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Finance & Performance
Management
NYIIA - Close Process Improvement and Leading Practices
March 28, 2008
Presented by: Gerald R. Roop
Discussion Outline
CFO Finance Agenda –
What CFOs are Doing
Leading Practices
Accounting and Reporting
Close Process Improvement
Performance Measurement & Management
What Other Companies Have Done – Case Studies
Getting Started – Close Process Assessment and Improvement Roadmap
Contact Information
Confidential to Ernst & Young 1
CFO Finance Agenda - Transforming Finance to better serve the organization
Efficient
Efficient Effective Systems
Effective Systems Right People and
Right People and
Processes
Processes and Controls
and Controls Organizational Model
Organizational Model
Fast close Operationalized controls Mission, vision and strategy
Organizational structure
Driver-based planning Data governance
Talent management
and forecasting One ERP, common COA Shared services/center of
Web-based self-service Centralized finance data excellence
reports and analysis warehouse and access tool Outsourcing/co-sourcing
The Right Strategic Alignment, Services and Value
Sources of earnings, variances, outliers Risk-adjusted profitability and returns
Key indicators, scorecards, dashboards Multi-dimensional profitability and analysis
Driver-based planning and forecasting Liability hedging programs
Managing under multiple-reporting bases Fair/economic value frameworks
Capital management Earnings and value-at-risk
Confidential to Ernst & Young 2
Leading Practices - First Things First – Accounting & Reporting
Many CFOs have started along the Finance Transformation path by making significant
Many CFOs have started along the Finance Transformation path by making significant
improvements in accounting, financial & management reporting.
improvements in accounting, financial & management reporting.
Characteristics Current Practice Leading Practice
1. Level of detail 4 - 6 Segments / Divisions, 3 - 5 LOBs Multi-dimensional profitability – Business Unit, LOB, program,
per Segment, many P/Ls, but ltd
product, channel, region, customer segment
product, channel, customer information
2. Timing / frequency 12 – 15 business days Fast actuals Day 3, Finalize Close & Reporting in 7 days
3. Accounting basis GAAP and Regulatory are GAAP & Regulatory simultaneously, fair value reporting
interdependent
4. Management basis Actual / Plan / Rolling Forecast
Actual / Plan
5. Source Integrated ERP (GL & data warehouse), common global
GL, database + extensive spreadsheets standards, standardized sources and accounting feeds
6. Performance Driver based measurement - metrics at each level (product,
measurement 5 – 10 metrics per LOB; business
drivers channel, customer), performance scorecard linked to Plan
7. Reporting and Consolidation pckg based reporting / Multi-dimensional reporting & analysis tool (OLAP), web-
analysis tool database of reports avail to users based, “pulled” by users based on individual needs
Confidential to Ernst & Young 3
Leading Practices – Close Process Improvement
Typical Reductions (Additions) to the Close Cycle = 12 – 25 days
Typical Reductions (Additions) to the Close Cycle = 12 – 25 days
Close Cash Basis Books in 1 Day = 1 - 5 Days Complete Consolidations in < 1 Day = 2 - 4 Days
Enforce cutoff - no holding books open beyond 1 day Implement ERP or consolidation package
Revise transaction flow and posting Use affiliate code to identify intercompany items
Implement early cutoff only where necessary (week, days, last Friday) Clean up consolidations COA and entities
Automate postings to GL Consolidation process owner - enforcement of process and schedule
Eliminate spreadsheet processing and JE support
Pre-close confirmation of eliminations
Streamline Accruals and JE Posting = 2 - 5 Days
Streamline / Prioritize Analysis = 1 - 2 Days
Automate / standardize accruals
Inventory and track accruals - all accruals booked Eliminate / defer analysis not essential to close
Enforce cutoff Enforce data and trial balance requirements
Enforce materiality limits based on timing Specify analysis and MD&A requirements
Automate postings to GL Implement Standard Reporting Template = 1 - 3 Days
Reduce Estimation Time for Reserves & Judgmental Items = 3 - 5 Days Specify reporting requirements and hold steady
Enforce deadlines Implement tool or package to consolidate reporting requirements
Top-down and bottom-up reserve / judgmental items process Conform report line items to trial balance level of detail
Rationalize analysis before and after loan loss, reserves and Eliminate differences between management views and public
judgmental item postings company views of data
Enforce materiality limits based on timing
Incorporate plan and forecast requirements into reporting template
Automate postings to GL
Implement web-based reporting tool
Streamline GAAP Accounting = 2 - 4 Days
Increase Plan & Forecast Info. And Reporting = (0 - 3) Days
Routininze GAAP accounting / journals
Clean-up recurring GAAP adjustments and opening balances Specify plan & forecast reporting requirements and hold steady
Standardize FAS 157 data, processes, analysis & disclosures Implement tool to determine plan & forecast and align drivers used in
Implement analysis and tools to capture GAAP data and prepare estimating to actual results
adjustments Deploy review process that incorporates performance scorecards and
Separate GAAP GL from Regulatory GL executive and business unit report outs
Confidential to Ernst & Young 4
Leading Practices - Performance Measurement and Management
As a result, many CFOs have implemented significant improvements and upgrades to their
As a result, many CFOs have implemented significant improvements and upgrades to their
performance management & measurement capabilities
performance management & measurement capabilities
Capability Historic Practice Leading Practice
Detail expense budgeting; Driver-based planning provides useful detail around sales,
1. Planning / Budgeting producer productivity, retention, loss & exp mgt, etc.; Simplified exp
Plan = Last year + uplift;
Multiple iterations (5-10) budgeting with tighter accountability; No more than 3 iterations
Driver-based rolling forecasts (6 – 8 quarters) are the primary
Annual process with
2. Forecasting results mgt vehicle; Fast actuals (day 3 - 4); Forecasts next day
absolute financial targets
using trends and driver-based models – all linked to business plan
Multi-dimensional profitability analysis across LOB, product,
3. Multi-dimensional LOB P/Ls are most channel, producer, region, customer segment; “Show me profitability
granular results reporting for A product, sold by B producer, in C region to D customer
Profitability
segment”
4. Performance Unit by unit measurement Enterprise wide dashboard tool and process; Consistent
Dashboards and metrics, not tied to measurement / metrics linked to driver-based plan and forecast;
plan Metrics available on a comparable actual – plan – forecast basis
5. Performance Documented management plan and results review process with
Management Review Focus on explaining actual
focus on forecast, drivers and “What has to go right at all levels in
Process to plan variances
the business to realize forecast”
Focus on complicated Rigorous discipline around managing spend and ROI; Capital
6. Capital Management and major initiatives require ROI, cost / benefit, payback period &
capital allocation to LOBs
value added delivery measurement
7. Financial Mgt & fin’l info. requires Finance data, information & reports professionally managed;
Information extensive reconciliation; Integrated GL & data warehouse; Automated reporting & analysis
Management spreadsheet reporting tools; Transparency between internal and external data is
sacrosanct; “One version of the truth”
Confidential to Ernst & Young 5
Discussion Outline
CFO Finance Agenda –
What CFOs are Doing
Leading Practices
Accounting and Reporting
Close Process Improvement
Performance Measurement & Management
What Other Companies Have Done – Case Studies
Getting Started Close Process Assessment and Improvement Roadmap
Contact Information
Confidential to Ernst & Young 6
A Recent Ernst & Young Study of the Close Cycle in Financial Services
16 Financial Services Companies
Leading Practice Average
Activities (Days) (Days)
Close cash basis books 1 2
Accruals and other adjustments 3 5
Actuarial valuation results available 3 6
Actuarial review and analysis completed 3 8
First close of GL / TB 3 8
First pass financials, review, analysis 4 8
Second close of GL / TB 6 9
Production of primary financial statements 7 9
Review and analysis of financial statements 7 11
Adjustments 7 11
Final close of GL / TB 7 13
Production of plan variance & forecast reporting 7 13
Production of management reporting 8 11
Production of external reporting 13 19
Confidential to Ernst & Young 7
Close Process Controls Focus
Reconciliation Substantiation, Ownership and
Monitoring and Review and
IT Controls and Evaluation, Fraud Segregation of
Reporting Approvals
Balancing Detection Duties
Key Activites / Processes
Transaction processing (revenues, expenses, etc.) X X X X X X
Accounting information interface (automated, manual to GL, DW) X X X X X
Suspense account processing X X X X X X
Close process schedule and preparation X X
Close cash basis books X X X X
Accruals, judgmental items (reserves, OTTI, etc.), taxes, etc. X X X X
Consolidation, FX, Fair Value, Disclosures, Accounting Policy X X X X
General ledger maintenance, chart of accounts, DW, reporting tools X X X X
Management review and analysis X X X X
Production of financial and management reports X X X X X
Business continuity planning and maintenance X X X
Confidential to Ernst & Young 8
Case Studies – Co. A - Improved and Accelerated Close
Reduction to close cycle of
10 days
Before Close Process Improvement
Bus. Days - XX 0 5 14 18 25
First Close Analyze, SEC, Regulatory /
F/S Review
GL Accounting Adjust,
(Cash, Transaction Processing & & Finalize Regulatory Reporting
& Close Forecast,
Reserves) Reporting & Filings
Finalize
After Close Process
Improvement
Bus. Days -2 0 2 5 < 10 15
Current transaction processing Standardized accruals Automated consolidation
Daily balancing and backlog mgmt Automated GAAP & adjusting journals Standardized reporting
Laser focus on suspense items Simplified allocations Standard reporting / analysis tool
and reconciliations Consistent GLs and COAs Streamlined / prioritize reporting
Enforced cutoff Separate GAAP from Regulatory
Rolling forecasts
Strict cash close Top-down / bottom-up reserves
Automated interfaces to GL, DW Eliminate / defer analysis Data warehousing
Pre-close reserve analysis Limit top-sides and adjustments Multi-dimensional data
Limit top-sides and adjustments Daily close meeting Enforced deadlines
Close process ownership / mgmt Management review process Limit top-sides and adjustments
Confirm close process Business unit and actuarial sign-off Management review process
Organizational realignment to
reduce handoffs
Confidential to Ernst & Young 9
Case Studies – Co. B – Self-service Reporting, Data Warehouse, Reduced Close
• IT processing window
• Strict cash cut-off
• Pre-close reserve analysis
• Investment accounting
Step Work Day Process Prior Current accelerated
• Reserve postings
enforced
1 1 - 6 = Prior Close – GL / Accounting Close in 6 days – GL / Accounting Close in 3 days • Accruals and allocations
1 - 3 = Current (Close reduced by 3 days) streamlined
2 7 - 8 = Prior Reporting, – Data warehouse downloads, − Web reports, dashboards, scorecards, alerts available;
4 - 5 = Current Forecasting multiple queries, Excel generated/distributed from centralized group by Day 4
workbooks and PowerPoint − Forecast update and variance analysis
presentations − Selective drill-downs based on alerts
(Reporting reduced by 4 days; Forecasts done by Day 5)
3 9 - 10 = Prior Reporting & – Create / send standard and some − Collaborative analysis/consulting focused on business
5 - 7+ = Current Analysis ad-hoc reports unit/field decision making and reducing management cycle
– Multiple / redundant analysis and time
reporting efforts (Management cycle time cut in half)
4 11 - 15 = Prior Analysis – Data query, analysis create / send (Ad-hoc reporting minimized in favor of standard reports)
ad-hoc reports with written (Analysis and drill-down on a self-service basis, coordinated by
analysis Finance in a collaborative fashion)
5 15 - 20 = Prior Plan, – Update existing models using – Predictive model and “auto forecasting” based on detailed
8 – 12 = Current Forecasting previous month / recent periods business drivers and alerts for early warning
and historical data (Forecasting automated and cycle time cut in half )
6 12 – 20 = Current Plan, N/A (Early warning reports, dashboards, and rolling forecast
Forecasting update)
Confidential to Ernst & Young 10
Case Studies – Co. C – Reduced Close, Org Alignment, Self-service Reporting,
Data Warehouse • Results finalized & locked
• Parent Co. reporting completed
• External reporting cycle started
Before Finance Transformation
Bus. Days -10 0 5 14 15 24 = 34 days
Cash Close Analyze,
F/S Review
GL Accounting Adjust, Regulatory Reporting
(Accounting & & Parent Co.
& Close Forecast, & Filings
Reserve Estimates) Reporting
Finalize - 12 days
After Finance Transformation
Bus. Days -2 0 2 7 12 20 = 22 days
Enablers • Automate estimates • Monthly close • Standard reporting • Enforce deadlines
• Limit top-sides • ERP based GAAP ledger package for report
• Automate interface to separate of Regulatory • Report rationalization production &
GL, DW, IBNR ledger • Financial information analyst info
• Top-down reserves with management / DW
• Reduce backlog < 10 package
focused bottom-up • Automate FX
days • Minimize use of
validation • Automate consolidation
• Cash & A/R mgmt unit • Automate interface to GL, • Enforce deadlines for spreadsheets –
– focused collection DW review & sign-off automate
• Automate billing • Minimize use of • Limit top-sides accounting
• EDI spreadsheets – automate • Driver based planning and calculations,
• Strictly observed cash accounting calculations, forecasting entries & interfaces
close entries & interfaces • Actual – plan – rolling • Management review
• Minimize use of • Automate accruals forecast data aligned and sign-off
spreadsheets • Rolling forecast process • Multi-dimensional data – process
• Close “Czar” LOB, customer, channel,
• Report rationalization
• Enforce deadlines for review contract type, geography
• Automate wire
& business unit sign-off • Self-serve analysis &
transfers • Organizational re-alignment reporting through DW
to reduce hand-offs and
streamline workflow
Confidential to Ernst & Young 11
Discussion Outline
CFO Finance Agenda –
What CFOs are Doing
Leading Practices
Accounting and Reporting
Close Process Improvement
Performance Measurement & Management
What Other Companies Have Done – Case Studies
Getting Started Close Process Assessment and Improvement Roadmap
Contact Information
Confidential to Ernst & Young 12
Getting Started - Close Process Assessment and Improvement Roadmap
Planning & Launching
Charting the Current Close Cycle, Identifying Improvements to the Close Cycle,
Improvements to the Close Cycle,
Process & Controls Process & Controls
Process & Controls
Review subsidiary and corporate closing Prepare an overall Close map and timeline with identification of Prepare work plans for the specific
processes with focus on - possible contributors to the current cycle time initiatives to realize the improvements
Process map – inputs, outputs, controls Determine / summarize management’s objectives for improvement as identified -
Timing of activities expressed in –
Scope, resources and timing
Information requirements Acceleration / reduction of XX days
Work plan (activities / task level)
Transmission of information from Improvement in the process (data, quality, management of the
process, reporting, analysis, timeliness, controls, etc.) Impact on cycle time
subsidiaries to Corporate
Consolidation and elimination activities Allowance of XX days for management review of the results, etc. Impact on control environment
Analysis and reporting requirements and Conduct workshop with select participants to identify adjustments that Interdependencies on existing or
tools can be made to the process with the intent of achieving management’s planned initiatives
Current Close process calendar, improvement objectives, reducing cycle time and improving the Technology requirements to develop
instructions, monitoring and responsibilities process and control environment; focus on -
and implement
Persons involved Activities prone to or causing delay
Parties involved and responsible
Technology utilized Activities which can be moved or shifted in the close cycle to
accelerate / reduce the timeline Value / benefit
Map major closing activities and their timing Implementation timing - second
during the Close cycle with focus on - Revision of activities performed by subsidiary operations and
Corporate quarter, third quarter, year end, etc.
Pre-close activities
Revision of activities performed by non-Finance groups that Prepare a revised process and control map
Activities with multiple start and check / provide key data and time line that incorporates agreed upon
process points
Improved utilization of technology changes
Process and timing differences between
subsidiaries Revision of accounting and reporting processes related to the Coordinate proposed changes with close
close calendar and schedule
Activities which span several days (e.g.,
close of cash basis books, production of the Summarize improvements to the close, timeline and related processes Launch improvement initiatives
trial balance, accruals, allocations, and controls and the specific improvement objective with a focus on
accuracy, timeliness, efficiency, quality, data, controls, technology Establish process to monitor, evaluate and
consolidation, reserve analysis and posting) adjust close process for continued
enablement & cost
Interview participants in the Close cycle and realization of reduced cycle time based on
review related material Review improvements with management and document specific
achievement of management’s objectives interim changes
Confidential to Ernst & Young 13
Contact Information
Gerald R. Roop Relevant Experience
Partner Multiple Financial Services Cos. - Gerry led multiple initiatives major financial process & systems, including -
Finance & Management information / business intelligence strategy and requirements
Performance General ledger design, development and implementation
Management
Improved and accelerated close cycle to enable reporting in line with leading practice public companies
212-773-4550 Global financial information strategy and process design
gerald.roop@ey.com Internal and external reporting packages for a public company environment
Management reporting package for product profitability and performance management
Multi-dimensional profitability reporting and performance scorecards
Background Driver-based planning and rolling forecasting process, including: top-down target setting, identification of
metrics and drivers, management performance review process
Gerry is a Partner in the Finance & Design of performance dashboard & process, including: KPIs, dimensions, tool & data strategy
Performance Management practice. Gerry has
directed numerous engagements to implement Report rationalization to target report reduction, standardization & prioritize analysis
financial & performance management process Consolidation and reporting system design, development and implementation
and systems, streamline and transform process Investment accounting reporting (Statutory & GAAP) system and process implementation
and information flows, evaluate and enhance
productivity. Gerry is a CPA and was the CFO Simplified expense, investment and capital allocation processes
& Director of Investor Relations for a NYSE Reduction of actuarial reporting cycle and consolidation of valuation systems
insurer. Gerry received his B.S. from Villanova Employee training, process and system assimilation and process scorecards
University.
Insurance & Capital Markets Cos. - Led evaluation & establishment of outsourcing & shared services,
Gerry has deep industry experience of leading
practices in performance measurement and has including -
extensive knowledge of how many successful, Development of vision, business case and cost/benefit analysis to support migration to shared services or
large P&C and Life companies measure their alternate sourcing strategy (outsourcing, venture, alliance)
business via scorecards and dashboards linked
to strategy and plan, as well as their forecasting Analysis and selection of units/functions for inclusion in alternate sourcing
capabilities. He has designed and built People, process and application migration to new service
performance dashboards and related executive Improved quality and service levels of functions and processes
performance management processes for
several companies leveraging ERP data stores Large Insurance Cos. - Led the Finance strategy and transformation, including –
and sophisticated business insight tools.
Definition of vision statement, mission, strategy and value proposition
Gerry has implemented accounting and Establishing an operating baseline, benchmarking key Finance metrics & comparing Finance with leading
reporting packages at several companies. He practices to identify gaps and opportunities for improvement
has deep industry experience of leading
practices in accounting, reporting, close and Implementation of new & revised processes, along with change management & training requirements for
consolidation processes and has assisted reporting, analysis & business unit consulting, capital management, planning & forecasting, talent
several companies in shortening the close and
management
reporting process with typical objectives of a 5 –
10 day complete closing and reporting cycle. Development of performance standards, objectives, metrics & scorecards for critical Finance capabilities
Confidential to Ernst & Young 14
