Why Re-Invent the Wheel: Delivering Multi-Pronged Benefits Through the Automation of Cornerstone Processes

Tags: SSON

Nolan Gesher

Despite a long and growing trend toward adoption of a shared services strategy, cornerstone back office functions such as reconciliation and exception management are still largely serviced in a departmental fashion. Moreover, even when the finance function is operating within a shared service environment, the reconciliation and exception management process can still be predominantly manual. This might involve extensive use of spreadsheets and the extraction of data from an ERP system, particularly for specific reconciliation types, such as intercompany. The result is a process that is not optimally efficient, exposes an organization to risk and is unlikely to inherently conform to internal or external audit and compliance initiatives.

The negative, downstream implications of a manual reconciliation and exception management process are numerous and can be costly to an organization. These ramifications include:

  • Lack of standardization across the reconciliation and exception management function
  • Limited transparency into the reconciliation and exception management function as underlying data structures and metrics differ, making it nearly impossible to consolidate reporting and risk analysis
  • Reduced operational efficiency as the data management tasks, rule creation and administrative overhead is replicated
  • The potential for increased software costs if differing processes employ solutions independent from each other
  • Misallocation of IT resource. This situation often arises because without its own "center of excellence" to support the reconciliation and exception management function and supporting technology, IT is often thrown into the role of support instead of focusing on value added solution development.

At its core, creating a shared services environment for reconciliation and exception management is about consolidation and standardization, helped by the fact that cornerstone processes such as this lend themselves to this environment. But the question remains, how can process reengineering via a shared services environment help us to recognize value from such an undertaking? As is often the case, value lies within the automation of the reconciliation and exception management function within a shared service and in the automated solution’s ability to deliver cost reduction and improved risk mitigation due to better process management.

If implemented properly a shared services environment not only standardizes processes across the enterprise, but insists on applying best practice methodology to these processes. Put differently, the reconciliation and exception management technology should not be fitted to the current business process structure, but rather the business processes should be reengineered to best leverage the capabilities of the technology. These capabilities include the ability to standardize processes as well as the control methodologies inherent within reconciliation and exception management employed within each silo. The net result is a never-before-realized commonality of information across the enterprise, and therefore the ability to measure metrics on an enterprise scale. This in turn provides true enterprise level reporting that provides management with the information needed to make risk mitigation decisions across the organization not possible without an automated solution.

To illustrate this point, envision a scenario in which every business unit applies its own standards for what constitutes a permissible write-off and makes an independent determination as to the timing of write-offs. Enterprise-wide metrics-gathering and reporting would be all but impossible.

This is not to suggest that every reconciliation and exception management process lends itself to a standard approach. A best practice approach accommodates such situations by leveraging the reconciliation technology to automate the occasional process exception. Elaborating on the prior example, assume that an organization maintains a 90-day standard for the booking of write-offs. However, in the case of customer adjustment accounts a 270-day standard is appropriate. Business rules configured within the reconciliation solution accommodate the difference, and what would otherwise appear as outliers in enterprise metrics are instead treated as known process exceptions.

Risk mitigation is further enhanced by the nature of the shared services environment itself. The lines of business are freed from tasks that do not match their core competencies, and since these distractions are no longer of concern business analysts are free to focus their efforts on resolving exceptions within their area of expertise. The shared services business model facilitates better business practices and the automation of the reconciliation and exception management function within this model makes it possible to execute those practices in a more efficient and more effective manner. Not only are exceptions resolved in a more timely and effective manner but employee turn-over is often dramatically reduced as job satisfaction grows.

Risk mitigation, while undoubtedly valuable, is often difficult to quantify. The ROI derived from automation within a shared services approach to reconciliation and exception management is not, however. Significant cost savings can be garnered easily by eliminating the duplication of effort so often found in a manual environment. Once automation is deployed within the shared services model duplication of data management and core IT support is immediately eradicated. Organizations can expect increased efficiencies as duplication of effort is removed from administrative functions like creation and maintenance of matching rules, the exception distribution process, and the metrics-gathering and report-creation functions. Valuable staff are free to be redeployed to more value-added activities and the business has been fundamentally changed to permit growth without the corresponding increase in headcount.

Additional cost savings may be recognized due to the scalability typically inherent when processes are automated. As the core processing group is transformed into a center of excellence process efficiency dramatically increases and process automation results in even great efficiency gains. Put differently, the center of excellence can do more with less and thus can accommodate increased processing volumes without a corresponding increase in headcount to support these volumes.

Breakdown of Where Savings Occur in an SSO

Shared services can transform a cost center to a revenue center via internal charge-back systems. Success breeds demand, and as the shared service model produces a positive track record, demand for reconciliation and exception management services invariably skyrockets. Firms will find that their challenge abruptly shifts from trying to get business line buy-in to that of managing a back-log of requests to incorporate far reaching requirements after their initial success became known across the organization. The level of scalability required to meet service level requirements from internal clients is not possible without first automating the reconciliation and exception management process within the shared services model.

Once established, automated cornerstone processes can be leveraged to provide platforms ranging from enterprise transaction management, to compliance, to operational risk management solutions. Each area shares fundamental elements with the reconciliation and exception management process in that all are:

  • Typically managed in a silo or manual environment within organizations today
  • Driven by the need to manage data at the transaction level
  • Rules-based processes with commonalities across multiple business silos
  • Often using common data across silos

Thus, these efforts all represent a logical extension of the reconciliation and exception management shared services model.

When you consider the benefits of automating or even moving a reconciliation and exception management function to a well-run shared service there are a multitude of benefits including:

  • Improved efficiencies, manifested in a reduction in cost per transaction
  • Significant further cost savings as redundant activities and processes are eliminated
  • Realization of economies of scale
  • Enhanced ability to leverage technology
  • Standardization and transparency across and into mission critical tasks
  • Reduction in the time required to reach the financial close at the end of a period

Research shows that heads of finance cite the most important benefit associated with the implementation of a shared services environment as the ability to deliver improved service to their internal and external customers. Inherent in the shared services model is the capacity for standardization and transparency of process and results across an organization.

Automation of cornerstone processes such as reconciliation and exception management within a shared services environment allows organizations, often for the first time, to track and report on financial back office performance trends and to act upon these metrics. This in turn allows shared services organizations to meet and then strive to exceed formal or informal service level agreements, and deliver the multi-pronged benefits of increased speed of audit, greater compliance, reduced risk and greater efficiency.