We’ve discussed the reasons for human error in finance departments, and how you can prevent it from a staff and data management perspective.
IBM gives a succinct explanation on the importance of resolving human error in financial processes:
Relating this expression to the processes owned by the finance team, the house that most often needs to get in order is the Close, Consolidate, Report & File process, or CCRF. The timeliness and accuracy of this process are pivotal for company survival. Still, many companies struggle with this process for many reasons.
The early financial reporting grave that you may find yourself in when your processes are too unwieldy is dug by many different hands, but the funeral is held at your stakeholders’ offices.
We look in detail at the impact that human errors have on your stakeholder confidence and investment opportunities.
The Harvard Business Review shares a pretty ‘Doom and Gloom’ take on this kind of error – with reference to the banking crisis of 2007, and how financial reporting played a key role in the end of Enron.
However, even though that is an example that seems like the ‘Titanic’ of reporting shortfalls (or even manipulations), there are some great insights to take from it.
First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith. Second, standard financial metrics intended to enable comparisons between companies may not be the most accurate way to judge the value of any particular company—this is especially the case for innovative firms in fast-moving economies—giving rise to unofficial measures that come with their own problems. Finally, managers and executives routinely encounter strong incentives to deliberately inject error into financial statements
Investors need to make decisions. Decisions are influenced by the financial performance of your company. Financial performance reporting, in turn, is heavily impacted by the people who manage the reporting process.
Implementing a good FP&A system in your business, and setting it up correctly, can help you to ensure that your investors know the score, and have access to a transparent reporting infrastructure. This inspires investor and stakeholder confidence and allows your business to efficiently deal with any funding, production, or investment shortfalls through accurate and well-planned budgeting.
In addition, the solution will give you a steady, accurate, and timeous reporting structure, that gives your investors and stakeholders an accurate and realistic picture of your business.
Words by Alison Krumm
To find out more about our FPM solutions, or to submit queries about Financial Performance Management that you would like us to cover in this series, let us know by emailing danielmcw@cortell.co.za