Leveraging IBM OpenPages & Cognos Clarity for Risk Management, Disclosure Management and XBRL
In yesterday’s Financial Performance Insider Webcast, a monthly webcast series brought to you by Business Analytics software at IBM, we delivered business content to our global customer community highlighting important business practice updates about today’s ever-evolving regulatory, compliance, financial reporting and risk management landscape and how finance, IT and risk management teams can better prepare and arm themselves for effective stewardship of these market realities. In addition, we touched on how enterprises can leverage IBM solutions, in this case, IBM OpenPages and IBM Cognos Clarity FSR, as part of the Business Analytics software solution suite to enable these practices most effectively. As mentioned, these IBM solutions can help automate and manage these related processes driving value through improved efficiencies and greater transparency to ensure proper regulatory compliance is in tact and enterprise risk is effectively managed and monitored. This ability to deliver integrated solutions across these critical practice areas all in the face of changing business strategies and the evolving external demands on the enterprise is critical to IBM delivering business value in its solutions for its customer community. Peppered throughout the webcast customer success stories were discussed proving the real-world value these solutions deliver for organizations worldwide. In addition, empirical research about the state of enterprise risk management, disclosure management and XBRL were discussed to provide greater context for how critical these processes are and are only going to get more and more complex over time thereby reinforcing the urgency to start building a more robust infrastructure around these vital business processes.
In the webcast, we featured the 3 IBM Product Marketing leaders including IBM’s Doug Barton, WW Product Marketing Lead for Financial & Risk Analytics, Dan O’Brien, Product Marketing Director for IBM Clarity Systems, and John Kelly, Product Marketing Director for IBM OpenPages.
There were many valuable nuggets of information to extract from each of their presentations too numerous to mention but to summarize their presentations down to a few topic areas would be that they each highlights that there are certainly traditional challenges facing finance and risk departments in today’s business environment only now with emerging complexities becoming more and more demanding on these departments as we look down the road at what’s coming. These summarized areas discussed were:
- Transparency, rating agency and regulatory demands for risk and compliance information;
- Compressed deadlines;
- Electronic filing requirements (Think XBRL); yet
- No relief on what Doug called, “the “performance imperative”.
Many of those present on the webcast work in publicly traded organizations and have seen shorten filing deadlines and an ever expanding workload…and yet the “last mile of financial reporting” has largely lacked true, analytic and collaborative technology support.
That was clear. Yet there is hope. Doug mentioned the results from the CFO Executive Board survey at the end of 2010, discussing the changes in finance budgets to reflect these new concerns for finance and risk management teams.
There are certainly many challenges facing finance, IT, and risk management professionals today to address myriad practices on their agendas today. As Doug, Dan and John reinforced throughout the webinar, Business Analytics software at IBM has a solution portfolio through solutions like IBM Clarity FSR and IBM Openpages that can harness, automate and enable effective management of these practices.
Click the image to find out more about IBM Cognos Clarity
What ROI have other IBM Cognos customers gained from using our solutions?
There are many, many IBM customers leveraging IBM OpenPages and IBM Clarity FSR solutions to enable their disclosure management, XBRL and risk management practices, some of which are discussed during this webcast.
A few customer success stories discussed were:
- Omnicom Group - In first two years Omnicom was able to increase cash flow by $200M by lowering accounts receivable balances greater than 60 days by 3.5%.
- United Technologies - 20% savings efficiently addressing new XBRL and “last mile” demands putting into practice IBM Clarity FSR. They use IBM Clarity FSR to deliver all of their required regulatory filings 10 Qs and 10 Ks – pulling information from dozens of G/Ls and supplemental data sources. Automating this process to supported both core external reporting process and integrated XBRL tagging in a single solution without errors
- Barclays - Reduced cost, improved efficiency and effectiveness, a better overall view of risk and compliance posture and the dependencies between them, and implemented a IBM Business Analytics platform used extensively by the business, particularly when completing risk and control assessments.
In addition, the presenters drilled deeper into our solutions that address these key processes:
Click the image to find out more about IBM OpenPages
- Financial Governance
- Consolidation & Corporate Reporting
- “The Last Mile” and Integrated XBRL
- Mastering Risk Management
- Financial Controls, Policy & Compliance, & Internal Audit
- Operational Risk Management
Questions asked during this webinar:
IBM Cognos Clarity (Dan O’Brien)
- How much of a learning curve is there with FSR? Very little – since you will be using the familiar tools of excel and word with added functionality
- Does IBM Cognos Clarity FSR have SEC EDGAR HTML as an output option? Yes, our latest release of FSR supports EDGAR conversion – giving our SEC reporting customers a single integrated solution for report building, XBRL tagging, and EDGAR conversion
- (XBRL) Do I have to tag every Q and K that I produce in FSR? You will do most of the heavy lifting during the mapping and tagging of your first XBRL filing – after that you can re-use the tags when you roll forward the report to jump start the next period’s report
- IBM Cognos Clarity FSR: Does FSR only automate consolidated external reports? Do you have any customers that use FSR for automating internal reporting? FSR can be used to automate and enhance controls over any multi-author process driven reporting. We have many customers that use FSR for external reporting, as well as internal reporting.
Hope you enjoyed. Please let me know if there's additional information you need or questions.
Remember the Tom Cruise and Colin Farrell movie, The Minority Report??? For those who don’t recall this movie it’s a science fiction thriller based in the year 2054 where Tom Cruise plays Captain John Anderton, the chief of the Washington, D.C. PreCrime police force. The movie’s other star, Colin Farrell, plays the Justice Department’s auditor in charge of evaluating the PreCrime unit’s strategy and tactics before the program goes nationwide. The PreCrime unit has been very successful having prevented any crime from being committed for over 6 years since its implementation apprehending criminals before they’ve committed their future crime based on what they call foreknowledge. In other words, this department has predictive insights into these future crimes allowing all in the community to sleep safe and sound knowing they’re being protected from the bad guys. (Look, I know there are multiple holes in this story (Think of the legality of a pre-crime arrest) but, it’s a movie, so you gotta seriously suspend your disbelief like in most movies.) Yes, I’m sure you’re thinking this is an extreme and unrealistic example of how predictive analytics can revolutionize the way things are done. Or, maybe this movie’s storyline isn’t that unrealistic???
Enter the Santa Cruz, California Police Department. Just like most police departments (and businesses for that matter) the Santa Cruz police department spends a majority of their time allocating their existing resources most effectively to produce the best bottom line results. These bottom lime results being fighting or preventing crime while protecting the safety of its community. Apart from identifying who the specific individuals are that will be committing these future crimes like was the case in the PreCrime unit in the movie, The Minority Report, the Santa Cruz Police Department is able to identify specific times and actual locations where crimes are most likely to be committed using their own set of predictive analytic capabilities. This allows them to proactively be there and wait for these crimes to unfold and swoop in before anyone or anything is put in harm’s way. They call it predictive policing which utilizes ‘Predictive Analytics’ to make better decisions about the future. Predictive analytics encompasses a variety of techniques from statistics, data mining and game theory that analyze current and historical facts to make predictions about future events – to identify patterns or likelihoods of afuture outcome – in this case, crime. Erica Goode of the New York Times says that, “Santa Cruz’s method (of predictive policing) is more sophisticated than most. Based on models for predicting aftershocks from earthquakes, it generates projections about which areas and windows of time are at highest risk for future crimes by analyzing and detecting patterns in years of past crime data. The projections are recalibrated daily, as new crimes occur and updated data is fed into the program.” Amazing.
Predictive policing is working so well that it’s being employed by other police departments around the nation. Besides it being an effective way to fight and prevent crime it’s a cost-effective and efficient way to leverage resources, especially in light of shrinking police departments trimmed by the global slowdown. Erica Goode goes on to say in her excellent article that, “efforts to systematically anticipate when and where crimes will occur are being tried out in several cities. The Chicago Police Department, for example, created a predictive analytics unit last year.”
Besides wanting to share this incredibly interesting story with you showing how far we’ve come as a society in leveraging data to make better decisions, I also wanted to use it as a way to illustrate how using predictive analytics to manage your organization’s resources (read make better decisions) based on knowing what the future will most likely look like applies to business and government just as well as in policing. Think about it. Why shouldn’t corporations employ a similar approach in how they run their businesses? And, Police departments aren’t stopping there. They’re now thinking about “Crime Forecasting” to understand future events to ensure they’re prepared for what this future will most likely require of them. The question is, where is your business on this predictive analytic path? Better, where is your competition?
entering the cockpit of a modern jet airplane and seeing only a single
instrument there. How would you feel about boarding the plane after the
following conversation with the pilot?
Q: I’m surprised to see you operating a plane with only a single instrument. What does it measure?
A: Airspeed. I’m really working on airspeed this flight.
Q: That’s good. Airspeed certainly seems important. But what about altitude. Wouldn’t an altimeter be helpful?
A: I worked on altitude for the last few flights and I’ve gotten pretty
good on it. Now I have to concentrate on proper air speed.
Q: But I notice you don’t even have a fuel gauge. Wouldn’t that be useful?
A: You’re right. Fuel is significant but I can’t concentrate on doing
too many things well at the same time. So on this flight I’m focusing on
air speed. Once I get to be excellent at air speed, as well as
altitude, I intend to concentrate on fuel consumption on the next set of
We suspect you wouldn’t board the plane after this discussion. Even
if the pilot did an exceptional job on air speed, you would be worried
about colliding with tall mountains or running low on fuel. Clearly,
such a conversation is a fantasy since no pilot would dream of guiding a
complex vehicle like a jet airplane through crowded airspace.
This is an often cited story by many business strategists and other
management prognosticators which I will attribute to Drs. David Norton
and Robert Kaplan, pioneers of the Balanced Scorecard. It’s intended to
reflect how critical the actual indicators are that we setup for not
only pilots but also the indicators by which you establish for your
entire workforce because these indicators will serve as the guiding
force behind their decision-making.
Why is this so important? Well, many reasons starting with the
business environment has substantially changed where no longer can a
company operate rudderless without a core set of metrics to steer each
of its employees individually and as a collective unit in the right
direction. That right direction is the enterprise strategy. The speed
at which these decisions are being made seem to have increased
exponentially in just in the past 5 years. The days of top-down,
command-and-control authority over decision-making are far from over in
deference to a more nimble, decentralized execution hierarchy intended
on keeping pace with the velocity of the related competition and
customer expectations. The need for getting relevant and actionable
information to the business users has never been more pronounced than
we’re seeing today. If you can’t react fast enough to the market
realities your customers will go elsewhere. We live in a world where
product or brand loyalties are becoming more and more a thing of the
past. It’s about execution. Good execution is about making smarter,
more informed decisions that support the organization’s goals.
These decisions being made are happening across all levels,
geographies, and functional areas of the business everyday. For this
post I want to zero in on the first question asked which falls under
measuring and monitoring the business. This question is, how are we
the executive suite is constantly measuring and monitoring overall
business performance to ensure the company is on track to meet its
strategic targets. In addition, the function leads in marketing, sales,
finance, HR, and development all the way down to the individual
contributor levels of the organization are measuring and monitoring the
performance of their area of the business too. But how does everyone
know they’re doing the right things at all times? What are their real
priorities helping the organization achieve its goals? Is it
guesswork? Is it trust-based that the entire workforce is going to
naturally make the right decisions supporting top-line goals? How can
we be so sure?
This fictional story referenced at the beginning of this post is
really about measuring and monitoring – not an aircraft – but your
business thru a tool called a scorecard.
There are personal, departmental, and enterprise scorecards. A
scorecard includes the key performance indicators, or KPIs, for which,
in the case of a personal scorecard, an employee is responsible which,
if these KPIs are correctly defined, would include measurements that,
when looked at in aggregate, support the enterprise’s top-line strategic
goals and objectives. Inevitably, there will be shared targets for some
of the KPIs in a personal scorecard either within a specific functional
area of the business (Think Marketing Director/Marketing Associate
having similar campaign targets) or as shared KPIs across functional
groups like marketing, sales, procurement, and development/manufacturing
for something like overall corporate sales targets. To illustrate what
I mean, if the organization has a revenue target of 15% annual growth
each of these functions might also have the 15% target in their KPIs.
Of course alone none of these groups is solely responsible for achieving
that total growth target but this enterprise target is still one of
their KPI’s. This shared goals can incent these groups to work more
closely together given that it’s mutually beneficial for these teams to
work together because they’re all needed to make this corporate goal.
Also, there are typically individual KPIs for their own controllable
element of that 15% growth figure that might apply. Sales will play a
role in this 15% growth target by needing to make actual sales to
existing and new customers accounts; Marketing is also integral because
they will have to generate enough pipeline to contribute to those sales
figures; Procurement will need to make sure the appropriate amount of
labor, materials and supplies are available to produce enough product;
and, Development/Manufacturing will need to have enough finished product
ready for shipping in time to meet these customer demands. Each of
these functions and the people working within these functions would also
have their own more specific KPIs that outline what their required
contribution is to achieve this top-line revenue growth goal that will
typically be measured within the respective functions too. Make sense?
actual KPIs – typically there’s about 6-10 for each individual – are
critical because they will define the actions taken by the individual
for which they’re responsible. The ultimate alignment via scorecards
composed of KPIs across these business groups, departments, divisions,
business units, etc. is the embodiment of what we call a company’s
strategy execution framework.
Harvard Business School having done a study on this framework found
that, “a 35% increase in Strategy Execution leads to 30% gain in
shareholder value”. That’s a pretty strong argument for at least taking
a harder look at it.
How do you deploy such a framework, you ask? Well, in theory it’s
very simple. You just translate the business strategy and its related
goals into a set of performance indicators that outline the targets for
which each department and employee within each department are
responsible and away you go, right? Yes, I know. It sounds easy in
theory. But, in practice it’s a little more work.
The key is working top-down with each business and support unit area
to translate their contribution towards meeting these higher level
targets so that these lower-level, cascaded measurements, or KPIs, will,
when rolled up in total, directly tie to the top-level enterprise’s
strategic goals. This ensures proper alignment of the organization
while providing an ongoing set of metrics by which the workforce can
Even more important in defining the right KPIs is the understanding
that whatever the indicators are, this will determine the individual’s
behavior so take care as you define these. Something else that makes
this framework so effective is that it makes it that much easier to
reset the workforce when those top-level strategies change. the
infrastructure is in place to restructure the scorecards. This allows
the company to adapt more quickly.
Think about deploying such a framework for your organization. The
best incentive I can give you for taking on this effort is that going
through the KPI definition process for each set of scorecards it forces
discussions across functions, within departments and at the executive
level that will expose how achievable these targets really are with the
current resources in place today and who is ultimately responsible for
what. This is just about the most important exercise I think a company
can go through to make sure it’s not setting itself up for failure
because its strategy isn’t attainable given the resources currently in
place. Once this KPI definition process is complete and everyone knows
who’s doing what and where the synergies lye it’s all about execution.
This framework sets companies up to execute well because they’ve already
identified their needs and resources at their disposal and now it’s a
matter of delivering. It’s go time.
If done right this will be the outcome for your organization:
- Workforce is engaged in this process arguing the questions about
what the targets are, how to achieve these targets, searching out
solutions, debating resource needs and actions, and reaching specific
and practical conclusions.
- Ultimate enterprise-wide agreement is made on the KPIs where
everyone agrees on their commitments for getting things done and accepts
- Given the share and collaborative ownership of some KPIs, processes
are more tightly linked to one another, not compartmentalized among
- Through this exercise the strategy takes account of people and
operational realities. Through the debates and bartering between
managers, directors, executives within and across functional areas, an
enlightened awareness of what everyone is responsible for and whether or
not they have the resources to accomplish it is realized and addressed.
- People are chosen and promoted in light of strategic and operational plans.
- Operations are linked to strategic goals and human capacities.
- Most important, the leader of the business and his or her leadership
team are deeply engaged in the People, Strategy and Operational
processes – not just the strategic planning or the HR or finance staffs.
- Lastly, this serves to expose gaps in execution levels and important resource needs.
More coming on this subject. Stay tuned. In my next post I’ll tell
you some of the best practices in defining the right KPIs for personal
Blog @ http://ibm-business-analytics.com
Follow Business Analytics Forum, our annual users conference in Las Vegas, NV, October 23-26th, on Twitter @ #baforum!
If using analytics in the Office of Finance isn’t particularly new, the kinds of analytics now available to finance professionals most certainly are. Finance still builds budgets and closes the books, but now it’s in areas such as model-based forecasting, advanced fraud detection and portfolio optimization where Finance professionals are finding new sources of value and competitive advantage. Here, I speak to Miles Ewing
and Scott Wallace
. (Download the podcast version
Miles is partner in Deloitte’s Finance practice and leads Deloitte’s Integrated performance management practice
in the U.S. Scott is a Director in Deloitte’s Risk Information practice
and leads the U.S.-Cognos Alliance Relationship.Analytics can mean different things to different people because you can do so many things with them. Can you explain how Deloitte defines analytics for its clients? Miles Ewing:
Analytics is a very broad term, and from our perspective they’ve been going on since humanity created fire and decided it was warmer to stand next to it than further away from it. But when we think about what’s different today, there are three aspects. First is the fundamental volume of data that’s available today. There will be more information created this year than in the past 5,000 years. Next is the speed at which we can analyze this data. If it took us 10 years to code the genome a decade ago, we can do that it in a week today with our processing power. Third, there’s the reach and breadth of the data. From social networks to sensing technologies there’s a dramatically broader reach.
These combine to give us an enhanced capability to look at both patterns in data and advise on specific individual transaction-level data. Because of this we can make decisions either at a higher level or lower level that we weren’t able to do in the past. And it’s that combined capability and bringing those disciplines to business that is really where Deloitte defines analytics. Scott Wallace:
More tactically speaking, it's really bringing what used to be back-office functions – either with your statisticians and actuaries - into the front office, where Finance professionals can use capabilities to do this analysis on their own. There’s an ability to do more with analytics tactically than before that’s bringing it to life. Deloitte has different analytical disciplines. Can you provide us with some examples?
We break analytics into three areas. The first is core analytics – from basic variance analysis in your budget to the analysis that goes into your external reporting. It’s not just in your traditional FP&A group, but the analytics in your tax department, treasury, investor relations and operations. Companies have been doing that for a long time will continue to do so.
There are two things that are new. The first is where Finance teams are taking advanced analytic methods such as model-based forecasting - algorithmic-based forecasting, advanced fraud detection or portfolio optimization - and bringing those capabilities to their core, either to improve the efficiency and accuracy of these functions, or to add a different way of looking at it and get more bang for their buck on the core analytic side.
The second area is what we would call Finance-supported analytics. And these are areas where Finance is bringing its cross-functional capabilities to the problems faced by other parts of the business, be they in supply chain, procurement, IT or sales and marketing. What we see here is Finance taking a cross-functional view of the situation and coming out to support things like pricing, or vendor spend analysis or technology investment prioritization. These are areas where because of the reach and speed of data, Finance can support decisions at the micro level and provide better, more effective decision-making in those functions in a way that they couldn’t in the past. Scott Wallace:
It’s been core to Finance for a long time to have access and visibility across the organization. The CFO and his or her team need to be aware of what’s happening in other parts of the organization. What you’re seeing with analytics is that coming together and making it more meaningful and more impactful to the organization. Lately we’ve have a lot of requests from our clients asking how to integrate their sales or operational planning with their financial planning. So not only has Finance typically taken a cross-functional view, now there’s a demand pull for that view across organizations because of the capabilities of the tools and the data availability.What areas of Finance need the most help?Scott Wallace:
As you read the different literature around Finance and analytics from firms like ours and from the academics, they’re really pushing the envelope on how to become a more value-added function using analytics; yet many organizations are still fundamentally trying to fix core processes. I do see a continuing demand and convergence in the area of forecasting. That’s where you’re seeing this convergence of the analytic capabilities and when you think back to what Miles said about the different kinds of analytics, the ability to have insight into other functional information and data, and then how do I move that kind of information into predictive forecasting – identifying those real key drivers of the business across the functions that I can model based on historical data, based on external data, and start to have more confidence in my ability to predict the future financial performance of the company. That’s where we’re asked to provide help.Miles Ewing:
Companies are at very different places. Some are still trying to get the core right and they need to get that set first. Organizations that have been unable to get that core right over the past decade will find it difficult to really advance into that support. They may lack credibility as analytical leaders in their company. Focusing on that core becomes increasingly urgent for them.Where does the demand for analytics come from? Is it from a CFO setting out a new vision, or does it come from the bottom up? What trends are you seeing?Scott Wallace:
Right now we’re experiencing lot of top-down demand from the CEO and CFO. A lot of it is borne of frustration – despite all the data they have in their ERP and their more advanced operational systems they still don’t feel they’re getting the right levels of transparency and insight. Also, because of the influx of information about analytics and tools and methodologies and success stories they’ve seen, CFOs are really asking themselves how they can continue to grow their relevance within their organizations. They’re really pushing on analytics. Deloitte has six guiding principles for getting started with analytics. Can you outline them? Scott Wallace:
First off, link your goals and objectives with clear business drivers
. If you’re going to use analytics, make sure they tie to your existing strategies or other initiatives you have inside and outside Finance. Ask yourself: What am I really trying to do? What are the competitive differentiators I’m trying to find in my data set?
The second is to know your data
. Many of our clients have a good vision. They know what they want to do and how to tie their analytics together, but they run into data issues because the data isn’t in a single location or it’s not clean enough to provide the right insights.
The third is to start simple
. Analytics needs to be something that can be accepted by your organization. Pick an area where there’s a need or pent-up demand. Stay focused on that area, get the numbers right and get them delivered properly. Build the confidence within your leadership team that the predictive capabilities and outcomes you’re providing make sense.
The fourth is to leverage existing insights
. If you’ve got programs under way – customer analysis programs, working capital analysis programs, for example – look for ways to enhance them using insights you can get from analytics. How can you better project things that are already being looked at by the organization? You’re adding insight to a point of view that’s already being used in the organization.
organizations seek the best ways to respond to a volatile marketplace
that can change on a dime, the functions that were once the purview
of finance organizations, such as enterprise planning, budgeting,
forecasting and analysis, have spread to other parts of business,
such as business units and organizations. This is because financial
performance management – led by Finance -- has become increasingly
strategic in organizations, regardless of their size or market
initial deployments might have once been focused on Finance,
companies are tending to deploy performance management solutions more
broadly in organizations. Therefore, performance management is
rapidly migrating from finance to executives and everyday business
users, who are taking on more and more responsibility for financials,
analytics, planning/budgeting, risk analytics, and reporting on these
processes, such as profitability analysis. Additionally, many
companies that have successfully implemented these financial
performance management (FPM) solutions, such as a planning solution
or a financial controls, would now like to integrate these solutions
with other FPM software and technology for a more complete solution.
maximize the value obtained from either putting financial analytics
in the hands of this new, wider audience with a common planning
platform or from greater FPM solution integration, finance
departments are challenged with managing and supporting these new
tools and capabilities for numerous divisions, regions and functions
and making sure that they work together. (See related article in this
blog: “Financial Performance Management & The Agile Enterprise: Two Sides of the Same Coin,” by Tim O'Bryan) Processes
that were already in place to manage spreadsheet sharing and review
and manual processes are no longer sufficient. Developing an
enterprise-wide initiative with standard technologies and processes
that allows for extensions of current implementations is critical,
and a Finance Center of Excellence (FCOE) can provide the reusable
knowledge, disciplines and best practices to make these financial
performance management initiatives possible.
for an upcoming posts on this topic, which will feature:
Benefits of a Finance Center of Excellence
Driving Development of FCOEs Today
Range of Functions and their Activities
for Success Beyond the Basic Activities
Experiences with the FCOE
The global economic crisis, which began with the U.S. housing market’s nose-dive in late 2007, continues to burn brightly across nations far and wide. This financial meltdown has served as a jack-hammered catalyst for corporations today to re-evaluate their risk management practices – assuming, of course, they had one in the first place. Most didn’t. Apart from very large, globally diverse corporate behemoths, formal risk management practices didn’t really exist outside of the top-level business strategy sessions conducted between CEOs, CFOs, and other members of the executive team.
Until recently, boards of directors were simply there to listen and learn what the strategy and execution plan was. Not much more was asked. Part of the problem was that back in the day – let’s call it pre-crisis – having some celebrity status for board membership was de rigueur. That’s all gone, of course, in the name of being more legally accountable in their roles where board members are actually looking after the business in ways unlike before. (There’s a famous story about a Goldman Sach-delivered board presentation where Gerald Ford stopped the presenters and asked, “What’s the difference between revenue and equity?” …He was our U.S. president at one time. Ouch.) Yes, now boards are more actively involved in the business including taking an interest in not only the business strategy, but also what the risk assessments are for it and how they’re going to be mitigated, including the next-step plans to address them in the unlikely event they come to fruition. For all of these reasons, risk management practices arebecoming more pervasive and universally adopted by organizations, both large and small. These companies are expected to meet the demands of an uncertain and ever-changing marketplace not to mention evermore interested (read activist) shareholders, regulators, compliance hawks, and don’t forgot those employees. Yes, regulatory measures like Sarbanes-Oxley, Basel II, Dodd-Franke and other forthcoming reporting requirements have pushed companies to throw much greater rigor around how they’ve planned and executed their responses to risk events. Companies now are adopting risk management strategies to assess, manage, and mitigate strategic, operational, and functional risks in all shales and sizes. A formalized risk management framework is no longer optional or a nice-to-have.
Still, many companies are way behind the curve. According to risk management trade organization RIMS, only 17% of organizations have implemented company-wide risk management to look at risk categories like operational, legal, financial, compliance, IT, strategic, market, and health and safety risk in total – not in siloed isolation lacking an “enterprise view”. To a large degree, internal audit has been commonly given ownership of cross-organization collaboration.
If you’re in the camp that hasn’t implemented a risk management strategy or is only doing it in some, but not all, areas of the business, consider placing more (or some) focus around strategic risk management. Reason being is that according to the research firm, Corporate Executive Board, 70% of the risks that cause the most harm to corporations are strategic risks.
What is strategic risk, you ask? Well, it’s any risk whether it exists today or may crop up in the unforeseeable future that could force the company to change, modify, or overhaul its business strategy forcing it to change the way you do business. RIMS defines it as “a business discipline that drives deliberation and action regarding uncertainties and untapped opportunities that affect an organization’s strategy and strategy execution.” Still too ambiguous? Well, think of it as defining what risks could be applied to your company’s product lines, M&A actions, economic conditions, overall business model, or baseline assumptions that come into play when defining the business strategy. This is one reason bringing the risk team into the business strategy sessions is essential. The Risk Management team (or their leader) needs to have a seat at that table. More often than not the CFO, given his or her management of financial and operational risk, owns strategic risk. Gone are the days where the CFO is simply in charge of reporting prior year numbers – long gone. In this case, CFOs are the overseers of risk while delegating the task of ‘selling’ the concept to departments outside of finance.
It was reporting in a 2011 Accenture survey that 39% of the organizations surveyed said that risk managers have a seat at the company objectives-setting table; In 2009, it was only 27%. It’s getting there but needs to be at 100%. Rome wasn’t created in a day but headway is being made.
In summary, if you’re new in adopting a formal risk management strategy, given that 70% of the risks that cause the most harm to corporations are strategic risks, take a look at starting with strategic risk management. Then, attempt to apply financial metrics to these risk events and how they align with your business plan. You want to be asking questions that look at your strategic assumptions, specifically what if they’re wrong. An example is, what if you’re expected EPS growth is X% over the next 5 years…Ask yourself, what’s stopping the company from getting there? Also, try setting up a risk committee to review the risk events in question and explore the outcomes and the company’s response(s) to these events. Don’t take this on yourself. Tackle strategic risk first.
Meanwhile, check out IBM OpenPages too to see if it might be able to help get you where you’re going. IBM OpenPages is part of the Business Analytics for Finance platform that includes our first-rate solutions, including IBM Cognos TM1, IBM Cognos FSR, IBM Cognos Controller, IBM Cognos BI, and IBM SPSS.
Check out my other posts, podcasts, and videos @ http://ibm-business-analytics.com
“He who hesitates loses.”
The ugly truth of this phrase rings true in the case of battles that
never occurred in the American Civil War. For those unfamiliar with
this war the American Civil War occurred during the mid-1800′s from
1861-1865 on U.S. soil. It was fought between the North (Union States)
and the South (Confederate States) and was primarily triggered by the
election of Abraham Lincoln in 1860. Its definitive starting point
occurred on April 12, 1861 at 4:30am when the first Confederate shot
hurtled into Fort Sumter, a Union stronghold, sitting at the entrance to
the harbor of Charleston, South Carolina.
The conflict continued until a final peace was made at Appomattox
Court House on April 9, 1865 between Union General Ulysses S. Grant and Confederate
General Robert E. Lee. At the outset of the war, the North was better
organized, better equipped with a much larger conscription of troops not
to mention having far more resources at its disposal than its southern
counterpart. Despite the South’s opening victory at Fort Sumter, a
largely symbolic victory for the South, many predicted the North would
prevail swiftly and decisively. In 1861, President Lincoln was
resolutely confident that a string of Union victories as they marched
their way from Washington, D.C. to the seizure of the Confederate
capital of Richmond, Virginia would be enough of a blow to the Rebels
that the Confederates would be forced to give a total surrender. The
key for this surrender to be given though was that the Northern Army
needed to move quickly from their current position in Washington, D.C.
down to Richmond to dismantle the South’s capital and central command
post: without the shepherd (Richmond) the sheep (Southerners) would lack
direction forcing an end to the war. All pointed to an assured victory
for the North. Or so it seemed. “On to Richmond!” was the northern
cry. Lincoln gave the job of leading the Union Army to General George
B. McClellan. McClellan was revered for his many talents. Smart,
pedigreed, and more than capable, McClellan had the trust of all
Northerners. March to Richmond, plant the Union Flag and McClellan was
assured to be a hero. As I mentioned earlier, no battle never fought
was ever won. Despite overwhelming odds in his favor and indisputable
evidence that his army far outnumbered the Southerners, General
McClellan repeatedly hesitated to march his troops into battle against
the Confederate army which stood between him and his ultimate objective,
Richmond. The Confederate capital at the time of his hesitations was
literally within McClellan’s sights but he never made it there because
he failed to act. Instead, after a few defensive squirmishes with
Southern forces and despite multiple requests from Lincoln to fight,
McClellan all-too-eagerly retreated hat-in-hand back to Washington, D.C.
giving up ground to the South’s General Robert E. Lee who made an
aggressive march northward to Antietam into Northern territory. What a
turnabout. I wonder if this is what prompted Lincoln to later say, “I
can make more generals, but horses cost money.” Obviously, Abe had to
mind his dollars and cents now given that this would be a long and
My point isn’t to denigrate the character of General McClellan. Not
at all. He did many exceptional things in his life of which he should
be proud. What I mean to do is to illustrate an example where sitting
idle, even when there’s overwhelming evidence to support taking that
action, is a missed opportunity. We’ve all done this in one way or
another. We wait to act. It happens to the best of us. A lot of times
taking action on something means change from the norm and, regardless
of the ultimate benefits, we can resist that change because, well, it’s
change. These reasons alone are what cause a lot of people to hit their
personal pause button and not do anything.
look at this from a different perspective. Have you ever had your
master bathroom redone? If so, then you’ll know what I’m talking about.
Tons of benefits here. Maybe you’d be getting a new jacuzzi tub, a
nice steam shower and even more cabinet space not to mention your own
sink this time around… Still, most resist a project like this because
it’ll mean losing your bathroom for quite some time before it’s ready
for prime time. Big benefits to upgrading your bathroom but there’s
certainly going to be some inconveniences (read change) before it’s
No matter how necessary the project is whether it’s redoing your
master bathroom or marching regiments of 100,000 men into enemy
territory don’t let the forces of hesitation get the best of you. Yes,
there will be initial adjustment pains as you go through the process but
keep your eye on the ultimate prize – and, when applicable, make sure
you’re keeping everyone else’s eye on the prize too.
If you see measurable benefits justifying an investment in something,
try to see the benefits beyond the initial ramp up time and just go for
(Shameless plug) If you’re thinking of deploying Business Analytics
solutions to enable critical business processes at a minimum take stock
of what the possibilities are. Look at your processes such as the
…take stock of what the best practices are in one or two of these
areas and see how your company measures up. Perhaps this is an
opportunity to drive a planning & analytics optimization initiative
across finance and the rest of the organization (Check out IBM Cognos TM1). Or, maybe you want to look at automating your financial statement reporting practices (Check out IBM Cognos FSR), or even review your risk management practices (Check out IBM OpenPages).
Look at the processes first. See what’s preventing these processes
from being at a best practice level. There could be many reasons for
this. After you’ve done this take a look at the enabling solutions that
are out there that address these processes. Whatever it is don’t
hesitate because there might be some additional work in the
investigation phase or in the technology implementation phase because,
once it’s up and running, you’ll be glad you did.
The measurable benefits in adopting these solutions, such as
automation, embedded controls, workflow management, minimal
administration, etc. which allows for higher frequency forecasting,
stronger analytic capabilities, access to real-time reporting, effective
scenario analytics, best-in-class predictive analytic capabilities,
rigorous statutory reporting & risk management enablement, etc.,with
you championing the project can be your path to success while the
organization benefits from the bottom line ROI. Everybody wins. You
can become the figurehead for it too because you acted on it.
“Fortune favors the bold”.
What if you knew tomorrow’s winning lottery ticket number? Imagine the possibilities. Quit your job? Travel the world? Buy that convertible Bentley you’ve always wanted? Addition to the house? Pay off those nagging debts? Think about the impact of knowing what a stock price will be next week, or knowing when your car is going to break down, or exactly when your roof is about to start leaking? Better, what about if you had early insight into your future health condition? Now, wait a minute! Something seems different here. With regard to the winning lottery ticket number that seems a lot more unpredictable than say, picking a stock or determining when your car is going to break down not to mention forecasting potential health concerns. It certainly is different. I’m sure you can guess the difference between predicting the winning lottery ticket number and the other examples. I’ll state it anyway. It’s because in these other examples we can draw from historical data, analytical research, individual’s input based on their experience, and a vast array of data to more accurately determine what is likely to happen. Once you know this information you can begin to do some planning for these possibilities or scenarios. Seems pretty logical, right? We know how much information is being captured today by companies about their customers, employees’s insights, internal operations and external market conditions that there’s obviously not a problem with lack of data to do this predictive analysis. Yet, in a lot of companies today this practice does not happen with regularity. Companies aren’t using their most valuable resources available for forecasting – their people and their data – to develop this in-house capability.
Look, I don’t need to tell you the advantages of knowing what’s likely to happen and how an organization can exploit this knowledge. If you’re an investment bank in 2006 and have a large amount of CDO’s and mortgage-backed securities on your books it might have been helpful to hear from these traders and other knowledgeable people in your operations that these speculative instruments were bound to go belly up. In hindsight the information was all there but there wasn’t a culture in place to gather this feedback. Prescience. Only helpful to the enterprise if there’s a platform in place to capture these insights and communicate them up the corporate tree so all are aware. Without this kind of enterprise forecasting platform the enterprise won’t die…not overnight that is. But, in the long run, it might suffer from multiple missed opportunities which could lead to a slow death by a 1,000 cuts.
The more unbiased participation you can glean from the relevant stakeholders and knowledge experts the more likely you’re going to be able to predict what will likely happen. The key is reaching out into your workforce across functional areas, remote operations, corporate support units, to gather feedback as far out into the future as they can most accurately predict with some likelihood which can then be leveraged by business unit managers, executives and other stakeholders to make decisions NOW based on this feedback. If you know something’s likely to happen in the future, say a hurricane, are you going to remain in your home if your home is in the hurricane’s direct path? No, of course not. You’re going to do everything you can to save all of your earthly possessions – maybe even your home, if possible – and get out of there. You’re acting now. Not waiting for the day of the hurricane to do something about it. This is the basis for business forecasting.
Only in obtaining honest, unbiased feedback from your workforce will you be able to trust this information to take action on it. If it’s not unbiased – meaning the figures that are produced from this effort were top-down dictated (think sales manager telling their sales rep what their next quarter’s sales figures MUST be vs. what this sales rep believes the figures WILL MOST LIKELY be – it ends up with little use for decision making. It becomes a performance contract.
This is not your mother’s forecast. You should not be repeating the same process you’ve gone through in your annual budget cycle. This forecast process has a different intention (insights for decision making) than the budget (annual objectives typically tied to performance contracts) and therefore needs to be designed and administered differently than the budget. With a forecast, benefactors of this process include more than just the executive management team but also the actual contributors to the forecast and their managers. This is because there’s now a formal means of submitting honest and real feedback about what’s really coming. Managers can then take that information and have a real discussion about the difference between what the direct report said was likely to happen and what the targets are. That gap between the two is where the real golden nugget of value exists in delivering a forecast. This changes the conversation from “this is your target, now go get it done” to something like “your targeted number which we captured in the annual budget is different than your newly forecasted number for the same thing…let’s discuss this difference and see how/if we can make up the shortfall”.
Think of the Titanic and the benefits of an early detection system. Would it have been helpful to identify that fatal iceberg well in advance of its arrival??? Duh. It was later learned that the captain of the Titanic saw the hulking iceberg well before the actual impact but, because of the sheer size of the Titanic and how much open sea was needed for it to veer off course, it was too late to veer away. This is just like your business. If the Titanic knows that it can only change course with at least 500 yards of open sea in front of it then the captain should at least be forecasting and re-forecasting in increments of 500 yards because that’s the space it needs to react. Otherwise, we know what can happen. Your business forecasting time horizon and the frequency which you update the forecast, or re-forecast, should be planned similarly.
Other related resources:
Execution: The Discipline of Getting Things Done by Larry Bossidy & Ram Charan
Implementing Beyond Budgeting by Bjarte Bogsnes
Switch: How to Change Things When Change Is Hard by Chip & Dan Heath
Lastly, don’t let the perfect be the enemy of the good. There’s no simple way to go about doing this right. Every company is different with its own politics and culture. The key is to get started with some small wins and build from there. I’d suggest you start in an area of the business that could benefit from a forecast more than others. What department needs the most help? Partner with IT and/or Finance depending on where you sit in the organization and make it happen. Get a quick win and expand. Baby steps.
Business Analytics software @ IBM
http://provenpractices.wordpress.com ("Business Analytics Today!")
The evolution of the CFO from cost extractor and compliance enforcer whose primary concern had been to ‘manage the numbers’ into providing strategic support and organizational leadership helping drive profitability and growth for the enterprise certainly didn’t happen overnight. There’s been a series of events over the years driving this change, including the advent of Sarbanes-Oxley (Think Enron/Arthur Andersen/Worldcom) to today’s Dodd-Frank as well as greater internal and external demand for performance data. In addition, there’s increased CEO and board interest and oversight into the ‘World of the CFO’ where board members require more than just a simple view of the annual operating plan; They want it all now given that they have to put their John Hancock on documents like no time before. (The threat of a little jail time for malfeasance has a way of getting people to sit up straight and pay closer attention too.)
Given the CFO’s more strategic role and influence in companies today it’s no surprise that the entire finance function’s visibility and criticality requires more demands on it too. In an ideal world, the CFO’s finance department has its eye on implementing best practices to streamline inefficiencies and error-prone efforts. Yes, implementing best practices sounds good on paper but the common response I hear from finance departments concerning why they’re not being adopted right now makes me think of the Beach Boys’ tune, “Wouldn’t it be nice…if we only had the time.” (Note: Click that link if you want the actual Beach Boys song playing in the background while you read this post.)
Still, I’m consistently hearing that the goals for CFO’s and their finance departments remain the same. They are:
- Linking financial to operational plans
- Guaranteeing the quality and accuracy of financial numbers for timely, sustainable compliance
- Tracking individual performance against strategic objectives
- Performing “what if” scenario modeling and creating flexible rolling forecasts
- Replacing their rigid budgets with continuous planning
Does this ring true with you too?
To read the remainder of this blog please click here
“Get your house in order.” This expression is referenced everywhere. I hear politicians repeatedly using it: “Before we start talking new taxes or entitlement reforms we gotta get our house in order.” Sports figures too: “We had a great practice today but, before we think about competing for the division title, we gotta get our house in order.” Celebrities aren’t immune from invoking it either: “Like, I totally want to hit the party scene again but, since I like just got out of rehab, I like think I need to lay low and totally like get my house in order first. One more thing…do you know where I can get a drink around here?” Okay. Maybe that last one’s a stretch.
Relating this expression to the processes owned by the finance functions at corporations, the house that most often needs to get in order is the Close, Consolidate, Report & File process, or CCRF. The timeliness and accuracy in this process is pivotal for company survival. Still, many companies struggle with this process for many reasons. Some of these reasons are that businesses are still using multiple opaque and rigid systems lacking any integration capabilities to seamlessly align each of the activities like the required disclosures and governance of financial statement reporting. Also, and most frequently, there are poorly trackable and error-prone manual inputs or overrides to the data as spreadsheets and stand alone documents are often used in this process. A lot of companies are using out-of-date and misappropriated tools without any audit-able workflow management system. This time consuming, labor intensive approach leads to unnecessary delays completing the CCRF process in a timely and reliably accurate manner. As a result, there’s little trust from the business users that these performance results are indeed accurate. Therefore, the figures become largely ignored by the business users rendering them useless for business insight. This leaves the workforce normally relying on these results to help make their strategic decisions forced to act on their gut or intuition. Not good….and I haven’t even gotten into the ramifications of disclosing incorrect information to regulators or shareholders!
The Close, Consolidate, Report & File Process
FINANCE: LIKE THE MYTHOLOGICAL ATLAS THEY’VE GOT THE WEIGHT OF THE WORLD ON THEIR SHOULDERS BUT LACK THE MUSCLE TO HOLD IT UP
Finance departments are already overburdened with newfound regulatory, compliance, and financial reporting requirements not to mention new disclosure expectations and the forthcoming global XBRL initiative while being pushed to be more analytical and insightful about “what the data is telling them” in regards to critical business impacting activities like market analytics, customer profitability, predictive analytics, scena
rio planning, etc. Yes, the rising water level of requirements falling under their purview shows no signs of abatement. Yet, empirical research backed up by the likes of The Hackett Group, APQC and the IBM Global CFO/CIO Studies, shows that these finance departments continue to shrink in size relative to revenue at a time when they should be growing. What’s wrong with this picture???
In summary, Finance is facing external pressures from the following:
- Volatile and uncertain economy,
- Compliance with new regulatory and financial reporting requirements means increased workloads,
- New disclosure requirements and global XBRL mandates means more work within tight time frame,
while having to respond to internal pressures from the following:
- Evolving role of CFO and the Office of Finance
- Need to liberate finance professionals from manual and complex processes
- Executive management needs timely and accurate reports to respond to market opportunities in very short time
Changing Events & Regulations Since 1999
THE ANSWER: AUTOMATION THROUGH AN INTEGRATED SOLUTION
A controlled, automated, audit-able CCRF practice is required for finance to be doing the right things. Finance teams are re-engineering their financial close processes to individual close, consolidate, report & file activities. To manage and monitor these processes, they’re investing in integrated solutions that can automate these activities into a unified, secure solution. Implementing this integrated CCRF solution provides instant benefits by automating administrative tasks with embedded controls to allow finance to focus on analysis and other high-value activities. CCRF practices are no longer simply about closing the books, consolidating the data while running inter-company eliminations, minority interest calculations, and currency translations to come up with ‘the numbers’ before finally publishing them out on some financial reports. No, there’s additional disclosures and financial governance required. To get ahead of this one you’ve got to implement a CCRF system to manage it all else the levee will break and we know what happens then.
Find out more about how to automate this process because it’s not going to shrink in requirements. So, get that house in order or I’ll invite that celebrity I referenced earlier over to your house for dinner. :)
IBM Cognos Controller, IBM Cognos Clarity FSR, and IBM CognosBI solutions seamlessly manage this entire CCRF process end-to-end. Take a look.
The core FPM processes are:
- Close, Consolidation, Report & File
- Profitability Modeling & Optimization
- Planning, Analysis & Forecasting
- Performance Reporting & Scorecarding
- Governance, Risk & Compliance
Next in this series covering Financial Performance Management we’ll focus on #2 above, Profitability Modeling & Optimization.
Director, Customer Programs, FPM
Business Analytics Software
Blog @ http://provenpractices.wordpress.com