Project management methodologies enable continuous improvement in the financial close process.

To achieve a world-class close process, companies often hire accounting experts for a one-time review focused on shortening and improving the quality of the financial close process. The initial analysis identifies a big chunk of inefficiencies that can be improved with a “big bang” and voila! Next month, the company can amazingly close the books in five days instead of 20.

However, large changes are daunting. Most finance organizations are not equipped to implement big changes due to conflicting time commitments.

Even some of the most sophisticated finance departments suffer from constantly juggling business changes with process improvement initiatives. The big bang approach might work well for changing a day-to-day transaction process such as the bid-to-bill process. However, most finance organizations find the big bang approach does not work well for improving the financial close process given its nature. A financial close process improvement implemented in January might not be the most effective solution by May. Eliminating one or two large steps in the close process often reveals other inefficiencies and doesn’t really improve overall cycle time.

Instead of focusing on what needs to change in the close process, finance organizations should first consider how the close process is executed. The how is all about a focus on continuous improvement and attacking the close process as if it were a project. This means imbedding both a continuous process improvement and a project management mindset into the close process.

A common misconception is that project management methods should only be reserved for large, one-time events that need to be carefully managed to meet time and budget constraints. Project management methodologies can also be used to drive continuous process improvement in the close process. There is no secret sauce to effective project management, although there have been hundreds of books written on the subject.

The plethora of project management books can be boiled down to two things: organization and discipline. These project management concepts can easily be transferred to continuously improve the close process.

Organization

Identify the project manager. The first step is to identify the close process project manager. This person should be equipped to manage the process and inspire and lead people to improve it. This is typically someone at the assistant controller level with experience across multiple business functions who is respected as a “go-to” person.

Establish goals. Next, the finance organization should establish goals and objectives for the close. There should be clear short-term improvement goals for the upcoming immediate close and long-term goals addressing what the close should look like in twelve months. The goals should be focused on the close cycle and improving information quality. Goal setting should be a collaborative effort between finance, the business operations customers, and information technology. This will set expectations from a customer (operations) and supplier (information technology) perspective.

Develop a project plan. The next item on the close project manager’s list is developing a detailed project plan outlining the close process, dependencies, resources ,and critical path items. A close calendar is often the first item the controller proudly pulls out of the desk drawer at the beginning of the close process. In most cases, it i\\’s a bulleted list of acronyms squeezed onto a two-inch square representing the day’s activities. If companies are serious about continuously improving the close process, the calendar, also known as “the plan,” should list each task, who is responsible, when the task starts, how long the process takes, what the dependencies are, and what the hand-off process will be.

Assign roles. Another important aspect is developing clear roles and responsibilities for each step in the close process. Individuals in the finance organization have a good understanding of their role for a particular part of the close process but rarely appreciate what is required prior to the individual steps taken. In most cases, multiple people impact a particular process. For example, there may be a journal entry requiring the office managers in the field to calculate overtime hours booked over the weekend at the end of the month. The clerks in the field track down dozens of hourly workers’ missing time sheets, sometimes taking several days and delaying accruals. The hours are emailed to the general accounting group in the corporate office by the various office managers as late as the fifth workday. The corporate groups have little understanding of who in the field is actually responsible for supplying the information to accounting and how missing timesheets are the true source of delay in this part of the close process. The responsibility ultimately resides with the hourly workers’ prompt submission of timesheets to office managers.

An effective way to communicate and confirm responsibilities is to create a responsibility matrix to ensure each individual has a clear understanding of roles and responsibilities. RACI diagrams have been used by project managers for years to develop a clear understanding of who is responsible, accountable, consulted or informed for each task. A RACI matrix should be developed for each close process task to provide a clear understanding of what actions to take when a process is delayed. This also aids the close project manager in deciding which parts of the close process can be improved or streamlined.

Discipline

Establish accountability. The most important aspect of treating the close as a project is managing issues and continuously addressing problem areas. Most formal projects are administered by steering committees whose job it is to institute discipline and challenge the project team to improve and meet their goals. Similarly, for the close process, a close steering committee can review close results, approve improvements, and evaluate the close team’s results. The steering committee may consist of the CFO, Internal Audit Director, and possibly a representative from the external audit firm.

Evaluate results. At the end of each monthly close, the steering committee should evaluate how well the organization performed against the close project plan. The close process look-back analysis should identify issues and areas where potential improvements can be implemented. Developing a plan and continually measuring against the plans instills discipline in the process. For example, if a certain task is consistently missing the due date every month, the project manager should be charged with monitoring the task more closely in the following months. Recommended improvement can be identified and presented to the steering committee for approval. The look back aids in determining what needs be improved and provides a disciplined process for continuously implementing improvements.

Monitor improvement opportunities. A key part of the look back includes establishing an opportunity management framework to properly monitor and document improvement opportunities. The framework should answer the following example questions: What’s the issue? What’s the business implication? What’s the proposed resolution? Who is assigned to resolve the issue? When is the target date for resolution? What’s the benefit of implementing a change? After a comprehensive review of the improvement opportunity, the proposed resolution can be presented to the steering committee in the context of a cost-benefit analysis for approval.

Each month’s close project plan should include incremental improvements over the prior month. For example, the steering committee can take a leadership role in selecting areas for improvement and challenging the finance staff to continuously improve. This would include a process to measure the success of the improvements. Success could be measured in terms of number of manual journal entries eliminated, number of reports eliminated, and days removed from the close process.

Summary

Ask any seasoned project manager to run a project without the organization and discipline discussed above and they would cringe. A project is merely a sequence of steps accomplished with a variety of resources to create a deliverable within a certain time frame. This requires organization and discipline and the close process is no different. The finance department should run the most important project of closing the books with the utmost organization and discipline. Furthermore, the repetitiveness of the close process allows the finance organization to find opportunities to continuously improve. For example, a continuous improvement of 2% each month equates to a 24% improvement over a year or five days shaved off of a 20-day close process. Adopting project management concepts to drive continuous improvement is a practical way to make big changes in the long run.

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