Money makes the world go round. It also happens to make business possible and it is the reason businesses are created. In this series of Industry Insights, I have been discussing the management cycle, a series of building blocks that allow corporations to monitor and manage their performance on the macro and micro scale.
To date, I have mentioned the first steps to building a company with an effective corporate performance management (CPM): modelling the organisational structure, including all the links and interconnections in a business; and the planning phase, including budgeting and forecasting.
A central source of information permits managers to determine what impact decisions have.
David McWilliam, MD, Cognos South Africa.
What I have not focused on, until now, is one of the most critical aspects of business today. Not customers, not quality, not performance, but finances. Without a clear picture of the company`s financial status, on a macro and micro level drilling down to project budgets, no performance management effort can succeed.
Within the overall corporate model, therefore, the inclusion of the various financial plans of the organisation and its departments must be included in the overall management process. An accurate financial overview, from the petty cash budget to the annual report for listed companies, is critical to all aspects of controlling the business.
Global view
No matter how intricate and state-of-the-art your models are or how perfect your planning, if the financial support does not follow the plans and flow through the model, nothing will get off the ground. The reverse also applies. The information on spend and income is also necessary back up the chain at a central control point so that it becomes possible for management to obtain a global view of the state of the corporation.
This information provides business leaders with a "single view of the truth" derived from collecting, collating and consolidating the many diverse ledgers with endless operating units and accounts, into one common chart of accounts. In a smaller enterprise this is fairly simple as it is likely the company only has one main repository of accounting information, but for large, dispersed corporations, there can be many separate systems all containing vital information.
By consolidating the data into one central location, management gains the efficiency and productivity of only having to work with one financial system, instead of having to understand multiple operational and ledger systems to find the information required.
The other alternative is to get people to run regular reports and present you with reams of paper containing information that is outdated the moment it comes off the printer - not to mention the breakdown of the CPM goal of a single source of information to assist in critical decision-making.
Consolidated financials provide more than simply one version of the truth. Management obtains a faster, more thorough analysis originating from multiple sources, and consolidations can include any number of allocations of any data by any proportion, measure or statistic. Properly done, managers should also, as part of analysis and planning, be able to perform one-off or repeatable eliminations, automatically determining required elimination amounts as transactions are identified between entities.
Step by step
In a global business world, it goes without saying that all currency requirements should be managed seamlessly, without limits on the input currencies, and with conversion as required as well as near real-time exchange gain or loss calculations.
In reality, there are no more or less important aspects of a CPM initiative. Each step along the way to building a flexible enterprise that can be managed and adapted as the environment dictates is a critical building block on the previous steps and a foundation for the next.
Following the modelling and planning stages, consolidation builds a financial information foundation that is critical in deciding on future goals and directions of the business and its individual parts. A central source of information permits managers to determine what impact decisions have, ascertaining which processes can be changed or terminated without adversely affecting the efficient functioning of the rest of the organisation.
With this information at hand, the next step is monitoring your company to ensure all systems are functioning at maximum efficiency, all the time.
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