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Statements on Management Accounting

P R A C T I C E O F M A N A G E M E N T A C C O U N T I N G

C R E D I T S

T I T L E

This statement was approved for issuance as aStatement on Management Accounting by theManagement Accounting Committee (MAC) of theInstitute of Management Accountants (IMA®). IMAappreciates the collaborative efforts of the CostManagement Competency Center at Arthur AndersenLLP and the work of Dr. C.J. McNair, CMA, of BabsonCollege, who drafted the manuscript.

Special thanks go to Randolf Holst, CMA (Canada),Manager of Knowledge Creation at Arthur Andersen, forhis continuing oversight during the development of theStatement. IMA is also grateful to the members of theManagement Accounting Committee for their contribu-tions to this effort.

Tools and Techniques for Redesigning the

Finance Function

Published byInstitute of Management Accountants10 Paragon DriveMontvale, NJ 07645www.imanet.org

IMA Publication Number 99341

Copyright © 1999 in the United States of America by Institute of ManagementAccountants and Arthur Andersen LLP

All rights reserved

ISBN 0-86641-277-8

Statements on Management Accounting

T A B L E O F C O N T E N T S

Tools and Techniques for Redesigning the Finance Function


I. Rationale . . . . . . . . . . . . . . . . . . . . . . . 1

II. Scope . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. The Role of Management Accounting . . . .1

IV. Finance Function Redesign Steps . . . . . . .2

V. Tools and Techniques for Redesigning the Finance Function . . . . . . . . . . . . . . . .3Opportunity Assessment

Creating a Future Vision for Finance . . .4Selecting and Prioritizing Areas in Finance for Improvement . . . . . . . . . . . . . . . . . .7Understanding Existing Finance Processes . . . . . . . . . . . . . . . . . . . . .10

Conceptual DesignDesigning the New Process(es) . . . . . .13Completing a Risk and Impact Assessment . . . . . . . . . . . . . . . . . . . .18Establishing a Human Resources Strategy for Finance . . . . . . . . . . . . . .21

ImplementationPlanning and Implementing the Transition . . . . . . . . . . . . . . . . . . . . . .23Monitoring Actions and Results ofFinance Redesign . . . . . . . . . . . . . . . .27

VI. Conclusion . . . . . . . . . . . . . . . . . . . . . .30

Appendix: Finance Competency Model—Knight-Ridder

Bibliography

ExhibitsExhibit 1: Steps for Finance Function

Redesign . . . . . . . . . . . . . . . . . . .3

Exhibit 2: CDI Vision for Accounts Payable . . .5

Exhibit 3: Cost/Cycle Time Worksheet . . . . . .8

Exhibit 4: Cost/Cycle Time Chart . . . . . . . . .9

Exhibit 5: Matrix for Setting ProcessImprovement Priorities . . . . . . . . .10

Exhibit 6: Process Map . . . . . . . . . . . . . . .11

Exhibit 7: Process Building Block Diagram . .14

Exhibit 8: Correlation Matrix . . . . . . . . . . . .15

Exhibit 9: N x N Chart—Processing InsuranceClaims . . . . . . . . . . . . . . . . . . . .16

Exhibit 10: QFD Matrix—Processing InsuranceClaims . . . . . . . . . . . . . . . . . . . .18

Exhibit 11: Risk Assessment Matrix . . . . . . .19

Exhibit 12: Failure Analysis Chart—Billing Process . . . . . . . . . . . . . . . . . . .21

Exhibit 13: Guiding Principles for ManagingOrganizational Change . . . . . . . . .24

Exhibit 14: Phase-in Decision Matrix . . . . . . .25

Exhibit 15: Change-Orientation Matrix . . . . . .27

Exhibit 16: Process Performance MeasuringSystem . . . . . . . . . . . . . . . . . . . .28

Exhibit 17: SPC Chart for Accounting Close . .30

I . RAT IONALEThe future of organizations lies in constantly pur-suing improvement in every aspect of business,including every function and every activity. Drivenby the demands of customers and the markets tobe innovative, to respond to existing and emerg-ing requests for products and services, and toincrease the efficiency and effectiveness ofeverything that is done, organizations are turningto new methods and processes to create gains.

The finance function is not immune to this relent-less drive to improve performance. In fact, thepressure to eliminate or reduce the number,complexity, and impact of support-based transac-tions is being felt heavily by the finance function.Combined with the need to respond to internalrequests for new forms of information, increaseddecision support, and ever-improving technologyand software, these forces are leading to initia-tives to redesign the finance function. Onlythrough redesign can the finance function gainthe required quantum improvements in perfor-mance on transaction-based activities.

Reflecting the strategy of the organization,finance redesign efforts seek to focus financework on providing optimal support for the man-agement team. Understanding where value iscreated, where it is sustained, and where it iswasted or destroyed by finance-based processesis the first step in this journey. Seeking to makefinance a business partner, rather than a police-man within the organization, is the ultimate goalof finance redesign initiatives.

I I . SCOPEThis Statement on Management Accounting(SMA) provides practical operating principles andrecommended approaches for redesigning thefinance function. It focuses on the three majoractivities that make up the finance function:

transaction processing, control and risk manage-ment, and decision support. This Statement sup-plements the Institute of ManagementAccountants’ SMA, Redesigning the FinanceFunction, published in 1997, which describesthe overall redesign process.

The focus of this SMA is on core tools and tech-niques that facilitate finance function redesign.This publication focuses on only a few core toolsbecause it is beyond the scope of the guidelineto discuss all the tools and techniques that sup-port the redesign process.

This Statement is intended for organizations thathave already decided to implement finance func-tion redesign. It assumes the reader is alreadyfamiliar with the basic elements of finance func-tion redesign. The tools and techniques to bediscussed apply to:l businesses that produce a product or a

service;l all levels of an enterprise;l enterprises in all business sectors;l the public and private sectors; andl small and large organizations.

This Statement will be useful to those who maylead or participate in finance function redesignefforts. It will help them to:l develop a framework for planning and manag-

ing the finance redesign efforts;l learn core tools and techniques to improve the

effectiveness of redesign efforts; andl understand the roles and responsibilities of

the financial professional in finance functionredesign.

I I I . THE ROLE OF MANAGEMENTACCOUNTINGFinancial professionals play the pivotal role infinance function redesign efforts. Serving as

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both knowledge experts and team members,they need to see the redesign period as a timeof learning, both about the value of current workand the needs of the organization for new formsof information and support. During the redesignprocess, all of the current processes, assump-tions, and structures of the finance functionneed to be critically examined in the search forquantum improvements in efficiency and effec-tiveness. During this period of change, financialprofessionals serve in the following roles:l Knowledge expert, providing insight into the

structure, nature, and objectives of currentfinance work;

l Change agent, leading the evaluation of currentfinance processes, redesign of new alterna-tives, and the deployment of these initiativesinto the organization;

l Evaluator, helping to identify areas of optimalperformance improvement potential and todevelop the business case required to securesupport for these efforts;

l Information gatherer, conducting benchmark-ing studies to identify finance “best practices,”conducting reviews of existing literature (arti-cles and books) on the issues and benefits offinance redesign, and interviewing thoughtleaders within the organization to identify keyareas where finance redesign can provide opti-mal benefits to internal and external customers;

l Systems integrator, initiating and supportingthe development of integrated information sys-tems that will facilitate the redesignedprocesses in achieving their objectives;

l Facilitator, building relationships with otherparts of the organization;

l Strategic assessor, supporting the chief finan-cial officer (CFO) in placing finance redesignwithin the broader context of the organization’sstrategy and business objectives; and

l Measurements specialist, developing new

measurement and reporting systems to moni-tor the progress of the redesign effort as wellas the ongoing performance of the newprocesses and work activities.

When initiating and supporting finance redesign,management accounting embarks on a path ofchange that requires a new mindset andapproach to finance work. Finding the right bal-ance between ongoing needs and the newdemands to support management initiatives,while ensuring the integrity of financial reportingsystems, requires a critical examination offinance work. In some organizations, thedemand for three different types of finance work(transaction processing, control and risk man-agement, and decision support) is leading to thedevelopment of unique career paths for personsserving these varied roles.

IV. F INANCE FUNCTIONREDESIGN STEPSThere is no generally accepted methodology forfinance function redesign. Finance processesexist in an infinite variety of complexities, struc-tures, and intents. Furthermore, each organiza-tion has a unique culture within which theseprocesses must operate, defined by such factorsas the organization’s willingness, or lack thereof,to take risks, embrace change, and reward andempower its employees. All these variables havea bearing on the approach that will be used toredesign finance. Collectively, they make itimpossible to force fit every finance functionredesign situation into a single methodology.

On the other hand, certain tried and provenguidelines can be followed in finance functionredesign initiatives. They can be characterizedas a series of steps that all organizations share.Finance function redesign efforts will includemost of the steps outlined in Exhibit 1, although

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not necessarily in the order presented. Keepingthis in mind, the eight basic steps to financefunction redesign are the following:l creating a future vision for finance;l selecting and prioritizing areas in finance for

improvement;l understanding existing finance processes;l designing the new process(es);l completing a risk and impact assessment;l establishing a human resource strategy for

finance;l planning and implementing the transition; andl monitoring actions and results of finance func-

tion redesign.

Although these activities are recommended as aguide for redesigning the finance function, orga-nizations can modify them to meet the needs ofa particular situation. In combination, the out-lined steps provide a comprehensive frameworkfor change that maximizes the potential for suc-cessful redesign efforts. While a wide variety oftools and techniques can be used during varioussteps of finance function redesign initiatives,core methods that have proved especially valu-able to organizations include:l creating a future vision for finance:

3 world-class operations benchmarking.3 current use assessment.

l selecting/prioritizing areas of finance forimprovement:

3 cost/cycle time chart.3 matrix for setting process priorities.

l designing the new process(es):3 process building block.3 correlation matrix.3 N x N chart.3 quality function deployment matrix.

l completing a risk and impact assessment:3 risk assessment matrix.3 failure analysis.

l establishing a human resource strategy forfinance:3 finance competency model.

l planning and implementing the transition:3 phase-in decision matrix.3 change-orientation matrix.

l monitoring actions and results of financeredesign:3 process performance measuring system.3 statistical process control.

V. TOOLS AND TECHNIQUES FORREDESIGNING THE F INANCEFUNCTIONEach of the finance redesign steps is facilitatedby a unique set of tools and techniques that helporganize information, provide insights, and sup-port organizational learning and change. Many of

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EXHIBIT 1. STEPS FOR FINANCE FUNCTION REDESIGN

these tools are common to all redesign initia-tives while others are unique to finance-basedinitiatives.

Creating a Future Vision for FinanceAn ability to recognize what needs to change is ahallmark of progressive finance functions. Indeveloping a new vision for the finance function,financial leaders must step back and analyzefinance activities within the broader context ofwhether the activities help their organization cre-ate value.

Finance must design strategies and marshalresources around activities that drive value andhelp the organization achieve its goals. This maymean that finance has to do away with outmod-ed financial calculations or measures in favor ofones that are more useful to the organization inmaking strategic decisions.

At Johnson & Johnson and Bell Canada, thefuture vision for finance drives the redesignefforts in the finance function. It constantlyengages every individual in the finance organiza-tion in creating value for the organization’s cus-tomers and the company at large.

Without a strategic context and a clear, far-reaching process vision, finance functionredesign efforts can fail or yield marginal resultsat best. An effective vision takes into accountthe needs of the organization, senior manage-ment, and organizational stakeholders. Driven bythe question, “How can we best serve the organ-ization?” the vision developed for finance shouldconsist of specific, measurable objectives andattributes of the future process. This questionleads the redesign team to focus on the follow-ing key objectives at this stage:l understanding the organization’s key value

drivers;

l determining whether current finance activitiessupport these value drivers in meaningfulways; and

l developing strategies that support value drivers.

For instance, at CDI Corporation, the accountspayable system was deemed an essential sys-tem that was in need of major redesign. As thenation’s largest provider of temporary personnel,paying employees and invoicing customers werenot only generic financial activities but also keybusiness drivers. Focusing on its largest divi-sion, where nearly 15,000 paychecks areprocessed weekly, finance turned its attention tocreating a new vision for its accounts payablefunction. The vision included the following:l all accounts payable processed through a sin-

gle system.l pay-on-receipt for at least 50 percent of the

purchases.l sundry items paid through the travel and

expense system.l scheduled services set up and approved

online.l automatic payment for standard recurring

items.l online purchase order requisition and electron-

ic purchase order generation.l greater use of electronic funds transfers.l no manual check generation or manual check

signing.l online resolution of discrepancies.l purchasing responds to vendor inquiries.

Exhibit 2 details the new vision for accountspayable developed by CDI to improve itspayables area. Once implemented, accountspayable service improved while the costs to oper-ate the group dropped from 1.6 percent of theorganization’s average revenues of $1.1 billion in1992 to 1.1 percent in 1994.

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Focused on developing a clear understanding ofthe current versus desired future state of finance,visioning emphasizes creating synergy and com-mitment through communication and ideaexchange. Creating a shared vision is the key toachieving the strategic and operational objectivesof finance function redesign initiatives.

The vision and redesign objectives help isolatekey areas to be investigated and improved.Serving as a strategy for finance functionredesign, a well-stated vision guides theredesign effort, prioritizes activities, preventsscope creep, and ensures that desired benefitsare attained at minimal cost.

The vision that emerges for finance must becommunicated in simple, easy-to-understand

terms throughout the finance function and thecompany. Communicating the vision within thefunction helps the finance staff understand howtheir role needs to evolve; communicating thevision company-wide signals to other functionalareas and operating units finance’s commitmentto new ways of delivering value.

While a wide variety of methods are used duringthe visioning stage of finance function redesigninitiatives, two core tools and techniques thathave proven to be especially valuable to organi-zations include:l world-class operations benchmarking; andl current use assessment.

World-Class Operations BenchmarkingFocusing on the external environment is an effec-

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EXHIBIT 2. CDI VISION FOR ACCOUNTS PAYABLE

Source: The Hackett Group

tive way of creating a future vision for finance.There are other goal-setting strategies as well.Extrapolation of past trends and practices, forinstance, is another common approach. But thismethod, like many others, has generally failedmanagers because the external environmentwas changing at a pace that was significantlyfaster than projected.

World-class operations benchmarking focuses onthe external environment. It also forces concen-tration at all levels of an organization—not only atthe strategic planning level but also at the workprocess level. Functions and work units are com-pared to the external world on a timely basis.World-class operations benchmarking constantlyvalidates and adds creditability to the visioningprocess through its focus on “the best.”

If visions are based on the best, they are unar-guable. For example, best-practice visits toorganizations proficient in payroll and billing weremost instructive to the payroll/billing redesignteam at CDI. It quickly became apparent to theteam that there was much to be learned fromorganizations that were using best practices.Benchmarking allowed the team to develop prin-ciples against which every element of their visionfor finance would be measured, such as verifyingon-time payments, eliminating redundant activi-ties, and using proven, existing technology.

Other organizations are also employing world-class operations benchmarking in this way. Oneexample is Johnson & Johnson; it looked toFederal Express and Wal-Mart for insight intoimproving its accounts payable process. Anotherexample is Union Carbide, whose finance depart-ment studied Hallmark Card’s internal organiza-tion for ideas about how to better partner diverseareas within its own company. And by bench-marking the best practices at Motorola, Chrysler

and many other organizations have found cre-ative insight into how they can best handleaccounting period-end close.

World-class operations benchmarking is predi-cated on the assumption that an exemplaryprocess, similar in nature to the process underscrutiny, can be identified and examined toestablish criteria for excellence in finance. Incontrast, a customer-centered approach tovisioning is predicated on the notion that virtual-ly every aspect of finance should be traceable tointernal customers’ wants and needs. Currentuse assessment is such an approach.

Current Use AssessmentOne of the key questions that needs to beaddressed during the initial stages of the financefunction redesign initiative is, “What value do wecurrently provide to users?” Focused on under-standing what parts of finance have direct bene-fit to internal customers, current use assessmentdetails the outcomes and activities that mustremain part of the redesigned finance function.

The most visible outcome of finance is the set ofreports distributed to internal users. Not allreports have equal value to users. Current useassessment identifies which reports are beingused, by whom, how often updates are needed,and what format and information is most essen-tial within the report. If reports are generated foruse online, a systems use analysis can be doneto identify when the report is accessed, bywhom, and how often.

Direct collection of use data is most easily donethrough surveys. A list of available reports isdetailed. Users are asked to list which reportsthey use, why, and their general attitude (satisfac-tion/dissatisfaction) with its structure and infor-mation content. This general survey can also be

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used to gather broad-spectrum information onwhat type of reports or support users would liketo have that are not currently available.

The information collected during the surveys iscompiled to create a current use assessment.Each report should be listed, along with the num-ber and type of users that rely on it. Criticisms ofthe current report should also be noted duringthis assessment. During this exercise, it maybecome evident that some reports are not usedat all, by a very small number of people, or for alimited number of applications. These reportsbecome the primary target for early redesignefforts due to their low current value.

Some organizations have used a differentapproach for their current use assessment. Theyhave simply stopped sending some or all of thefinance reports to the user community. Actualuse is gauged in this situation by the number ofphone calls received to find out where the reportis. If no one misses the report, its continued useis questioned. This approach is most effective inorganizations that routinely deliver timely reportsfor the intended users.

Creating a future vision for finance extendsbeyond report development and distribution. Asattention moves toward decision support andteam participation as core finance activities, itbecomes imperative to understand what type ofdecisions are being made, what projects areunderway, and how the finance function shouldsupport these efforts. Answering these ques-tions is best done through either direct inter-views or surveys of users, as well as ongoingparticipation on new project teams.

For instance, the Owens Corning internal report-ing team redesigned the executive summary ofthe firm’s monthly report with input from the divi-

sions. Then they met with top divisional execu-tives to find out which elements were key toreporting the performance of their particularbusiness segments. The team added that infor-mation to the elements needed to support thecore 10 pages of the management report. Theentire process took six months.

Selecting and Prioritizing Areas in Financefor ImprovementSelecting areas for improvement is a critical stepin redesign projects. A great deal of effort can bewasted and the redesign program can be put intojeopardy because of perceived lack of interestand payback if the wrong processes withinfinance are selected. Conversely, “quick hits”can be utilized to increase awareness and inter-est in the redesign effort.

Since it is not possible—or even desirable—toreform every process radically at the same time,care should be given to where to begin theredesign process.

Key objectives guiding the selection of financefunction redesign targets include:l prioritizing areas in finance for investigation;l selecting the processes most central to

accomplishing the organization’s strategy;l ensuring that the organization’s resources and

capabilities match the scope of the redesigninitiative; and

l selecting the processes that have a high prob-ability of a successful redesign.

Any area within finance that has a significantimpact on the effectiveness of the business inmeeting stakeholder needs serves as a driver oftotal performance. These processes are themost critical to the well-being of the organizationand should receive top priority in the redesign initiative.

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Identifying and selecting the initial finance func-tion redesign targets is facilitated using two coretools, a cost/cycle time chart and a matrix forsetting process priorities

Cost/Cycle Time ChartThe cost of a process such as cycle time pro-vides tremendous insights into finance processproblems and inefficiencies. Cost/cycle timecharts are a useful tool for analyzing both thecost and the time components of a process andfor finding ways to reduce them. This ensuresthat the organization’s finance function redesignefforts are focused on the greatest opportunitiesfor improvement.

Consider an office supply purchasing processthat includes the purchasing, shipping andreceiving, and accounting departments. To beginwith, a cost/cycle time worksheet, as illustratedin Exhibit 3, is completed with the following pur-chasing process information:l major subprocesses or activities;

l cycle times for each subprocess or activity;and

l the cost for each activity.

These costs and cycle times are plotted on acost/cycle time chart and classified according tothe type of value they contribute. The types ofvalue are classified in three categories: realvalue added (RVA), business value added (BVA),and no value added (NVA).l Real value added—refers to activities that are

essential to the process to meet the cus-tomer’s expectations;

l Business value added—refers to activitiesessential to conducting business, such as pol-icy and regulation compliance that add coststo the process but do not add value from thecustomer’s perspective; and

l No value added—refers to activities that nei-ther add value to the process (from the cus-tomer’s perspective) nor are required to con-duct business, such as storage, movement,approvals, etc.

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EXHIBIT 3. COST/CYCLE TIME WORKSHEET

This approach helps to identify value-addingactivities that should be expanded and value-destroying factors that are wasteful and shouldbe eliminated.

This technique is graphically illustrated in Exhibit4, where cost versus time over one completecycle of a hypothetical process has been plotted.The chart is a cumulative plot indicating, forinstance, that the cost during time interval T3 isthe sum of the costs of activities A1, A2, and A3.The chart identifies RVA activities that hold thegreatest promise for improvement in terms ofnet gain in efficiency, and the BVA and NVA tasksthat add the most overhead to the process.

Exhibit 4 illustrates that only 43 percent of thetotal cycle time of this particular process isdevoted to RVA activities. Furthermore, by total-ing the incremental costs associated with theRVA activities and dividing this number by thecumulative cost, it is determined that only 37

percent of the total process cost in the exampleis devoted to RVA activities.

Not only should the rate of increase in cost beminimized but also the time required to performeach activity—assuming, that is, the processcan be optimized in this manner in relationshipto other organizational priorities.

If for some reason the costs decrease but thecycle time increases, it is important to comparethe percentage of decrease in cost with the per-centage of increase in cycle time, or vice versa.In other words, if faced with a choice, theredesign team might be willing to give up a littlein terms of cost to gain a proportionately largerimprovement in cycle time. Such tradeoffs arefrequently necessary since improvements incycle time are often accompanied by increasesin costs. Relatedly, the ratio of real value addedto cycle time and real value added to cost pro-vide indications of the relative business impact

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EXHIBIT 4. COST/CYCLE TIME CHART

of process redesign. For a given process, thehigher the ratio of RVA to cycle time, the better.When plotted on the cost/cycle time chart, therelative RVA/BVA of a process can be identified.

Matrix for Setting Process PrioritiesAfter gathering the data on the finance process-es, the team is ready to select the criticalprocess(es) for improvement. The selectedprocesses will be those that rank highest inimportance with regard to customer impact, aswell as those that offer the greatest improve-ment opportunities. These are the ones thatshould be considered first. Correspondingly,finance processes that are not very importantfrom a customer’s viewpoint and that appear tobe functioning quite well should not be selectedfor initial redesign efforts.

Exhibit 5 shows a matrix that can be constructedbased on the data gathered. It provides a clearoverview of all finance processes and simplifiesthe task of final selection. Processes with a pri-

ority ranking of 1 or 2 would be selected forredesign before those with a ranking of 3 or 4.

Understanding Existing Finance ProcessesIt is important to understand an existing processbefore designing a new one. Understandingexisting processes can also be helpful inassessing the risk and impact of any proposedchanges and in helping the project team foreseeany difficulties they may encounter during thetransition phase.

Several key objectives guide this step of thefinance function redesign initiative, including:l facilitating communication among participants

in the redesign initiative;l developing current process documentation as

input to migration and implementation planning;l understanding the magnitude of anticipated

changes and the tasks required to move fromthe current to a new process; and

l ensuring that problems in an existing processare not repeated in the new process.

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EXHIBIT 5. MATRIX FOR SETTING PROCESS IMPROVEMENT PRIORITIES

Useful tools and techniques to accomplish theseobjectives include:l process maps; andl data dictionaries.

Process MapsAn important tool that can assist in analyzingand designing a business process is processmapping. It was initially developed and imple-mented by General Electric, which used it as partof its strategy to improve its bottom-line busi-ness performance significantly.

Process mapping provides visual maps of theway information, documents, materials, and sim-ilar items are routed through a businessprocess. Process maps are useful as both acommunication tool and for pinpointing potentialproblem areas, such as interface points betweenfunctions and bottlenecks within the processflow.

Several perspectives can be used in developinga process map. The emphasis may be placed onkeying in on a certain subset of the process, orperhaps on isolating the end-to-end flow path of

one particular report or activity within the financearea, such as the path taken in processing acheck request as part of the larger capitalassets acquisition process. A different perspec-tive might entail examining how the process flowpasses vertically and/or horizontally (cross-functionally) within the organization.

Exhibit 6 details a process map for a user reviewactivity. The user group represents an internalcustomer, such as manufacturing or marketing.The report under review might be the productprofitability report or the monthly productionreview. Organizing the map, by illustrating theprocess flow from one group to another, helpsisolate those areas where functions interfaceand where the relative workload among thegroups needs to be reviewed.

Developing detailed process maps is typicallydone within cross-functional team settings wherepersons who are involved in the flow of materi-als, reports, or information work together to con-struct a visual map of the activities and coretasks making up the flow. Identifying obviousbreakdowns and disconnects in the process

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EXHIBIT 6. PROCESS MAP

flow, as well as the primary drivers or causes ofthese shortcomings, provides a rapid way to cre-ate noticeable improvements and gain cost andperformance benefits from the finance functionredesign effort. Examples of problems that aretypically identified through this process include:l redundant data entry due to software integra-

tion problems;l physical report preparation due to data

fragmentation;l rework of any type, including modification of

paperwork and changes in data structures;l multiple databases for similar data;l complex hand-offs or transaction handling

routines due to legacy systems; andl activities and tasks that are person-driven,

rather than process-driven.

Process mapping tools can be divided into threegeneral categories:l Flow diagramming tools. At the most basic level

are flow diagramming and drawing tools thathelp define processes and work flows by link-ing text descriptions of the process to sym-bols. Typically, flow chart models provide limit-ed analysis capability.

l Case tools. Case tools provide a conceptualframework for modeling hierachical processdefinitions. They are typically built on relation-al databases and include functions that pro-vide linear, static, and deterministic analysiscapabilities.

l Simulation tools. Simulation tools provide con-tinuous or discrete-event dynamics and moresophisticated analysis capability than the firsttwo. Simulation tools typically provide anima-tion capabilities that allow the process design-er to see how customers and/or work objectsflow through the system.

Process mapping was used by Johnson &Johnson Vision Products in an effort to reduce

its accounting close process from seven days toone day. The company broke down the closingprocess into work steps and determined theinterdependence among them. This exerciseuncovered the critical path of the accountingclose process and identified nonvalue activitiesand correctable delays, such as:l the company was not posting automated

accounts payable accruals to the generalledger until the first day of the closing;

l all entries had to be reviewed and approved bymanagers prior to submission;

l period production was not finalized until thesecond day of the closing process;

l spending was not finalized until the morning ofthe second day; and

l cost allocations were not made until the end ofthe second day after the spending was finalized.

Data Dictionary1

The most effective process maps use words andphrases that people will easily understand, andthey include only widely known, standard sym-bols. Often, an accompanying glossary of terms,known as a data dictionary, helps in this effort.Each entry in the dictionary refers to a label onthe process map.

Data dictionaries can be maintained manually oron a computer system. If process mapping isdone with a computer, automating the data dic-tionary allows an organization to develop a sys-tem of automated cross-references between theprocess maps and the dictionary.

The resulting documentation of the “as is”process provides a solid platform for redesign.Having noted what is currently being done, alongwith where, why, and when, attention turns to

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1 Data dictionaries are particularly useful in merger/integration situations.

designing new finance processes that overcomeexisting shortcomings and provide improvedvalue to the organization.

Designing the New Process(es)Only when the project team has established ahigh-level vision of the new process and gained aperspective on the current process(es) shouldprocess design begin in earnest. Designing newprocesses remains more an art than a science,so it is not possible to prescribe in precise termshow to do this phase of the redesign project.Since quantum improvements often require “out-of-the-box” thinking, the creativity of the projectteam will determine the quality of ideas generat-ed as well as the range of alternative solutionsconsidered. Finance function redesign worksbest when organizations are willing to challengethe status quo and envision radical ways oftransforming and improving finance processes.

The design process begins by building on thehigh-level process concept developed during thevisioning step. Several key objectives serve toshape the choice of potential process designsand outcomes, including:l ensuring that the design is sufficiently com-

plete to cover every aspect of the customer’sneeds;

l identifying which process components areneeded to translate customer requirementsinto cost-effective solutions;

l identifying problem areas that might otherwisego undetected; and

l identifying and articulating fundamental busi-ness and policy issues that may impedeimprovement.

Designing new processes requires attention todetails, involvement of cross-functional teammembers and knowledge experts, and taking thecustomer’s perspective into account. Several

basic guideline steps are used to aid in thedesign effort:1.agreeing on the name of the new process, then

drawing a box depicting the process and itsmajor inputs and outputs;

2.making a simple list of the major components,or subprocesses, of the process;

3.drawing a box for each major component andthen identifying the most significant inputs toand outputs from each component;

4.interconnecting the inputs to and the outputsfrom each major component, adding labels tothe interconnecting lines where necessary todistinguish one input or output from the other;

5.repeating steps 2, 3, and 4 by reducing eachcomponent or subprocess to the next level ofdetail; and

6.repeating step 5 as necessary until theprocess is modeled to the degree of detail necessary.

A number of useful tools and techniques areavailable for shaping the process design effort,including:l process building block;l correlation matrix;l N x N chart; andl quality function deployment matrix.

Process Building BlockWhen modeling finance process(es), a basicbuilding block approach can be useful, as illus-trated in Exhibit 7. Detailing the inputs and out-puts of the process, as well as the control andsupport mechanisms it requires or provides, thisdiagram helps identify a streamlined processmodel that avoids problem areas such as wasteand inefficiency.

Within the building block structure, a controlmechanism is anything, whether a policy, proce-dure, or feedback, that regulates or modifies the

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transformation of inputs to outputs within theprocess. Support mechanisms, on the otherhand, are the resources (human, physical, ortechnological) that are needed to support thesubprocess and enable it to carry out its basicintent.

Inputs and outputs normally link one subprocessto another, but this linking concept may not holdfor control or support mechanisms. For instance,a certain set of operating controls, such as thebudget limit, can apply exclusively to an isolatedportion of the process. The budget limit is a vitalpart of the process, but it is not part of theprocess flow itself. Relatedly, control or feedbacklinks applied downstream in the process flowmay affect upstream activities.

The process building block symbol aids in repre-senting the business process and ensures thatample attention is paid to the control and sup-port mechanisms applicable at different stages

of the flow. Typically, when process design is firstundertaken, the flow diagram should be kept asvisually simple and clean as possible. The keyfactor in initial design is identifying the majorinputs and outputs and then detailing the pri-mary activities within the processes. The build-ing block approach keeps attention on thesecore features of the process.

Correlation MatrixAnother redesign tool, the correlation matrix, ishelpful in identifying the minimal set of processcomponents for the redesigned process. Oftenthe most perplexing task when designing aprocess is determining what process compo-nents are critical if customer requirements are tobe translated into cost-effective process solu-tions. In redesigning a process, it is very impor-tant that the design be sufficiently complete tocover every aspect of the customer’s needs. Thecorrelation matrix illustrated in Exhibit 8 offers asimple way of dealing with these critical needs.

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EXHIBIT 7. PROCESS BUILDING BLOCK DIAGRAM

Source: Roberts, 1994: 106.

A correlation matrix does not ensure that theoptimal design has been developed. It doesguarantee that no customer requirement hasbeen overlooked, though. In using a correlationmatrix, it is best to start by listing the require-ments of the customers on the vertical axis ofthe matrix. Process components are then addedalong the horizontal axis if they are needed todeliver the required product or service attribute.

One way of developing the correlation matrix isfirst to assign a component or subprocess toeach requirement without considering multiplecoverage. The solid dots in Exhibit 8 reflect thisapproach. Next, each component is examined inrelation to the remaining requirements andassigned a moderate or slight correlation score(symbol) where logical. Wherever multiple rela-

tionships exist, there is a potential to eliminatepart of the process without impairing overalleffectiveness. As in this example, it may be pos-sible to consolidate the tasks that should be per-formed by components A and B as well as com-ponents E, F, G, and H.

The resulting chart helps the finance functionredesign team determine if a requirement hasbeen underrepresented, if there are unnecessaryredundancies in the process, or if certainprocess components contribute to meeting morethan one requirement. Redundant process com-ponents are typically eliminated from theredesigned flow, while those capable of fulfillingmultiple requirements are retained in the newprocess.

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EXHIBIT 8. CORRELATION MATRIX


For instance, at Motorola an integratedclient/server system was implemented thatautomatically updated the general ledger andmade accounts payable information availableonline for immediate access. The number of doc-uments processed per employee increased by85 percent during the first two years of theimplementation of this streamlined, integratedprocess. Improvements have continued at apace of 20 percent per year since the initialgains were made. Supplier questions are nowresolved much more rapidly, usually with onephone call. The system allows multiple coverageof requirements with one integrated data systemand applications program.

N x N ChartAfter the minimum process components havebeen identified, attention turns to using the infor-

mation garnered from the correlation matrix as astarting point for synthesizing the rest of theprocess. Input, output, and feedback linksbetween the process components can now bedeveloped and understood.

The N x N chart maps the interrelationshipsbetween components of a process and betweenprocesses. It is a square matrix that shows themain components of the process within the cellsalong the diagonal, as depicted in Exhibit 9. Theremaining cells detail the interconnections, ifany, between component pairs (e.g., any twocells on the diagonal).

Comments, symbols, and values can be addedto the N x N chart cells to describe the nature ofthe interconnections and/or the work that iscompleted at a specific point in the process flow.

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EXHIBIT 9. N X N CHART—PROCESSING INSURANCE CLAIMS


Placing outputs on the horizontal axis and inputson the vertical dimension, the primary flowsequence within the process can be captured inthe diagonals. The diagonal representationallows the forward-feeding paths to emerge (tothe right of the diagonal), while feedback pathsare found in the cells left of the diagonal.Redundancies and unnecessary feedback andfeed-forward paths are easily spotted within theresulting diagram.

The N x N chart can be constructed manually orwith the assistance of an electronic spreadsheetprogram. In team meetings, it may be useful todepict the matrix on a white board and then useadhesive notes to add narrative to the cells. Thisallows for free movement of cell contents duringthe team meeting, as well as additions and dele-tions as the structure of the optimal processemerges.

As with many of the process design tools, it isimportant to remember that a complex processwill be reflected in a more complex diagram ormatrix. An N x N chart, for instance, that has 12subprocesses would require 144 cells to captureits structure. Since its size increases exponen-tially with an increase in the number of coveredsubprocesses, the N x N chart can becomeunwieldy if excessive design detail is added.

A solution to this problem might be to have onechart linking the major steps in the process, thensubcharts to expand on the efforts within eachmajor step (subprocess). The goal is to makeidentification of interrelationships and flow easi-er to see and improve; keeping the size of eachchart within reasonable boundaries is essentialif the tool is to be used effectively.

Quality Function Deployment MatrixQuality function deployment (QFD) techniques

can be used to trace each stage of the processdesign back to specific customer requirements.Activities within the process are rated by theirimportance according to the customer’s needsand wants. Though a variety of approaches canbe used to set up the QFD matrix and the infor-mation it contains, the attention to the customerremains constant.

A QFD matrix moves from customer needs todetermining the degree of relationship betweenthe requirements of the customer (the whats)and the available options for accomplishing thecustomer-driven objectives (the hows). Thisquery process is continued until the details ofthe process are sufficiently defined against spe-cific customer needs, using the most importanthows identified at one level to represent thewhats in a subsequent matrix. Exhibit 10 detailsa first-level QFD matrix for an insurance claimsprocessing example.

The objective in this example is stated as aquestion, “What are the important customerresponse features in settling claims?” After aset of whats are identified and listed in the left-hand column of the matrix, the matrix is complet-ed as follows:l Assign a relative importance rating to each of

the whats. (In this example, the ratings rangefrom 1 to 5, where 5 is most important);

l Devise a set of hows that represent alterna-tives for accomplishing the whats;

l Rate the degree to which each how contributesto each what. (This is shown as the number inthe upper left-hand corner of each cell in thebody of the matrix, here using a 0 to 5 scale);

l Calculate the weighted score for each cell bymultiplying the relative importance ratingtimes the raw score (the number in the lowerright-hand corner of each cell);

l Sum the weighted scores for each column to

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obtain a composite score for each how; andl Determine the relative importance of each how

by ranking the composite scores. (In thisexample, the how of directly interfacing with aclaims representative was rated the highestoverall importance. Maintaining associationwith local independent agents was ranked thelowest.)

Having decided on a suitable design, attentionnow turns to assessing the potential risks andbenefits of the newly designed process.

Completing a Risk and Impact AssessmentDepending on the magnitude of the changes and

the complexity of the process in question, thereare potentially many factors to consider whenassessing the risks involved in redesigning thefinance function.

The more pervasive the changes, the less orga-nizations can know for sure about the success ofthe outcome. This is all the more reason why aformal risk assessment is critical to the redesigninitiative. Risk and impact assessment is placedimmediately after the process design step tohighlight the fact that the process design optionsneed to be weighed in terms of their potentialrisk impact as well as their relative merits. If therisks remain too high, it may be necessary to

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EXHIBIT 10. QFD MATRIX—PROCESSING INSURANCE CLAIMS


return to the process design step. A number ofobjectives guide the activities undertaken duringthe risk and impact assessment, including:l identifying and characterizing the various risk

events;l identifying the likelihood or probability that a

particular risk event will occur; andl determining the impact on the process, the

organization, and the customer in the event aparticular risk occurs.

Ironically, the subject of assessing risks is oftenglossed over when planning the redesign initiative,even though these efforts continue to have con-siderable risk. Since it often involves creatingprocesses and structures that are all but unknownto the organization, finance function redesignrequires a careful assessment of the potentialrisks and their impact on the organization.

Addressing these and other potential pitfalls inthe process redesign initiative, before theyundermine the project and its ability to meet itsgoals, is facilitated by the use of two keyredesign tools and techniques:l risk assessment matrix; andl failure analysis.

Risk Assessment MatrixThe risk assessment matrix specifically links thethree primary risk factors in process redesign: 1)inadequate identification and characterization ofthe potential risks; 2) unrealistic or inaccuratedepiction of the likelihood these risks willbecome realities; and 3) the failure to assessthe potential impact of the risk event on the pro-ject’s outcome, the organization’s customers andstakeholders, and the organization itself.

A risk assessment matrix, as illustrated inExhibit 11, provides a simple means for ensuringthat risks are contemplated, their probabilityestimated, their impact noted, and the overallassessment of the need to take preventiveaction made. While simple in nature, the riskassessment matrix provides a powerful meansof communication when used in team settings orwhen advising senior management on the risksinherent in the redesign initiative during thedevelopment of the business case. If a history ofimplementing similar projects does not exist, thelist of pitfalls noted above can serve as a start-ing point for discussion and analysis.

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EXHIBIT 11. RISK ASSESSMENT MATRIX

In addition to the factors noted in the matrix, itis often important to consider the potential expo-sure risk, simply stated as, “Here’s how we cancut our losses.” While exposure is related to theimpact of the risk should it occur, it emphasizesthe organization’s ability to recover from a riskevent. In a finance redesign initiative, exposurecan refer to such factors as the ability to restoreoperations in the event of a disruption of ser-vice, to regain customer confidence if theredesigned process does not function adequate-ly, or to recover costs if the process does not pro-vide expected benefits or functionality.

Senior management will be more likely to sup-port a finance function redesign effort with low,rather than high, overall risks. While assessingrisks is a qualitative activity, it can be the pivotalelement of the business case used to gainrequired commitment and resources for thefinance function redesign initiative. Risk can alsoserve as the deciding factor in a decision to takeone approach to process redesign over another.

Failure AnalysisFailure analysis is a proactive approach thatemphasizes the potential problem areas thatcan develop during the finance function redesigninitiative. It is usually used to explore the riskslikely to occur during the implementation andtransition stage of the project.

Emphasizing the chain of events that couldpotentially lead to a risk event, failure analysisseeks to identify the root causes of these poten-tial problems and to take proactive measureswhere possible to prevent their occurrence.Failure analysis normally contains the followingsteps:l identify the points within the process where

major problems might occur or weaknessesmight exist;

l determine the nature of each failure in termsof what could go wrong (that is, the failuremode);

l establish what happens to the customerprocess if a certain failure mode occurs (e.g.,the failure effects);

l isolate the root cause of the problem; andl assess the criticality of the failure.

A criticality index can be developed to supportthe last step by determining the probability andseverity of the potential risk’s impact.Detectability, or an index of the degree of difficul-ty in being able to detect a certain failure modebefore it occurs, can be added to the list of cri-teria to create a criticality index for each failurecondition. The detectability index helps drawattention to the fact that a problem remainingbelow the threshold of detection is potentiallymore serious than one that can be detectedbefore causing even greater problems.

Failure analysis can be formatted to fit into amatrix such as that depicted in Exhibit 12. Thiseases the representation of data and helpsdetail priorities for taking preventive actionbased on the relative criticality index of each fail-ure condition.

The partially completed failure analysis illustra-tion in Exhibit 12 is for a billing process, empha-sizing the failure modes and effects that couldhappen in this area. Within this example, theprobability index (P), severity index (S), anddetectability index (D) can each assume a valuebetween 1 and 5, though in practice no specificrules exist as to the range of values each attrib-ute can assume. The criticality index (C) is thesimple product of P, S, and D. From the data inthe chart, the loss of a client due to an over-billing error has the most significant impact(highest criticality index) among the risk events

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detailed. Preventing this particular problemshould take precedence during the finance func-tion redesign process.

In interpreting a criticality index, it is important toremember that a reality check should be used toensure that the resulting priorities based on theproduct of P, S, and D really make sense in lightof the final analysis. Because the three underly-ing variables are themselves the outcome of asubjective evaluation, it is important that they belooked at separately and in tandem (as C) by theredesign team to ensure that the suggestions fitwith other key indicators and business priorities.

Understanding and placing safeguards to protectthe finance function redesign process (and enter-prise) from preventable risks is an essentialphase of the project. While no one tool or set oftools can guarantee that failures and problemswill not occur, the simple act of openly exploringand discussing these risk factors can help elim-inate many and dampen the effect of any thatcannot be avoided. Having taken these steps,attention now turns to creating a humanresources policy for finance that can support theredesigned processes and provide enhanced

service and support for both internal and exter-nal customers.

Establishing a Human Resources Strategyfor FinanceOrganizations today need the finance function tobecome more involved in influencing businessoutcomes. This new mandate requires financialprofessionals to expand their competencies andmove from simply managing financial data tohelping key internal stakeholders apply it tostrategic decision making.

Chief financial officers (CFOs) are increasinglyplacing people issues at the top of their prioritylists. Changes in technology and financeprocesses, such as the movement towardshared service centers, have in many cases out-paced the ability of finance people to change. Tomeet these challenges, companies are begin-ning to deploy formal models for assessing cur-rent and required competencies for each majorarea of the finance function.

The work in finance is people dependent. For thisreason, if no other, the importance of an effec-tive, comprehensive human resources strategy

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EXHIBIT 12. FAILURE ANALYSIS CHART—BILLING PROCESS

is hard to overstate. A competent staff remainsone of the defining factors of the quality, effec-tiveness, and efficiency of the finance function.Organizations use a number of approaches withregard to training and education for finance staff,which include:l building comprehensive programs;l filling curriculum gaps after an assessment of

finance competitiveness; andl targeting skills that promote cross-functional

behaviors.

Underlying these approaches is the desire toprovide finance with a consistent foundation ofskills.

Creating a human resources strategy for thefinance function begins with assessing the cur-rent skills and competencies of the finance staffagainst the projected short-, intermediate-, andlong-term objectives of the function. Forinstance, Rhone-Poulenc Rorer Inc. began identi-fying key competencies when the finance organi-zation turned its attention to several improve-ment initiatives driven by internal customers—people such as the general manager of opera-tions and senior people at various levels of thecompany who rely heavily on finance for support.

These customers pinpointed some businessareas in which finance could improve their servic-es. Among the areas identified were planningand budgeting, resource allocation, and systemsand technologies. Internal customers also askedfor improvements in the knowledge and interper-sonal competencies of financial professionals.In particular, customers said financial peopleneeded a broader understanding of business.

Related to this competency gap was the need forfinancial people to have better management andleadership skills, so they could present financial

information in a way that made it easier to acton. They also needed the ability to work morecooperatively with management teams to helpthem make decisions.

Some of the key objectives of this effort byRhone-Poulenc Rorer included:l articulating the competencies needed now and

in the years ahead;l causing the role of finance to evolve toward a

business partnership with operating units;l changing the organizational structure of

finance from a centralized, narrowly focusedone to an outward-focused organization; and

l developing a training and development strate-gy to ensure needed abilities can be acquiredby qualified staff.

The key to moving from the “as is” finance capa-bilities to those needed to support theredesigned processes and key customerrequests for support is to understand whichskills and competencies currently exist andwhich ones the current staff need to develop.Making this assessment is supported by toolssuch as finance competency modeling.

Finance Competency ModelThe finance competency model is a tool that con-veys the competencies financial staff must pos-sess to achieve the mission of finance. Themodel is useful in developing personnel able tocomply with organizational changes resultingfrom redesigned processes. It is used by manyorganizations to: 1) identify core skill setsrequired, 2) identify the personal changes indi-viduals need to make to meet new expectations,and 3) act as the basis for reestablishing careerpaths. The finance competency model places anobjective framework around the human resourcechallenges in finance function redesign.

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For instance, if the payables area is beingredesigned, it may become important for every-one within the area to have high-level networkelectronic data interchange/electronic fundstransfer (EDI/EFT) capabilities and enhanced per-sonal communication skills. These new compe-tencies would be identified, defined, and meas-ured through a new series of performance meas-urements that would be added to the review andincentive system for the payables process.

The finance competency model (illustrated in theappendix) was developed at Knight-Ridder, Inc.,the global information company and publisher, toidentify the basic skills and competenciesrequired to meet the demands of its financefunction.

Knight-Ridder uses its finance competency modelas a career planning and evaluation tool to helpindividuals plan and execute their personal strate-gies. Each position within finance has a specifiedlist of skills and competencies, along with arequired level of proficiency for the attribute.

Employees seeking to move into a position areexpected to pursue training, education, andexperiential opportunities to fill the gaps in theirskill set or to improve their proficiency to meetthe required level of performance for the job.People gain control over their career paths, andthe structure and performance of the financefunction’s key processes are stabilized throughthe use of the finance competency model.

Because competency modeling affects the wayemployees perform their jobs and theirprospects for career advancement, companiesmust clearly communicate the reasons for it andits relationship to business strategy.Competencies are often first implemented inbusiness units or functional areas where the

need to change is the greatest. To ensure com-petency initiatives take hold and are truly effec-tive, a designated person or group of peopleshould assume responsibility for managingfinance competency development programs.

When the assessment supported by the compe-tency model is complete, attention can turn tothe creation of training and development pro-grams to improve current skill levels and insti-tute new competencies where needed. Individualcareer paths should be developed in tandemwith the overall human resources strategy forfinance if the optimal benefit and impact is to begained from these efforts. Developing clear, con-cise goals, objectives, and measurements forindividual improvement increases communica-tion and understanding by the staff of manage-ment’s expectations. Tying compensation to spe-cific achievements is the final link in the financehuman resources strategy, providing ongoingincentives for continuous improvement, learning,and skill building.

With a defined human resources strategy inplace, the redesign initiative is finally ready forthe most difficult of all phases: planning andimplementing the transition to the redesignedprocess.

Planning and Implementing the TransitionThe implementation and transition step of afinance function redesign is typically the mostchallenging aspect of the effort, providing maxi-mum risk and minimal predictability. A processredesign project can have an extremely disrup-tive effect on operations if special care is nottaken. This is in stark contrast to more con-trolled, less disruptive continuous improvementinitiatives that use incremental changes to a rel-atively stable process over a long period of time.

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In addition, where continuous improvementefforts are normally initiated and executed byprocess owners, finance redesign initiatives aremost often driven by senior management. Theimplication of this top-down emphasis is that theimplementation phase of finance functionprocess redesign is shaped by human resourcesissues and challenges.

Four guiding principles ensure that the humandimension of a redesign supports, rather thandestroys, an implementation. They include:l engaging people;l providing leadership;

l supporting the change; andl planning the change.

Exhibit 13 provides a methodology for analyzingand understanding the organization’s perfor-mance capabilities on these four dimensions. Itcan be used to identify the root cause of barriersto change and to create a methodology foraddressing these issues.

The combination of these assessments andanalysis gives rise to the objectives for the plan-ning and implementation phase, which include:

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EXHIBIT 13. GUIDING PRINCIPLES FOR MANAGING ORGANIZATIONAL CHANGE

Source: Society of Management Accountants of Canada, 1995: 15.

l assessing the organization’s capacity forchange;

l developing a strategy and plan for the transi-tion to reduce the risks of failure, miscommu-nication, and negative behaviors and results;

l executing the plan through development ofsupport infrastructures, communication roll-out efforts, education and training, and devel-opment of measurement systems; and

l developing methods for recognizing andassessing resistance to the change.

Given the importance of the transition plan, afinance function redesign effort should pay signif-icant attention to this area of the project, usingone or both of the following tools and techniques:l phase-in decision matrix; andl change-orientation matrix.

Phase-in Decision MatrixIf the changes to the existing financeprocess(es) are extensive, they will need to bephased in over a period of time to allow theorganization and its employees to adjust to theimpact and nature of the redesignedprocess(es). Recognizing that it is important to

implement those changes that will have thegreatest benefits first, it is important to create aphase-in approach that will build commitment tothe effort and give everyone confidence that theredesign initiative will succeed. Several issuesneed to be addressed at this stage, including:l how changes can be grouped or classified to

identify those that can, and possibly must, beimplemented simultaneously;

l how much cycle time reduction and/or costreduction, for instance, can be gained by imple-menting a specific set of the changes; and

l how much risk is involved in implementingeach set of changes, using whatever risk crite-ria are most important to the process, theorganization, and its customer to set the rangeand values on the risk assessments made.

The phase-in decision matrix, as shown in Exhibit14, can be used in conjunction with this informa-tion to decide where to begin the implementationprocess based on the relative tradeoffs of risksand benefits that the various changes represent.

The phase-in decision matrix makes it fairly easyto compare actions in terms of the relative risks

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EXHIBIT 14. PHASE-IN DECISION MATRIX


and benefits. The actual size of the matrix willdepend on the degree of detail needed to under-stand these risk factors.

Interpreting the matrix, any changes that fallwithin the lower, farthest-right cell (low risk andhigh benefits) should be the first ones to be con-sidered for implementation. The final decisionwill need to reflect the preferences of seniormanagement and their satisfaction with the per-ceived degree of risk the change entails. Thetime required to achieve the expected results isanother factor that will need consideration;those changes with the fastest results will oftenbe preferred over other options.

The phase-in process can be developed usingthe matrix to define specific stages that will min-imize the risks and maximize the benefits of theredesign initiatives. As the project moves fromearly to late stages, the associated risks willtend to increase while the potential benefits willdiminish. It may be important to find a way tolimit the change process to the major efforts thatyield the optimal amount of improvement withminimal resources and time requirements usinga logic similar to Pareto’s law (80 percent of thebenefits are due to 20 percent of the efforts).For those activities that fall in the low-benefit,high-risk part of the matrix, the redesign teamshould seek to find substitute activities or out-puts that can be used to eliminate the step fromthe redesign initiative.

Having developed a phase-in matrix and risk-adjusted view of the transition plan, attentionturns to detailing the change management strategy.

Change-Orientation MatrixEven when the support for the process initiativeis substantial, resistance to change should be

expected. Mapping a way around major barriersand finding innovative ways to increase supportfor the new process drive the use of the change-orientation matrix.

The goal during this phase of the financeredesign effort is not to sell change but rather toengage the stakeholders in the change processby inspiring them to ask and answer the follow-ing question: “Why is this important to me?” Ifpossible, champions for the change process whohave major influence with key decision makers oropinion leaders in the organization should beenlisted to support the project.

The change-orientation matrix depicted in Exhibit15 is a tool that has proved useful for organiza-tions seeking to understand where individualsare in their capability and willingness to embracethe desired change in behavior and action. Thismatrix is based on the assumption that peopletypically pass through five stages of “mourning”in their abandonment of one behavior/attitudefor a new one: denial, resistance, indifference,acceptance, and commitment.

The vertical dimension of the change-orientationmatrix emphasizes the fact that there is, foreach stage of acceptance, a level at which a per-son identifies with the change process. Changesthat people feel will have personal impact arelogically the most important to them, and hencethe ones most likely to meet with resistance dur-ing the change process. As the changes moveaway from the individual out to the organizationat large, the willingness to explore the change,experiment with it, and embrace it all increase.Understanding where a specific barrier lies interms of individual, team, or organizationalimpact can help the redesign team identify therisks that the change may represent, craft plans

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for dealing with this risk, and/or adjust the tran-sition plan to avoid or eliminate the problem.

The change-orientation matrix is a practical toolthat helps the redesign team determine wherethe various individuals stand in relation to thespecific change issue, providing a sound basisfor effectively moving them toward the commit-ment stage. The matrix can also help the teamidentify persons who could serve as championsor leaders of the change process.

To complete the change-orientation matrix, thedesign team should listen to the comments indi-viduals make when they are discussing a specif-ic change issue and then interpret where in thestages and levels this comment should beplaced. A single matrix should be used for eachchange issue, with the name of persons attachedto the figure to correspond to their specific atti-tudes and to develop a specific change manage-ment strategy to deal with the problem. Theresulting information should be kept in the privatearchives of the design team to ensure that com-ments and attitudes do not lead to downstreampunitive behavior or negative attitudes.

Throughout the change process, it is critical tounderstand that finance process redesign has

an impact on people, their jobs, their security,and their attitudes. If a change effort does notactively seek to reduce the stresses placed onthe human system, the human system willdestroy the change process or limit its effective-ness. Change takes place through people, not inspite of them.

Having created a strategy for change, theredesign initiative now turns toward monitoringactions and results to ensure that the process isoperating as desired.

Monitoring Actions and Results of FinanceRedesignFinance has no sure way of knowing whether ornot its process changes have produced thedesired results unless it takes meaningful perfor-mance measurements once the plannedchanges have been put into place. Theseassessments should not wait until the redesignis completed but should be used as part of theongoing milestones and evaluation of projecteffectiveness to keep the initiative on track. Thecontinuous improvement of the process requiresthis ongoing and active feedback, as well as anassessment of delivered project benefits.

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EXHIBIT 15. CHANGE-ORIENTATION MATRIX

For example, a critical success factor for thefinance redesign efforts at Electronic DataSystems Corp. (EDS), the $12 billion informationtechnology service company, was a communica-tions plan built around the tracking of key met-rics, which are distributed to management in reg-ular reports. This information is also displayed inthe so-called “Vision Room” and “Reflection ofChange Room,” which contain charts and graphsthat tell the EDS reengineering story. Employeesuse the rooms to track findings, goals, direction,and milestones (staff development informationis also available). Prospective customers areoften given a tour. And recently, EDS began dis-tributing this information on a global basis via itsinternal intranet.

In assessing the performance of a financeprocess, whether before or after it has beenredesigned, organizations are typically interestedin two types of measurements: those that pro-vide some indication of overall performance andthose that tell them something about what goeson within the process. At the heart of this effortis an overall agreement on two basic issues: 1)the parameters to be measured are valid andcritical indicators of process performance; and2) the methods that will be used to collect meas-urement data are valid and reliable. Primaryobjectives for this step emerge. They include:

l identifying measures that can be aligned withspecific customer values or strategic objec-tives of the organization;

l ensuring that the measured results are con-trolled or influenced by the process ownersand operators;

l developing complete measurement systemsthat can be acted on to improve performanceon the measured dimensions;

l choosing performance dimensions that can bequantified in a meaningful, realistic way;

l developing a set of measures that are simpleand few in number and that can be easilyexplained to employees; asking whether themetrics focus employee attention on keyareas;

l creating measures that are credible and resist-ant to manipulation; and

l developing an integrated set of measures thatcan be cascaded or linked down through theorganization and that are compatible with relat-ed processes and functions.

Key tools and techniques that support thisphase of the redesign initiative include:l a process performance measuring system;

andl statistical process control.

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EXHIBIT 16. PROCESS PERFORMANCE MEASURING SYSTEM

Process Performance Measuring SystemDeveloping and maintaining a systematic pro-gram for monitoring and recording financeprocess performance allows the process ownersand operators to identify process variations overtime and the root cause(s) of these problems.

A process performance measuring system canbe used to aid the organization in addressingthis challenge as depicted in Exhibit 16. Tieddirectly to process improvement efforts, thereare three main elements in a process perfor-mance measuring system. These elements aremeasurement, evaluation, and action.

During the measurement stage, data is collectedand recorded using some previously definedmethodology, such as statistical process control.Measurement points chosen should reflectwhere the design team feels the greatest oppor-tunities for performance improvement lie orwhere failures are most likely to occur.

Evaluation within the system emphasizes thecomparison of the defined measurements withsome objective criteria of performance, such asbenchmarked data or customer specifications.The output of these comparisons can serve as acall to action.

Statistical Process ControlMany finance organizations have benefited fromapplying the concepts of statistical process con-trol (SPC) to their business processes. SPCoffers a formal system for measuring and track-ing finance process performance using basic sta-tistical concepts and charting techniques.

The SPC chart provides a visual record ofchanges in certain key parameters and, as such,serves as a useful tool for identifying actual andimpending problem conditions. By indicating

process variance over time, the chart may alsosuggest areas where breakthrough improve-ments in finance performance can be achieved.

For example, Advanced Micro Devices, Inc.(AMD), a leading supplier of integrated circuitsfor devices that connect computer networks, wasable to cut its closing process from as many as15 working days to just three by applying SPC.Using SPC, the redesign team mapped the closeprocess in each of AMD’s subsidiaries and com-pared what finance was doing with what it intend-ed to be doing. The mapping uncovered stepsthat were not value added, as well as major prob-lems in the process, such as foreign currencytranslations and delays in inventory valuation.

The finance group at AMD’s manufacturing facili-ty in Penang, Malaysia, applied the methodologyrigorously, plotting to the minute the time itshould take to complete each activity. What itrevealed was a four-day process that includedtoo much slack time in several activities andwide variations in the point at which the groupactually completed the close each month.

As the SPC chart illustrates in Exhibit 17, begin-ning in July 1992, finance was able to cut a dayand a half out of the close almost instanta-neously, eliminating the need for worker overtimeand reducing process variability.

General Electric’s finance managers play a signif-icant role in Chairman Jack Welch’s latest high-profile campaign to build a competitive advan-tage. Known as Six Sigma, the program trainsnearly 100,000 employees in high-level statisti-cal analysis in order to eliminate inefficienciesand defects, not just in manufacturing but in allbusiness processes, from order taking to invoic-ing. The idea is to move every customer-related

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process toward near perfection and at the sametime enhance operating margins.

V I . CONCLUSIONFinance function redesign provides finance man-agers with the insights, structures, and toolsrequired to attain quantum improvements intransaction processing needed to free upresources for new tasks, develop new skills andcompetencies, and provide enhanced supportservices.

Achieving these performance and serviceenhancement goals begins with the decision toredesign the finance function and continues forthe life of the organization as new challengesand new approaches are adopted and mastered.Finance function redesign is a journey, one that

begins with understanding the potential for theprocess, its role in the overall strategy and struc-ture of the organization, and the opportunitiesthat improvement will provide to everyone. World-class finance functions are a work-in-progress,not a completed work of art.

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EXHIBIT 17. SPC CHART FOR ACCOUNTING CLOSE

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APPENDIX: FINANCE COMPETENCY MODEL—KNIGHT-RIDDER

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BIBL IOGRAPHY

BenchmarkingCamp, Robert C. Benchmarking: The Search for

Industry Best Practices That Lead to SuperiorPerformance. Milwaukee, WI: QualityPress/American Society for Quality Control(ASQC), 1989.

Business Process RedesignCaudle, Dr. Sharon L. Reengineering for

Results—Keys to Success from GovernmentExperience. Center for InformationManagement, National Academy of PublicAdministration, August 1994.

Davenport, T.H. Process Innovation:Reengineering Work through InformationTechnology. Cambridge, MA: HarvardBusiness School Press, 1993.

Hammer, Michael, and James A. Champy. “Whatis Reengineering?” Information Week (sup-plement), May 5, 1992.

Harrington, H. James. Business ProcessImprovement. New York, NY: McGraw Hill,1991.

Roberts, Lon. Process Reengineering: The Key toAchieving Breakthrough Success. Milwaukee,WI: ASQC Quality Press, 1994.

Robson, G. Continuous Process Improvement:Simplifying Work Flow Systems. New York,NY: The Free Press, 1991.

Rummler, Geary A., and Alan P. Brache. ImprovingPerformance—How to Manage the WhiteSpace on the Organization Chart. SanFrancisco, CA: Jossey-Bass, 1990.

Schnitt, David L. “Reengineering theOrganization Using Information Technology.”Journal of Systems Management, January1993.

Texas Instruments. Business ProcessEngineering Concepts. Plano, TX: TexasInstruments, 1992.

The Economist Intelligence Unit. Excellence inFinance: Transforming the Business. NewYork, NY: Arthur Andersen, 1998.

Wilder, Clifton. “Measuring the Payoff fromReengineering.” Computer World, November1991.

Change MeasurementDinsmore, Paul C. Human Factors in Project

Management. New York, NY: Amacom Books,1990.

Society of Management Accountants of Canada.Management Accounting Guideline #34,“Managing the Human Aspects ofOrganizational Change.” Hamilton, Ontario:1995.

Process MappingGalloway, Dinne. Mapping Work Processes.

Milwaukee, WI: ASQC Quality Press, 1994.General Electric Company. Six Sigma, Its

Application at GE Aircraft Engines. Cincinnati,OH: 1997.

Hunt, V. Daniel. Process Mapping, How toReengineer Your Business Processes. NewYork, NY: John Wiley and Sons, Inc., 1996.

Quality Function DeploymentGuinta, L.R., and Nancy C. Praizler. The QFD

Book. New York, NY: American ManagementAssociation, 1993.

Performance ManagementInstitute of Management Accountants.

Statement on Management Accounting,Tools and Techniques for ImplementingIntegrated Performance ManagementSystems. Montvale, NJ: 1998.

Redesigning the Finance FunctionFinancial Executives Research Foundation.

Reengineering the Finance Function, pre-pared by The Hackett Group. Morristown, NJ:1995.

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Institute of Management Accountants.Statement on Management Accounting,Redesigning the Finance Function. Montvale,NJ: 1997.

Keating, P., and S. Jablonsky. The Changing Rolesof Financial Management: Getting Close tothe Business. New York, NY: FinancialExecutives Research Foundation, 1990.

Palmer, Richard J. “Reengineering Payables atITT Automotive.” Management Accounting,July 1994.

Sighvi, Virendva. “Reengineer the PayablesProcess.” Management Accounting, March1995.

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