Adding strategic value: automating number crunching

December 2022  |  FEATURE | FINANCE & ACCOUNTING

Financier Worldwide Magazine

December 2022 Issue

Businesses expect their finance teams to be more strategic, collaborative and automated, according to a recent study by Harvard Business Review Analytic Services. Increasingly, they are expected to provide financial information quickly and advise business leaders on meeting their objectives. But finance professionals are often burdened with day-to-day administrative tasks that make fulfilling this strategic role more difficult than perhaps necessary. In the view of many, now is the time for finance departments to automate number crunching and start thinking strategically.

Finance teams have a long tradition of implementing new technologies that make the mathematical underpinnings of their jobs faster and simpler, from hand-held calculators to digital spreadsheets to big data analytics. Tech-savvy companies and their C-suites are turning to automation to propel a new wave of efficiency and performance. Today’s cheaper, better and faster technology seems destined to reshape the finance function.

Industries across a wide spectrum have begun to gradually adopt automation within their accounting departments. The manufacturing, automotive, construction, retail and consumer goods sectors, along with government authorities as well as banking, finance, insurance and accounting firms, have been among the earliest adopters. These companies have automated processes carried out by their finance teams, such as order to cash, financial close, payroll administration, accounts payable, financial planning and analysis, and account reconciliation, bringing the department more in sync with other areas of the business.

Though automation is beginning to impact accounting services, there is still a long way to go. According to a 2020 Deloitte report, 75.7 percent of survey respondents said their company’s accounting processes are either largely manual or still a considerable manual effort.

A mere 3.6 percent of survey respondents indicated that their company had already implemented robotic process automation (RPA), while just 1.8 percent of companies had integrated machine learning and artificial intelligence (AI). A higher number of respondents said they planned to implement or were currently implementing RPA (22.8 percent) and machine learning or AI (21.4 percent).

Liberation through automation

Given the current economic and financial landscape, with geopolitical uncertainty, rising inflation and supply chain disruption, finance teams are under increasing pressure to raise performance levels and contribute to corporate strategy.

According to a recent study by Harvard Business Review Analytic Services in association with Payhawk, of the 227 business executives surveyed, 89 percent said that finance teams can provide a unique and valuable perspective on the business challenges faced by their organisation. Also, 83 percent believed there is a business risk if the finance department does not contribute to an organisation’s strategy.

However, many of those surveyed felt that finance departments are still bogged down by mundane tasks. Though they have more to offer in helping to develop their company’s business model and strategy, those tasks prevent them from taking on this role more effectively within the organisation.

Automation rarely removes humans completely from a process – rather, it liberates them, setting machines to carry out tedious and repetitive work, while professionals raise their productivity and drive the company toward its business objectives.

If finance teams spend most of their time on manually intensive processes, they lose the opportunity to dive into the data and deliver higher-value analysis to their organisation. Only by automating some of the repetitive tasks will finance teams be in a position to provide value-adding results.

In terms of its application to the finance and accounting department, automation allows companies to more readily identify missing payments and can eliminate the possibility of incorrectly overcharging or undercharging customers. It can improve analysis of new and existing customers, for example with regard to credit history and the risk of non-payment. It also helps to avoid a drop in productivity due to data being spread across multiple databases or spreadsheets, or missing entirely. Automation can also reduce erroneous or inconsistent reporting to senior management which leads to poor decision making and planning. Advances in technology allow real-time financial data to be used to inform business decisions.

Financial close

In a Trintech survey, 52 percent of financial professionals said meeting deadlines and time pressures was the biggest challenge in their current financial close process. With manual processes, lack of visibility and a limited use of financial automation solutions hamper employees’ ability to provide insights while working in a remote or hybrid environment. Complex, error-prone work may be scattered across different spreadsheets, systems and servers.

According to EY, 62 percent of CFOs said their closing process is done manually. Furthermore, when asked what was preventing them from having the most efficient financial close process, respondents reported “lack of automation” and “manual work & errors” as key factors. There is a growing awareness among organisations that manual processes and a lack of financial automation greatly contribute to challenges throughout their financial close. Yet most have not taken action to remedy the issue, with 74 percent of respondents reporting they still do not have “mature” automation in place today.

Financial close automation software can simplify the close, consolidate and report (CCR) process, allowing companies to identify and remediate bottlenecks and inefficiencies, digitalise control and compliance tasks, and streamline procedures in a cost-effective way.

Greater efficiencies may also be achieved using cloud-based solutions. Switching to the cloud can provide the finance department with a central repository of information, enhanced software options, greater transparency and more trust in real-time data throughout the closing process.

Business analytics

Business analytics involves aggregating and interpreting large volumes of mission-critical data to produces trends and patterns from which more informed decisions can be made.

According to McKinsey & Company, businesses that invested in big data achieved an average 6 percent increase in profits – a figure which jumps to 9 percent on investments tracked over five years. Elsewhere, a study by the Business Application Research Centre (BARC) found that businesses which measured their returns following deep data analysis reported an average 8 percent increase in revenues and a 10 percent reduction in costs.

Clearly, a notable financial return can emerge from an intelligent business analysis strategy. And as the big data and analytics market continues to grow, this return is becoming more accessible to more businesses.

Approaches to business analytics continue to evolve. Technology has been a game changer, allowing business analytics to take on a new dimension and expand in popularity. Today, companies can more easily interpret historical data to identify trends and patterns, use statistics to forecast future outcomes, and test to determine which outcomes will generate optimal results in a given scenario, among others.

With manual data analysis, there is a risk that data may be inaccurate or less detailed than necessary. Data can also become siloed, whereby results are not made available to other users within the organisation. Automation can reduce these risks and remove the complexity and challenges inherent in manual processes, leading to data that is more likely to provide companies with useful insights. By automating financial reporting, companies can capitalise on the wealth of their data. Though some may still have misgivings about technology, automation has matured and is now seeing widespread adoption.

Obstacles to automation implementation

Automation offers companies significant benefits, but there are challenges surrounding the implementation process. It is important that companies understand the root issues and act to solve these issues.

Prior to initiating an automation programme, organisations need to decide whether to automate existing workflows with mild alterations, or to fully revamp them. Prioritising areas within the accounting process for automation should include a particular focus on repetitive and standardised tasks – those prone to human error and recurring costs.

With financial operations the bedrock of many organisations, they may be hesitant to tweak or overhaul core processes, particularly if they consider such changes risky. There may also be concerns around return on investment (ROI) relating to automation. Some solutions require companies to invest significantly to undertake the necessary changes to their systems.

Another issue is standardisation. While it is easier to roll out automation solutions in a standardised process, many large companies require a highly customised approach which is far more demanding. During the deployment phase, companies can expect to face inevitable technical glitches, even if they have committed significant resources to ensuring a smooth process. The deployment team needs a deep understanding of business processes and cycles to address all fault lines throughout implementation.

Finally, one of the biggest challenges to overcome is allaying the fears of employees and getting them to buy in to the automation process. Some members of the finance and accounting team may be concerned about being replaced or marginalised by the introduction of technology. Others may be concerned that the team is being used as a ‘guinea pig’ for automation across the rest of the organisation.

It is prudent for companies to consult with their employees during the design and implementation phase of the automation process, to seek their opinions. Not only will they benefit from a more hands-on approach from employees ‘at the coal face’, there is also an opportunity to identify any negative perceptions employees may have of automation, and to persuade them of the benefits. Further, as a morale booster, through targeted training on automation tools, employees can expand and upgrade their skill set.

Leveraging digital solutions

In light of technological advancements, companies may fall behind their competitors if they actively choose to overlook automation in its various forms. Moving from manual to automated processes can be advantageous – improving the performance of core functions, saving time, reducing opportunities for fraud and ensuring greater consistency of output.

Finance teams have become more central to company operations. Today, CFOs and the finance department are a key component of strategy execution. As computing power increases and technology becomes more sophisticated, companies will be able to automate an even greater array of tasks to execute in faster timeframes. The net result will be discovering real-time business details of vital significance across external macroeconomic, geopolitical and competitive market data, offering insights that can pave the way to success.

Unlocking the transformative benefits of automation to their fullest extent can only be achieved when the technology and tools are supported by understanding and experience not only of their implementation, but of the processes to which they apply inside a company’s operations. With an upfront investment, companies can deliver significant returns and put finance at the heart of their operations, potentially generating higher revenues, enhancing operational efficiencies and making better decisions.

Finance departments rely on the continuous availability of error-free data. Leveraging digital solutions and data analytics can be hugely beneficial for any forward-thinking organisation, yielding greater insights and improved capabilities – though it requires considerable effort in the short term. Digital transformation is a journey, not a destination, and companies will continue to evolve over time as the technology itself also develops.

© Financier Worldwide

BY

Richard Summerfield