A value stream map is a tool most often used by manufacturing companies to analyze and improve product cycle time, but it can also be used for accounting close. What is value stream mapping? Value stream mapping identifies process activities wasting valuable time and resources. See our previous article here for more information on traditional value stream mapping.
What a lot of people don’t know is value stream mapping can be used to improve accounting close cycle time and quality. The steps below outline how companies can utilize value stream analyses to eliminate waste and reduce time to close.
Think of the value stream exercise as the process mapping step. Key close activities are outlined in sequence of occurrence. Leverage the company close schedule as a starting point. Be sure to include all activities which occur monthly, quarterly, and annually. Tasks such as project closures, vendor 1099 submissions, and inventory counts are easily overlooked, but the activities can extend the close window. Keep in mind that organizations with decentralized accounting processes may require multiple close value streams to understand the differences in country-specific close times.
Take time here and be thorough. When putting pen to paper, most managers severely underestimate how many hours and resources are spent completing each key step. Spend time surveying individual contributors directly, and encourage task contributors to keep a log of activities and hours for 2-3 close cycles. Gathering information straight from the source paints a far more accurate picture and provides insight into opportunities for improvement.
Measurement takes step two a bit further. Take the hours worked to complete each close activity and categorize each into separate buckets: value-add and waste time. Time spent on activities which directly contribute to closing the books is a value-add process. Examples include processing final payments for the period, closing subledgers, and booking depreciation. Time spent on tasks which do not directly contribute to closing the books should be categorized as waste time. Common examples are manual data collection and reporting, waiting for inconsequential approvals before booking entries to low-risk accounts, and rework due to delayed submission of intercompany billings. Distinguishing value-add time from waste time can help you identify which activities have the most opportunity for improvement.
Conduct process reviews with individuals for activities with the largest recorded waste times. To determine what factors contribute to the heightened waste time, focus on the current process to understand dependencies upon other close tasks and handoff timings between resources. Consider creating a findings log to document all factors that contribute to waste time.
To show a holistic view of the close process, consolidate accounting close activities from step one into 4-6 high-level groups. Then, include the summation for value-add vs. waste time within each group. The main contributing factors for waste time should be referenced as supporting evidence for time delays. Finally, estimate the time saved based upon the waste time findings. Show the overall impact of time savings on the close timeline. The summarization will establish a target to work toward while tackling improvements.
Value stream mapping is often overlooked outside manufacturing production cycle time, yet it can be a powerful tool to help companies better understand their accounting close process. Following the steps in this article will call attention to current processes requiring a lot of time and resources. Value stream mapping will also help identify areas with time-savings potential.
Trenegy is a non-traditional consulting firm helping finance organizations become more strategic business partners. Ask us how at info@trenegy.com.
