What gets measured gets managed, or so the old adage goes, so as finance professionals, what should we be measuring when it comes to the Record to Report process?
The first thing is to understand what we are trying to achieve. The end goal is to prepare and report the overall accounts of the business to provide strategic and operational feedback on how the company is performing.
However, there are a number of sub-processes that go into achieving this, and to be able to give this feedback on company performance effectively, these individual processes need to be measured both separately and as a whole.
As Gartner states “When considering the automation and unification of critical financial processes, such as account reconciliations, compliance and Financial Close, the whole is greater than the sum of its parts. These activities are highly dependent on each other and, when unified, create new insights and return on investment (ROI) savings.”
Often, companies focus the majority of their attention on a single control, that being their reconciliations. While there’s no doubt this is a key control, it’s not the only one and if you are simply focusing on any single process without thinking about the context of the overall financial close, you risk missing the point about why you are doing those activities in the first place. Remember the end goal: To prepare and report the overall accounts of the business to provide strategic and operational feedback on how the company is performing.
So, what metrics are important when it comes to the Record to Report process?
- Metric 1: P/L Exposure – This metric gives you an indication of your risk exposure. Uncorrected, it gives an indication of the impact on the profitability of the business and is key to understanding the overall health of the accounts.
- Metric 2: Process Cost – This identifies the cost of managing the entire R2R process as a percentage of the total revenue. If your processes are in silos you may be able to work out the cost of each, but it is only by looking holistically across the whole R2R process that you can calculate and, in turn, manage these costs effectively.
- Metric 3: Time to Close – A few years ago people became somewhat obsessed with days to close and because what get measured gets managed, we have seen the average number here reduce considerably. It is still a useful metric, however, it just needs to be approached with caution when used on its own and is more relevant when viewed in conjunction with metrics around cost and resources as well.
- Metric 4: Close Quality – To view the overall quality of the close, this is a function of all the previous metrics and their deviance from the target. By understanding the risks, costs and time to close you can get a holistic view of the whole record to report process and reduced rework and expense.
To find out more about these metrics, and others relevant to each sub processes, please click on the banner below to download our eBook that outlines how the metrics are recorded and why they are important.