Finance 4.0: How to automate management reporting and controlling

We live in the digital era, and it would seem that if we do not catch the 4.0 wave at least in some of its forms, then our company has no chance on the technology-packed market. For CFOs, financial directors, the heads of controlling and strategy, one such wave is Finance 4.0. From a purely… Read more

We live in the digital era, and it would seem that if we do not catch the 4.0 wave at least in some of its forms, then our company has no chance on the technology-packed market. For CFOs, financial directors, the heads of controlling and strategy, one such wave is Finance 4.0. From a purely business perspective, the continuous processing of ubiquitous data for the purposes of financial and management reporting, the correct interpretation of those data and, ultimately, the necessary confidence in the reporting itself are standards that are indisputably prevalent.

When we complement this idea with the right technologies, which are able to process, integrate and report data in a satisfactory time, and which also provide the much-needed analytics platform, we get the concept of functional digital finance. 

So what is the situation on the market, and how many companies can say that they operate functional financial reporting that can cater to the majority of management needs and what is expected of the financial department?

From one extreme to another, or where is your business?

Let’s take a look at the two extremes between which the vast majority of medium to large businesses fall, including holding companies and corporations, i.e. companies where we cannot assume that the owner also manages and approves every order for office supplies.

I am sure every financial director and experienced controller has recognized themselves in many points of the extremes described above. You may be among the lucky ones who can say that they run automated, reliable and transparent reporting but, if not, then this side-by-side comparison holds up a certain mirror – what to improve, where to aim.

Bet on linking business knowledge with technology

The basic thing is to identify all the problems, pitfalls and mistakes associated with financial reporting in your company, and to address them and solve them. Solutions available on the market can help with this and, if you choose a supplier who can combine business knowledge with technology, then you have a winner. It all depends on the size of the business, whether you are a holding company, the type and number of information systems you operate, whether you run a homogenous or, conversely, a deeply heterogenous business, whether and to what extent you are willing to submit to certain products, and so on. Smaller companies operating homogenous ERP products usually get by with various extensions of these out-of-the-box solutions. Larger businesses that have multiple systems or are holding groups, however, must make fundamental changes in their approach to reporting, and should choose from among the well-established and proven solutions that exist on the market.

The 5 pillars of successful Finance 4.0 Reporting

The transition to an automated and reliable solution should be based on 5 main pillars:

Obrázek 1: Pět pilířů pro finance 4.0 reporting

1. Automated integration

The integration between the source systems (ERP, CRM, Billing, etc.) and the reporting platform may just be technical, but is nevertheless an extremely important component of the solution as a whole. Properly automated pre-prepared integration allows you to deploy reporting quickly, develop it easily and, above all, have it 100% under control. The same data (business units, profit centers, products, customers, etc.) always need to be connected in the same way; the data, amounts, currencies all have to be unified. Standard tools usually cannot handle this alone: it is advisable to use the kind of extensions that, today, some suppliers are already able to provide.

2. A proven financial data model

Here you expect the solution to provide the functionality that is crucial for financial reporting – cross-scenario comparisons, time calculations, correct category aggregations, correct forecasting, the option of multiple parallel financial statements, reporting in different currencies, interpreting intercompany transactions, and so on. These are features that you expect the solution to include. At the same time, it should be ready for potential integration with a financial consolidation tool. The fact that it is a proven model means that other customers are already running it, so you can be sure that it has been fine-tuned and is reliable. It is also well-prepared for reporting and financial analysis, and separates the axes of transactions and reporting. The data model should also be easily extensible, not contain duplicates, properly describe the business, and use the correct terminology so that even new users can find their way around it.

3. An analytical platform and reporting tools

This component will be the ultimate fruit of your labor. It must allow EBITDA, EBITDA2, EBITDA3 reporting, depending on how you want to build it and what you want it to include. It must also work with the semantic data layer, so that every controller will be able to create almost any analytical table or graph, with any divisions that exist in the data and that meet their requirements, without needing to know anything technical (a contingency table, however, is an absolute must!). The reporting and analytical platform has to be fast, user-friendly, and have the necessary visual features. It should be possible to display it on mobile devices, use it collaboratively, choose among various user settings, and so on.

4. Reporting business workflow

This is another key component, and one that will facilitate management of the entire process. You expect it to be a web application that allows controllers responsible for the whole process to open different time periods and scenarios and, after validating the outputs, to close them again so that they cannot be changed. Users responsible for delivering data – accounting systems, accountants, controllers in charge of planning and forecasts – can record their manual inputs and are able to see, in real time, whether these have passed all the necessary validations and have been processed without errors. The workflow further ensures that it is possible to restart automated processes manually, monitor potential errors in both automated and manual processes, and set the appropriate permissions. It is also useful for audits because it records all the user’s processing activities.

5. Data Governance

The whole solution is useless unless you have a unified process based on a cohesive reporting schedule and content. Without this, uniform reporting cannot be implemented or operated. No less important are master data, i.e. unified data on controlling objects (products, services, profit centers, business units), the group chart of accounts, KPIs, customer attributes, and so on. The link between the data and the master data must be described in the reporting guidelines (reporting rules), so that users know exactly what to categorize and where. 

Obrázek 2: Schéma finančního datového skladu připraveného pro finance 4.0

Enter the world of Finance 4.0

If you are financial director of a company that is closer to extreme 1, you will probably realize that, sooner rather than later, you will need to make major changes in your approach to reporting. Otherwise, from the perspective of managing and interpreting important financial data, your company risks losing out against the progressive, automated competition. If your controllers work in 80/20 mode, where they spend 80% of their time collecting and handling data, and only 20% of their time is left to carry out their reporting and analytical activities, there is a mistake somewhere. You need it to be exactly the opposite. Do not be afraid to enter the world of Finance 4.0.