Utilities CFOs: Close your books like a pro
When we talk to our utility CFO clients, they often tell us the same thing: that in this volatile world—and against the backdrop of COVID-19—they’re under more pressure than ever to deliver certainty and accuracy.
Recent Accenture research confirms their experience, with CFOs now viewed as economic guardians, expected to lead an efficient finance function that delivers predictive insights and drives good decisions.
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So how does today’s CFO deliver that certainty the C-suite are clamoring for?
Start with “closing the books” effectively. Here are some reflections on why, and how.
Closing the books: what it is and why it matters for utilities
It’s a term that’s been around forever. It means the process to validate and finalize a company’s financial statements at the end of a time period, ultimately producing internal and external reports.
It’s something all companies are doing, but it’s notoriously time-consuming and difficult (think resource constraints; manual processes; increased workloads). And there’s constant pressure to close the books in a timely and accurate way.
Now add COVID-19 and there’s a new obstacle to be overcome: the need for the virtual close with employees now working from home and digital documentation and workflows as table stakes.
And for utilities, optimizing the period end close is crucial for two key reasons:
#1: The pressure to get to insights faster: Expectations on the CFO are growing; meanwhile, more data and more insightful data can be captured, faster. With a shortened and more efficient period end, CFOs can gain insights sooner and accelerate the decision-making process to reduce risk and drive business growth. CFOs understand this already: our research shows, as volatility has increased, a third of utilities CFOs say they have been working to reduce the lag between when they receive data and when they execute a coordinated response.
#2: Customer affordability: The activities within the close process are primarily operating & maintenance (O&M) expenses. When organizations shorten this process, O&M expenses go down and customers benefit. And with customer affordability as a mandate and an imperative for utilities, CFOs can generate real impact with lower O&M.
So, it’s important. But how do you do it? Here are some practical ways we are helping clients with this age-old problem.
Baseline the ‘as is’ to move forward
To jumpstart your progress on the period end close, first understand your current (‘as is’) process. We talk to our clients about considering it in tiers of detail, one building on the other:
- Critical Path (Tier 1): documentation of the high-level processes and core dependencies per workday of close.
- Workflow Tasks (Tier 2): status tracking of key tasks, overall workflow, and high-risk items that are system dependent, data dependent, or people dependent.
- Supplemental Activities (Tier 3): understanding of desktop procedures, and business policies that impact day-to-day accounting and finance tasks.
Next: Three things we are counseling our clients to prioritize
Applying the right levers to optimize the period end process leads to a shorter close cycle and decrease in overtime hours during peak workdays. The focus will vary depending on where you’re starting on the road to a ‘best in class’ 3-5 day cycle, and examples include:
- Process Optimization: standardization of policies and procedures, simplified accounting through data captured in the field, streamlined tasks through identification of dependencies, and strengthened upstream data integration.
- Technology Enablement: automation of account reconciliations (~50%), automation of transaction matching (~85%), reduction in late reconciliations (~20%), and reduction of rejected reconciliations (~20%).
- Close Visibility: improvement in consistency across departments (risk ratings), decrease in siloed processes, controlled environment to decrease audit deficiency exposure, and paperless processes for real-time status (100%).
And on the journey to that ‘best in class’ cycle, it’s important to consider improving underlying processes prior to an implementation, and how both components fit into the broader Finance vision, technology strategy, and definition of value.
Sidebar: a practical scenario from a utility
Applying this mindset and these techniques can generate real results. What kind of results? Have a look at this example of how this is happening in practice with a client.
The as is and the to be: First, we aligned on current state, then developed a future vision to guide detailed discussions around future state process design, data & reporting, and automation potential. The output: a transformation roadmap and business case indicating a potential 20%+ reduction of O&M expenses in Finance.
Close Process Design: Next, we went about designing and documenting a future state close process, defining the future data & reporting model, and identifying routine, rule-based, or high-volume processes as automation opportunities. The team aligned on a 4-day close process (a 6-day reduction from the as is), netting around 20,000 hours of annual efficiency savings.
System Implementation: With clear transformation goals, it was time to pull the technology enablement lever. The team began updating existing policies and procedures, implementing select record-to-report modules, performing report rationalization, and executing sprints for automation solutions. All of that will deliver 1) increase in speed to insights of around 40%; 2) reduction in O&M expenses of around 20%.
It all adds up to a shorter period end close and reduced O&M, through committing to understanding the ‘as is’ process and prioritizing the high-impact opportunities. And a continuous improvement mindset will drive further automation and control as the organization evolves.
As CFOs come under pressure for certainty, optimizing the close process is a clear source of value and a way to deliver some of that longed-for confidence in numbers for C-suite colleagues.
Our research shows 85% of utilities CFOs believe they’re the best-placed C-suite executive to ensure the resilience of the organization in today’s operating climate. Are you one of them?
Contact us to talk more about the road ahead.