Manual processes challenge the financial function
Tasks related to month-end closing and reporting are characterized by many manual processes, and Excel is often the preferred tool when data needs to be collected, processed, checked, analyzed, reconciled, documented, and reported.
But the need to automate the many recurring tasks increases as there is a growing pressure to deliver reporting faster and with the same high-quality requirements. The increasing use of data in companies also increases attention to the validity and quality of the financial data that large parts of the finance function are responsible for producing and delivering throughout the year.
Furthermore, companies are increasingly facing increased compliance requirements both nationally and internationally, and companies that are internationally oriented face additional complexity in having to deal with multiple accounting standards, different reporting structures, and the need for transparency between local and group dimensions.
Together, this challenges the finance function to maintain a good balance between cost reduction, compliance with legal requirements, and efficient operation.
How to use BI in the monthly closing
There may be many calculation tasks among the traditional tasks related to the monthly closing, which form the basis for periodizations, provisions, allocations, and much more. Many of these tasks can be time-consuming, but BI can help streamline the work.
The first prerequisite for starting to use BI is, of course, access to the relevant data, and here the possibilities of ERP systems are often not sufficient. They are good at keeping track of transactions, but when it comes to aggregating, calculating, summarizing, and working with many transactions at once, they fall short.
Here, a good BI solution can help, as much of the manual work can be automated through integration from source systems to a central Data Warehouse. Via the BI solution's cube models, data is structured, aggregated, and made manageable for the employees who need them for calculations, reconciliation bases, analyses, KPIs, reporting, etc.
But before it makes sense to use data, it is a prerequisite that the data is correct and reliable - both master data and the transactions themselves. With a Master Data Management solution as an integrated part of the BI solution, it becomes possible to automate the administration of the relevant master data and collect, validate, structure, and enrich, for example, a chart of accounts, departments, products, customers, and other master data that are relevant for financial reporting. By linking the different structures, one creates coherence and transparency in the reporting, which is also a good starting point for data analysis.
By implementing standard financial reporting in the BI solution targeted at relevant KPIs, it becomes possible to keep up - also during the month - with trends and general development in the financial results. In addition, built-in trend graphs with alerts for the critical KPIs can help catch if something deviates from the normal, so corrective and preventive actions can be taken, even during the month. The built-in trend graphs and alerts can also be used as a supplement to identify where quality control of the actual postings should be performed.
These are examples of some general initiatives that companies can take to incorporate BI and data analysis (digital finance) into the monthly closing processes. The possibilities are many and will depend on the individual company and the focus areas that are most critical for them.
Obstacles to fast and accurate reporting
The typical challenges associated with the month-end closing process impact processes, resources, technology, data, and governance.
The challenges often start with employees who perform many recurring tasks not knowing the dependencies between each other's tasks or not having enough time to complete their tasks within the specified deadlines. Perhaps there is no common task list that employees can use for status reporting throughout the process, or perhaps the deadlines are unrealistic in terms of scope and bottlenecks. Regardless of the reason, it is important to have a solid process for planning tasks in the right order and coordinating around month-end closing tasks.
The solution to each task depends heavily on the implementation of relevant systems that automate data processing, that information and data are easily accessible, and that there is access to analysis tools that create the necessary transparency and visibility.
For example, when reconciling the accounts receivable list in the ERP system to the balances in the settlement system, it can be difficult and time-consuming to identify discrepancies if it is not possible to follow the data flow between the two systems and if the level of detail in both systems is not equal. This is a result of systems often being implemented individually with a more or less siloed approach, where the basic setup is often only analyzed and decided in isolation for the current system and the relevant work processes around that system.
Many of the data generated in the operational systems are crucial to how quickly and easily the accounting department can solve their tasks, and often more time is spent at the end of the month to clarify and correct the data before the final reconciliations can be performed and documented.
Challenges with master data, both within the ERP system and between ERP and the operational systems, become apparent when the controller and reporting team need to perform their tasks. If the chart of accounts, dimensions, and master data is not consistent across organizational and legal units, they end up spending a lot of time "cleaning up" and "adjusting" data before they can begin their actual work of analyzing and preparing the final reporting.
Achieve an efficient month-end close
The issue is further exacerbated when the company is a group and therefore has to deal with multiple accounting standards, elimination rules, and currency conversions. When intercompany balances, for example, need to be verified between the individual trading companies, it is crucial for a fast, automatic match that the posting in the ERP system is enriched with counterparty information, currency code, and amount. Otherwise, it becomes a manual exercise to go through the postings for each company line by line to find a match. A task that can be solved in a few hours with the correct posting details and the right system quickly turns into a multi-day exercise for companies with many internal transactions.
It is precisely the interaction between robust, efficient, standardized processes, the individual employee's time, the composition of different competencies with a focus on data and analytical skills, the degree of automation and system support, and the presence of supporting policies, procedures, and internal controls that make everything come together to achieve an efficient month-end close.
Understanding all the tasks and the entire data flow from data collection to the final reporting is the first step in working with the specific challenges so that the month-end close process becomes more accurate and efficient.