Several companies today use Excel or outdated consolidation systems which do not integrate with the accounting systems or support the business’s analysis and reporting needs. This often results in high resource consumption at month-end closing as well as a lack of analysis options and control of processes and data. These challenges are reinforced by complex ownership structures and frequent changes thereto, which underlines the need for a dedicated tool that can handle changes to ownership, consolidation rules, collection of data and can control processes from data entry to finalisation of the books.
In many companies, the consolidation process takes place in Excel, and this is often an adequate solution for simple groups. Most groups will, however, reap many advantages from a dedicated CPM solution that can handle the group’s consolidation process, both in terms of freeing resources and also ensuring central storage and exploitation of data as well as interaction with other tools and processes.
Groups with the characteristics outlined below can often reap extensive benefits from a dedicated consolidation solution:
Complex and/or changing ownership structure
An ownership structure is considered as complex if it contains several levels of groups and entities as well as part-ownership in both controlling and non-controlling entities.
Many involved stakeholders
In large groups, there are often many stakeholders involved in the consolidation process. For example, this could include local finance departments that provide accounts to the individual entities as well as a central corporate finance department that is responsible for the actual consolidation process. In such cases, a dedicated consolidation solution would not only assist in the process of consolidation; it would also contribute with workflow for management of the process across local entities and the corporate finance department as well as improve communication, which today may be taking place via several Excel sheets and Outlook.
Many and/or complex consolidation rules
A dedicated consolidation solution would not only help with the above organisational and procedural complexities, but also in the actual consolidation. The processing of certain consolidation rules, such as internal elimination across several entities, can often lead to problems in an Excel model.
A shift to a dedicated consolidation solution will, based on the above, result in a more streamlined process, which all else being equal, will free resources across all the involved entities. In addition, the data quality will improve since data is being written directly into a central data model with an audit trail, rather than being spread across several Excel sheets, where input errors and alignment are often issues. Furthermore, centralisation of data will allow use of the same data in other models, such as planning and allocation models. For example, a dedicated consolidation option could be used within budgeting, which would ensure an agile approach with respect to future changes and scenario analyses.
The consolidation process
The monthly consolidation process looks different in most companies – however, several sub-processes often recur:
A typical consolidation process begins by initiating a workflow that defines who is responsible for which sub-processes and determines a deadline. This workflow extends throughout the process and ensures that sub-processes with dependency are not started before the prior sub-processes are completed. This also eliminates manual communication since the parties responsible for the sub-processes are made aware of status changes and have an overview of their own tasks.
Simple workflow that shows tasks across entities and groups.
After the workflow has started, there are usually a number of central administrative tasks, such as input/import of tax rates, exchange rates and ownership conditions, as well as the determination whether the individual entities should be fully consolidated, partially consolidated or something else. In a dedicated consolidation solution, changes to ownership would be easy since indirect ownership percentages would be automatically calculated across several levels and groups.
Direct ownership is input and indirect ownership is automatically calculated.
After the administrative input is complete, local data collection would typically commence. For some groups, all collection and validation of data takes places in the central financial function, while with others it is in the individual entities.