The closing process – a trade-off between complexity and velocity

On a regular basis, the financial development of an entire banking institution is to be reported to the capital market, creditors, regulators, management and numerous other stakeholders. However, the complexity of the underlying requirements to do so is steadily increasing – an excerpt:

  1. External requirements, such as IFRS 9, BCBS 239 and IFRS 16, require an even closer integration of all the departments involved in the closing process (e.g. accounting, risk management, regulatory and bank steering/controlling).
  2. Internal needs for increasingly detailed information that enable decision-making require transforming the finance function from a reactive scorekeeper to an active business partner.
  3. Obsolete systems and associated cost structures cause digitalization pressure to carry out the closing activities efficiently in the long run.

Fast Close – back to the 90’s? On the contrary: Six new perspectives!

Efficiency, flexibility and simplicity are well-known buzzwords that were already used years ago to propagate the concept of Fast Close. But what has changed?

Digitalization has created new ways of thinking, new business models and new technologies which make it worth to re-assess the digital optimization potential of the closing process. The following six perspectives form the methodological framework to perform a revaluation along the areas of accounting, risk management, regulatory and bank steering/controlling.

Figure 1: The six perspectives of the Closure Framework

(1) Sourcing – what is the value-add of the individual closing activities?
High value-added activities (e.g. accounting policy decisions) need to be supported by digital technologies. Those activities with low value-added (e.g. various ledger closing activities, reporting) need to be automated or outsourced.

(2) Data enablement – do you use your data’s full potential?
A central data warehouse is the baseline to meet new regulatory or internal requirements (e.g. efficient steering of your business). The focused management of structured data paves the way for advanced analytics, data mining and predictive modeling.

(3) Process digitalization – how does digitalization become tangible for your employees in day-to-day operations?
Robotics enables functional departments to easily automate standardized and highly repetitive activities (e.g. reconciliation) – robots avoid human errors, reduce lead times and ultimately free up time to focus on high-value added activities (e.g. analysis to create true insights).
Artificial intelligence allows the digitization of even more complex processes such as managing unstructured data, forecasting or decision-making itself.

(4) Integrated reporting – how independent are your business users?
Equip your business users with the necessary tools in the course of a self-service BI approach. Many of the steps required to prepare decisions can be carried out via drill-down and slide & dice functionalities.

(5) New technologies – are you a bank or an IT service provider?
New technologies create new opportunities for a bank’s IT infrastructure: Cloud technologies, for example, enable a cost-efficient and scalable platform approach. The degree of utilization is defined based on your individual requirements and ranges from outsourcing simple infrastructure services to obtaining a fully-fledged software as a web service.

(6) Governance and mindset – do your internal stakeholders share the same goals?
Transparently defined governance structures and properly specified KPIs are the baseline to efficiently manage the end-to-end closing process. The consistency of the bank’s overall goals and the individual’s objectives can only be ensured by linking the individual’s KPIs with corresponding incentives and other performance-related measures (e.g. gamification of the entire MBO process).

Where to start? – understand your status-quo, avoid pure activism!

Robotics, cloud, integrated reporting and many other of the mentioned topics above are on a today’s typical CFO agenda and offer a broad selection to initiate digital initiatives – avoiding pure actionism is now key!

Instead of following general market trends, capturing the digital maturity of your individual closing process is the first and most important pre-requisite and the baseline to define digital initiatives. Hence, our approach provides the following essential steps to identify the optimization potential relevant to your organization: SCAN, FOCUS, ACT.

Figure 2: Our approach – SCAN, FOCUS, ACT

It is essential to start with an individual assessment to define tailor-made, strategic initiatives which optimize the value creation of your closing process in the long run and avoid value-free change and operating costs.

Your investment? A few hours work for your stakeholders to populate a questionnaire, one or two focus interviews and a prioritization workshop. Based on our broad expertise, we will provide you with an excelling solution for your digitalized closing process. Therefore: contact us, let’s jointly obtain the status-quo and shape your individual path.

What’s next?

With the „Digital Maturity Assessment“ of your closing process and the derived initiatives you’ve already set the foundation for a Fast Close 2.0.

But how does the optimal closing process look like? What are the impacts on the current operating model? And most importantly: when are the first results tangible for the employees and the management? More about this in the next blog article.

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Co-Author: Nikita Weber