Process Improvement Involves Benchmarking… But Benchmarking What?

record-to-report benchmarkingIt may seem obvious, but in order to bring about process improvement, an organization needs to set objective benchmarks against which progress, or the lack of it, can be measured. But many businesses are surprisingly reluctant to establish benchmarks.  And then there is the thorny question of what sort of benchmarks are appropriate for the Record-to-Report process.

External observers have relied for many years on relatively rudimentary measures such as, the time taken after the year-end close to report earnings results to the market, or the days taken for the auditors to sign the financial statements. Such measures are often deemed to be a good proxy for the quality of management.  But are such measures really appropriate?

What does the speed of account delivery really tell us about the financial governance process and the efficiency of the resources involved?  Deeper consideration suggests that simple measures such as these, merely provide a glimpse of management capability and say very little about the efficiency of the reporting process and how it can be improved.

Measures such as “days to report after the year-end close” are too blunt a tool because they do not take into account the resources deployed in reporting. In other words, they are velocity measures not efficiency measures.  So what is a better measure?

A good place to start is the number of “man-days per entity” because contrary to popular opinion it is not necessarily group revenue that drives R2R complexity but the number of discrete statutory and management entities that need to be consolidated (although there are other factors as well). The benefit of this KPI is that it gives an immediate indication of the effort expended in the reporting cycle. And, once recorded, this can form the benchmark against which the success of all performance improvement initiatives can be measured.

More to come on Record-to-Report Benchmarking…

read our previous blog on Record-to-Report Benchmarking.