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Compliance Finance26 April, 2022

Unleash the power of your finance systems

A transformation project that integrates data, processes and people in a single platform lets you optimize decision making and planning across your organization

When your finance people start their day, some of the tasks they perform will be far more valuable than others. There are routine accounting and control chores: poring over sets of numbers reported by other teams across the organization to make sure they reconcile. Then there are the creative, strategic elements that leverage the unique advantages the finance team enjoys, due to its position at the hub of your operation, to enhance processes, investment, funding and other key activities to improve the top and bottom lines.

The benefit of being able to bring more value out of such a critical department is driving institutions to embark on finance transformation projects. Put simply, this involves implementing measures to free up the finance team from doing as much of the routine, lower-value work as possible, mainly by automating data management, reconciliation and other accounting processes, so it can spend more time and effort on the higher-value work before going home.

The “what” and “why” of finance transformation are straightforward. The “how” is where things get tricky. What is most important to realize is that finance transformation is largely a matter of digital transformation and how it restructures the finance function. The centerpiece is the integration of people, data and processes onto a single platform.

A solution that facilitates this objective will have an architecture that echoes the structure of the organization you want to build in the real world. Advances in data processing speed, storage capacity and system design will permit more connections among different functions, and they will be made faster and more nimbly because there are fewer steps involved in making each connection.

Help for the simplest to the most complex tasks

The key to success in finance transformation is to understand, and make the most of, all the ways that a fully integrated data solution can take charge of routine processes from front to back. While it is achieving that, it also will generate more and better data, more rapidly, for the higher-level analytics that your finance team uses in budgeting, forecasting, planning and other key operations that ripple through your organization. Getting the “how” right will help to optimize decision making, operational efficiency and ultimately profitability.

The typical institution’s systems are likely to move data from one place to the next to the next in a linear fashion, from customer and transaction data, to the general ledger, to risk analytics, financial reporting, regulatory reporting and on and on. This makes it slow and error prone. As inaccuracies and inconsistencies creep in, the procedure gets bogged down with backfilling, checking and reconciling the work that has already been done, further slowing progress. An additional hindrance is the fragmented, piecemeal nature of many firms’ technological solutions. There may be a core system, then a general ledger that is a separate, standalone product, as well as other systems that individual departments rely on to do the same job, each in its idiosyncratic way, amplifying the sluggishness and assuring additional errors and reconciliations.

A more effective design would store all data, regardless of its origin and type, in a common format in a single warehouse that serves as the sole data source for all users across the organization and for all purposes. This single data layer, covering general ledger, subledgers and consolidations, would feed directly into risk and accounting engines, making it immediately accessible for budgeting and profitability analysis, and indeed all regulatory and finance purposes. This design essentially creates a second core layer.

The whole picture, viewed from many angles

The result of such a streamlined architecture is reduced cost and complexity, and more accurate and consistent information delivered faster and with fewer steps. Beyond that – and this is what creates the means to achieve finance transformation – it permits all data, at every level of granularity, to be analyzed by staff in all departments in ways that make the most sense and provide the greatest value. Everyone is on the same page, but they can read the material in the language – finance, risk compliance – that is native to each user.

Having such information available in a way that presents multiple, nuanced perspectives lets you paint a complete picture using fine brushstrokes, resulting in faster and better decisions down to individual contract and customer level. This data can be aggregated and analyzed based on location, activity or any other useful criterion, and transmitted more efficiently back up to senior finance leaders. Details about each contract or report can be examined for multiple purposes – regulatory risk, regulatory reporting, internal accounting, internal risk management, whatever is required – and progress on each task or project can be tracked, increasing operational efficiency.

Having this information at the right people’s fingertips makes closing a swifter, easier process. It also provides a sharper, more timely view of current conditions and a useful glimpse into the future. Profitability analytics can be generated in two or three days when it might have taken two weeks before. This lets you see where you are meeting your goals and – using simulations, plugging in forecasts and tweaking them – determine where and how you should make adjustments. You can improve balance-sheet management, stay compliant and get a better handle on the impact that any change in the market landscape will have on cash flows and profitability.

And you will be better able to gauge meaningful changes as, or even before, they happen. Teams across the organization can tease out more readily how conditions in the economic, financial and commercial environments are developing, make better decisions in response and, in the case of senior finance officials, devise more effective and insightful forecasts and strategies that boost performance while limiting risk. To take just one example, they will be able to create more accurate, timely and detailed budgets with which to better inform management, enhance financial performance and ensure accountability, further improving decision making at all levels in a virtuous circle.

Are you up for the challenge?

It all sounds great, but are you ready for it, and is it worth it to you to find out? When something is described as a transformation, you can expect to have a lot of work ahead of you. Just how much depends on the state of your current systems.

A finance transformation project may be easiest to implement for small to mid-sized entities particularly a digital bank that has had a shorter history and, therefore, less time to develop bad habits and install systems that have outlived their usefulness. If yours is such a bank, you have reason to be confident in your ability to manage the upgrades needed to derive meaningful benefits from a project and enhance your finance team’s work with minimal disruption. Moreover, digital banking is expected to be among the fastest growing segments of the industry for many years, so competition is likely to be fierce. That makes the balance between benefits and costs for firms that carry out transformation projects particularly favorable.

Implementing a project may be a more formidable undertaking for a larger, more complex institution. Beyond the sheer scope and scale involved, a large enterprise may be laboring under a culture of inertia, and the siloed organizational structure and data systems that tend to go with it. Many banks have neglected to update their finance process for a decade or more, including budgeting, profitability systems and core general ledger systems, putting them at a considerable competitive disadvantage.

If this corresponds to your situation and you have been contemplating a transformation project, you may wonder if it is worth the effort. Your reluctance is understandable. However, there are two inexorable phenomena, technological advancement and intensifying competitive pressure, that make the work more urgent. If a project seems difficult to implement, it could be a sign that your existing tech is not up to the challenges you will be facing. To put it another way, technological sophistication makes finance transformation possible and necessary at the same time.

A matter of timing

Now that the “what,” the “why” and the “how” have been set out, you may have another question: “Why now?” The logic of implementing a finance transformation project is hard to argue with, but even if you find it convincing, you may feel that the timing could be better.

The need to overhaul finance departments and their systems in the first place reveals the lingering impact of the global financial crisis, which created a tendency to neglect that part of the operation and sharpen the focus on compliance to evaluate and control risk more rigorously. A keen emphasis on risk seems only prudent today, too, with interest rates and their associated risk rising, along with liquidity risk and others in a suddenly more turbulent world.

If current conditions make you skittish about undertaking a significant finance initiative, keep in mind that as risks rise, so does the threat to your top and bottom lines. When revenues and profits are harder to come by, it becomes more imperative, to enhance the effectiveness of your finance team.

Do it right, whether you start with a focused finance transformation project or a total automated finance architecture resulting in a digital second core layer, you will gain a strategic edge that continues to pay dividends regardless of economic swings.

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