Finance Transformation

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Finance TransformationFor the 21st CenturyJuly 2006 Sydney, Australia

DRAFT DRAFT

Finance Reform

Finance Departments are successfully helping to steer their organisation through a turbulent business environment Often there is little time for departments to focus on their own performance and development Ernst & Young can assist Finance Departments improve their effectiveness and efficiency by sharing our Leadership Methodologies Experience

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DRAFT DRAFT

Finance ReformImproving effectiveness and efficiencyEffectiveness & Efficiency Impact of Financial Reform

Reduce total cost Reduce transaction processing to reporting cost Invest in Business Partnering & Enterprise Decision Support

100

75

Total Cost of Finance 250

50

Past

Fu re tu

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Enterprise Decision Support Manage Risk & Financial Capital; Improve Control Transaction Processing, Accounting & Reporting

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Finance FunctionsStrategy and Planning Reporting and Analysis Stewardship and Compliance Transaction Processing Strategy, mergers and acquisitions, business and financial structure, operations planning, budgeting, VBM Board, Statutory and management reporting, forecasting, PI, business case and performance analysis, ABC/ABM Tax, IFRS, ASX, external and internal audit, approvals procedures, internal controls, risk management General accounting, asset register, payroll, accounts payable and receivable

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DRAFT DRAFT

Path to Functional Excellence

People

Current State

Processes

Best Practice

Information Systems

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Getting the Strategy Answer the Questions?Governance Transactional Centralised Shared Services Simple Standard Vanilla ERP Generalists Lower Capability Decision Making Value-Add Decentralise COE Innovative Flexible

STRATEGY

STRUCTURE

PROCESS

SYSTEMS PEOPLE

Additional Tools Specialists Higher Capability

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Traditional Finance FunctionIn your organisation Is the operations plan aligned with strategy? Is budgeting an onerous process? Do Board, Statutory and management reports and the ITR logically flow into each other? Does your business know; customer profitability; whole of life asset costs; process costs? Does Finance analyse all significant business decisions; approve all operating and capital projects? Do reports contain leading and lagging, financial and non-financial metrics? Do your systems do most of the work for monthly reporting? Are transaction approval processes duplicated; are they effective? Does your department cost more than it should?

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Path to Functional Excellence

People

Leadership Understands & committed to organisations strategic context Apolitical & diplomatic Initiates change & continuous improvement Committed to helping staff realise their full potential

Processes

Information Systems

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Path to Functional Excellence

People

Culture & Attitude Purpose is to serve the organisation Understand and interested in the business Maintain close relationships across the organisation Equal partner in developing solutions to business issues

Processes

Information Systems

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Path to Functional Excellence

People

Capability Appropriate technical skills Capacity and willingness to learn Comfortable working outside traditional accounting boundaries Continuous learning / skills maintenance

Processes

Information Systems

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DRAFT DRAFT

Building Blocks of Functional Excellence

People

Processes Support the business; not a bureaucracy In control Simplified, e.g. no duplication of effort

Processes

Information Systems

Finance has authority to enforce Selective use of Shared Services & OutsourcingPage Ernst & Young | 11 Copyright 2006. All Rights Reserved.

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Leverage interdependencies between processes

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Path to Functional Excellence

People

Information System Data analysis tools usable by non-finance staff

Processes

Data warehouse for financial and non-financial data Maximum automation of routine processes Reliable interfaces

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Information Systems

Our Approach to Finance Reform

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Our Approach to Finance ReformFinance Reform is the term we use for engagements aimed at improving the performance of an organisations Finance Department.Reform consists of many variations, including:

Formulating the departments strategy Reviewing IT architecture Formalising governance structure Full process re-design & organisation restructure Shared Services Centre or Outsourcing implementationWe offer our:

We are not associated with any business solution or software vendors.

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Leadership Methodologies Experience

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Our Approach to Financial ReformOur approach of combining strategy with shop-floor process improvement has proven to be the most successful approach to delivering sustainable improvement. It harnesses the wealth of knowledge that exists on the shop-floor and ensures the right changes are made.Top down direction setting Crossfunctional process redesign People

Bottom-up problem solving

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DRAFT DRAFT

Our Approach to Financial Reform

Finance Strategy formulation Executive mentoring Culture assessment Organisational restructure Change management Staff capability reviews Job design Technical training

People

Benchmarking Functional review Process re-design Governance framework IT Advisory

Processes

Information Systems

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DRAFT DRAFT

Project ImplementationOur approach to each assignment is tailored to meet client needs. Key features of our project implementation approach are:

Reliance on client teams Small, highly skilled and experienced Ernst & Young team Provision of project management, progress reports, steering committee attendance & project documentation Discrete phases Full and abridged implementation options

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Our LeadershipWe provide two-directional leadership; top-down & bottom-up Top-Down Work with senior management to determine Strategy Culture Structure Appreciation of organisational constraints Management acceptance of change Prevent formalisation of bad practice Identify & address obstacles Raise the bar and set the pace Assist client-team champion the cause and address obstacles At times, an extra pair of hands Inculcate sustainable change

Bottom-Up Harness shop-floor knowledge Guide client team through change process Introduce best practice concepts Train client team in process improvement techniquesPage Ernst & Young | 18

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Our Methodologies Finance StrategyConfirm commitment to reform initiative

Ensure Finance Departments strategy is aligned with the organisations Executive interviews & short workshops

Determine where processes and functions belong in the organisation

Secure cross-functional support for process and structural improvements

Assign accountability for benefits realisation

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DRAFT DRAFT

Our Methodologies Governance Framework

Purposei li t yt o fut imp ure ac t

Planning & Control

Mitigate risk of malfeasanceof om ed n Fre esig d

Avoid unplanned contingent liabilities Ensure regulatory compliance Financial stewardship to ensure resources are utilised in an acceptable manner Assist management maximise return on assets

Ab

Reporting

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Approvals & Compliance

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Methodologies Process Re-designReviewHighLevel Mapping Org. Chart Review

Staff Interviews

Cost Analysis

Benchmarking

Systems Review

Re-designDetailed Process Mapping Work Distributio n Analysis Detailed Process Re-design Org. Structure Re-design Change Managemen t Plan

Benefits Analysis

Project Briefs

New Process & Structure Implementation

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Our Methodologies People

Executive Mentoring

Staff Capability Review

One of our Partners or Senior Managers develop an enduring one-on-one relationship with a client Executive We are there to listen, test ideas and offer impartial advice Useful for discussing general issues, contemplating a major initiative and personal development

Assess your needs and determine skills and personal attributes specific roles require Use structured interviews, observations and peer reviews Form objective conclusions about an individuals capabilities and offer suggestions where they may best fit in the organisation

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Our Methodologies - Organisation

Cultural Assessment

Change Management

Make an assessment using recognised assessment tools Identify gap between existing and desired cultures Develop program to shift values, beliefs and behaviours in desired direction

Three layers of change:

Strategic communicate departments vision across the organisation Operational imbedding new processes, systems and organisation structures, transitioning people Individual align individual and team behaviours and performance

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Our Methodologies - Organisation00s

Organisation Structure Review structure, including finance work performed in other parts of the organisation Develop new structure, based on

90s

80s

CFO

- Finances strategy & cultural objectives - Leading practice - Process improvements

Transactional work Specialist finance services

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Value add work

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Our Methodologies IT Advisory1. Select systems for reviewFinancial s Structured Questionnaires Structured Interviews Structured Workshops Human Resource s Marketin g Mgmt Inventor y Mgmt Purchasin g Mgmt Quality Mgmt Sales Mgmt Product Technolo gy

3. Deliver recommendations

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2. Assess against best practice

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Our Methodologies - BenchmarkingErnst & Young has a specialised Benchmarking service line and leads the Western Australian and South Australian Benchmarking ConsortiumsTwo stage benchmarking exercise in Finance Reforms: 1. 2. Quantitative analysis using standard data template to compare client performance with relevant peer group Qualitative analysis using structured interviews to assess client practice with best practice

We use our global network to regularly update our quantitative and qualitative templates

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DRAFT DRAFT

Our ExperienceIn recent years no or only margin savings have been realised from improvement initiatives, common errors include:

Failure to address what actually drives the work Failure to identify value destroying activities Formalised or centralised poorly performing processes Alienated the business Sole reliance on automation Ignored culture Relied on Shared Services or Outsourcing as an end result

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Our ExperienceReferees

Denise DawsonChief Financial Officer Sydney Water Corporation

Chris HernGeneral Manager Finance & Budgeting Telstra Corporation

General Manager Rio Tinto Shared Business Services

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Megan Enders

Appendix: Leading Practice - Processes

Budgeting and Forecasting Leading Practice Features

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Set budget guidelines & targets

Prepare budgets

Review and consolidate budgetsProcess Features

Prepare forecasts

Monitor and analyse performance

Strategic plan drives operational budgets, targets, milestones and timings Provides broad economic and market trends Includes business linked key performance indicators Action orientated with achievable targets

Detailed budget completed in less than 6 weeks Budgets focused on business needs eg PBB, zero based Budgeting is extension of the business planning and long term forecasting processes Target performance related to pay award

Budget review is focused on the strategic objectives and KPI's Budgets are consolidated at level appropriate to business needs eg process, function, BU People skill set enables global budget changes to be administered efficiently Final budget communicated to budget holders quickly, before start of year

Operational and process functions are responsible for forecasts Rolling forecasts linked to the planning and budgeting cycle Forecasting process facilities action based planning

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On-line budget guidelines and indicators set centrally

Integrated systems used to aid budget process Software provides ability to test different budget scenarios Flexible budget phasing facilities Facility to hold alternative budget scenarios

System Features

Coherent budgeting systems eliminate rekeying of data System allows automatic calculation of KPI's and holds non financial data Data can be downloaded to final budget documents preparation or to EIS Systems provides sensitivity analysis of data

Software supports on-line forecasting by operational management Flexibility to allow rolling updates of forecast data Forecasts linked to KPI's budgets and planning

System provides comprehensive on line variance reporting Reporting includes on-line graphics and non financial data where appropriate

Accounts Receivable Leading Practice FeaturesEstablish credit levels

DRAFT DRAFT

Issue sales order

Issue invoice

Mon...