The Financial Controller and CFO's Toolkit

Lean Practices to Transform Your Finance Team

David Parmenter

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119291329
• Edition: 3
• Topic: Business
• Subtopic: Managerial Accounting
• Index: Business

Simplify and streamline your way to a winning legacy

The Financial Controller and CFO's Toolkit is a hybrid handbook and toolkit with over 100 lean practice solutions and a wealth of practical tools for senior financial managers of small, midsized and large companies. This book outlines the mindset of paradigm shifters relevant to future-ready finance teams, and contains guidelines on how to become an effective change leader. Guidance from world leading expert David Parmenter provides the insight and tools you need to reach your true leadership potential and achieve more for your organization. Packed with templates and checklists, this book helps you adhere to the best practices in reporting, forecasting, KPIs, planning, strategy, and technology. The companion website—a complete toolbox for positive, entrenched change—gives you access to additional resources that reinforce The Financial Controller and CFO's Toolkit strategy.

This new second edition has been updated to reflect the latest practices and technology to streamline your workflow and get more done in less time—without sacrificing quality or accuracy. As an all-in-one resource for the CFO role, this book provides a clear, practical strategy for demonstrating your value to your organization.

• Selling and leading change effectively
• Get more accurate information from your KPIs
• Attracting, recruiting and retaining talented staff
• Invest in and implement new essential tools
• Investing wisely in 21 st century technologies

Report the month-end within three days, implement quarterly rolling forecasting, complete the annual plan in two weeks or less, and bring your firm into the 21 st century with key tools that get the job done. Be the CFO that your organization needs and the leader that your teams deserve. The Financial Controller and CFO's Toolkit gives you everything you need to achieve more by doing less.

Part I
Change—Why the Need and How to Lead

Chapter 1
Getting Your Finance Team Future Ready

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OVERVIEW

Many finance teams are far from being future ready. They spend long, frustrated hours working with antiquated error-prone systems—and to make it worse, they follow procedures because they were carried out last month. This chapter will take a brief look at areas the finance team can focus on to become future ready. It also explores how the lean movement affects modern accounting, the importance of Peter Drucker's abandonment, and why we should take Steve Jobs' advice and challenge the status quo.

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This book outlines how finance teams can help their organizations by getting their team future ready. By future ready, I mean a finance team that is fast and light on its feet and able to react quickly to events as they unfold. A finance team that is nimble through utilizing world best practices, and is an advanced adopter of leading-edge technologies. Finally, a future-ready finance team embraces modern people practices, abandons the ill-conceived management practices of the past, and is thus able to retain its talented staff.

Many finance teams are far from being future ready. How many finance teams today have:

• Fully embraced all the lean finance team practices?
• An annual planning process that helps their organization prepare for the unexpected?
• Successfully adopted the tried and tested leading-edge technologies available in the twenty-first century?

A BURNING PLATFORM?

Many finance teams spend long frustrated hours working with antiquated, error-prone systems—and to make it worse, they follow procedures because they were carried out last month.

Yes, indeed the platform is on fire, and we need to jump off right now. Many performance management processes that I used during my brief time with BP Oil, and helped support as a consultant for Ernst & Whinney, are well and truly broken. I am talking about key performance indicators (KPIs), the annual planning process, forecasting, using outdated technology, and, to round it off, slow month-end and year-end reporting.

These processes have not worked for years—and possibly never worked. The finance teams have presided over an annual planning process where management and the board are told the lies they wanted to hear. The finance teams have issued reports that often end up in an executive's briefcase, which, on their third return journey back to the office, are deemed as read.

There are now significant performance gaps between what CFOs see as important and their current proficiency in that area. In the 2015 IBM Global C-suite study,¹ CFOs were saying that the two most important areas for them were “Identify and track new revenue growth opportunities” and “Develop talent in the finance organization”. However, the biggest skill gap was with the integration of information across the enterprise, as shown in Exhibit 1.1.

EXHIBIT 1.1 The biggest performance gaps in finance teams

Source: IBM Global C-Suite Study 2015 based on approximately 600 CFO interviews.

REPORTING HISTORY OR MAKING IT

When Henry Ford said “You can have any color you like as long as it is black,” the world of commerce was a simpler place. The Ford company only had to work out its production capacity in a year and it could then estimate sales, having backed out the expected movement in inventory.

Large production runs, lengthy month-end processes, were the order of the day. Charles Horngren's “Cost Accounting: A Managerial Emphasis” and books like it were locked into detail and a view into costing, budgeting, and allocation of overheads that is directly opposed to the lean movement.

When I was studying commerce at Liverpool University I was taught well to deliver services that Ford might have needed when building the model T Ford. The accounting profession has learned many bad habits:

Area	Bad habit
Direct labor costs are variable	Treating direct labor costs as variable, yet we cannot go back to the Victorian times and hire staff on a daily basis.
Transferring operating costs to the balance sheet	Absorbing as many fixed costs into WIP and closing stock as possible, thereby transferring costs from the current period to subsequent periods.
Wedded to complexity	Installing one complex system after another (e.g., timesheets, work orders, detailed inventory tracking systems, and activity based costing).
Detail is good	Having a large chart of accounts with 200+ account codes for the P/L.
Slow month-ends	Overseeing a slow month-end reporting process as finance teams pursue the perfect number. Yet we are only required to get to a true and fair number, and the “right” month-end number does not exist.
Slow year-ends	Signing up with the auditors for a slow year-end accounts exercise with most of the finance team's time in the first quarter being spent endlessly adjusting the month 12 number. The final audited numbers often being within 5% of those reported at month 12. In other words, we have in reality come full circle.
Spreadsheet epidemic	A spreadsheet for everything, and most certainly, multiple versions of the truth.
Maintaining an annual planning process	Managing the annual planning process, believing that it must be of some use. Each year, thinking that this time the annual planning process...