This from a press release by CODA:
“Increasing emphasis on compliance and performance management should be driving greater focus on controlling the period close, since it is a critical process that underpins those activities,†said David Turner, Group Marketing Director at CODA. “Speed is key – world class organisations can close their books 1-2 days after month end, though as this survey proves, most take far longer. However, control, reliability and auditability of the process have become just as important.â€
Questions:
- Since 70-80% of market value is derived from non-financial assets, that leaves core performance management outside the immediate purview of the finance department. So why are companies not looking to non-finance measures?
- Compliance is not a period end issue but one that has to be managed in real-time. So why the emphasis on financial close? Compliance is much more to do with the underpinning processes occurring throughout trading periods, something the company alludes to in a previous release.
CODA believes that Performance Management must be approached in a dynamic form that enables real-time analysis of the business
- Why is speed of the essence? My sense is that it only becomes important when you’re not following compliance practices throughout the period in question.
- If (I assume financial) processes are not auditable in the first place, why should I pay for them to be auditable in systems the vendor has already supplied? More to the point – why are those systems not auditable in the first place?
CODA has supplied excellent financial transaction engines for years. At its core, there is a huge amount of control. So why do I need to pay for a fresh layer of control and what exactly am I controlling that I couldn’t before? In most cases, I suspect the answer is getting a grip on internal spreadsheets. That should have happened years ago but hey ho. The other issue is that tick list automation doesn’t measurably improve control but it will provide assurance. Control comes from oversight of judgment processes.
I have no problem with companies wishing to get as much automation into routine accounts preparation as possible. It’s absolutely the right way to go. But…many items on the balance sheet require judgment – it’s why the UK has a ‘true and fair’ approach to accounts presentation. That requires human intervention. No amount of automation can get past that. Elsewhere, CODA says:
Worryingly, the majority of respondents agreed that the importance of period end close is underestimated by non-finance executives and that it is in fact vital to governance and sustainable performance.
Why is this ‘worrying?’ Finance reports on what operational people have done. It’s a historical view of the world. Operational people work in real time, not historical time. I dispute that period close has anything to do with ‘sustainable performance’ in light of what I’ve said about operations or for that matter what CODA claims. Or – finance has made a poor job of communicating the value (?) of an early close. Whichever way you look at it, CODA is putting out a confusing message that doesn’t help finance jump the siloed wall.
If you think I’m picking on CODA then fine. But ask any small business person what’s the most important things they have to think about – cash flow, deal flow and cost control. None of which have anything to do with period end closing. But everything to do with performance. The first is about survival, the second about growth, the third about profitability. I don’t know any large business where those three elements are considered any less important. However, large, publicly quoted companies are much more concerned about share price management. And that means having a firm grip on the intangible value that is essential to performance.
Show me how performance value as I define it is incorporated into measures and I will take this a lot more seriously. Otherwise, we’re talking about satisfying the perceived needs of a small internal fiefdom. and nothing I’ve seen in CODA case studies leads me to believe it is any different.
I know that CODA will say, they’re focused on finance. Fine. No problem. They’ve done a great job. But that’s not where value is delivered or generated. Only where it is measured across a thin slice of total performance as valued by markets. As I’ve said many times before, finance professionals have to become much more innovative in their approach to business. Or be rendered irrelevant. So do technology vendors.
Technorati Tags: compliance, CPM, performance measurement
