In Finance Transformation



6 Keys to Successful Finance Transformation

by Rachel Claggett

Our clients’ CFO and finance leaders are prioritizing how the finance and accounting organization can continue to drive strategic value across the entire organization. CFO priorities include becoming a strategic business partner for operations and sales, developing more robust analytics, and prioritizing strategic planning. To accomplish this, CFOs are taking their finance and accounting teams through a transformational journey.

This finance transformation journey aligns all key processes, organizational capabilities, and technologies with company goals. Transformational change requires discipline and leadership, with the finance organization typically taking on the leadership role.

One of our CFO clients explained, “Prior to our transformation, our participation on the QBRs were merely tallying up the sales forecast. Now we are asking more inquisitive questions to understand the true sales outlook.”

Here are six tangible ways to transform your finance organization and get on track with the strategic vision.

1. Develop guiding principles

Guiding principles are short statements that describe core values. They outline goals for interacting with and serving the rest of the business. For guiding principles to have a real impact, they should be based on input from all other areas of the organization. An example guiding principle for Finance could be: “To leverage our financial acumen to better the business regarding issues and opportunities within the company.” Leadership relies on Finance to provide timely and accurate information to support the strategy and decision making. As the primary department specializing in a “numbers perspective,” a guiding principle can be built around making the perspective accessible to everyone in the organization. Other guiding principles can be built around other capabilities and roles within the finance organization.

2. Have a process improvement vision

A process improvement vision is a picture of how well the company wants to perform across key processes and what capabilities are needed to accomplish the organization’s goals. Creating a process improvement vision helps companies decide what peak performance looks like for each department within Finance. Will the procurement department be lean and use technology to get the job done quickly and accurately? How will the planning department share forward-looking information with Operations? A process improvement vision will guide departments as they improve. It will help to prioritize and organize steps taken toward the end goal. Begin with a clear idea of what the process should look like, and then create a process improvement vision to get there over time.

3. Know your data

Data can get messy, fast. If invoices are entered into the system incompletely or inaccurately, the date in the payables system will only get worse as time goes on. Dirty data can come from inconsistent naming conventions or formats, incorrect coding, unclear guidelines for creating new accounts, and more. For example, a large services company used one chart of accounts (CoA) to handle data from five different legal entities. The CoA contained thousands of accounts, some duplicated and many empty. Coding mistakes were rampant and reporting was nearly impossible without manual intervention. Recognizing the need for a change, the company took several weeks to streamline their account string and consolidate the CoA. When the data was clean, coding errors diminished significantly. Finance could easily share reports with the ability to view data across the legal entities and company divisions. Scrubbing your data will be time consuming, and maintenance must be intentional. However, clean, consistent data has a significant impact on daily operations at all levels.

4. Manage organizational impact

Once data is clean and a process improvement vision is in place, take a step back and evaluate how the current structure of the finance organization will fit into future processes. As processes become more streamlined and efficient due to continuous improvement, defining key roles and responsibilities becomes vital. Pairing a streamlined process with a bulky, slow organization will drag the process down. Companies must be willing to streamline the organization along with the process to get the most out of their work. It is possible the level of talent required to make the process work will change as finance capabilities change. If the focus of Finance shifts from performing simple transactions in the system to analyzing corporate financials, employees with more experience and knowledge in that area may need to be hired. Managing organizational impact means determining what kind, size, and caliber of organization will be most effective with existing processes.

5. Develop service level charters

Creating an agreement (service level charter) between Finance and other departments defines the role of Finance as it relates to the rest of the organization. Service level charters rationalize the work being done and drive accountability for meeting efficiency targets. Defining responsibilities and accountabilities can prevent duplication and reduce error rate. If a division accountant believes their charter is providing financial reports for Operations while the corporate accountant is doing the same, the service level charter will expose the duplication of work. A service level charter that defines roles between departments improves communication, provides a source of accountability, and increases efficiency for everyone involved.

6. Technology is last

Putting technology before process is putting the cart before the horse. Often, companies decide to put in a new ERP system, thinking it will solve all their problems. It rarely does. Extra technology and upgraded systems make terrible band-aids for a broken process. Adding high-powered technology to the mix only makes it more chaotic, less accurate, and more time consuming. Evaluation of process should always come first. Fix issues as they are found and get the process and organization right before changing technology. Systems are meant to support processes, not create them.

When working to support the overall vision of the company, consider the scope and key priorities of the transformed finance organization. Identify where inefficiencies exist today, and determine what leading practices are applicable. Decide what role technology will play in the future, and ensure processes are in place to support it first.



4 Steps to Building a Vision for Finance

by Nicole Higle

Finance transformation initiatives are often introduced to improve service delivery and information quality all while keeping costs in line. Realizing the full benefit of a finance transformation effort is rare. Finance staff get distracted with day-to-day issues and miss the first step critical to achieving finance transformation success—establishing a vision for the future. Organizations have a better chance of achieving the benefits in transforming their finance organization by following the steps below to create a clearly defined vision.

1. Define core work processes

The first step in creating a process improvement vision for finance transformation is to define the processes which make up the business of the finance organization. Identifying core work processes and critical activities completed within each piece of the process will help determine areas of focus for the transformation initiative.

For example, companies categorize activities surrounding budgeting/forecasting, financial close and consolidations, cash management, and financial reporting into the record-to-report core work process. While the record-to-report business process may be commonly recognized, each company will have a slight variation for logically grouping functions and critical activities into overarching business processes.

The chart below is an example of categorizing finance-related activities into a core work process.

2. Identify issues and challenges for each core work process

Once core work processes are defined, leadership should identify subject matter experts for each business process.  These subject matter experts should collaborate in a series of process improvement workshops. The workshops utilize a cross-functional team to identify where critical finance activities and functions intersect with other work streams and detect current issues and challenges with how the finance organization operates.

When conducting process improvement workshops, gain an understanding of both common industry and unique company issues found within each core work process. Then, have workshop attendees collaborate with the other subject matter experts to pinpoint where the pain points and obstacles exist within the finance organization. The workshop output should include documentation prioritizing issues which exist within each core work process.

3. Develop goals and objectives

Based on the workshop output of issues, the executive leadership team is challenged to establish goals and objectives for the finance transformation initiative. Questions such as, “What key issues do we want to address?” and “How do we align the identified issues with our company’s strategic short and long-term goals?” are important to ask when establishing the goals and objectives for the finance transformation initiative.

It’s also important to consider any quick-win action items, which may not be critical or of high priority but can be addressed quickly to have a positive impact on people, process, and technology. Any quick wins to assist in achieving the desired future will allow the initiative to maintain momentum.

4. Define future capabilities for each core work process

The subject matter experts in finance are then tasked with pairing the challenges and issues identified during the process improvement workshops with action plans to align with the goals and objectives set forth by the executive team. To be more effective in defining what capabilities to include for the future state, break down the list of improvements into easily digestible categories, such as people, process, and technology. Examples might be:

  • People – A reporting and analysis center of excellence supports global operations
  • Process – A single invoicing process for all customer invoices
  • Technology – Automated account reconciliation processes

Once capabilities are defined for each core work process, process owners should work together to prioritize which items to address in the short term vs. long term. During prioritization, it’s important to account for the impact upcoming changes will have on the organization. First, identify the communication, training, and resources needed to deliver each improvement.

Establishing a vision for the future is critical to the success of transforming the finance organization. Creating a vision defines the role of finance in the improved future-state operating model across core business processes.



How to Build Effective Guiding Principles for Your Finance Organization

by Rachel Claggett

Guiding principles are short statements describing the core values that drive decision making. For the finance organization, which touches all other parts of the business, guiding principles matter because they define how finance interacts with the rest of the company. Often, finance organizations need to clarify their guiding principles to keep focused on what is important.

Guiding principles should clearly communicate what the finance organization holds to be important, what behaviors demonstrate that value, and how those behaviors should impact the people it serves. Principles should encompass behaviors, qualities, characteristics, and outcomes the organization strives to achieve. Guiding principles should inspire employees and help give a sense of purpose to their work by serving as a reminder of the end goal. They will also help prioritize what comes first when things get busy, and resolve conflict by pointing employees back toward the goal. Below are a few key steps to developing guiding principles:

Start with the Mission

If the finance department is like a ship, the mission statement is the map that shows the way to the desired destination. A mission statement is a broad overview that defines the role and purpose of the finance organization as a whole. It usually identifies the overall goal of Operations and includes service offerings, primary customers, and the level of quality Finance aims to provide. To create effective guiding principles, Finance must first have an idea of how they wish to operate in each of these areas. The mission statement creates a picture of peak organizational performance.

Define 3 to 5 Core Tenants

Guiding principles stem from the core tenants of the mission statement. Guiding principles act as the rudder that guides the ship along a certain path. When held steady, small adjustments to the angle of the rudder cause large changes in direction over time. In the same way, solid principles that are held over time can drastically change the way a finance organization performs. These principles should be made of three to five core tenants that are distilled from the mission statement, and should outline things that are most important for Finance to do. For example, if the mission statement promises efficiency for the company, a guiding principle could state, “Finance will maintain a continuous process improvement mindset.”

Define Supporting Principles for Each Core Tenant

When a storm comes in, the crew must know what steps to take to keep the ship afloat. There must be a plan—a checklist of things that must happen to keep the ship on course. Supporting points for guiding principles take the more abstract, broad ideas and define how the organization will operate to make those ideas a reality (how the organization will remain on course). If the goal is to maintain an effective and efficient controls environment, Finance may decide to monitor and mitigate risks, simplify and standardize critical controls, and introduce a reasonable level of automation to reach that goal. Supporting principles will provide specifics about what the guiding principles look like on a day-to-day basis.

Communicate Guiding Principles to All Stakeholders

A lighthouse is much more easily seen on a clear night than a foggy one. In the same way, clear communication of the mission statement, guiding principles, and their supporting points is a great way to ensure they can be put into action. An energy company’s finance department printed and hung large copies of their guiding principles in all conference rooms, as well as on the finance and accounting office floor. When issues arose, the principles were always close by to provide a guiding light. Key stakeholders should have a clear view of the organization’s overall goals, have the plan/steps to accomplish them, and reference those steps often.

Clearly communicated, effective guiding principles are the first step in transforming your finance organization and moving forward to achieve corporate goals. They provide clear and memorable definition of the behaviors, standards, and values that will improve and grow the organization and its people.



3 Ways to Boost Strategic Partnership

by Kara Rozell

Finance and information technology departments within large companies are uniquely positioned to drive strategic value. Finance stewards the business, from its breadth of experience developing business cases with stakeholders to understanding intricate accounting details. Finance crunches the numbers and translates accounting into usable information for leadership and shareholders. Similarly, IT enables processes within the business and connects with customers, partners, and vendors through technological innovation. IT is uniquely positioned to determine how technology can be used to drive business value. Therefore, IT and Finance  are well positioned to be the linchpins for enabling business strategy and gaining competitive advantage.

Unfortunately, Finance and IT are often overlooked and relegated to the back seat when strategic decisions are made. Overlooking Finance or IT during strategic planning has negative consequences later when delivering the strategy. Here’s how Finance and IT can be positioned to boost strategic partnership:

1. Teach more

Strategic finance and IT partners support other functions in the organization by continuously improving and sharing knowledge. Executives, operations, or sales leaders repeatedly asking the same questions or asking for more information indicates a teaching opportunity.

In our experience, sales managers at a chemical company bemoaned every month about the accounting for sales accruals. The sales team did not understand how the accruals worked and why they fluctuated month to month. The finance team engaged with them to explain the sales accrual process. Once the sales organization understood the process, the sales managers worked with sales teams to change billing cycles and eliminate 80% of the accruals. As a result, the sales team better understood accruals and the finance team was able to spend more time driving strategic value. Teaching stakeholders how accounting and finance really work allows stakeholders to take preventative actions and find ways to improve the bottom line.

Teaching goes both ways. It’s difficult to correctly train stakeholders if the stakeholders’ side of the business is not understood. For example, an exploration and production company had an endless thirst for information IT could never seem to satisfy. The IT managers started spending time in the field through “ride-alongs” with field supervisors, asking questions to better understand the business and the interminable desire for information. Engagement in the field was a great way to build strategic relationships with operations (little secret: it doesn’t require an engineering degree to understand how to extract oil). Understanding daily activities and operational lingo helped with training and building rapport, ultimately allowing IT to develop a clear set of information requirements for operations.

Here’s the bottom line: stakeholders are more likely to include business partners in important decisions when partners understand all aspects of the business and less time is spent chasing down tactical issues.

2. Be proactive

Valued IT and finance business partners proactively identify and fix problems before small issues turn into big ones. Finance and IT can engage with stakeholders to understand pain points and solve the root causes of issues to prevent reoccurrence.

For example, an oilfield service company financial analyst was on a ride-along with a district manager. The district manager was vocal about incorrect financial reports, and he shared his displeasure with other district managers. The financial analyst asked to review the reports with the district manager. They found certain assets were incorrectly categorized, resulting in an incorrect field asset profitability. Asset categorization had a trickle-down effect on all district financial reports. Once corrected with a simple change by finance and IT, the district managers had renewed confidence in these reports. The finance team gained instant credibility with the district managers, and discussions with operations now focused on value-added activities.

3. Provide tools

Operations, sales, and executive teams rely heavily on various tools to work effectively. Tools include standardized financial reports, customer relationship management tools, and project tracking tools among others. Valued IT and finance partners are continuously evaluating the value these tools provide. Technology is moving fast with the advent of cloud technologies and apps. As a result, operations and sales teams often take it upon themselves to find new ways to do business.

For example, a manufacturing company’s engineers were struggling to use the tools IT and Finance put in place to track spending. These tools were hard to use and required IT to create new reports, and the engineers wanted to access data when they needed it and build reports on the fly. The engineers created a makeshift solution, making their own databases and reports to track spending. They needed a new, more optimal solution: a self-service, cloud-based business intelligence tool where data could flow directly from financial systems into a series of “data lakes.” Now, engineers could generate a report in minutes with real-time data. IT supported this modern business intelligence tool, and engineers now had immediate access to the information they needed. The improvements allowed IT to spend less time writing reports and focus on more strategic initiatives.

Strategic IT or finance departments recognize the needs of stakeholders and adapt quickly to provide the right tools to run the business.



Performance Management: 7 Steps to Hitting the Same Target

by Trenegy Staff

At any given time in any office around the world, you can find a boardroom packed with different employees discussing how to improve the business. The scene will go something like this:

  • The controller is convinced the company needs to improve its Enterprise Performance Management process.
  • However, the Vice President of Human Resources replies, “No, we don’t need to focus on EPM. Our Corporate Performance Management system is what needs improvement.”
  • To which the Vice President of Finance responds, “Our CPM is fine. It just needs to be integrated. What we need is an Integrated Performance Management system.”
  • But that isn’t enough for the IT Manager who says, “You’re all wrong. We need something even better. We need an Integrated Enterprise Performance Management Corporate Environment.”

The funny thing about the scenario above is that each person is basically requesting the same thing, except for the IT manager. He recently participated in a software demonstration where the consultant performing the demonstration made up a new type of performance management on the spot, which the IT manager repeats because he thinks it sounds trendy.

Though the term performance management is used often, its full meaning is not typically understood. The meaning is only exacerbated by consultants who seem to frequently create a new type of performance management (e.g. corporate, enterprise, integrated).

It’s logical to think that each reference made about performance management efforts are all related to the same project, right? Not necessarily. Here are how the uses of the term performance management overheard in the boardroom actually translate:


Which translation of performance management is correct? Actually, none of them are exactly right or wrong. Each translation is partially correct, because each department, or source, uses the term performance management to mean what is specific to their function. Each translation is only a portion of what performance management really stands for. What exactly is performance management then?

Stated simply, performance management is the action of measuring actual results against specific targets or goals.

The performance management process for a company consists of the following key steps:

  1. Visioning: Defines the direction for the company
  2. Goal setting: Establishes performance targets to track and measure progress
  3. Strategic planning: Creates long-term plans tied to the company’s vision
  4. Business planning: Consists of the tactical planning required at a business unit level
  5. Analysis: Identifies progress toward goals and changes business drivers
  6. Forecasting: Provides an ongoing outlook of expectations versus goals
  7. Measuring success: Measures toward strategic objectives and peers
  8. Rewarding people: Recognizes and rewards employee performance based on performance incentives

The overall performance management process can be an integrated, continuous process as depicted by this lifecycle diagram.

PM graphic

Looking back at the various ways different functions of a company use the term performance management, it’s clear each translation is only part of the story. Too often, performance management is used to describe goal setting or rewarding people. These are only two components of the entire cycle.

It might help to describe not only what performance management is, but also what it is not:


To better understand how the performance management process is used, let’s assess a non-business related application, like winning a race. For someone with sights on winning a 5k, the performance management process would look something like this:

  1. Vision: Winning the annual Turkey Trot 5k
  2. Goal Setting Targets: 5 miles in week one, 7 miles in week two, 10 miles in week three, finish 5k in 21 minutes or less
  3. Strategic Planning: Monthly mileage plan, monthly time/mile average plan
  4. Tactical Planning: Daily calendar marking long runs, track work, and rest days
  5. Analysis: Comparison of training times to targets, comparison of total training mileage logged to targets
  6. Forecasting: Modifying monthly/daily plans based on analysis
  7. Measuring Success: Comparison of training targets to actual results, comparison of race results to targets and peers
  8. Rewards: Pumpkin pie with whipped cream for achieving training targets, nonstop boasting to annoy family members for winning the 5k

The person training for this 5k effectively used the performance management process to drive actions toward a desired result. Driving actions toward a desired result should be the objective of every company.

Performance management is a crucial process for effectively managing and guiding a business. However, it is important to think of the process in its entirety. Maybe the IT manager was right from the beginning: performance management should be an “integrated enterprise performance management corporate environment (IEPMCE).” Trademark filed.

This article has been adapted from a chapter of Trenegy’s book, Jar(gone).



3 Considerations When Expanding Internationally

by Lindsey Ligon

In an uncertain economy and ever-changing business environment, businesses may be looking to expand internationally. If done thoughtfully and carefully, international expansion and/or relocation can help companies reach new markets, stay competitive, and offset risk by moving to an area with a more stable economic or political environment. Additionally, lower operating and overhead costs in other countries can save organizations money in the long run.

If your organization is considering an international expansion, here are three things to focus on:

1. Finance

Important financial considerations include taxes, exchange rates, transfer pricing, and risk management/hedging. The country of destination may have various taxes on imports and exports, different levels of revenue tax and government tax, and particular rules and regulations for tax compliance that need to be a part of the financial analysis. Transfer pricing is usually easier than it’s made out to be (read more here). Currency hedging is a risk mitigation tactic often used in international companies that should be included in the upfront analysis. An accounting system that can support currency translation, cash management, and inter-company transactions is a substantial investment, but could be the difference between a successful and unsuccessful international move.

2. Culture

Cultural differences can pose an issue when expanding internationally. There are obvious differences like language and customs. But in certain cultures, something seemingly simple, like the way you hand your business card to someone, can be seen as disrespectful if done the wrong way. Meeting etiquette, formalities, timeliness, etc. are all cultural aspects to be researched and respected. Finding middle ground between your company culture and the country’s culture can be an advantage in a strategic international move.

3. Policy

Reporting and accounting requirements vary by country based on standard accounting practices (GAAP versus IFRS). If local accounting practices differ significantly from the parent company’s, consolidation may be a difficult, lengthy process. Statutory reporting requirements also vary by country. The nature of statutory reporting usually depends on company size, and larger companies have additional statutory audit requirements that add an extra layer of complexity. Companies should also be in compliance with the Foreign Corrupt Practices Act, which can further determine the controls framework and structure.

International expansion is becoming increasingly common. How international expansion affects the bottom line is often the only thing executives focus on, but there’s much more to consider to ensure success. The financial, cultural, and political implications are crucial pieces of the process that can make or break the move.



The Slap Game: Working Capital Management

by William Aimone

The slap game used to be a popular tradition for middle school kids looking for ways to fill the monotony between classes. Opponents face each other and attempt to slap the other’s hands as quickly as possible. It’s a great test of reflexes, but if played long enough, both opponents eventually end up with red welts on their hands. Nobody wins this ultimately pointless game.

Companies play the slap game with each other when managing working capital. Procurement departments slap vendors into 60 or 90-day payment contracts. Meanwhile, the same company’s sales organization is slapped by their customer’s procurement departments. Not long ago, a 30-day term was standard for a vendor contract. Today, procurement and supplier contract organizations are pushing the envelope to 60 and even 90 days—completely ridiculous.

Companies extending each other’s payment terms is unadulterated working capital gamesmanship. There is no winner and most organizations end up slapping themselves with additional headcount costs, poor pricing, and quality issues.

Slap #1 – Headcount

To perpetuate working capital gamesmanship, organizations create and staff contracts and sourcing functions to pressure vendors into submission. These functions delay contract agreements while adding administrative overhead. According to surveys, an average one-billion-dollar organization has double the necessary contract and sourcing staff. This staff costs an average of $2 million/year while only saving $1 million/year in working capital gains for 30 days DPO. What’s the point?

Slap #2 – Pricing

Savvy sales organizations have become less lenient with pricing concessions on slower paying customers. A recent survey of pricing scenarios is eye opening. Pricing concessions on 30-day payment term customers was 2% more favorable than 60-day payment customers. This translates into $6MM/year in excess spending for a one-billion-dollar company. In other words, organizations are spending more to spend more. Red welts are showing.

Slap #3 – Quality

Organizations have a greater incentive to keep faster paying customers happy. In a survey completed by Trenegy in 2013, faster paying customers tended to get priority for shipping, service response time, and overall quality. Poor vendor quality can cost more than the savings in working capital. The red welts are now hurting.

Working capital management is typically the window dressing on the balance sheet and should be properly managed. Unfortunately, organizations tend to take the path of least resistance. It’s easier to beat up a vendor than to push back on customer payment terms for fear of a lost sale. Losing a sale over payment terms does not happen. Organizations should spend less time fighting the vendor contract terms and more time focused on getting customer contracts right. This is where the true value begins and the slaps end.

Trenegy helps companies develop processes to manage working capital without succumbing to the slap game. For more information, email us anytime at



Where AI Fits into the Future of Finance

by William Aimone

Finance and accounting professionals are asking a variety of questions about how AI will impact the future of finance. If you’re reading this now, you’re likely in one of two positions:

  1. You’re charged with understanding how the entire finance organization should strategically benefit from AI to enable the organization to be more competitive.
  2. You want to know how you can use AI to improve your personal productivity, which we’ll discuss at the end of this article.

To be strategic, finance organizations should view AI from the perspective of Finance’s overall role in the organization. Below are the key questions finance executives can start with:

1. Process

How can we optimize business processes to align Administration with Sales and Operations using AI?

Standardizing repetitive processes using AI is a great starting point for the finance organization. Take OCR (optical character recognition), for example. OCR has advanced to the point where AI is embedded in the software. This allows for smarter recognition of information on invoices, which makes it easier to capture info in the ERP. It makes for an easier process and saves time that would have been spent on a repetitive task.

2. Strategy

How will AI help Finance align the strategic plan with financial objectives, corporate structure, working capital, and funding?

Consider how AI can be used to sift through the company’s financial trends and economic forecasts to identify where strategic challenges might need to be assessed. An example of this is using AI to analyze assumptions in the business plan along with changing economic and geo-political environments to identify what needs to be reassessed. An even simpler example is having AI assess and identify updates in a SWOT analysis conducted 5 years ago against the changing business environment over the years.

3. Control

How will AI help Finance safeguard assets through efficient and effective risk management controls (policy, process transactions, compliance, regulatory, cash management)?

AI can be used to review internal data and extract information to pinpoint where current risks may need to be reassessed. It can also be used to generate updated policy documents based upon changes in the business environment. A simple example is having AI automatically generate FAQs in a new policy document to aid in communications.

4. Information

How can we use AI to provide quality information to stakeholders more quickly to support decision-making, goal setting, regulatory requirements, and planning?

AI tools are already used in business intelligence to identify trends and develop smart forecasting models based on a series of data lakes the organization develops with internal information. Consider how it can help speed up the communication process.

AI for Finance Toolkit

AI has applicability within each of the above and a deeper dive into the supporting process that finance and accounting supports as a part of a finance AI initiative will a lynch pin for advancing just about every organization.  Trenegy has developed an AI for Finance Toolkit that allows finance executives to quickly prioritize AI opportunities. Our AI for Finance Toolkit has been embedded into our finance transformation methodology along with leading practices and a comprehensive look at tools available in the market to jumpstart a finance AI initiative.

Using AI to Improve Personal Productivity

From a tactical perspective, any professional in the finance organization can leverage AI as part of their job. Our advice to finance and accounting professionals is to view AI as a productivity tool. Find ways to use AI to make things easier. For example, Microsoft Copilot has all sorts of mind-blowing capabilities that can advance and automate the finance and accounting process. Using Copilot is akin to learning the capabilities of Excel to automate reporting, allocations, and forecast models. It’s simply a tool designed to make your job easier.

Copilot can be used to mine information and create summaries and documentation using a combination of internal SharePoint files and external information. This could help with tasks like updating management disclosure documentation, identifying anomalies in financial data, and documenting budget meeting results. The opportunities are endless.

One Final Thought

Finance organizations can leverage AI to enhance their value proposition and become more agile, innovative, and collaborative. However, implementing AI in finance requires clear guiding principles, a robust roadmap, and disciplined execution. That’s why Trenegy offers a comprehensive “AI for Finance Toolkit” that helps finance leaders assess their current state, identify high-impact opportunities, select the best-fit solutions, and manage change effectively.

Our toolkit combines our deep expertise in finance processes, data analytics, and change management with our extensive knowledge of the AI landscape and leading practices. Whether you want to automate your reporting, forecasting, compliance, or planning functions, we can help you design and implement a tailored AI solution that meets your needs and goals.

Reach out to learn more about Trenegy’s “AI for Finance Toolkit” and how we have helped other finance organizations achieve success through automation. We would love to hear from you and explore how we can support your finance transformation journey. Email us anytime at





Integrated Business Planning: Gimmick or the Go-to Method for Doing Business?

by Patricia Dewey

Companies whose doors have been open for longer than five minutes know teamwork is important. Every company has their own methods for maintaining communication and teamwork. Sales and operations planning, or S&OP, is a perfect example. S&OP is the process by which Sales and Operations work together to create one plan for a specific time frame. Sales provides projected revenue, and Operations provides their expected production. It’s a game of supply and demand and predicting equilibrium. The end product is a forecast that aligns with executives’ strategic objectives and serves as a performance measurement tool.

The inventor of S&OP, Oliver Wight, tells us there’s a new concept which improves upon even the most tightly run S&OP organization. The process is Integrated Business Planning, or IBP. According to many skeptics, IBP is simply a marketing gimmick to rebrand S&OP. However, Wight confirms Integrated Business Planning was not introduced to announce the invention of a new process, but rather to reveal the considerable changes to an existing one. The focus of S&OP has shifted toward gaining a better understanding of external factors and aligning all internal functions, not just Sales and Operations.

In the new world of IBP, Sales, Operations, Logistics, HR, Finance, Marketing, and Pricing are all working toward the same goals. Some examples of the ways IBP improves upon S&OP include:

  • Stronger financial integration
  • Improved product and portfolio review
  • Addition of strategic plans and initiatives
  • Improved-pricing decision making
  • Enhanced scenario planning and risk visibility
  • Improved trust within the leadership team

IBP starts with implementing a process that works best for the company. If a company has been operating a run-of-the-mill S&OP process for twenty years, a change management plan to shift to IBP could be exactly what the company needs to take business to the next level. By making improvements to the traditional S&OP process, the company uses cross-functional data to make business decisions, set targets together, and commits to achieving the strategic plan.

A potential benefit of IBP over traditional S&OP is the ability to develop trust with suppliers and customers by including the strategic pricing equation in the planning process. IBP allows companies and, in turn, their suppliers and customers, to depend on reliable pricing and available to promise (ATP) numbers. Trust can only be established when people deliver to expectations. Pricing is a key player in IBP, as are ATP dates. Price is the translation between units and dollars enabling a common language.

Still not sure about the difference between traditional S&OP and IBP? It would not be surprising if the term IBP faded away and the term S&OP remained, but regardless, the concepts of IBP are the new gold standard. Whether a company has employed traditional S&OP processes for decades or is starting from scratch, it’s important to apply the latest model. Why settle for a thing of the past when the future is much brighter?

Companies investing in IBP will notice a behavioral shift. For potentially the first time, the entire company will be moving toward the same set of strategic objectives. Ultimately the company will be able to provide a higher level of customer service, improve lead times, increase profit, and enjoy a positive impact on the bottom line.



How to Get Real Value out of the Budgeting Process

by William Aimone

Pundits argue budgeting is a useless exercise and companies should curtail the efforts. In many organizations, budgeting becomes mere drudgery to appease the executive team. The budget process is long, and once complete, rarely reflects what management believes to be true. For example, a cost center budget is typically developed based upon historical costs with some small percentage increase or decrease. The process does not add value.

Convincing an entire executive team to eliminate budgeting is close to impossible. However, there’s a way to get value out of the budgeting process.

Think about the last time you hired a service provider to do anything. There was likely a signed agreement containing expectations of both parties with an agreed upon set of fees in exchange for the work.

Why not use the budgeting process to allow each of the service providers in the organization (Finance, Human Resources, Engineering, Marketing, etc.) to “contract” for the work? For example, the cost accounting department’s primary goal is to accurately capture product and inventory costs to enable make/buy, capacity, and pricing decisions. The cost accountant’s customers include marketing and plant managers. The cost accounting team’s budget would be considered the price marketing and plant managers pay for the cost accounting services. This price (or cost) can be weighed against the value provided.

The budgeting process should allow each business function to revisit what they do in terms of value provided to the organization. Functions can be stacked against each other in terms of the value provided and used as a means to reduce costs or build high-value capabilities.

Organizations have adopted the concept of service level charters as a means to drive value out of the budgeting process.

For example, a CFO has a global $6M budget for cost accounting whose value is considered high and a $7M global budget for accounts payable staff providing considerably less value. The immediate argument is AP requires more effort. However, why would an organization spend more on activities that result in lower value? The CFO creates service level charters for accounts payable, cost accounting, and the other finance functions. The service level charter outlines the scope of work, services provided, and associated costs. They also expose the inefficiencies within AP, and an effort to streamline processes allows the AP budget to be cut in half.

5 Key Components of a Service Level Charter

1. Real value

Each charter must have some connection with what is strategically important to the company. It is easy for the engineering department to identify the value of new product development. However, it’s more of a challenge for the internal controls group to define their value statement. That being said, the internal controls department keeps the executives out of jail. How is that for value?

2. Transparency

Department managers often shy away from sharing budgets with peers for fear of finger pointing. However, sharing the cost of the business functions should be transparent across the organization. A department manager who cannot justify his value should be challenged. There’s nothing wrong with peer pressure to reduce costs and demonstrate value.

3. Service expectations

In any contract, it’s important to set service delivery expectations. It’s easy for the cost accountants in the plants to be dragged off performing special assignments for the plant managers which have nothing to do with controlling and analyzing plant costs. Nonetheless, these special assignments are of value for the plant managers. The cost accountant’s delivery expectations for performing the special assignments need to be in the service level charter and budgeted accordingly.

4. Customer expectations

As with every service agreement, there are expectations from the customer. In a service level charter between a technical support group and plant operations, plant operations would expect timely reporting of support issues. The old adage “I cannot help you if you don’t help me” applies here.

5. Measurement of what matters

Defining performance metrics tied to the budgets is important. For example, a safety organization’s key measure is lost time incidents. During the budgeting process, some may believe there are too many safety supervisors. At the same time, the organization has zero lost time incidents displayed on the service level charter. The metric curtails any debate over costs.

Developing service level charters should be a simple process. Organizations may try to over-engineer the process.

Keep the Service Level Charter Simple

1. Stick to one page. The charter should be simple enough to put on one page in a 12+ font. Anything longer and the customer will not take the time to read.

2. Select few measures. Do not try to develop too many measures or select complicated measures. The easier to calculate measures, the more likely everyone will understand.

3. Keep it high level. This not about creating bureaucracy and trying define the specifics of every business function.

4. Stay flexible. Organizations need to stay fluid and understand business changes may mean straying a bit off course to address the unexpected.

Implementing service level charters in an organization might be disruptive, but in a good way. Service level charters can drive a change in the culture of a complacent organization stuck in the process of budgeting for the sake of budgeting. Budgeting isn’t usually fun. But it can be if it’s competitive and value-focused. Trenegy has developed a service level charter format used by leading organizations. For an example, please contact us at



Streamline Forecasting Through the ERP

by Misty Taylor

Forecasting financial data is an important process because it allows management to review an organization’s current financial state through the fiscal year’s actual and projected financial data. In this process, financial planning gathers the current fiscal year’s actual data, analyzes the outcomes, and forecasts the remaining fiscal year. Therefore, the resulting forecast is only as reliable as the actual data gathered and the quality of analysis.

Gathering the actual data and analyzing variances is often burdensome and shifts focus away from financial planning’s primary role: forecasting. To streamline these phases of the forecasting process, organizations should begin with the ERP system. Organizations can design an ERP that aligns data forecasting and recording, configure the actuals to flow seamlessly into the financial planning model, and provide financial planning ERP training for variance explanations. These steps further improve the forecasting process by shifting financial planning’s focus back to forecasting.

System Design and Reporting Requirements

An ERP system is an invaluable tool to many functions within an organization. Other functions, like financial planning, may view the ERP as inadequate because the accounting data extracted doesn’t meet forecasting requirements. Whether the financial data is too detailed or not detailed enough, both scenarios require financial planning to dedicate time to manipulating data rather than analyzing and forecasting financials.

The ERP may not meet the needs of financial planning because financial planning’s requirements were never expressed during the ERP design. The design phase is a critical phase in an ERP implementation wherein future-state data and reporting requirements are documented. Including the needs of financial planning streamlines the process for retrieving historical data and determines the level of detail that should be recorded in the first place, unless GAAP requirements specify otherwise.

Data Retrieval

The means by which financial planning receives historical financial data can also cause problems in the forecasting process. Manually retrieving and uploading data into the financial planning tool can lead to errors or outdated data in the forecast model. By investing in an Extract, Transfer, Load (ETL) tool, financial data automatically flows from the ERP system to the financial planning tool. A translation can bridge the gap if the ERP design was not tailored to financial planning’s requirements but can be translated logically.

This allows financial planning to receive and utilize up-to-date and accurate information for forecasting without having to manually touch the data. This significantly decreases the risk of invalid data in forecasting models and allows financial planning to shift their focus from validating manually manipulated data to forecasting financial data.

If the organization does not have a financial planning tool, ensure the ERP data extracts are set up to financial planning’s exact specifications so they can flow seamlessly through the financial model.

Knowledge and Training

Part of the financial planning process is analyzing and explaining variances between forecast and actual data. Usually, financial planning must search the organization for the appropriate resource to explain the variances. However, if financial planning has access to the ERP system and receives training on the overall layout and reporting capabilities, variances can first be researched in the source system. If further explanation is required for some account variances, financial planning can use the ERP to identify specifically which transactions need explanation and who is responsible for these transactions.

On the other hand, some financial variances occur due to coding or roll-up changes that accounting enforced for their reporting needs. With training on the ERP layout, financial planning can articulate how ERP changes will adversely affect the forecasting process and reporting requirements. Conversely, if management requests changes in the forecasting layout, financial planning can work with accounting to realign how data is recorded with how management requests analyses and forecasts.

Align actuals and forecast through ERP design, integrate the ERP and financial planning tool, and train financial planning on the ERP layout to streamline the financial planning process. These steps prevent financial planning from dedicating resources to manipulate data to align with the forecast, reformat data extracts to flow into the forecast model, and search blindly for variance explanations. By streamlining the first two phases of the forecasting process, financial planning can concentrate on projecting a more reliable forecast with quality data and strong analysis.



The Corporate Financial Planning Owner’s Manual: Vehicle Maintenance

by Misty Taylor

A vehicle is heavily relied on for many tasks, such as getting to work, traveling on vacation, or hauling home improvement items. The maintenance of a vehicle is often an intimidating task to the average owner. But if this important task is overlooked, a vehicle can deteriorate quickly. Eventually the vehicle can break down and be in the shop for two weeks. The price of repair is substantially greater than the collective cost of regular check-ups.

The way a functional vehicle is necessary for a family, corporate financial planning’s deliverables are critical to an organization. The data presented to executives in budget and forecast reports drives crucial decisions for a company’s future. However, wrong or inadequate data in the budget and forecast models can doom big decisions to failure. Just like a vehicle, corporate financial planning’s deliverables must be well maintained to prevent costly mistakes.

Quality Data  

Vehicles require fuel to run, and quality fuel allows a vehicle to run better. The fuel for corporate planning is data. Quality data is a crucial component that enables corporate financial planning to produce accurate reports that support business decisions. Without reliable planning reports, executives must make decisions for a company’s future with little support. Many factors play into determining data quality:

  • Reliability of the source system
  • Accounting for any manual changes
  • Timeliness when capturing data

By conducting a thorough analysis of the data quality used in planning models, corporate financial planning can determine the necessary steps to improve their fuel.

Fine-tuned Models

Many parts of a vehicle require regular check-ups. The oil needs to be changed, the brake pads need to be replaced, and the tires need to be rotated. The model used by corporate financial planning for budgets and forecasts also has parts: the collection model that gathers data from different businesses, the revenue model, and the capital expenditure model. Whether these models are in a million-dollar system or in Excel, regular upkeep is critical.

Failure to technically maintain models can lead to broken links, missing pieces of data for critical formulas, or version control issues. No matter how sufficient the data brought into the model is, a poorly maintained model will not produce the necessary outputs. Regular maintenance may require completely rebuilding current parts of the model to remove legacy assumptions or recurring errors.

Effective Output

With quality fuel and regular maintenance, a vehicle should run properly for at least its intended useful life. However, just because a vehicle runs properly doesn’t mean it’s effective for its owner. For example, a convertible car may work perfectly but would be considered ineffective by a rancher. Similarly, quality data and technically sufficient models may not produce effective outputs. The outputs produced by the data and models must conceptually align with the business decision needs. Each report and metric produced by corporate financial planning’s model must be rationalized with the executive team. If considered ineffective, it’s either time to replace a part or trade in for a new vehicle.

By following all components of this maintenance checklist, corporate financial planning can efficiently and effectively meet the needs required to make critical business decisions.



The Pendulum Effect: The Role of FP&A Across the Organization

by Patricia Dewey

Imagine if every corporation moved with the precision of a grandfather clock. The face of the grandfather clock is the executive team providing the markets with timely updates on performance. The organization’s operations are the gears of the clock moving in precise motion behind the executive face of the clock. Accounting is the finely crafted cabinet surrounding the mechanisms and holding up the executive team’s face. The pendulum swings back and forth to maintain the momentum of accounting data flowing to operations and executives for decision making. The pendulum is the Financial Planning and Analysis (FP&A) team.

FP&A is well positioned to play a strategic role in a corporation, balancing the organization’s efficiency and effectiveness programs. Most FP&A teams perform basic budget data gathering and management reporting activities to support decision making. Many leading organizations have asked FP&A functions to take a broader role in becoming the pendulum moving between Operations and Accounting. The balancing means FP&A has the opportunity to consistently move back and forth between Accounting and Operations. FP&A also has the ability to measure how well Accounting and Operations collaborate and support the company’s long-term goals.

An optimized FP&A group, with the direction of executive leadership, has close ties with Accounting and Operations and applies their expertise to facilitate a collaborative business environment.

The Face of the Organization

The executive team works as the face of the clock to oversee and guide the organization. The executive team establishes a long-term strategy to cultivate growth. Although reporting needs change over time, executives are often handed the same information month after month. FP&A can have a substantial impact on long-term strategy by working closely with the executive team to gather and understand information needs, leading indicators, and reporting requirements.

A strong relationship between executives and FP&A can spread throughout the rest of the organization. Executives communicate corporate goals and FP&A serves as translators during the planning process. For example, an oil and gas services company discovered multiple reports were being duplicated for management. The operating divisions were providing management with utilization information and projected margins while corporate accounting was providing the same data with slightly different numbers. The result was inefficient reporting due to repetitive data from different departments, not to mention confusion. Inefficiencies in reporting can be eliminated if FP&A is empowered as a facilitator that provides metrics for management decision support.


A grandfather clock represents time and wisdom. When strategic decision makers receive the right information quickly, they gain the knowledge necessary to plan for success. Constant communication between Operations and FP&A results in accurate data delivered in a timely manner to decision makers. As mentioned earlier, FP&A should have close ties with executives and provide Operations with business knowledge, improvement strategies, and methods for increasing proficiency. Once FP&A delivers long-term goals and other executive expectations, Operations is able to make decisions that provide the greatest benefit to the business.

Individual branches within an organization may be interested in benchmarking their success against the rest of the company. For example, a company may have 50 branch offices across the country. A district manager in west Texas would benefit from understanding the competitive threats and cost challenges in the other branch offices. FP&A can be the link within Operations to share information and start conversations between branch offices.

Finally, FP&A can serve as the primary liaison between Operations and the rest of the company. FP&A will be able to forecast business results more precisely by acquiring knowledge from the field and staying up-to-date with operational business activities. For example, the FP&A team at a drilling contractor engages directly with the sales team to better understand rig backlog and future sales. The drilling contractor found that close communication between Sales and FP&A allowed the organization to more accurately project revenue. Meanwhile, the sales organization was able to spend less time developing reports for executives.


There is often confusion regarding the roles of Accounting and FP&A and their differing objectives. FP&A is historically seen as a strictly financial function. In reality, FP&A specializes in analyzing and planning for the future and identifying various improvement strategies. Accounting, on the other hand, is a science focused on meeting GAAP standards, instituting controls, and shortening the close process. Accounting and FP&A can work well together because they have similar competencies. Conversely, each has individual roles and objectives, and it’s important the organization understands the difference.

While FP&A is focused on forwarding financial performance, Accounting is focused on making sure the books reflect reality according to accounting principles. FP&A may need to cross into accounting territory to collect data and provide management the financial information it needs. Accounting may become concerned when FP&A wants accounting information before the books are closed, in fear that it won’t be understood. Clear roles around accounting and FP&A will change the way the rest of the organization views their responsibilities and how the groups view each other. For example, Accounting may underestimate the impact that FP&A has on shortening the close process. FP&A has the relationships and information required to minimize issues through the process. If Accounting relies on FP&A to get important information about the field prior to month-end, surprises will be eliminated and issues can be tackled earlier in the process.


The corporate grandfather clock will serve its purpose as long as the face of the clock is moving in time and the pendulum is swinging. FP&A can quickly become an effective pendulum for the organization when held accountable for partnering with Accounting and Operations. FP&A can work closely with Accounting to shorten the close, and FP&A can maintain ongoing relationships with Operations to guarantee upcoming deals and future business activities are included in financial projections.

The FP&A team has the opportunity to be a dependable force of support for the organization and contribute to the executive agenda. FP&A’s skill set should always be utilized for effectiveness like that of the pendulum: relentlessly operating in sync with the executive strategy, continuously swinging between their counterparts to spread knowledge, and ensuring decision makers have the right information.



Settling the Top-down vs. Bottom-up Budgeting Debate

by Joseph Kasbaum

As a company expands and matures, leadership will eventually lose control over the budgeting, planning, and forecasting process. Over time, different regions and functions will develop unique and siloed processes that provide the CFO with budgets of varying levels of depth and flexibility. The CFO’s attempt to corral the process by notifying the organization that their group at HQ is now running the show inevitably launches the top-down (TD) vs. bottom-up (BU) civil war.


Effectively navigating the evolution from a pure BU to a pure TD approach is nearly impossible. Replicating the old ways with a TD process that budgets at the same level, even with allocations, presents well-documented challenges. Cost center owners disengage from the process because they 1) don’t feel like their input is valued, 2) functional leads don’t fight for a potentially profitable project because they fear corporate, and 3) the finance guys in the ivory tower forecast inaccurately because “how would they know what goes on here in the field/plant/etc.?”

Strategic Top-down Target Setting

Predictably, the answer to the TD vs. BU debate is somewhere in between. Instead of overhauling the current BU process, the organization can leverage it and still give the CFO the control they covets by implementing Strategic Top-down Target Setting. The CFO typically doesn’t care that 401k expense is budgeted to stay flat or that marketing expense is budgeted to rise 50 basis points. The CFO cares about top-line growth, margins, and cash flow. The finance organization can control these in the budgeting process without strangling the different regions with peanut butter spread allocations. Within the firm’s planning tool of choice, Finance will set various key performance indicators (KPIs) that the current planning teams must achieve. Common budgeting KPIs are:

  • Gross Margin
  • DSO, DPO
  • Inventory Turns

The Strategic Top-down method generates the typical benefits an organization receives from the pure TD process (e.g. reduced cycle times, improved accountability, and removing personal interests), while allowing the different functions or regions of the organization to build their budget in the way that best works for them. As challenging as it may be for Finance to give up planning revenue growth down to the basis point, it’s far more effective to work with the different commercial groups to set market and product growth expectations instead of holding them to profitability metrics.

This budgeting strategy can also drive creative pursuits of revenue-generating activities and operational efficiencies to meet the KPIs set by Finance. For example, instead of conforming to a headcount maximum, a commercial region is able to increase team size to meet new sales initiatives while continuing to grow revenue in line with Finance’s margin targets.


This process pushes decision making to the teams that will live and operate under the budgets. Importantly, the teams must trust the targets they have been given. They cannot feel like they are building up to meet margin targets pulled out of thin air. Cross-functional teams should present a strategic vision annually that includes:

  • Commercial/sales groups presenting their expected market and product growth
  • Operations presenting expectations for inventory, manufacturing efficiency, and commodity price fluctuations
  • Finance presenting pricing and foreign exchange expectations

By maneuvering these levers, the CFO and their FP&A team can effectively set their revenue growth, margin, and cash flow expectations without the numerous reiterations that result from a pure TD or pure BU process.



Budgeting, Planning, and Forecasting… With Holiday Cheer?

by William Aimone

“It’s the most wonderful time of the year … with gay happy meetings … marshmallows for toasting … scary ghost stories and tales of the glories …”

Andy Williams was not entrenched in a large corporation when he crooned this famed Christmas ballad. The traditional corporate march to create a budget during the holidays is a far cry from happy meetings when friends come to call. However, there are scary ghost stories of former executives failing to meet operational budgets in years past. As the budget meetings conclude, management feels like marshmallows for toasting.

The budgeting, planning, and forecasting process should not be a corporate nuisance. Planning is when management has a chance to get away from the mundane day-to-day activities, think about the future, and make resolutions for the new year. Yet budgeting has become an annoyance. Why?

Many organizations have overly complicated the budgeting process and fail to see budgeting, planning, and forecasting as a simple, integrated process. Organizations spend more time doubling planning efforts with department heads second guessing each other’s numbers and assumptions. The planning department ends up patching together a consolidated budget.

When Simple Budgeting, Planning, and Forecasting Gets Complicated

Budgeting becomes nothing more than a corporate hammer used to intimidate middle management into submission. In reality, the true planning occurs at the individual business unit operational and sales level—where the rubber meets the road. Unfortunately, the true operational and sales plans are rarely rolled up into a consolidated plan for fear that dark secrets will be exposed. This is where sandbagging becomes a ritual and the mere guessing of how much sand is in the bag becomes central to most discussions. Corporate officers are hoodwinked into thinking the corporate strategic plan is actually the consolidated plan everyone is marching toward. Yet, the strategic plan is rarely tied to the business sector’s operational, personnel, and sales plans.

Then, there’s forecasting. In most organizations, forecasting is ad hoc at best. If there’s a formal forecast, it’s typically performed in a corporate bubble by the corporate planning department. The planning department rarely knows the right questions to ask operations and sales leaders in order to develop a realistic forecast. When the forecasts prove incorrect, another round of second guessing and mistrust between corporate, sales, and operations occurs.

Organizations with a simple, integrated budgeting, planning, and forecasting process have removed the drudgery and duplication. Most importantly, leading organizations have achieved a better view of the future of their business. What does this mean? Before answering this question, it is essential to develop a clear definition of what is meant by budgeting, planning, and forecasting.

Budgeting: Budgeting is merely defining financial targets to set parameters for cost control and accountability. The budgets should be numbers that support the strategic, operational, and sales plan for the upcoming year. For execution purposes, any budget revisions should be reflected in a revised sales and operational plan. Otherwise, the budget becomes a mere binder on the shelf and is rarely achieved.

Planning: Planning is the long and short-term forward-looking resource allocation process. In simple terms, planning typically comes in two forms: tactical plans (operational and sales) and a strategic plan. Every good planning process starts with a strategic plan upon which sales and operational plans follow. The strategic plan defines the parameters and choices in which operational, financial, and resource allocation decisions should be made.

Forecasting: Forecasting is predicting the future based on what’s expected to happen in the near term. The combined results of the sales and operational plans and the budget should be the starting point for the forecasting process. The forecasting process should be a collaborative and barrier-free process where external and internal information is shared across the organization. Bringing the organization silos together is essential to realistic forecasting.

The budgeting, planning, and forecasting process can and should be integrated without complexity. When an organization learns of significant trends and changes during forecasting, adjustments should be made to the operational and sales plans, which in turn impact how and what is budgeted for the next year. The more prominent market changes exposed during the forecasting process can provide market intelligence changing the assumptions for future strategic plans. Tying the budgeting, planning, and forecasting activities together reduces the amount of time spent second guessing and roasting management over the fire.

The big question is: How does an organization integrate the budgeting, planning, and forecasting process and end to the drudgery?

Step 1: Link the planning processes with key performance metrics. The strategic planning process should include simple performance metric targets measuring the success of the organization’s strategic choices. These metrics can be tied to more granular sales and operational metrics included in the sales and operational plans. If sales and operations see the metrics and targets that are strategically important and understand what impacts the measures, the organization will have an improved understanding of how well they are succeeding.

Step 2: Simplification. Organizations lose too much holiday cheer over a complicated budgeting process with iteration after iteration. Eliminate the detailed massive budget spreadsheets allocating administrative costs between departments. Organizations fool themselves into believing that allocating administrative costs to operating entities holds operations accountable. Allocations have become a futile attempt to hide costs by spreading administrative costs over as many operational entities as possible. We suggest building a budget based upon achieving simple performance metric targets. These metrics should be the identical metrics established in the strategic and operational plans. For example, the plant manager’s budget could simply be key metrics such as inventory turns, scrap rates, capital, and cost per production unit. At that point, the planning department’s job is to build a driver-based planning model that ties the key operational metrics to the profit and cash flow projections.

Step 3: Sharing forward-looking information without fear of retribution. Forecasting is really about collaboration and knowledge sharing. If an organization has inside information about their own operations, the executives can use this insight for rapid and informed decision making. An organization should develop a common and simple format for capturing, communicating and forecasting key performance indicators on a regular basis. Furthermore, obtaining true information about what is happening in the business requires the planning department to build relationships with the business. The planning department should spend more time connecting with various parts of the business and building trusted relationships with people throughout the organization. Less time should be spent huddling over massive complex spreadsheets. Relationship building will open communication doors and facilitate information sharing. Open communications results in improved decision making and business results.



Is It Groundhog Day at Your Company? How to Improve Budgeting, Planning, and Forecasting

by Peter Purcell

TV weatherman Phil Connors, played by Bill Murray, finds himself in a never-ending cycle of repeating the same day over and over again in the movie “Groundhog Day.” Phil gets to the point of anticipating events, and no matter what is done, the results do not change. Phil is in a rut and many companies experience the same type of déjà vu with the budgeting and forecasting process.

It is the beginning of a new year. The annual plan was approved by the board before the holidays, the accountants just closed the books, and it’s time for the first monthly forecast for the coming year. Everything seems to be in order, but the same complex forecasting spreadsheets are converted to a new year, stale metrics are calculated, and lengthy instructional emails are ready to go out to the entire company. It looks and feels like Groundhog Day! Worse, companies will continue to get big surprises in results that need to be analyzed, reported, and explained to management.

Most companies will wait until the second half of the year to improve budgeting, planning, and forecasting. However, this is the perfect time of year to start getting ready for a new planning process and system:

1. Improve processes while last year’s planning pain is still fresh

The planning process involves people who are too busy to make on-the-fly changes to increase process efficiency. Suggested changes to the iterative process are often overlooked because people are relieved to be done with planning and put off changes until later. A formalized process improvement discussion is the perfect forum for people to share and collaborate on ideas for the next cycle. Going through a process to improve budgeting, planning, and forecasting is most effective when the wounds are fresh and ideas are not forgotten.

2. Redefine KPI’s to make a difference for next year

The organization would benefit greatly by reducing surprises with a refreshed planning process. There is often a big disconnect between the short term and long range plans. Many KPIs do not have relevance to managing day to day business activities and the monthly forecasting schedule seems to drive business events, not the other way around. The executive team can take advantage of the process improvement discussion to link the strategic vision of the company with the tactical business plan for more predictable, timely, and accurate results. Revisiting the KPI’s and communicating strategic vision will drive changes to the organizational structure and communicate new roles and responsibilities.

3. Take advantage of simple solutions

Spreadsheets are the tool of choice for most planning processes. Unfortunately, spreadsheets are prone to error and limit the level of analytic reporting that can be performed. Typically, companies will consider big box software that requires significant effort to implement and support. There are cloud-based, inexpensive, and easily implementable solutions that improve budgeting, planning, and forecasting.

Forecasting accuracy can improve with the proper blending of process improvements, organizational change, and new tools. Define the process, assigning roles and responsibilities, and select tools. Overemphasis on one of these can lead to an imbalance that can impact results.

Trenegy helps companies create demand for change to help ensure new planning processes and systems are used to support more predictable and accurate results.



Handcuffing the Kraken: Eliminating Unnecessary G&A Costs

by Peter Purcell

The kraken is an imaginary sea monster said to have attacked a ship by wrapping its arms around the hull and capsizing it. Sailors would terrify new crew members with stories of ships that were attacked by the monster with no warning. It’s common for fast-growing companies to suffer the same fate as the ships attacked by the kraken. The fast-growing-company kraken is the unexpected administrative complexity of a larger organization.

Often, acquisitions are abruptly added to the portfolio with little time to combine back office functions, organizations, or systems. Organization roles and responsibilities are not consistent and staff resolves issues as each group sees fit, which magnifies the problem. Reporting becomes a nightmare and investors become frustrated. The complexity of the environment paralyzes the company and bottom-line growth stops.

The kraken has been released!

How can fast-growing companies handcuff the kraken and realign for growth? It’s all about establishing structure to get the kraken under control. The most successful companies take the following steps when realigning for growth:

Integrate Common Functions

The first step to realigning for growth is to integrate common back office functions: finance, procurement, HR, IT, and billing. Integrating back office functions is not easy. Legacy owners and management would rather not give up control of their functional organizations. Legacy owners will argue that every function is critical and uniquely provides a competitive advantage. This is simply not true. Any non-customer-facing organization can be a candidate for managing centrally. Payroll, technology, finance, payables, and procurement all fall within this category. Developing a clear definition and company alignment of roles and responsibilities will help determine the reporting structure within an organization. Once defined, employees can be reassigned to clearly understand the role and align the business for success.

Deploy Standard Processes

Fast-growing companies don’t have the luxury of taking time to develop standardized processes and procedures. Each manager often leverages and implements what they have experienced with former companies, which creates conflicts between functions, product lines, and geographies. Developing and deploying standardized processes makes it easier to manage common back office functions, and time should be taken to standardize processes. Standardized processes improve information flow, reduce errors, and increase investor confidence in senior management’s ability to control costs.

Standardize Budgeting, Planning, and Forecasting

Investors want timely and accurate forward-looking performance information. In many cases, each acquired company is asked to provide a plan, which is manually consolidated and sent to investors for approval. The monthly process of manually tracking actuals to plan becomes a nightmare. Worse, investors become irritated and suspicious when the reports are not provided in a timely manner. Simplifying and standardizing the planning process is critical to keeping investors happy. Variances can be more easily explained and software tools can be implemented to provide more timely information.

Implement a Common ERP System

The last step in realigning for growth is to select and implement a common ERP platform across the acquired companies. A common ERP enables management to have real-time information of sales, inventory, customer profitability, and other critical information across the organization. Decisions can be made faster, standardized processes can be enforced, and portfolio companies can cross-sell products. Month-end close can be reduced because inter-company transactions and consolidations are automated. Investors will receive their information more quickly.

Companies may be able to eliminate unnecessary overhead by themselves. However, outside help is often required—pick consulting partners with the right qualifications, especially when spending money in this economy.



Putting Gasoline in a Diesel: How Bad Data Can Ruin a Forecasting and Planning System

by Annie Duhon

If gasoline is put into a diesel engine, it will always result in irreparable damage. Diesel and gasoline are both fuels refined from oil, so why would a diesel engine suffer such a fate? Diesel engines are compression-ignition engines that require fuel with a higher energy content. Simply put, diesel engines are not designed to use gasoline as a fuel source.

Think of a forecasting and planning application (Anaplan, SAP BPC, Hyperion Planning) as a well-tuned diesel engine designed  to fit user needs perfectly. The tenant uses data as its fuel to output useable information as power. Just like a diesel engine that tries to use gasoline, the tenant will be rendered useless if bad or impractical data is input, regardless of how well it’s configured.

An engine would never be designed without its source of fuel in mind. The same principle should be applied when designing, building, and implementing a forecasting and planning system. Ensuring data will interact with the system as intended requires three things:

1. Understand reporting weakness in the source system

Everything in the source system doesn’t have to be translated to the forecasting and planning system just because it exists. Don’t transfer minutia-level detail into the system. Focus on bringing over data that’s relevant to reporting and analysis. Conversely, the dimensionality provided through the planning system far surpasses the dimensionality available through most source ERP or accounting systems. For example, a source ERP may only filter two dimensions at a time and three or even four dimensions are combined in the ERP. A planning system can break apart combined dimensions to offer improved reporting functionality and reduce the need for manual manipulation outside of the system.

2. Validate in the beginning, middle, and end, then validate some more

During implementation, data should be loaded into the planning system as soon as it’s available. The worst time to start validating data is at the end of design and implementation. Validation needs to happen during every stage of the project. The purpose of validation is twofold. First, validation ensures the data matches the source system. Second, validation is a simple way to check progress and identify areas of disconnect between the source system and the planning system. Validation pinpoints problem areas to address in tenant or process design.

3. Confirm data quality

Ensuring quality data goes far beyond making sure numbers match. Quality includes a deep understanding of how data should be interacting in the planning system to produce information necessary to make informed business decisions. The following questions should be answered: What information is needed on a monthly, quarterly, or yearly basis? Is the data the source system produces useable? Can the source system produce the data again and again via a query without manual manipulation? Is the data producing information that means something?

Trenegy helps companies successfully implement Anaplan, SAP BPC, and Hyperion Planning using a proprietary project and change management methodology. We help our clients obtain value of out their system quickly.



9 Questions CFOs Can to Ask to Improve Forecasting

by William Aimone

The QBR (quarterly business review) is the bane of every salesperson’s and finance executive’s existence. Salespeople are pushed by their managers to meet or exceed mostly unrealistic expectations for the upcoming quarter in terms of expected deals to close in the sales pipeline. The process is riddled with a combination of sandbagging, happy ears, holdovers, and misunderstood opportunities.

It seems there are few ways to tell whether a multi-million-dollar deal will close in the upcoming quarter, slide into the following quarter, or fall into a competitor’s hands. There is rarely a way to know if the multi-million-dollar deal is real. All a finance executive can do is trust the sales managers’ pipeline and mark the deal in the forecast.

However, behind every sales pipeline is the real story. Here are some tips to help finance executives to engage in the QBR, reveal a more realistic sales forecast, and improve the sales process.

Ask Who

Most high dollar sales involve multiple decision makers inside the customer organization. Understanding with whom the sales team has engaged within the organization will provide greater insight into how realistic the forecast is.

  • Question 1: Who is the economic buyer (the individual with the budget and authority to purchase)? It’s a red flag if the sales team says the champion and economic buyer are one and the same. Every customer’s economic buyer has someone influencing their buying decisions.
  • Question 2: What is the relationship between your customer champion and the economic buyer? A sales representative may have a well-intentioned champion inside the customer organization providing assurance of the sale. But is the sales team’s customer contact an influencer, or are they just a coach?  A customer coach is different than a customer champion. A coach can feed valuable information to the sales team, but lack the ability to influence the buying decision.
  • Question 3: Who is your closest competitor’s champion? Too often, sales teams have blinders on when it comes to the relationship between influencers and the competition. It’s a red flag if the sales team cannot clearly identify the competitor’s champion. Another influencer inside the customer organization must be championing the competition, or else the competition would not be engaged.

Ask Why

Every large purchase has a tangible business case, whether documented or not. Now is the time to put yourself in the customer CFO’s position to determine the business case (why a customer would spend the money).

  • Question 1: What are you presenting to the customer as the business case for buying from us vs. the competition? This is where the sales team should be able to summarize a few metrics that reflect a positive ROI for the customer. A clearly defined set of customer return metrics are a strong indication of momentum for the sale.
  • Question 2: How does our business case align with the customer’s pain points? Identifying customer pain points is the typical first step in any sales process. Great salespeople love to instill the FUD factor (fear, uncertainty, and doubt) in the customer’s mind. To move a sale forward in the pipeline, the customer business case must align with the initial pain points identified early on.
  • Question 3: Have you presented our business case to the economic buyer? This question is a double whammy. Not only are you asking if the sales team has met the economic buyer, but also if the buyer has bought into the business case. If neither have happened, the sale is not worth forecasting.

Ask When

Deals slipping into later quarters is a significant factor in missing sales forecasts. “Your customer’s timing isn’t always the same as your timing” is an old sales adage. Just asking when the deal will close is not enough. There are some probing questions to ask to understand the probability of delay.

  • Question 1: What are the steps in your customer’s buying process? The sales team should be able to clearly articulate who needs to sign off and what steps are necessary. This includes legal, procurement, IT, and possibly finance departments. If the sales team does not understand the customer buying process, expect delays to a future quarter or a loss.
  • Question 2: Does the customer have all our paperwork, and do we have theirs? Paperwork is the primary reason for most delayed deals the final days of a quarter. Surprises from the customer legal or procurement department asking for signature of regulatory or industry documents can get caught up in your legal department for review and vice versa. Shuffling paperwork for large deals wastes months in closing a sale.
  • Question 3: Has our economic buyer have the sale budgeted or forecasted for the next quarter? In other words, does the customer CFO know they will be writing a big check next quarter? This is often difficult for a sales team to know, but a good salesperson will ask that question sooner than later.

If the sales team cannot clearly answer these questions, the deal is likely at risk. Not only are these questions valuable for developing a more reliable sales forecast, but they are also learning opportunities for your sales team. These questions should motivate your sales team to engage customers in more robust conversations and improve the probably of closing deals.





Value Stream Mapping

by William Aimone

Sutton Holley is a moonshine magnate whose business is struggling. He simply cannot produce his alcohol fast enough. He has tried everything. From altering the mash recipe to using a different distillation process, Sutton cannot compete with his fellow black market shiners. Reluctantly, Sutton consults his son-in-law, a Lean Six Sigma consultant, for advice. Sutton considers the son-in-law a city slicker who uses a “five-dollar word when a fifty-cent word will do.”

The son-in-law encourages Sutton to evaluate his “value stream,” to which Sutton replies, “Well, sonny, I use the stream to make my moonshine. I already know the stream has value.”

Much to Sutton’s confusion, his son-in-law was not referring to a stream of water when he suggested Sutton conduct a value stream analysis. The son-in-law was instead referring to a process improvement approach known as value stream mapping (aka value stream analysis). It’s easy to understand Sutton’s confusion. When discussing getting value from a stream, most people are likely to think of trout fishing, catching crawfish, sifting for gold, or in Sutton’s case, re-routing cold water for his moonshine still. However, a true value stream has nothing to do with natural resources and everything to do with business resources.

Value stream mapping originated and was made popular by Toyota Manufacturing Company. It’s a process improvement method that focuses on eliminating wasteful, non-value added activities from a process—the value stream.

The stream portion of the term relates to the flow, or key steps, a company performs to provide value to its customers. The value within the stream is considered to be the service or the product a company provides to its customers. As an example, the key steps making up the value stream for a manufacturing company would be: receiving a customer order, purchasing raw materials, and each manufacturing step required to turn the raw materials into the finished good which is then shipped to the customer.

Once the value stream map has been created, the company can begin to analyze each step. Doing so will allow the company to determine how long each process takes to complete, the amount of material and/or time input required, and the expected vs. actual amount of output. By performing the analysis of the value stream, the company can determine which steps are the most inefficient, or which steps within the Value Stream include the most wasteful, non-value added activities.

Similar to deadly sins, there are seven widely-recognized types of waste that can hinder business processes:

  • Unnecessary processing
  • Non-value added handoffs
  • Idle time
  • Over-engineering
  • Too much movement
  • Defects
  • Too many resources

Each type of waste plays a role in undermining the value-added activities of a business and leads to additional cost and time required to deliver the expected value (i.e. service and/or product) to the customer.

Using the value stream mapping method to improve process efficiency is probably the most useful and underutilized way for companies to address wasteful activities. It’s important to understand what a value stream map does and doesn’t do:

Back to our moonshining friend Sutton. The issue he brought to his Lean Six Sigma consultant son-in-law was related to Sutton’s moonshining process taking too long to produce the desired quantity of alcohol. His son-in-law recommended value stream mapping to identify inefficiencies within Sutton’s distilling process.

After Sutton’s son-in-law explained value stream mapping to him, Sutton figured it was worth a shot and asked, “How do we create one of these value stream mapper things?”

The son-in-law, in true consultant fashion, responded by laying out five steps:

  1. Identify start and end points for the value stream
  2. Create a list of key steps found within the value stream
  3. Align the activities in sequential order using the end customer as the connection of the start and end steps (include informational and physical steps)
  4. Document quantity of input required, processing time, idle time, and quantity of output for each step
  5. Accumulate the data for each step to identify totals for the entire value stream

Creating a value stream map seemed simple enough for Sutton, so he started to lay out the components of his distillery. He identified the start and endpoints as rerouting the stream water and bottling his white lightning, respectively. Next, Sutton identified the key activities of his stream:

  • Corn/malt procurement
  • Fermentation
  • Distillation
  • Filtering
  • Bottling

Sutton then analyzed the processing time and expected amount of liquid created after each step. As a result of the analysis, Sutton realized the distillation process was not creating the expected amount of liquid. The results led Sutton to concentrate on the distillation process as the wasteful culprit.

A couple of years back, Sutton attempted innovation by implementing a dual distillation process in the hopes of creating a smoother shine. Turns out, the secondary distillation process reduced the expected amount of alcohol produced, resulting in slower processing times.

“The dual distillation process is a classic case of over-processing because it doesn’t make the moonshine any smoother. But it is making the processing time longer since alcohol volume is lost during the second distillation,” the son-in-law explained.

Sutton was able to swallow his pride, chased by a swig of his latest batch, and admit that his son-in-law was right.

As a result of the value stream mapping analysis, Sutton removed the secondary distillation step, which eliminated the waste associated with over-processing. After firing up his still using his standard single distillation process, Sutton was able to more quickly produce the amount of moonshine he needed to beat his competitors to market. Sutton reclaimed his spot as the nation’s most productive moonshiner, and the son-in-law was finally allowed to sit at the adult table during the holidays.

As displayed by Sutton’s use of the value stream mapping method, performing a mapping and analysis of a company’s value stream can lower costs and improve customer satisfaction through more on-time deliveries. More often than not, when the current state value stream map is analyzed, many opportunities for eliminating wasteful activities become visible. Dive into each opportunity area to determine what can be improved and how to implement the improvements. Doing this will put a company well on its way down the stream of value.

Whether a company is looking to supplement/enhance its current continuous improvement culture or just analyze and assess where the company may be able to improve operations, the value stream mapping method is a strong and effective tool every company should have in its lean toolbox.

This article has been adapted from a chapter of Trenegy’s book, Jar(gone).



5 Steps to Create a Value Stream Map for Accounting Close

by Nicole Higle

Value stream mapping is a tool most often used by manufacturing companies to analyze and improve product cycle time. How does this method work? Value stream mapping identifies process activities wasting valuable time and resources. See our previous article above 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.

1. Define key steps within the close process

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.

2. Document resources required to complete each step 

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.

3. Measure value-add vs. waste time 

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.

4. Identify leading reasons for waste time 

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.

5. Summarize findings into a target value stream map 

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.



Advantages of a Cloud-based Financial Reporting Tool

by Julie Baird

Using the cloud is an everyday occurrence in our personal lives. We demand the ability to store information where we can access it anytime, anywhere. Whether we’re posting photos of our family vacation on Facebook or accessing documents from Dropbox, most of us take full advantage of the cloud in our personal lives. The real question is, why haven’t our business lives caught up?

At work, we accept we can’t get instantaneously updated information, must be logged in to the network to access reports, and must have IT’s help to get information from the system. It’s time for a change. We need to make our business data as efficient and accessible as our personal data.

The use of Excel in financial reporting is common but leaves companies in the dark ages. Users spend more time dealing with data and worksheets than actually analyzing the data. While other companies use expensive and cumbersome bolt-on apps with their ERP system, cloud-based financial reporting tools are relatively inexpensive to implement and combat the disadvantages of hardwired financial reporting systems. Implementing cloud-based financial reporting tools can bring analog companies into the 21st-century.

Cheaper Than a Data Center

The cloud is a cost effective solution for multiple reasons. It requires less infrastructure, reduces the burden on internal IT, and reduces the size of the company’s data center. Companies are able to use a smaller data center because, unlike the hardware of a traditional system, cloud storage does not take up physical space. Using a cloud-based system cuts IT’s cost as well. The burden of constant maintenance and upkeep of cloud based systems falls on the supplier, not internal IT. Cloud-based systems don’t require an in-house system expert, which frees up the IT department’s time and budget, allowing them to move into an administration and security role.

Faster Implementation

Cloud-based systems are more dynamic than traditional systems, allowing for increased productivity and quicker implementation. Multiple resources can work simultaneously on the build. During implementation, the project team can test the system as they build and address problems before reaching user acceptance testing. Validating data and tackling major hurdles ahead of time results in a smoother user acceptance testing process. Addressing issues during the implementation allows the project to stay on track and decreases the risk for major system rework.

Finance and Accounting Take Ownership of the System

With cloud-based systems, the supplier maintains and updates the system instead of IT. Because the end-user can take ownership of the system, it creates a more autonomous relationship between accounting and IT. No technical or coding knowledge is required. IT handles the system security and user profile maintenance while accounting handles data updates.

Easy Transition from Excel

Many businesses have grown accustomed to Excel’s ease of use and flexibility. Making the switch to the cloud is easy because, similar to Excel, cloud-based systems are intuitive. All features an end user needs are in one location, so users no longer have to dig through hierarchies only programmers who built the code understand.

Easily Scalable

Businesses can scale their company quickly using cloud-based systems. They have flexible interfaces, making it easy to scale the system as a company grows. The end user can add a legal entity or a new account without going through rigorous hoops and can see information updated instantaneously. This gives companies more time to analyze financial data and perform scenario analyses.



The Accounting Rule You Need to Know Before Moving to the Cloud

by Adam Smith

There are a number of factors our clients consider when evaluating the purchase of cloud software. The main factors for consideration often include system performance, security, data access, and of course, cost, specifically which costs must be expensed and which costs can be capitalized.

Due to the recent updates of standards for intangible asset accounting, the rules for which costs can be capitalized and expensed are no longer as clear-cut as they used to be. The presumption a company can capitalize costs incurred with software implementation activities no longer holds true under every circumstance or type of contract when it comes to cloud software.

At the beginning of 2016, the Financial Accounting Standards Board (FASB) threw an Adam Wainwright-style curveball to companies that are evaluating or have purchased cloud computing software. You can read the full update to the Accounting Standards Codification (ASC) 350-40, Internal Use Software here.

However, the update created a somewhat gray area around if a cloud computing agreement represents a purchase of software or a purchase of services.

The update states, depending on the specific language of a cloud computing contract, purchase costs may be viewed one of two ways:

  1. as the purchase of a software license
  2. as the purchase of a service

In order to be deemed as a purchase of a software license, the cloud computing contract must explicitly denote the customer is paying for the transfer of a license required to operate the software. Otherwise, the contract is viewed as a purchase of services.

If a contract is viewed as a purchase of services, then costs must be accounted for like any other service contract, which means all costs must be expensed when the service is performed. The only opportunity to capitalize these expenses on the balance sheet is to book the costs as a prepaid asset and amortize them as the prepaid (software) services are used.

Being forced to expense all costs associated with purchasing and implementing new software poses a significant hurdle to potential buyers of cloud computing software. If the contract is considered a purchase of services, then implementation costs related to the software, which can often reach seven figures, must also be expensed. The potential for taking an immediate hit to the income statement for such a large dollar amount is more than enough to give many companies pause when evaluating cloud software.

As such, many cloud software providers have also taken steps to simplify the process by moving from software service subscription fees to offering contracts based on software licensing fees. An arrangement which includes a software license is considered “internal use software” and accounted for as an intangible asset. Under the internal use software designation, the typical expense vs. capitalization rules apply, and companies are allowed to capitalize and then amortize implementation costs accordingly.

New Accounting Rules Cheat Sheet
With many cloud software vendors offering either a subscription-based or license-based contract, it’s important for prospective buyers to understand the impact to the software’s total cost of ownership. In some cases, a subscription or service-based contract may have a lower total cost of ownership. Some clients may choose to go with the service contract to lower the total amount of cash going out the door. Others may choose to pay more for a license-based contract in order to absorb the costs on the P&L over time.

To avoid any surprises with accounting for cloud software costs, we advise our clients to obtain a clear understanding of the pricing model from every prospective cloud software vendor and to take a total cost of ownership approach when making any software decision.

Trenegy assists companies in selecting and implementing the right technology solutions. For additional information, please contact us at



The Slap Game: Working Capital Management

by William Aimone

The slap game is a popular tradition for middle school kids looking for ways to fill the monotony between classes. Opponents face each other and attempt to slap the other’s hands as quickly as possible. It’s a great test of reflexes, but both opponents eventually end up with red welts on their hands. Nobody wins this totally pointless game.

Companies are playing the slap game with each other when managing working capital.

Procurement departments slap vendors into 60 or 90-day payment contracts. Meanwhile the same company’s sales organization is getting slapped by their customers’ procurement departments. Not too long ago, 30 days was the standard term for a vendor contract. Today, procurement and supplier contract organizations are pushing the envelope to 60 and even 90 days. This is completely ridiculous!

Companies extending each other’s payment terms is unadulterated working capital gamesmanship. There’s no winner and most organizations are actually slapping themselves with additional headcount costs, poor pricing, and quality issues.

Slap 1: Headcount

To perpetuate the working capital gamesmanship, organizations create and staff contract and sourcing functions to pressure vendors into submission. These functions delay contract agreements while adding administrative overhead. According to surveys, an average $1 billion organization has double the necessary contract and sourcing staff. This staff costs an average of $2 million per year while only saving $1 million per year in working capital gains for 30 days DPO. What’s the point?

Slap 2: Pricing

Savvy sales organizations have become less lenient with pricing concessions on slower paying customers. A recent survey of pricing scenarios is eye-opening. Pricing concessions on 30-day payment term customers was 2% more favorable than 60-day payment customers. This translates into $6MM per year in excess spending for a $1 billion company. In other words, organizations are spending more to spend more. Red welts are showing!

Slap 3: Quality

Organizations have a greater incentive to keep the faster paying customers happy. In a survey completed by Trenegy in 2013, faster paying customers tended to get priority for shipping, service response time, and overall quality. Poor vendor quality can cost more than the savings in working capital. The red welts are now hurting!

Working capital management is typically the window dressing on the balance sheet and should be properly managed. Unfortunately, organizations tend to take the path of least resistance. It’s easier to beat up a vendor than push back on customer payment terms for fear of a lost sale. Losing a sale over payment terms does not happen. Organizations should spend less time fighting the vendor contract terms and more time focused on getting the customer contracts right. This is where the true value begins and the slaps end.

Trenegy helps companies develop processes to manage working capital without succumbing to the slap game. Contact us at for a free consultation.



Closing Your Books with Organization and Discipline

by William Aimone

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.


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.


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.


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.



Managing Currency Risk: The Right Strategy

by David North (guest author)

This article was written in 2016, and data and statistics will reflect that.

Multinational organizations continually face the risk of currency exchange rate fluctuations impacting financial results. With Mexico and Russia’s currency at all-time lows and double-digit declines in Columbia, Brazil, Turkey, and South Africa, currency risk management is receiving attention at all levels in global organizations.

Fluctuations in exchange rates pose two risks. First, changes can adversely impact the value of assets and liabilities. Second, currency changes can choke margins and handicap the company’s competitive position.

Asset Value Destruction

For example, a publicly traded multinational manufacturer has negative cash flow in the U.S. where it has corporate office costs to fund and pays a regular dividend to stockholders in dollars. At its Brazilian manufacturing subsidiary, positive operating cash flow goes into a bank account and builds to a value of $R 6 million in excess of working capital needs at a date when the BRL/USD exchange rate is $R 2.00/$US 1.00. Local currency controls prevent the Brazilian subsidiary from transferring the money to a dollar denominated account. The company has no plan to further invest in Brazil and wants to avoid the tax consequences of a dividend from the subsidiary to the parent. Therefore, the money sits in the Brazilian account. Three quarters later, the BRL/USD exchange rate is $R 4.00/$US 1.00. By holding a commodity called the Brazilian real during this period, the company lost more than $1 million in shareholder value. Account for it as you will, but someone left the cake out in the rain.

Choking Margins

A manufacturer has one factory in the U.S. It sells half of its product in the U.S. and exports half to Mexico with a 25% gross margin in both countries. The company’s competitor, who has a factory in Mexico, sells half of its product in the U.S. There’s a free flow of goods yet no free flow of labor, and the Mexican company has a significant labor cost advantage with a 40% gross margin in both countries. The dollar strengthens by 35% against the Peso. The cost of U.S. manufacturing operations does not change. However, the Mexican sales price relative to those costs drops by 35%. The gross margin on Mexican exports is now a loss of -1%, and the overall gross margin drops to only 14%. The lower gross margin fails to cover general and administrative expenses, and the American company begins to lose money. The competing Mexican company’s costs in pesos remain the same, but the price for U.S. exports relative to those costs just increased by 35%. Now, the competitor’s gross margin on exports to the U.S. is 75%.

How Should Companies Address Currency Risks?

Textbook discussion of exchange rate risk usually focuses on hedging contract derivatives as a solution. While hedging might be a solution for a company with a single foreign currency denominated monetary asset or liability to manage, it tends to be the last resort for a small or mid-sized multinational organization. This method is expensive, and to work well, it requires that assets and liabilities be well defined and of finite duration.

The Basics

It’s important to get the accounting right. Once accounting rules have been properly implemented, develop management reports that separate the P&L effects of exchange fluctuations from the effects of ongoing operations. For each income statement line, companies should have management reports which calculate variances from the budget, forecast, and prior period before and after the change in exchange rate. This allows the company to discuss the currency effects in the MD&A of the 10-Ks and 10-Qs.

Priority on Stockholder Value

The accounting methods described above can sometimes divert attention from danger by implying: All is well with our operations. The ugliness on the income statement is just due to accounting for temporary currency exchange rate fluctuations beyond anyone’s control.

For a multi-national organization, the danger of exchange rate fluctuations is not the appearance of financial statements but rather how they might influence stockholder value. A talented CFO will prioritize stockholder value over the accounting presentation.

Develop Tax and Treasury Strategy

The strategy starts by forecasting which countries’ operations will generate and which will consume cash. The company in the first example should have forecasted cash generation in Brazil to cover cash requirements in the U.S. The next step is to forecast trends in the exchange rate. In our example, all macroeconomic and political factors in Brazil and the U.S. predicted continued decline of the Brazilian real against the U.S. dollar throughout the period cited. The final step is to use a tax and treasury strategy to restructure balance sheets to reduce risk. In the first example, the company’s tax manager may have calculated that foreign tax credits would offset other tax costs of sending cash to the U.S. parent as a dividend. Cash could not be sent back to the U.S. parent as a loan because U.S. federal tax law would deem it a dividend, resulting in unfavorable tax consequences. However, the cash might be transferred as an inter-company loan to another subsidiary. For example, in the UK, it would be exchanged and held in a more stable currency or where local regulations would allow for deposit in a USD denominated bank account.

There’s no easy solution for the second example of the U.S. manufacturing company with costs in a strengthening currency for sales in a weakening currency. Hedging for a significant percentage of the revenue stream would be far too expensive and would only prolong the margin problem.

A strategy to reduce the margin risk is to align the revenue streams with the operating costs of the company. Aligning operations is a costly and lengthy alternative requiring a transfer of production to the country of sale. Large multinational organizations can reduce risk by spreading manufacturing across several countries to reduce vulnerability to currency fluctuations. Unfortunately, U.S. exporters currently caught in this bind have no short-term solution other than to reduce costs and ride it out.

All three of the above components must work in harmony. Having the right accounting basics and focusing on shareholder value should enable development of a tax and treasury strategy with implications well beyond accounting. Over the long term, companies can integrate the tax and treasury strategy with their overall business strategy to gain competitive advantage in the capital and commercial markets.

David North is the Corporate Controller for L.S. Starrett Company and has 30 years of financial management leadership experience with a variety of global manufacturing organizations. David’s finance and accounting expertise includes internal controls, SEC reporting, and treasury and risk management.



Is Your Cost Accounting System Draining Resources?

by Adam Smith

Manufacturing companies struggle to effectively and efficiently design a cost accounting system to properly value inventory, provide data for profitable and competitive product pricing, and enable operational control of costs. As such, these companies find themselves unable to explain root causes of variances, lose business to competitors because of overpricing, lose money on sales due to underpricing, and fail to accurately value inventory because of woefully inaccurate standards.

However, we have found many companies in this position are unwilling to modify their costing system. After wrapping up a recent assessment of a manufacturing company’s financial systems and processes, it finally struck me there was one common message received from the client after this assessment and the dozen I have done before it, and I’m paraphrasing: “Don’t touch my costing system.”

Regardless of the talk of change and blowing up the status quo, the costing system of yesteryear seems to always be off-limits even though it fails to meet its primary objectives. Why is this the case?

Primary Objectives

Let’s attempt to answer the question by acknowledging the primary objectives of any costing system:

1. Produce financial and tax statements: Properly state inventory values and recognize costs of goods sold (at actuals) per GAAP at the end of a reporting period (may require manual allocations depending on costing approach used).

2. Control costs: Enable cost visibility at the cost center and/or activity level to promote operational control of production-related expenses.

3. Capture product costs for pricing: Capture all relevant product costs throughout the value stream (e.g. design, manufacturing, marketing, back office support, etc.).

The vast majority of costing systems being utilized address one, maybe two, of the primary objectives, but rarely all three.


The most common mistake companies make is to accept the inefficiencies within the costing system to get the costing information required by the business. Therefore, the assumption is the cost accounting system is functioning as designed. This is false.

Instead, companies need to delve a level deeper to understand the true accuracies (or inaccuracies) of the system and resources (time and money) required to maintain the system. To do so, we ask our clients to complete the following survey:

cost accounting form 2

The output of this survey sheds light on where deficiencies might exist within the cost accounting system and creates the start of a business case for challenging the entire process.


Performing an adequate assessment of the costing system will pinpoint weaknesses to be addressed. At times, a tweak here and there can address the gaps, however, a complete overhaul of the system is often required.

Where to begin? Start by following these four steps:

1. Gather requirements: Invest time to inventory and document the requirements for stakeholders and internal customers of the costing system. Take advantage of this opportunity to also standardize metrics used across the functions.

2. Design from scratch: Design the costing process from scratch, assuming no constraints (e.g. technology), taking into account the requirements obtained from step one. Determining the right costing methods (standard, actual, average, activity based, etc.) should be evaluated during this step. Note: More than one process or system may be required to fulfill all primary objectives.

3. Align roles and responsibilities: Identify the roles within the organization who will be supporting the costing process and delivering information, and communicate appropriately. Expected services to be delivered by the costing system should also be clearly defined and communicated.

4. Create an implementation roadmap: The suggested approach for implementing a new costing system is to identify and prioritize all initiatives required to address existing gaps and meet the future state requirements. Breaking the implementation into smaller, more manageable projects allows the organization to attain benefits along the way. And it’s often easier for the business to absorb the changes.

It’s time to let go of the costing processes providing little to no value. An effective costing process can provide a significant competitive advantage for the business. Furthermore, the right costing process can act as a catalyst to break down organizational silos between the accounting, operations, and commercial teams.



3 Reasons to Integrate Procurement and Finance

by Natasha Tahan

Procurement is quickly becoming one of the most technologically advanced back office activities. If you want to know the price of something, you can find it on the internet. Companies like Amazon provide a readily available catalog of products for customers to order in as little as one click. Similar platforms are also becoming available for businesses. Vendors now have catalogs that integrate with their customer’s ERP system, enabling the customer to choose what they want and order directly from the catalog. While the simplification of procurement is a great thing, Procurement and Finance should stay on the same page and integrate to achieve the following benefits:

  1. Enhanced analysis of data
  2. Better forecasting
  3. Optimal collaboration

Enhanced Analysis of Data

Maintaining consistent data is key to ensuring Procurement and Finance are on the same page. As Procurement focuses on discounts and costs savings and Finance analyzes budgets and trends, consistent pricing definitions and data are critical. Housing a single location for master data allows both departments to pull the same supplier pricing information to analyze the metrics they focus on.

Better Forecasting

Part of Procurement’s role is to understand which materials and suppliers are available to the company and negotiate pricing as needed. Many materials and suppliers are driven by commodity markets. For example, in the automotive industry, steel prices are constantly rising and falling. Procurement watches these prices and suppliers to negotiate the best possible deals. At the same time, Finance must know what steel prices will be, because that impacts the company’s margins and what they predict to the shareholders and the market. Having a single process for forecasting and sharing the commodity and pricing information with Procurement increases the efficiency and accuracy of the company’s financial plan.

Optimal Collaboration

Communication is key in the relationship between Finance and Procurement. Suppose there’s a tax miscalculation on a purchase order. Finance and Procurement need to know before they pay the vendor and withhold sales tax. However, if Finance doesn’t communicate the error to Procurement, Procurement won’t know how to get purchase orders right. Better collaboration between Finance and Procurement will improve the procure-to-pay process and benefit both departments.

When both departments collaborate together, companies can reduce waste and become better stewards of the company’s data and projections.



A Practical Guide to Transfer Pricing Policy Design and Implementation

by David North (guest author)

From what we see in the news media, transfer pricing is a tool used by unscrupulous corporations to “rig the system” of global trade as they’re caught paying single-digit tax rates on enormous profits. Such stories dominate the business headlines and political rhetoric only because scandal sells and business news media gives disproportionate coverage to the world’s very few extremely large corporations.

For the rest of us, the situation is the opposite—a threat of confiscation rather than a temptation of exploitation. Only the giants can afford departments of full-time experts to design and maintain international tax and treasury strategies involving shell companies to act as “coordination centers” around the world. The rest of us couldn’t possibly talk to national governments, let alone negotiate special tax treaties. Instead, we struggle to establish and maintain a transfer pricing policy that might protect us from double taxation, and even when that’s achieved, the operational obstacle caused by the remedy is often worse than the problem it was meant to cure.

For all but the giants, designing and implementing a transfer pricing policy that’s acceptable to tax authorities without impeding the ability to do business is a tough challenge.

Click here to download the Transfer Pricing Do It Yourself Guide.

David North is the Corporate Controller for L.S. Starrett Company and has 30 years of financial management leadership experience with a variety of global manufacturing organizations. David’s finance and accounting expertise includes internal controls, SEC reporting, and treasury and risk management.



Don’t Avoid the Checkup—Embrace the New Lease Standard

by Mario Hernandez (guest author)

How many times have we cancelled our dental checkup because we’re “too busy”? Tooth pain reminds us to visit the dentist, who always says, “You should have come in sooner.” The FASB issued a new lease standard, Leases (ASC 842), on February 25, 2016. Are you ready to move forward with implementing the new standard, or do you want to delay until the pain is felt?

The key provision of the new FASB lease standard is that lessees will recognize virtually all their leases on their balance sheet by recording a right-to-use asset and a lease liability. This includes operating leases having previously been recorded off the balance sheet. The existing lease standard has been criticized for failing to meet the needs of users of financial statements, because it doesn’t always provide a faithful presentation of leasing transactions. The new standard proposes to provide for greater transparency in financial reporting. Companies that lease real estate, manufacturing equipment, vehicles, airplanes, and similar assets will be impacted.

Public company implementation dates for the new lease standard are fiscal years starting after December 15, 2018. Non-public companies must comply for fiscal years starting after December 15, 2019. Financial executives may look at the implementation dates and be inclined to focus on projects with more immediate due dates and address the new lease standards later. Financial executives can devote some time now to analyze the potential complexity of the implementation and the impact on company resources. The analysis can help a company decide when to move forward with the implementation process and avoid unnecessary financial reporting risks.

The AICPA (American Institute of Certified Public Accountants) recommends six steps to an effective implementation of the new lease standard:

  • Assign an individual or a task force to take the lead on understanding and implementing the new standard
  • Update the list of all leases
  • Decide on a transition method
  • Review legal agreements and debt covenants
  • Consider IT system needs
  • Communicate with stakeholders

At first glance, the six-step recommendation seems simple and manageable. Before we get too comfortable with its simplicity, let’s peel back the onion with a few questions. Do you have technical accounting staff available to spend quality time understanding the lease accounting guidance and determining how it impacts your company? Do you know of all your lease contracts and where they are located? Is your company public, and how do you determine whether to transition with the retrospective (requires restatement of comparative periods in your financial statements) or the modified retrospective method (does not require restatement of comparative periods in your financial statements)? Do you have debt covenants or other legal agreements limiting debt levels or requiring approval prior to incurring additional debt? Do you utilize an IT system to manage your lease records, or do you use Excel or similar process? Have you discussed the impact of the new leasing reporting standards with executive management, the board of directors, debt holders, or other stakeholders?

You may not have answers for all the questions above, and as you move forward with the implementation of the lease standard, many more questions will arise. The implementation process will not be limited only to the accounting staff. Moving to the new reporting standards will be a company-wide initiative with communication and cooperation among several departments, including treasury, legal, facilities management, purchasing, logistics, and fleet management, to name a few. To achieve success with the implementation requires development of a project plan with input from a wide range of functions and requires commitment from executive management.

Companies should view the implementation as more than a compliance project and use the opportunity to create value for their company. Below are examples of opportunities for value that may be identified during the implementation process:

  • New avenues to improved communication among different departments within the company
  • Improvement of existing internal controls and processes, updates to related documentation, and communication of improvements and changes to affected parties
  • Selection of cost efficient IT solutions to track leases and meet reporting requirements for the lease standard
  • Consolidation of lease vendors and negotiation of improved pricing
  • Termination or buy out of stale, unneeded operating leases

Companies have the opportunity to identify additional opportunities to achieve value beyond compliance. Challenging the organization to always be vigilant in identifying value-creating opportunities in all our daily tasks is critical for continuous improvement.

Mario Hernandez currently serves as the controller at Ranger Energy Services. Prior to joining the team at Ranger, he was the CFO at Express Energy Services, then a Partner at Trenegy where he expanded client services in the accounting and finance space. He has successfully led numerous finance organizations, developing and executing strategic objectives to help entrepreneurial companies grow.



How to Use Policy and Procedure Development to Improve Processes

by Peter Purcell

Sarbanes Oxley, ISO certification, audit control deficiencies, and IPOs are all driving companies through the pain of developing extensive policies and procedures (P&Ps). Most efforts to develop P&Ps are rushed and insufficiently budgeted.

Companies overlook critical processes that require P&P documentation, or worse, create unnecessary P&Ps. Steps are often added to fix controls without considering the negative impact on process efficiency. Over time, these band-aids create an inefficient, spaghetti-like mess that makes day-to-day activities laborious.

Organizations can take the opportunity to improve processes and controls while creating P&Ps using the following steps:

1. Break down the process

Process decompositions can be used to identify and map out individual steps. The steps should highlight important day-to-day activities so companies can correctly align P&Ps with processes, not vice versa.

An inventory of processes should be maintained to prioritize how future-state processes and P&Ps are addressed. Those with the highest priority typically fall within the order-to-cash, procure-to-pay, and record-to-report mega processes. Lower priority processes might not need to be addressed before the next audit cycle if controls are monitored via reporting.

2. Establish a vision

Create a process improvement vision to determine the desired future state process environment. Create a team of cross-functional process owners and subject matter experts to develop the vision while considering the impact on organizational structures and systems configurations. Get signoff on the improvement vision by senior management.

Finally, facilitate future-state process development sessions and map out projected flows. An initial comparison to the COSO 2013 principles and the weaknesses report can help the team ensure all critical control needs will be addressed. Confirm with auditors and senior management. Refine as necessary.

3. Develop tools to define ownership, roles, and responsibilities

It’s important to assign ownership to processes to avoid duplicate efforts, unnecessary steps, and control issues. Recommending changes that reduce an employee’s level of responsibility often elicits strong emotional resistance. Reassigning a function, task, or employee can be equally challenging. However, a RACI (responsible, accountable, consulted, and informed) matrix is a helpful tool to define roles and responsibilities for each process.

Creating a RACI diagram is simple. List all the process steps and map the RACI to each process owner or functional area. Only one person can be responsible (one “R” on a line) for a process to comply with Segregation of Duties. If there is more than one “R” across functional areas, either eliminate one or break the process down further.

There can be more than one “A” (person accountable) for a process, but assignments should reflect sound delegation of authority. Any duplicates should be discussed and confirmed using the COSO 2013 principles. Picking roles or individuals to be “C” consulted or “I” informed helps the team finalize realistic delegation of authority.

Once completed, the RACI will often drive organizational changes ranging from reassignment of tasks and duties, to movement of personnel and functions. A clearly defined organization chart with the new roles and accountabilities may need to be developed.

4. Confirm impact on systems

A combination of process flows and RACI diagrams can be used to determine the best way to configure systems to support the new day-to-day activities while providing the right level of controls. The configuration changes to support the new processes and organizational structure should be prioritized based on implementation complexity and P&P rollout schedule.

Many systems provide powerful workflow functionality that can be configured to support the new processes and controls without creating unnecessary burden. However, each workflow should be evaluated to determine the impact on day-to-day activities. Consider using reports to monitor transactions instead of implementing workflows that create unnecessary steps or slow down critical processes.

5. Bring it all together

P&Ps are the glue connecting controls, processes, and roles and responsibilities. This step is easy when done correctly and all previous steps are followed. Procedures should reflect policies and policies should be tied to controls. Old policies should be modified to reflect the new processes. If gaps are identified, new policies should be developed.

A cross-functional team should test and refine the policies and procedures before final review with the auditors. The testing team should work hard to determine how to break or violate the P&Ps without getting caught. Consider using more timely monitoring tools before making significant changes to the process unless the breach would result in material weaknesses.

Once completed, the new fit-for-purpose processes, policies, and procedures should be shared across the new organization.

Trenegy recognizes the importance of regulatory compliance. Companies often struggle to comply with basic controls issues without incurring significant cost or process inefficiencies. We help our clients balance the need for strong controls without losing efficiency. Read how to properly roll out new policies and procedures to ensure they stick in Seven Tips for Effective Training.



4 Steps to Building Automated Dashboards

by Bill Aimone

Years ago, automating the creation of dashboards using business intelligence or corporate performance management technologies was a chore. The technologies were not scalable, and it required a drove of consultants to automate dashboards. Consequently, many organizations continue to have a manual process for creating management dashboards. The process typically includes downloading information from the ERP system, manipulating the data, loading information into Excel, and cutting and pasting into PowerPoint. The process is inefficient, susceptible to errors, and offers minimal drill-down capabilities.

With today’s business intelligence (BI) technologies, automating dashboards is much easier. Tools such as Microsoft Power BI and Tableau have proven to be highly scalable and easy to integrate with any ERP system. With these cloud-based, plug-and-play BI tools and the right data, a dashboard can be stood up in a matter of days. The right data is key, so here are four steps you can take to ensure you collect the right data.

Step 1: Confirm Requirements

This includes confirming the data calculations, data selection criteria, and how the information will be sliced (geography, business unit, timing, etc.). Ninety percent of this already known and simply requires alignment across management, which can be done in a few executive workshops to make sure everyone is on the same page.

We worked with a major E&P client and held a one-hour session with management to get everyone aligned around how they wanted to organize their operating units across the company. Only a few rounds of confirmation emails remained and step one was complete.

Step 2: Validate Data

This simply entails reviewing where the source data exists and tying it to the expected results in the current management reports. A key part of this process is clearly understanding what selection criteria will be used to select data for automation later.

We worked with a manufacturing company to confirm how to extract sales and cost of goods sold data from their ERP system. Using Excel, we found that their system data did not tie to management reports. We discovered certain top-side sales accruals were booked in a separate corporate entity. Therefore, we worked with accounting to change how the accruals were booked to enable the sales details to tie to management reports.

Step 3: Build Wireframes

Wireframes are example dashboards that can be shown to management to confirm how they would like to visualize data. The wireframe development process uses data from the data validation step to confirm if executives prefer columnar formats, pie charts, graphs, color selection, etc.

One of our west coast clients used the wireframe process to hone in on what colors would be used for certain graphs to help with visualization of complex data. The wireframe process only took a few weeks and allowed the team to significantly reduce development time.

Step 4: Integrate & Automate

Step four brings all the previous steps together by automating the data calculations (step one) and building the data extracts (step two) into the production wireframes (step three). Since the data has already been validated and the dashboard design agreed upon, this is purely a technical automation step. One of our service company clients was able to complete this step quickly by having an SQL developer develop automation routines to capture data and populate wireframes in a test and production environment.

Providing management with the dashboards and reports they need can happen in a matter of weeks using a non-traditional means of developing executive dashboards. At Trenegy, we use this non-traditional approach to enable our clients to quickly deploy business intelligence applications across the organization.



How to Get Real Value out of the Budgeting Process | Video Interview

by Bill Aimone & Julie Baird

The budgeting process is long, and once complete, it rarely reflects what management believes to be true. Our clients have found a simple, unique way to harvest value from the budgeting process. Hear from two of our team members, Julie Baird and Bill Aimone, as they share their thoughts on the topic.



4 Steps to Getting Reporting Right

by Lindsey Ligon

Are you a finance professional who is constantly at the beck and call of your CFO with never-ending requests while you’re trying to watch your kid’s soccer game? Or are you the CFO who would rather have information at your fingertips instead of bothering your staff with questions after hours? If your answer is yes to either of these questions, read on!

Imagine having all reporting and analysis information on hand rather than doing a fire drill to answer a question about the latest management report. The push and pull of information is constant, and it is possible to ensure management has the information they need when they need it. There’s a way to make reporting and analysis easier for everyone in the organization by developing what we call a data model. Below are four steps to align information availability with what management needs for decision support:

1. Develop a Strategy Map

The first step in creating the right reporting data model is making a strategy map to align the organization around measurable goals. Leadership must discuss and determine the desired strategic direction of the company based on the company’s core competencies. Based on the high-level strategy, critical success factors can be identified, which must be based on quantifiable metrics. The core competencies will be the framework for reporting.

For example, an E&P company wants to find oil. Therefore, the company wants to be competitive in exploration. A critical success factor is identifying and pursuing all attractive exploration opportunities. It’s measured by bidding success ratio, winning bids, losing bids, and $ bonus per acre.

2. Define Performance Metrics and Accountability

The next step is to identify and define the performance metrics by which management will make decisions and measure the business. Once established, define how each metric is calculated and determine who is accountable for capturing and maintaining data for the metrics. Designating who is accountable for each metric’s data quality creates clear ownership and lets the organization know who to reach out to for questions regarding specific data points. For example, suppose management wants to measure per well volume, which is calculated by dividing total volume by well count. They would assign the metric to someone from the production group who would be accountable for it.

3. Agree on Level of Detail and Hierarchies

The third and most challenging step is determining which company hierarchies to report on. The hierarchies need to align with how leadership wants to view data (by location, by product, by customer, etc). The difficulty comes in deciding at which level of the hierarchy to view data. Organizations shoot for the moon by saying it’s necessary to capture metrics at the lowest level. But it’s important to consider if this level of detail will change the business decision or make the organization more profitable. And if so, by how much? Find the hierarchies and level of detail that enables the organization to make more informed business decisions and add value.

4. Identify Sources of Data

Lastly, the organization must determine how to obtain information. The team must identify the source of the data and where it is located. If it exists in multiple locations, which system has the correct information and is the ultimate authority? For example, production data can live in multiple systems—field data systems, production modules, and revenue modules—and data can look different in each location, so the system of record must be identified. Identifying the authoritative source helps organizations build a data model that enables them to obtain the right data that drives business decisions.

Getting the right information quickly is the basis of the decision-making process. With a comprehensive data model, organizations will be able to easily access the right reports to measure a company’s success and progress.



6 Reasons to Use Purchase Orders and 1 Reason Not to

by Lauren Conces

Organizations attempting to cut additional costs and establish control over the purchasing process may introduce purchase orders (PO’s) as a solution. Unfortunately, a false sense of security may develop within organizations that put all purchases on a purchase order solely for the sake of controls. 

Unnecessarily forcing a company to use purchase orders may create duplicative work for operations, and those involved could end up going around the process. For example, operations personnel may wait until the invoice arrives to create the purchase order around it. This is a redundant effort that doesn’t add any value to the business since the purchase commitment was already made prior to the invoice. 

Conversely, purchase orders become advantageous for businesses when the following six objectives are at play:

1. To capture quantities, units of measure, and pricing for supplier spend analysis and inventory management 

PO’s are a useful tool for reporting and inventory management because they include metrics and capabilities that invoices do not. If a company purchases parts and materials for the maintenance of a plant, they could use the details provided on PO’s to analyze what they are spending on various categories of parts. PO’s would provide insight into trends and help the company pinpoint where costs are increasing and where they should be looking for alternative suppliers. 

2. To simplify the approval of frequently purchased materials and supplies using blanket purchase orders 

Blanket PO’s are repeatedly used so businesses do not need to get a new quote from their supplier each time a good or service is repurchased. This is important to maintain any special pricing set with the vendor. 

Say a company buys paper at $50 per box from a paper supplier. Any time the company needs to repurchase paper, the company could simply reuse the purchase order from the previous time to maintain the predetermined price of $50 per box. The blanket purchase order also makes the process easier for the person buying the paper by eliminating the need for extra approvals. 

3. To track supplier delivery expectations and require suppliers to update order status in your ERP system

It is important for businesses to have a way of tracking delivery expectations to be able to coordinate with other vendors, departments within the company, etc. Purchase orders can help facilitate this coordination by keeping track of delivery dates. Businesses can require suppliers to input the delivery status of the order in their ERP system through the purchase order.  

For example, if a drilling company is waiting for pumps to arrive on a drilling rig from their supplier, it would be beneficial to know the date of arrival to be able to coordinate with their team or other vendors who are installing the pumps.   

4. To communicate terms and supplier delivery expectations as the ‘vendor contract’

PO’s can explicitly state certain quality expectations, quantities, packaging and sizing requirements, delivery terms, etc. for goods or services purchased. For example, a manufacturing company that buys sheets of metal may state on the PO that sheets need to be a certain agreed-upon gauge, width, and packaging. 

Purchase orders can serve as a contract between the buyer and supplier, which protects both parties legally. If the supplier doesn’t deliver goods or services to meet the set expectations on the PO, the buyer can dispute the invoice.   

5. To consolidate purchase requisitions made by multiple people in the organization

Consolidating purchase requisitions into one PO would allow a company to buy products in bulk. Companies may especially want to do this if they make multiple purchases of the same product in different departments or locations. In this case, purchase orders would help the company internally coordinate to save costs with special pricing deals. 

For example, a company has two branches that each need to order more protective eyewear. By using one PO for eyewear and buying in bulk instead of two separate smaller orders from each branch, the company could buy eyewear at a lower price per piece. Also, the company would be able to maintain the right quality of eyewear purchased as defined on the PO.  

6. To trace materials used in production or resale to customers for warranty, defect, and product quality purposes 

Shipments from vendors can typically be assigned lot numbers based on commonalities, such as vendor plant and date the product was manufactured. Purchase orders help track these lot numbers so if defects are found, the entire batch can be inspected, recalled, or reissued to prevent further issues.  

If a pipeline company receives pipe from a supplier and one pipe ends up having a defect, the company can then use PO’s to easily identify which other pipes were in the same batch purchased from the supplier. The company then could inspect this batch of pipes to ensure no further complications from the same type of defect.  

When Not to Use a Purchase Order

Do not try to force purchase orders on your organization unless there is a reason that adds value, such as those listed above. Businesses should not attempt to use PO’s for the sake of controls because there are more efficient ways to control the purchasing process using technology.  

Your company can use software that streamlines and automates invoices without the use of purchase orders. These various solutions are typically inexpensive, easy to use, and don’t unnecessarily complicate the purchasing process. 



4 Ways an IPO Can Get SOX Controls Right Without Crippling the Organization

by Bill Aimone

In 2021, organizations have set an all-time record with more than 770 initial public offerings (IPOs). Once an IPO is consummated, each IPO CFO will need to comply with SOX (Sarbanes-Oxley) 302 by certifying controls are in place to ensure the accuracy of financial statements. This means the company will want to conduct a risk assessment and create an internal controls roadmap for SOX 302 compliance and, if necessary, a potential future SOX 404(b) audit.

Most IPOs will apply for Emerging Growth Company (EGC) status and be considered Accelerated Filers by the SEC; therefore, the CFO will need to certify 302 compliance standards in the first year. The IPOs who either opt to be a Non-EGC Accelerated Filer or meet any of the Large Accelerated Filer criteria (see table below) must establish internal controls to comply with the more stringent SOX 404(b) audit. SOX 404(b) requires a rigorous internal controls framework and a series of processes and systems that will need to be tested by internal and external auditors.

Both SOX 302 and 404(b) involve having a risk and internal controls framework in place. Implementing an internal controls framework is particularly challenging for an IPO versus an established publicly traded company. IPOs rarely have the systems, processes, and staff in place to comply with a 404(b) audit and often need to make several changes to ensure the accuracy of financial statements. This includes enough staff to segregate duties, financial systems with adequate IT controls, well-defined processes, and in-house SEC knowledge.

Making matters worse, most large audit firms see IPOs as risky undertakings and aren’t overly eager to accept internal control engagements (as reflected in their fees). They are happy to be the independent external auditor, but the IPO will still need assistance from a separate, independent firm to design and implement their internal risk and controls framework.

IPOs are faced with spending more than anticipated and the internal controls environment suddenly slows the innovative entrepreneurial company into a slow-moving bureaucracy. Promises of investor results diminish and capital becomes constrained.

The good news is that there are ways to implement a 404(b) compliant internal controls framework without slowing the organization down.

1. Fit-for-purpose Risk Assessment – A few years ago, we met with a CFO who was anticipating Large Accelerated Filer status to be hit in the following year. He was given a rather generic and lengthy risk assessment conducted by a Big 4 firm. It was overwhelming and better suited for a Fortune 100 corporation. After the CFO disengaged the Big 4 firm, we worked with the finance team to conduct a fit-for-purpose risk assessment. This meant customizing the risk assessment to the capabilities and size of the organization. Although we went through an exercise to map their unique risks to the COSO 2013 framework, we were also mindful of what was relevant to the company and the audit. For example, the company did not have an adequate Board Governance Model. Instead of giving them a generic big company framework, we focused on developing a model that fit their needs. This gave the board the right level of transparency to meet audit requirements without slowing decision-making.

2. Focus on Process Improvement – Many auditors zero in on reducing risk and rarely see the bigger picture. The audit process documentation and narratives become overly focused on identifying and mitigating controls instead of efficiency. Process documentation becomes a chore instead of an opportunity to improve efficiency and eliminate unnecessary steps. While an IPO goes through the process of documenting controls, waste should also be identified and eliminated. During several of our control implementations, our team used process documentation as an opportunity to reduce the amount of time it took the companies to close their books and report financials. Our challenge was to offset any additional controls by eliminating unnecessary steps in any process. This allowed the organization to absorb new controls without adding expensive staff.

3. Consider Organization Impacts – A controls framework introduces the concept of formalized delegation of authority (DOA) and segregation of duties (SOD) frameworks. These frameworks are used to ensure the right people are involved in decision-making to prevent fraud or collusion and control spending. SOD ensures no one person controls an entire process and DOA ensures the right people approve financial commitments above certain thresholds. This can frustrate the entrepreneurial-spirited organization’s leadership. Our new IPO clients are encouraged to keep the DOA as simple as possible and be creative about SOD. For example, one organization’s billing process required the segregation of billing and posting receivables. However, this was performed by one person. Instead of hiring additional staff for approvals, the company implemented approval workflow to allow one of the accountants to approve receivable postings. These simple steps prevented the company from hiring unnecessary staff.

4. Repair Instead of Replace Systems – In most cases, a risk assessment will reveal a significant number of risks associated with ERP systems. Many organizations quickly jump to the conclusion of replacing their ERP systems. Implementing new ERP systems while going public has the potential to make an internal controls implementation worse. ERP implementations rarely finish on time and banking on a new ERP system to meet a 404(b) audit deadline is risky. Instead, take measures to implement quick and easy tools to supplement the ERP system. Our clients typically find the implementation of a reporting and planning solution on top of their legacy ERP becomes their long-term solution instead of a new ERP. In some cases, they make a few modifications in their legacy ERP systems, which is less costly than a new ERP solution.

Trenegy specializes in helping IPOs implement fit-for-purpose controls frameworks that allow organizations to stay efficient. Check out our SOX FAQ page here to learn more.



Recovering from Technical Debt

by Bill Aimone

Perhaps you’ve heard the recent news around Southwest Airlines’ technical debt. Their old technology infrastructure that was reportedly overdue for an upgrade finally collapsed over the holidays. They suffered a net loss in the fourth quarter of 2022, which hurt their stock and reputation and cost them millions.

What went wrong? Essentially, Southwest Airlines was reportedly operating on old software and technology systems. Tasks that should have been automated had to be completed manually. Their outdated systems were missing key data, under extreme stress, and unable to meet demand. Having spent years focused on outward-facing upgrades and the customer experience, Southwest’s technical infrastructure became overlooked and technical debt brewed.

What Is Technical Debt?

Technical debt is the result of issues that accrue over time due to previously rushed or poorly executed IT projects. Teams often implement an easy or quick IT solution to save money, get something released quickly, or meet deadlines, but it always comes back to bite. Technical debt also accrues when organizations are using older applications that can only run on older systems or servers that are out of support.

How Can IT Organizations Address Technical Debt?

Even one incident like the one Southwest faced can be difficult to bounce back from. How can other organizations avoid a similar situation? Avoiding or reducing technical debt requires organizations to be proactive. These steps outline how to proactively reduce the risk of technology-related business interruptions.

1. Know What You Have

Knowing what you have starts with a basic inventory of your IT assets, which should include hardware and software. It’s important to track key metadata—asset type, asset owner, operating system, end of support date, serial numbers, etc. This process can seem overwhelming. However, not tracking assets can cause major problems down the line. Organizations lose millions of dollars per year to paying for assets no longer supported or in use.

Tracking is typically done using a CMDB (configuration management database), which is a database of a company’s assets (laptops, software, network devices, etc.). Here’s a run-down on CMDB best practices, whether you already have one in place or you’ve never used one before.

Tracking assets will require robust asset management processes. Designated asset “owners” are responsible for making sure assets are tracked, up to date, and commissioned or decommissioned properly.

2. Determine Where Technical Debt Lies

Leverage tracked data to figure out where technical debt exists. This involves assessing two major areas: risk and impact to the business.

In regard to risk, how many vulnerabilities and incidents are assets creating? How much does it cost to support each asset and fix it when it breaks? Are certain assets more prone to security breaches than others? People involved in risk assessment should include data owners and enterprise architects who usually know what’s going on with IT and can help develop roadmaps.

In regard to business impact, how critical is each asset? What assets have a direct impact on the business or customer if compromised (e.g. an airline reservation system)? This usually requires some mapping to identify what systems may have a domino effect and impact other IT infrastructure throughout the business.

Assets that carry the highest risk and impact to the business should be addressed first. This prioritization process is important because most IT organizations have budget constraints and must prioritize spending in the right areas. Organizations with high risk and budget limitations should revisit the IT budget and reallocate resources accordingly (unlike Southwest), which involves building a business case for investing in mission-critical assets based on the risk assessment.

There are often discrepancies between what the business sees on the outside and underlying issues within IT. Making those connections (service mapping) helps paint a broader picture of how IT infrastructure impacts the business as a whole.

3. Build a Roadmap

Building a roadmap requires addressing technical debt as the focal point of the entire IT transformation roadmap. Most roadmaps include the “fun stuff” (new AI tools, process automation functionality, etc.). Failure to focus on initiatives that address technical debt first will likely result in having fancy new tools that won’t work with what you already have. This is equivalent to upgrading a kitchen with the latest high-end quartz while the cabinets are falling apart.

The roadmap should also include a thorough risk assessment that is continually updated. This technical debt risk assessment may require shifting certain items on the roadmap based on changing conditions. For example, new security threats may require the company to upgrade certain infrastructure components earlier rather than later. This means the roadmap needs to have some flexibility to account for changes.

Finally, the roadmap needs to consider resource requirements and planning. With the upgrade in technology, what new talent needs to be brought into the organization? What contract or consulting resources need to be engaged while the company is upgrading systems? What internal resources need to be adjusted to adopt new technologies?

Don’t Wait

Technical debt doesn’t just affect the business. As we saw with Southwest, technical debt can be far reaching, significantly impacting shareholders and end customers. Don’t wait until you’ve reached the tipping point to address technical debt. Make the IT investments now so you don’t have to make an even bigger investment down the road.

We recently discussed technical debt on our Jar(gone) podcast featuring Bill Aimone and Lauren Conces. Listen here.



How & When to Use Purchase Orders Correctly

by Peter Purcell

Many companies struggle with how to use purchase orders (POs). It costs money to create a PO, which adds up over time, so it’s important to know exactly how and when to use one.

Most PO processes are cumbersome. POs are unnecessarily used for most purchases, are often created after the fact to support invoice matching, and can require an onerous approval process. In this type of environment, employees will do everything they can to avoid using purchaser orders altogether. Companies lose visibility into upcoming AP invoices, directly affecting the accuracy of cash flow statements.

POs are a powerful tool when used properly. They can help organizations obtain the right items at the right time, track expenses, manage spending, avoid price gouging, and support a variety of planning activities. Understanding when and, more importantly, when not to use a PO is critical to ensure maximum benefit to companies.

When to Use a PO

Based on benchmarks from a variety of sources, a PO costs more than $100 to create, approve, maintain, and close. By default, this means it’s best to use POs for larger purchases (major assets), purchases above certain accounting thresholds, and for other significant acquisitions. When done properly within a well-structured strategic sourcing environment, POs can help companies:

  • Prevent duplicate orders
  • Ensure vendors comply with purchasing agreements
  • Avoid unexpected invoices or price gouging
  • Consolidate purchases to maximize discounts
  • Get the right discounts
  • Provide key information to track job profitability
  • Avoid unanticipated price increases
  • Track warranties by providing a purchase record
  • Track expenses
  • Manage spending
  • Perform accurate budgeting and planning activities

When Not to Use a PO

POs are frequently used for the wrong types of purchases. They should not be used for smaller or frequently purchased items. If a PO costs more than $100 to create, obtaining one for a purchase that costs less than that isn’t worth it.

Contrary to popular opinion, POs are not needed for every item for the sake of controls. There are other ways to track expenses. Companies should consider issuing Procurement Cards (P-Cards) for smaller and emergency purchases. With P-Cards, expenses are tracked, and random audits can be performed at any time. Any fraudulent activity is easily recognizable.

How to Make It Easy to Use a PO

If a tool is difficult to use, it probably won’t be used correctly for long. Here’s how to make it easier for everyone:

  • Streamline the PO process by eliminating requisitions if they aren’t needed. It just adds another step in the process that isn’t necessary.
  • Purchasing cards can help with spending and reduce the need for POs on pre-approved items.
  • Train the procurement team correctly.
  • Automate workflows and give the procurement team an easily accessible way to approve POs.

Trenegy helps companies establish fit-for-purpose strategic sourcing programs which ensure the right items are purchased and delivered at the right time through the proper balance between POs and P-Cards. For more information, reach out to us at



What to Expect When the PCAOB Finds Deficiencies

by Bill Aimone

In recent news, the PCAOB has reported that 40% of the audits conducted in 2022 have deficiencies. When the PCAOB identifies this many issues en mass, people don’t always realize who is most affected and how. It may seem like audit firms are the ones who suffer the consequences when the PCAOB finds deficiencies. In reality, the public companies bear the brunt of it during their yearly audits. Audit firms respond by hiring more personnel, raising audit fees, and cracking down on audits to comply with a heavy-handed PCAOB. Their clients are the ones left paying the price.

The Impact on Companies

The impacts of the PCAOB’s report are far-reaching. As a result, clients are required to invest more time and resources into preparing for the audit each year. Impacts include:

Higher Audit Fees: To address deficiencies, audit firms often engage more senior partner time to review audit work. With the increased workload of reviewing and improving audit procedures, audit firms will likely raise their audit fees to cover additional costs. This means that even companies that had no prior audit issues end up paying more for their audits.

Increased Scrutiny: To ensure that audit processes are comprehensive, audit firms may subject their client companies to increased scrutiny. As a result, clients are required to invest more time and resources into preparing for the audit each year.

Increased Workload: Companies will have to revisit their internal controls to comply with auditor’s requirements, even if their controls were previously up to standard.

How Companies Can Mitigate the Pain of Increased Audit Fees

Increase Effort in Preparation: To mitigate the impact of increased audit fees, companies must be proactive in preparing for the audit. Secondary reviews of financials and internal processes can help ensure that everything is in order when the auditors arrive, reducing the need for additional work and expenses.

Leverage Internal Audit Teams: Companies can involve their internal audit teams in more testing and verify that adequate controls are in place. This proactive approach allows external auditors to spend less time testing controls, potentially keeping annual audit fees from rising even higher.

Streamline Controls Framework: Companies should review their controls framework to ensure it’s efficient and effective. A well-designed and streamlined framework can lead to more straightforward and less time-consuming audits.

At Trenegy, we help companies ensure their processes and controls framework are efficient now and for the future. To learn more, reach out to us at



Why Your Controller Should Influence Your AI Strategy

by Todd Boutte

Now that AI is an inseparable part of the workforce, it’s important for controllers to understand the impact of AI on their organization. AI is sneaking into organizations at an increasing rate. Employees are using ChatGPT, Bing Chat, Microsoft Copilot, and more to streamline personal workflow while nearly every software is releasing AI-powered features.

As a controller, there’s an inherent duty to ensure AI is utilized ethically, accurately, and in line with company objectives. The following is a guide for doing just that:

How Will AI Help Finance & Accounting?

AI has great potential—it just needs to be harnessed in the right ways. AI is already helping organizations in some of the ways listed below. With AI, Finance and Accounting organizations are saving time and money, freeing up employees to spend more time on activities that add value.

  • Efficiency & Automation: AI can automate routine accounting tasks, reducing manual efforts and errors, which leads to more efficient processes.
  • Data Analysis: AI-enhanced data analytics capabilities will help controllers derive insights from vast amounts of financial data, detect patterns, and make more informed decisions.
  • Fraud Detection: AI-driven systems can identify anomalies in financial transactions, helping in early detection of fraud or discrepancies that might go unnoticed in manual reviews.
  • Forecasting: AI can enhance the accuracy of financial forecasts by analyzing multiple variables and market conditions, aiding in better budgeting and planning.
  • Asset Management: AI can optimize asset utilization and monitor asset performance, crucial for protecting a company’s resources.
  • Competitive Advantage: Adopting AI in financial functions can give companies an edge over competitors in terms of speed, accuracy, and strategic decision-making.
  • Regulatory Compliance: AI tools can help ensure financial operations comply with ever-evolving regulations, reducing risks of non-compliance penalties.
  • Cost Savings: By automating processes and reducing errors, AI can lead to cost savings in the long run.

Awesome, but… 

There are still issues with AI that prevent controllers from fully relying on it. Controllers must understand the potential pitfalls and how they might affect the business in order to stay compliant.

  • Bias Issues: If data used to train AI models contains biases, the AI system can perpetuate or amplify these biases.
  • Loss of Privacy: Information shared with most AI tools ends up in the public domain.
  • Job Displacement: Automation through AI could render certain jobs obsolete.
  • Security Concerns: AI systems can be used to create malicious deepfakes that are difficult to detect.
  • Ethical Concerns: AI may be used to make recommendations or decisions in sensitive areas like healthcare or criminal justice.
  • Dependency: Over-reliance on AI systems can reduce human skill levels and lead to an inability to perform tasks without technological assistance.
  • Transparency & Accountability Issues: Many advanced AI models, especially deep learning models, act as “black boxes,” making it hard to understand how they arrive at specific decisions, which complicates accountability.
  • Safety Concerns: In areas like autonomous driving or robotics, AI malfunctions could have direct safety implications.
  • Existential Risks: A superintelligent AI could act in ways that are harmful to humanity if not properly aligned with human values.

It’s All About Protecting the Company

AI is powerful and can be useful, but it’s not infallible. The information and answers it provides are not always 100% accurate. For the controller, this is especially important when dealing with sensitive information, regulations, and finances in general.

It’s the controller’s responsibility to implement and monitor internal controls to ensure the integrity of an organization’s financial transactions and reporting, safeguard reporting, protect company assets, and ensure compliance. The controller should work with IT and Business to accomplish the following:

  1. Understand AI Basics: Gain a foundational grasp of AI’s capabilities and limitations.
  2. Set Clear Objectives: Determine the specific goals and intended outcomes of AI integration.
  3. Establish Governance: Create a governance framework with policies and guidelines for AI usage.
  4. Perform Risk Assessments: Evaluate potential pitfalls, inaccuracies, or vulnerabilities introduced by AI.
  5. Ensure Data Integrity: Prioritize the quality of data used to train and inform AI models.
  6. Monitor Compliance: Stay updated with relevant regulations and ensure AI systems are compliant.
  7. Provide Training: Equip teams with knowledge and skills to effectively use and manage AI tools.
  8. Implement Regular Audits: Set up periodic checks on AI performance, outcomes, and ethical considerations.
  9. Maintain Collaboration: Foster a strong relationship with IT and other departments for secure and effective AI deployment.
  10. Plan for Contingencies: Have backup processes in case AI systems malfunction or produce unintended results.

Bottom Line

AI is here and it’s not going away. Leveraging AI’s capabilities can drive innovation, optimize operations, and create competitive advantages—but discretion is crucial. Controllers have a responsibility to oversee how AI is used. By responsibly integrating AI, controllers can transcend traditional roles, becoming strategic executives guiding the company’s future.



by Peter Purcell

A recent article from Fortune reported a shortage of around 340,000 accountants in the US as of March 2024. Many large corporations’ recent quarterly earnings statements contained errors, and while we don’t really know if a shortage of accountants is to blame, it’s certainly a factor to consider.  

A lack of accounting staff may lead to overwork, which means a potentially greater margin for error due to longer working hours and having to balance multiple roles at once. Down the road, this could mean higher turnover rates. 

A shortage of accounting staff also means more job openings—but research shows that fewer and fewer college students have been majoring in accounting over the past several years. This could be attributed to many things: increased tuition, student loans for the extra year of school required to become a CPA, declining interest in accounting, the lack of perceived social impact, etc. 

Regardless, organizations need accurate and effective accounting processes to retain stakeholders and employees, increase revenue, meet customer needs, and generally operate as a successful company.  

By leveraging AI, the accounting profession can address major issues, like financial statement errors, the accountant shortage, the declining interest in accounting careers among younger generations, and the challenges associated with the education/certification process. AI has the potential to enhance the accuracy and efficiency of accounting practices and make the profession more attractive and accessible to a broader pool of talent. 

Mitigating the Accountant Shortage 

How AI can help organizations address the challenges associated with the CPA shortage:

1. Automating tasks – AI can automate routine and time-consuming tasks to alleviate workloads, allowing accountants to focus on what cannot yet be done with AI. This shift can help mitigate the effects of an accountant shortage by giving existing staff their time back.

2. Strategic hiring and compensation – Companies may need to reconsider their hiring strategies and compensation packages to attract talent in an AI-augmented accounting landscape. This could include offering roles that leverage AI skills, providing ongoing training in new technologies, and reevaluating the need for traditional credentials in favor of demonstrated competencies in AI and accounting software. 

3. Overall strategy – Consider how AI can be used to parse the organization’s financial trends and economic forecasts to identify where strategic challenges should be assessed. Determine how AI can help finance align the overall strategic plan with financial objectives, corporate structure, working capital, and funding. 

Reducing Financial Errors 

How AI can help identify and reduce accounting errors in financial reporting:

1. Enhancing accuracy and reducing errors – By automating routine tasks, AI can help reduce error or double check work to create more accurate financial reports. AI algorithms can help identify inconsistencies or deviations from expected financial norms. 

2. Predictive analysis – AI can provide insight into trends by analyzing large amounts of data quickly. Predictions can help accountants focus review efforts where errors are most likely to occur. They can also help with financial planning and risk management. 

Addressing Educational & Entry Barriers 

How AI can help address education and certification challenges associated with the accounting profession:

1. Revolutionizing accounting education – AI tools can provide more interactive and personalized learning experiences that incorporate real-world scenarios. There’s potential for students to gain hands-on experience with AI to bridge the practical experience gap. Perhaps this could integrate more practical experience into the standard education timeline and alleviate an accountant shortage in the long-run. 

2. Continuous learning and adaptation – Both students and professionals in the accounting field need to adopt a mindset of continuous learning to keep up with technological advancements. AI can help with deeper learning and staying up to date with accounting and controls practices.  

Attracting the Next Generation 

How organizations can attract and retain accounting talent:

1. Highlighting the role of tech in accounting – Emphasizing the integration of AI and other technologies into accounting roles can make the profession more appealing to tech-savvy individuals. Showcasing how AI can elevate the accountant’s role from repetitive tasks to more analytical and advisory functions can attract individuals interested in technology and innovation. 

2. Addressing education cost concerns – AI can also play a role in creating more efficient pathways to certification. For example, AI-driven platforms could offer alternative credentialing mechanisms or support programs, making the career path more accessible financially. 

As accounting adapts to incorporate AI, the role of accountants will evolve to hopefully emphasize more strategic, advisory, and analytical skills to attract new talent. However, implementing AI requires thorough planning and a robust strategy. We would love to share how we’ve helped finance organizations achieve success through automation and how we can help your organization do the same. Email us anytime at 


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