. Regardless, organizations should resolve any accounting issues before the closing so that the closing period does not turn into a decision-making period.
All contributing business units should also be tracked on the quality and the timeliness of their submission to the same set of metrics. For example, organizations should establish definitions for early, on-time, and late submissions (e.g. more than 4 hours before deadline, between 4 hours and deadline, and more than one minute late, respectively). The organization would then track the timeliness of the submission and publish a performance scorecard. Similarly, an organization would define thresholds for materiality. Anything above the threshold would be handled in the following reporting period to ensure that a timely report is released and the organization would focus on reducing, or eliminating, manual adjustments and corrections wherever and whenever possible. Using a single, global chart of accounts helps ensure accuracy not only in the reports, but also in the submissions with fewer variations - reducing the number of possible errors.
Focusing strategically on developing a world-class close process will bring the obvious benefit – less time spent generating reports and more time focusing on the business. The additional benefits for any organization can be substantial and provide a way to establish a culture based on quality and accountability, one hallmark of a world-class organization.
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January Puzzle
A traveler gets lost on a deserted island and finds himself surrounded by a group of n cannibals.
Each cannibal wants to eat the traveler but, as each knows, there is a risk. A cannibal that attacks and eats the traveler would become tired and defenseless. After he eats, he would become an easy target for another cannibal (who would also become tired and defenseless after eating).
The cannibals are all hungry, but they cannot trust each other to cooperate. The cannibals happen to be well versed in game theory, so they will think before making a move.
Does the nearest cannibal, or any cannibal in the group, devour the lost traveler?
Solution
The short answer is the traveler’s fate depends on the parity of the group. If there is an odd number of canibals, the traveler will be eaten, but if there is an even number, the traveler will survive.
To prove this, we will consider small groups and use mathematical induction to explain the solution for larger groups.
Case n = 1: this is an obvious case. If there is one cannibal, the traveler will be eaten. It doesn’t matter that the cannibal will get tired because there are no other cannibals around as a threat.
Case n = 2: this is a more interesting case. Each cannibal wishes to each the traveler, but each knows he cannot. If either cannibal eats the traveler, then he will become defenseless and the other one will eat him. So each cannibal uses backwards induction to realize that the only strategy is to not eat the traveler. The hapless traveler finds a bit of luck, therefore, and actually survives.
Case n = 3: this is where the problem gets interesting. The best strategy is for the closest cannibal to make a move and eat the traveler. The cannibal will be defenseless after eating, but ultimately he will be safe. Why is that? The reasoning is due to induction: once the cannibal eats the traveler, the resulting situation has 2 unfed cannibals and the 1 defenseless cannibal. But as we just showed above, when there are 2 unfed cannibals, neither will make a move for fear of being eaten by the other! Thus the first cannibal to make a move will be safe as the remaining 2 cannibals block each other.
We can prove the higher cases using mathematical induction. If the number n is odd, then the closest cannibal can safely eat the traveler because the remaining number of unfed cannibals is even (and by induction, with an even number of unfed cannibals no one makes a move). If the number n is even, then no cannibal will eat the traveler, for if he did, the remaining number of cannibals would be odd, meaning he will get eaten by the induction hypothesis.
Success Tips for Oracle Project Management
- Create a standard for documentation at the beginning of your project, and hold team members accountable for completing documentation requirements as well as keeping them at and above the standards required.
- Before promulgating user documentation or training, it’s also a good idea to choose a representative from the among the business users base to review materials first.
- If you are not sure about the resources and budget required, obtain several estimates from people that have experience with the same size and scope of your project.
- Be explicit, before beginning the project, what internal resources are required for execution. This includes people, infrastructure, hardware, and software.
- Help the project champion understand the impact your project will have on the organization and how its successful completion will make him or her an internal hero or heroine for supporting it.
- Break up your project into smaller projects (try for projects that can be completed in 4-6 months, especially early on) to get success and demonstrate momentum.
- Make sure that your testing includes reports, upstream and downstream interfaces, customizations, enhancements, and workflows.
- Ensure that comprehensive transition reports and meetings between departing and incoming personnel are completed.
- Instead of spending time and resources implementing third-party reporting, consider consolidating multiple instances, moving to a global chart of accounts (CoA), and/or standardizing on a consistent calendar.
- Include governance, risk, and compliance management as part of the project plan.
- Finally, celebrate the successes. Too many projects focus on defects, failures, or small cost over-runs without looking at the big picture and what was accomplished.
The Analyst Corner
John Van Decker, Research VP of Gartner, states:
"A single chart of accounts allows consistency in financial reporting across the enterprise by standardizing on common metrics and reporting structures, reduces dependencies on a separate financial consolidation system, and significantly reduces the costs incurred with ongoing, complex conversions and translations."
