Baseline Definition – A Reliable Assessment Model for the Finance Function

Gartner has set the standard for assessing the maturity of processes and data within organisations. Even though they created their original process model well over ten years ago, it remains valid. Their data model, however, is a more recent development, works on the same principle, and is equally well-regarded. At one end of the scale, you can bring them in to do a complete assessment on your behalf. It is also possible to buy access to their documentation and use it to perform self-assessments.

If you are working on a much smaller scale, you can, however, facilitate an internal assessment based on organisational knowledge and analysis. But, again, it depends on the complexity and size of your organisation and its ultimate aims. Whichever way you choose, the goal is to ascertain the maturity level for both process and data within your organisation.

The assessment’s primary aim is to determine the level and effectiveness of manual versus automated process steps within the processes in scope. Depending on your organisation’s circumstances, that will vary hugely from under-utilising the current technology, such as the ERP, to technology no longer fit for purpose. Certainly, most organisations need to continuously better exploit technology in a world with increasing digital opportunities. Developments in this arena come thick and fast, and solutions are superseded quickly.

The challenge here is often knowing where to start and which indicators to review. Using external expertise and, notably, experience in process, data and systems, such as the consultants at Loughridge Transformations, can be altogether worthwhile. We illustrated this in the second step with the financial closing process – chosen for its labour intensity. In that example, the volume and nature of the manual journal entries spotlight whether the system or systems are fully utilised, under-utilised, or no longer fit for purpose. With experience, you or one of our consultants can interrogate these and other data points to understand the “as-is” situation.

At Loughridge Transformations, we think about organisation in three parts: Structure, Capability and Culture. Looking at any documentation and “Going to Gemba” is critical at this point. Gemba is part of the Kaizen philosophy, where processes, for example, are observed to understand what occurs in reality instead of what exists on paper. If you are unfamiliar with the approach, why not arrange a call to find out how we introduce and coach the technique – amongst others from the Kaizen philosophy – with leaders in your organisation?

Structure

Assessments here include reviewing formal or informal organisation charts and job or role descriptions – if they exist. In addition, the review covers in which location the activities are physically performed. Often, any documentation is more of a snapshot than something routinely updated. As a result, going to Gemba can be a tremendously insightful part of the assessment.

Capability

Next, we recommend evaluating the organisation’s skills and (collective and individual) competency level. This assessment is not absolute but relative to the roles or jobs identified when looking at Structure. While making the assessment, looking for over-capacity and under-capacity is vital.

This assessment can be sensitive for people in the organisation. So, it is essential to consider how these assessments are done, especially if you intend to use them in a later selection process. We highly value how team members experience these and other reviews at Loughridge Transformations. It should be fair, respectful, transparent and robust.

Culture

Last, we suggest looking at current behaviours and team dynamics. Doing that helps make intelligent change management decisions. Even more importantly, this is where you gather insight into how people operate alone and with others. Whether you want to sustain or change this within your organisation, you must first understand it. Given how critical people are within any Finance Function, you risk overlooking a valuable transformation differentiator – and not giving people the respect they deserve during transformation!

At this time, you have now reviewed the status of the processes in scope. You have also analysed the degree of automation and the organisational elements. The final part of the sequence examines the (internal) risk and control framework. Whatever the scale of the organisation, the internal controls are there to protect the assets and ensure regulatory and fiscal compliance. For this reason, you want data quality that can be assured and evidence-based. As a result, a robust control framework will include preventative systems controls, detective IT-dependent controls and detective manual controls.

A typical assessment will look at the risks within the process. It will consider the degree of automation, who does what, and where they do it. It includes validation that the controls are addressing the risks. Excess controls can result in a “tick-box” exercise for the control operators. The control points are often more akin to a process step description than demonstrable mitigation of the process risk – design ineffective. Too few controls can mean risks are overlooked and mitigation is lacking. Alternatively, sometimes the net is cast so widely that the control lacks clarity on the risk or risks supposedly being addressed.

In our example, the joint-venture agreements form the basis of both process and data. The process is sometimes explicitly detailed or might be only implicit. Either way, the first step in the assessment determines whether the actual real-life process matches the agreement. Next, you must validate if the Master Reference Data (MRD) is in line. As things do not remain constant, the process and data assessment should also include the process steps for updates and the appropriate frequency of validation checks (for example, before month- or quarter-end) for new cost centres or profit centres.

This assessment looks at which process steps are manual, spreadsheet-enabled or ERP-enabled and where the potential for increased automation would lead to time savings or higher accuracy. Ascertaining which ERP reports are available (and in use) to highlight gaps or other MRD errors and understanding whether billing statements are auto-generated would be part of this assessment. As mentioned above, looking at Manual Journal Entries is always a giveaway in process performance and automation. In our experience, these assessments often show improvement opportunities, especially if only some people in the organisation have detailed systems knowledge. That often arises when key individuals have moved on or retired since the installation of core technology.

A process like joint-venture billing will likely involve several departments. This likelihood increases if the organisation has offshored or outsourced specific process steps. Almost certainly, not all of these departments will be within Finance. Assessing who does what and when they do it is vital in understanding opportunities for improvement. You should review the skill and capability levels and team dynamics. Does each process operator have the appropriate knowledge, equipment and ability to perform their step in the process? What is the degree of communication and teamwork across the process? What is helping or hindering the team’s effectiveness?

Lastly, with the above information, you can look at the control framework as it applies to this process. Already, there is an indication of control problems – for instance, the number of findings and your feeling of under-billing. First, you have to understand the process reality compared to the agreements. Then, you have to review which steps are manual or otherwise. Last, you must investigate who is doing what, whether they are appropriately skilled, and how well they work together. With this, you can assess the risks and determine whether the existing controls are mitigating the “right” risks in the “right” way.