Jefferson Wells Financial Process Improvement White Paper Lo-Res 2006

7/28/2019 Jefferson Wells Financial Process Improvement White Paper Lo-Res 2006

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Organizaions lived hrough ERP implemenaions,

boh Phase I and second wave. They survived Y2K.

Many have compleed Year 1 and 2 o Sarbanes-Oxley

and are gearing up or Year 3. And while each o

hese iniiaives was imperaive o say curren wih

compeiors or regulaors, or mos organizaions hey

necessiaed vas expendiures wihou yielding much

in he way o value-add operaional improvemens.

Aer years o eor, resource invesmen, and

sunk and los-opporuniy coss, is ime or an

iniiaive ha improves he botom line. Somehing

ha adds value. Financial process improvemen

holds ha promise or organizaions willing o

objecively examine heir operaions and design

ecien processes ha mee boh curren and uure

requiremens processes wih adapabiliy buil in.

One mehod o ataining ha goal is by employing

a nancial process improvemen ramework, based

on a proven liecycle model. Using he ramework,

organizaions can assess processes agains bes

pracices and dene acions o increase processmauriy. Using his ype o approach can help

organizaions mee immediae requiremens and

creae he ools necessary o adjus processes o

evolving marke condiions. No only can such a

ramework provide an organizaion wih immediae

benes, i also provides a pragmaic approach ha

helps eliminae major roadblocks o success.

IntroductIon

A shi in ocus is aking place among he leaders o

nance organizaions. Tha shi is away rom large-scale, muli-year, enerprisewide programs and oward

quick-hi, ocused eors ha yield less-cosly, more-

imely resuls wih quaniable benes.

The daa is in on he large-scale iniiaives o recen

years, and many companies now realize hey generaed

less value han originally expeced. The quesions

acing many nance leaders oday are: 1) how o gain

addiional value rom hose invesmens; and 2) how o

improve he botom line and nancial processes ha

are legacies o hose eors in less ime, using ewer

dollars and resources.

In ac, he indusry is abuzz wih whie papers and

aricles on how o implemen susainable compliance

programs o reduce he cos o Secion 404, or

gain secondary benes rom hose expendiures.Garners recenly published Executive Program,

2006 CIO Agenda Report idenied business process

improvemen as he op prioriy, wih oher op-ve

prioriies including conrolling operaing coss and

improving compeiive advanage. Also consider

ha CFO magazine, in a recen reader survey,

idenied ha respondens waned he ime spen

on ransacion processing o all rom 44 percen o

31 percen over he nex hree years, while increasing

heir spend on decision-suppor ools and processes

rom 18 percen o 25 percen. Clearly, organizaions

are seeking more value rom heir nance uncions.

Financial process improvemen is no a new concep,

bu oday is drivers are changes in he compeiive

markeplace, he regulaory environmen, and an

increased ocus by business analyss, sakeholders and

consumers. The challenge in his new environmen is o

achieve a pracical, value-driven oucome, leveraging

eors o move beyond a singular ocus on specic

regulaions or evens, oward building processes ha

consisenly deliver business benes in a consanly

changing environmen.

Real-world resuls ell he sory: The bes way omee business objecives and increase sakeholder

saisacion is o execue a series o well-dened,

realisic projecs ha build o o prior eors and

inroduce eciency and adapabiliy ino each

process. This approach produces a wo-old bene

or he organizaion: i brings immediae value

by addressing and miigaing exising issues and

To learn more about our firm and professional services, contact your local Business Development Manager, or

visit our Web site at www.jeffersonwells.com.

Shifing Focus:Adding Value to Your Organization

Through Financial Process Improvement


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Adding Value to Your Organization Through Financial Process Improvement

challenges, while esablishing a srucure o help he

organizaion more eecively and ecienly adap o

uure changes.

Approaching nancial process improvemen wih hismindse allows an organizaion o esablish a culure

o coninuous, fexible improvemen. I enables i o

increasingly rely on inernal resources o help creae

signican botom-line improvemens, and allows

nance leadership o shi he ocus rom ransacion

processing and compliance oward he creaion o

value or he business.

AdAptAbIlIty drIves vAlue

Designing adapabiliy ino specic processes enables

organizaions o coninuously improve processeciency. Adapable processes are hose ha are

easily modied o mee changing marke and cusomer

circumsances. These specic processes hen become

he building blocks or much broader eors, providing

a basis or rapid reconguraion o core business

uncions and operaions o mee changes in he

exernal environmen, hereby driving greaer nance

uncion value.

uiaaaii

Companies ha wan o adap o he currenbusiness environmen need o design fexibiliy ino

processes and he supporing inrasrucure. Once an

organizaion ocuses on a paricular process, i mus

clearly ariculae he processs curren requiremens

and look a any poenial environmenal and business

changes likely o impac ha process in he uure.

For example, anicipaing sraegic acquisiions when

building a payables process can help drive a company

o incorporae remoe workfow capabiliies and

expandabiliy ino he process o aciliae he uure

consolidaion o he uncion. This could generae

curren savings by improving he speed o exising

processes and providing fexibiliy o address uure

growh and changes.

Adapabiliy requires a orward-hinking perspecive

so processes are designed by considering muliple

poenial scenarios, all driven by likely or signican

business changes. In ha conex, he organizaion

should consider wha is processes would need o

look like i i acquires a company, experiences rapid

growh, expands ino new markes or changes is

produc oerings.

One key consideraion is he daa requiremens or he

process. Wha daa are required every ime a process

is execued and wha are opional? How does daa

fow rom and o oher uncional areas? By building

common daa deniions and relaed conrols over ha

daa ino each process, here is an increased capabiliy

o assure accuracy across uncions, o build in suppor

or coninuous monioring, and o creae merics and

measuremens o suppor business analyics. The

careully designed daa model ha suppors each

process, or curren needs and uure scenarios,

leads o near-erm eciency gains by reducing errors

and redundancy, while creaing an environmen ha

suppors uure growh and value creaion.

The same is rue wih process seps and echnology.

By developing a value sream ha links cusomer

requiremens o specic inpus, processes, inormaion

sysems and managemen aciviies, companies can

quickly ideniy hose seps ha conribue o overall

business perormance. Once he process requiremens

or boh he curren business environmen and

anicipaed uure scenarios are idenied, echnology

can be applied o complee hose aciviies aser and

more consisenly.

While hese quick-hi opporuniies are ocused on

delivering near-erm benes, i is imporan or hem

o be dened and execued so hey also suppor

he enerprises longer-erm objecives. There are

ar oo many examples o very visible projecs ha

successully remediaed a curren issue, bu became

hrowaways when uure projecs were underaken.

uiva

Once an organizaion designs adapabiliy ino is

processes, i can leverage ha adapabiliy o unlock

value since adapable processes become he basis

or compeiive responses o a changing environmen.

As a resul, eciency becomes more han a cos

measure i provides a compeiive weapon o

improve cusomer saisacion and gain marke share.

For example, i an insurance companys claims paymen


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process is labor-inensive and akes wice as long as he

indusry average, i no only coss more, bu also reduces

cusomer saisacion and hereore acs as a drag on com-

peiiveness. An operaional assessmen, wih a signican

ocus on nancial processes, can pinpoin hose areas ineach process where oo many people ake oo much ime

o do oo many hings o produce oo litle value. Going

urher, i adapabiliy were designed ino he process, he

company could begin o leverage he process, by experi-

mening wih alernaive processes, going beyond meeing

cusomers expecaions o delighing cusomers. The shi

in mindse would ake a company beyond compliance o

eciency and he creaion o real business value.

Obviously, i doesn do much good o process claims aser

and a lower cos i a high percenage o claims have errors

ha mus be correced erasing no only any original ime

and cos savings, bu cusomer saisacion also. Eeciveness

is as imporan as eciency.

I an accouns payable process consisenly delivers lae

paymens wih a high percenage o incorrec remitances,

i is no eecive; no mater how quickly or cheaply i

processes individual paymens. The resuls o such a

fawed process can include loss o promp paymen

discouns and a reduced abiliy o negoiae avorable

buying erms.

By building and leveraging adapabiliy ino he process,

an organizaion can quickly respond o new regulaionsor cusomer requiremens wihou lowering qualiy

or losing hard-earned eciency gains. Because i can

quickly respond o shis in he marke, he organizaion

can gain exra margin and incremenally beter cusomer

relaions ha is compeiors canno mach. In a way, by

implemening adapable and ecien processes, companies

could begin o welcome each exernal change as an

opporuniy o disance hemselves rom heir compeiors.

A a basic level, nancial process improvemen ailures

demonsrae he criical imporance o planning,

organizing and managing hese iniiaives, using ormal

projec managemen ools and echniques. Going beyondhe basics, well-documened ailures also demonsrae

he need or consisen and persisen sponsorship; each

iniiaive mus be led by rue agens o change, people

wih boh he experience and inerpersonal skills o eec

change. I does an organizaion litle good o design in

adapabiliy bu ail a implemenaion or iniiae changes

no aligned wih he rms sraegic direcion.

the 4 prImAry phAses o

process Improvement

While every siuaion is dieren, asrucured liecycle approach o process

improvemen mus include a leas he

ollowing our primary phases, each wih

appropriae asks and aciviies:

paI:A-IAaiDocumen curren

processes o a level o deail ha is su-

cien or managemen o gain a ull under-

sanding o he srenghs and weaknesses

ha impac curren operaions

paII:t-bdDene

opporuniies or more ecien

processes, including:

Considering reaining processes ha

currenly mee objecives

Improving processes ha are

no opimized

Redesigning new processes or hose ha

are highly ineecive

Designing processes ha are required

bu do no currenly exis

paIII:Iaipai

Prioriize idenied opporuniies based

on impac/bene analysis, as well as

considering he organizaions (and is

resources) willingness o execue he

required changes

paIv:Iai Execue he

implemenaion plan using srucuredprojec managemen planning, oversigh,

and monioring and assessmen aciviies

o measure he degree o which enhanced

processes are meeing objecives based

on a merics plan wih objecive

assessmen crieria


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developIng A lIecycle Improvement model

Carnegie Mellons original Capabiliy Mauriy Model (CMM) has been used as a ramework or many ypes o

assessmen and improvemen iniiaives. The CMM provides an approach o describe he levels o eciency,

eeciveness and adapabiliy ha acually exis in business operaions (including nancial operaions). The ablebelow includes he exbook deniions o each CMM level, wih relevan descripions o wha managemens

ocus should be and key aciviies he organizaion can perorm o mee each level.

Organizaions can compare heir specic siuaions o he levels below o deermine where hey are now in he

Capabiliy Mauriy Model, and ideniy key aciviies necessary o move o he nex level or specic processes.

When managemen ocuses on improving process mauriy, he organizaion is empowered o develop he skills

and ools ha suppor adapaions o rapidly changing marke condiions.

level descrIptIon mAnAgement ocus key ActIvItIes

1 Iiia/a-:Few businessprocesses are dened, and successdepends more on individual heroiceors han on ollowing a processand using a synergisic eam eor.

Respond; reac Respond o immediaecompliance or cusomer need

Ideniy growing volumes

2 raa:Basic managemenprocesses are esablished orack eciency, eeciveness andadapabiliy o business processes.

Undersandand documen

Documen as-is processes

Eliminae errors, redundancy,wase and variaion

3 df:Business processesare documened, sandardizedand inegraed ino a sandardbusiness operaions model or heorganizaion.

Design, developand implemen

Requiremens deniion

Process design

Build in adapabiliy

Projec and change managemen

Daa archiecure Business process managemen

maaaaa:Deailedprocess and produc qualiy mericsesablish he quaniaive evaluaionoundaion. Meaningul variaionsin process perormance can bedisinguished rom random noise,and rends in process and producqualiies can be prediced.

Governance andoperaional accepanceand inegraion

Tone a op

Risk managemen

Implemen conrols

Tes conrols

Coninuous audiing

Selec KPIs/KRIs

Monior

Daa archiecure

Business aciviy monioring

5 oiiz:The organizaion hasquaniaive eedback sysems inplace o ideniy process weaknessesand srenghen hem proacively.Deecs are analyzed o deerminecauses; business processes are evalu-aed and updaed o preven knownypes o deecs rom recurring.

Culural; ongoingimprovemen

Embed in culure Perormance managemen

Align rewards and recogniion

Execue rapid evoluion orcompeiive gain

Business inelligence


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IncreAsIng cApAcIty

or chAnge

While hese are good and desirable goals, process

improvemen iniiaives always ace sumbling blocks.In heir book, Why Change Doesnt Work, Harvey

Robbins and Michael Finley ideniy he one aal

condiion or any change iniiaive: ear. As hey pu

i, Change iniiaives canno occur in a work environ-

men overdosed wih righ. W. Edwards Deming said

much he same hing when he prescribed drive ou

ear as one o his 14 poins or managemen.

Those expeced o willingly paricipae in a change

iniiaive mus have more condence in wha i will

do FOR hem han ear o wha i will do TO hem.

By creaing a culure o change, managers creae he

condiions ha increase heir eams capaciies or

uure change.

Documened and anecdoal evidence consisenly

ideniy common siuaions ha are change

killers, including:

Failure o communicae he reasons and

imporance o he proposed changes

A legacy o prior ailed iniiaives aecing

managemens credibiliy

Lack o ongoing and visible leadership suppor,

sponsorship and involvemen

Insucien proacive ocus on ideniying and

addressing poliical and culural challenges

Failure o develop and implemen a change

managemen sraegy or he iniiaive and is resuls

Unrealisic approach, schedule and expecaions

he soluion will rarely be 100-percen perec

Over-reliance on echnology i is an enabler,

no a soluion

Too ew skilled and available resources

To overcome hese barriers, organizaions should apply

proven, srucured, and ormal projec and change

managemen echniques ha provide appropriae

leadership, direcion and resources or each iniiaive.

This includes considering several quesions ha can

provide a basis o dene, manage, conrol and gainbuy-in or he iniiaive:

Wha curren shorcomings will he

iniiaive improve?

Wha changes will creae he improvemen?

How will managemen assess he resuls o

hose changes?

conclusIons AndrecommendAtIons

Avoiding poor oucomes is no enough; o succeed in

odays rapidly changing business environmen, he

nance organizaion needs o implemen iniiaives

ha provide he abiliy o adap o uure changes.

This includes srenghening he alignmen beween

iniiaives and he organizaions key sraegies,

creaing a culure among leadership o acive suppor

or improvemen and fexibiliy, and supporing

change agens hroughou he organizaion.

In eec, each change mus be seen as anoher

preparaion or uure evens. Process improvemen

eors, like all major change iniiaives, mus have

high bu realisic expecaions o help pull a relucan,

oen skepical, organizaion ino susained acion.

Success breeds success. Every ime an organizaion

experiences a successul change iniiaive, i increases

he likelihood o success in is nex atemp. For his

reason, i is beter o do nohing han o atemp a

broad change iniiaive wihou rs ensuring he

condiions necessary or success are in place.

Beyond he basics o process improvemen,

organizaions need o begin o build adapabiliy ino

heir processes. Taking a pragmaic approach ha

leverages pas iniiaives o creae curren eciencies

and prepares he organizaion or realisic uure

scenarios will enable i o creae value and disance

isel rom is neares compeiors.


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Jefferson Wells Financial Process Improvement White Paper Lo-Res 2006

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