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Process Improvement for Effective Budgetting and Financial Reporting
By Nils H. Rasmussen Christopher J. Eihorn Corey S. Barak Toby Prince
John Wiley & Sons
Copyright © 2003
Nils H. Rasmussen, Christopher J. Eihorn, Corey S. Barak, Toby Prince
All right reserved.
ISBN: 0-471-28114-X
Chapter One
ABOUT BUSINESS PROCESS
IMPROVEMENT
INTRODUCTION
What is business process improvement (BPI)? It is a systematic methodology developed
to help an organization make significant advances in the way its business
processes operate. Business process improvement is not a new concept (See Exhibit
1.1). It has been around for as long as there have been businesses whose owners/
managers have consciously (or unconsciously) pursued changes to improve the way
different activities in their business were handled. Modern BPI projects can range
from the very extensive and expensive, involving everyone in the organization, to
short-term and highly focused, involving just a few people.
Improving budgeting and reporting processes does not have to be a major undertaking
but the payoff should make the effort well worthwhile. That said, if you
intend to achieve major and highly visible improvements, plan to spend significant
amounts of time, money, and resources on the project. If you are in a midsized to a
large company, you will have to involve a number of people in the project, and no
doubt many "political" opinions will have to be heard along the way.
As the popularity of modern analytics software and related Web-based technologies
has grown since the end of the 1990s and into the millennium, there has been a lot of talk about workflow. Too
many organizations today mistakenly think that
such software itself can take care of their necessary workflow changes, hence they
do not put enough effort into revamping their internal organizational processes before
implementing new technology.
Few, if any, corporations can claim to have perfect processes, and by carefully
breaking down budgeting and reporting processes into small components, each activity
can be analyzed, then improved. The three major objectives of BPI are:
1. To make processes more effective by providing the desired results.
2. To make processes more efficient by minimizing the resources used.
3. To make processes more adaptable by changing when businesses and customer
needs change.
WHY FOCUS ON BUDGETING AND REPORTING PROCESSES?
This book covers BPI for budgeting and reporting. No company yet can claim a perfect
score in these two areas. Throughout the years, many organizational processes
(e.g., manufacturing, customer relationship management (CRM), etc.) have received
considerable attention and resources for improvement. But, the processes that drive
a company's budgeting and reporting activities have not changed much, except for
more recent technology advances. Consequently, a large number of companies have
invested in new budgeting and reporting software without giving any thought to
also improving their internal processes. Many people even think that new technology
alone will streamline their business. In most cases, this mind-set will dramatically
reduce the return on investment (ROI) in any technology and it will not contribute
to an analytical environment necessary to enhance a company's competitiveness.
For any improvement project to be successful, the goals should be clearly established
before undertaking any activities, and that goes for budgeting and reporting
process improvement as well, for these reasons:
It helps prepare the organization to address future challenges.
It aids in preparing a financial and statistical measurement system.
It provides guidance in setting realistic targets that the organization can work
toward, as well as a road map of how to reach them.
It puts the budgeting and reporting activities in a system.
It helps explain how budget input eventually leads to report output.
It offers guidance as to why errors are made and how to avoid them.
It provides a means to predict and manage change.
It improves the company's competitiveness by improving key aspects of the
planning and decision-making process.
POSITIVE EFFECTS OF BPI
A number of positive effects of BPI are clearly identifiable:
Improved reliability of business processes
Improved response times (e.g., ad hoc reports and on-the-fly forecasts)
Lower costs
Improved customer (i.e., users of reports/budgets) satisfaction
Improved employee morale
Reduced bureaucracy
Improved quality of reporting
Better financial control
IMPLEMENTING CHANGE
Change equals opportunity, but bringing about change is not easy, as it often is met
with skepticism and resistance. However, as the positive effects of a successful budgeting
and reporting process improvement become visible, the resulting benefits will
far outweigh the initial difficulties of implementing the change. According to James
Harrington, by many considered the father of BPI, there are 10 rules to follow to
guide a change process:
1. There must be a vision of a desired future state that everyone sees and
understands.
2. The organization must believe that change is important and valuable to its future.
3. Existing and potential barriers must be identified and removed.
4. The whole organization must be behind the strategy to achieve the vision.
5. Management has to model the process and set an example.
6. Training must be provided for the required new skills.
7. Measurement systems must be established so that results can be quantified.
8. Continuous feedback must be provided to everyone involved.
9. Coaching must be provided to correct undesirable behavior.
10. A recognition and reward system must be established to effectively reinforce
desirable behavior.
Though these items were written to apply to full, organizationwide BPI and
reengineering efforts, they can be applied to the budgeting and reporting process as
well. This effort simply takes less time and resources than an organization wide
change.
PHASES OF A BPI PROJECT
A BPI project can be divided into five logically organized phases (see Exhibit 1.2):
1. Research. Research current processes, and document the improvement opportunities
so that the level of improvement achieved by the BPI project can be
measured later. Wherever the research phase uncovers significant improvement
opportunities, these will be documented and used in the "sales pitch" to
the organization in phase 2.
2. Sell. If the research phase uncovers enough improvement opportunities to make
it worthwhile to go ahead with the BPI project, this phase focuses on creating
a sales pitch to achieve management buy-in, and then to sell the project to the
rest of the organization.
3. Plan. Create a detailed project plan that describes each activity in the project,
including the people involved.
4. Design. Streamline old processes and design new ones, as required. An important
part of this phase is to document any new processes.
5. Execute. Implement the new and improved processes, measure and record improvements,
and make necessary adjustments.
Much of this book will focus on phase 4, the design of the business processes,
as this is usually the greatest challenge for a company. The following delineates the
methodology employed in the design phase:
1. Break up each process in subprocesses, activities, and tasks (see Exhibit 1.3).
2. Identify improvement opportunities:
By focusing on obviously weak areas.
By observing best practices, competitors, outside consultants, and other
resources.
3. Select changes to implement.
4. Adapt changes to own administrative processes and needs.
5. Document the new processes.
All the project phases come together in a BPI project plan and the accompanying
documentation.
CORE BUDGETING AND REPORTING PROCESSES
Following the introductory chapters, this book discusses in detail how to improve
your budgeting and reporting processes. But, before delving into a more detailed
analysis of these processes, it is necessary to present an overview of the core activities
typically involved in budgeting and reporting processes (see Exhibit 1.4). And as
you start analyzing and redesigning your own processes, remember that a key part
of BPI is to assign an individual as owner of each critical business process.
CLOSING REMARKS
Finally, before moving on, it's important to look at some of the key factors that will
be important to the success of your project. In particular, if you have already decided
to go ahead with a BPI project, the following items should be on your mind as you
start planning:
Ongoing support from management. Don't start, or continue, a BPI project
without first assuring that key decision makers are with you and will provide
the necessary support.
Long-term commitment. The last thing you want is to start a project and then
discover that the people involved are not committed. This can be avoided or
minimized by putting the right people on the team, as well as by good planning
and information flow.
Effective implementation methodology. All successful projects start with a plan.
Don't underestimate the value of thinking about the big picture as well as the
details, in terms of:
What you want to achieve
How it is going to be done
Timeline for implementation
Assigned process owners. For each process that is part of the project, a process
owner should be assigned. This will help ensure that there is one person to go
to for related questions and information.
Measurement and feedback systems. This is more important for larger BPI projects
in which a significant investment is being made and for which it is important
to measure the return on investment and the level of improvement achieved.
Creating a feedback system through which information about progress and is-sues
flow back and forth easily will help ensure success of the project.
Focus on the process. During a BPI project, many issues and problems will come
up. Software solutions, interpersonal conflicts, and so on can easily over-shadow
the objectives. Along the way, don't lose sight of the processes that you
have set out to improve.
You will read more about the these items in Chapter 7.
(Continues...)
Excerpted from Process Improvement for Effective Budgetting and Financial Reporting
by Nils H. Rasmussen Christopher J. Eihorn Corey S. Barak Toby Prince
Copyright © 2003 by Nils H. Rasmussen, Christopher J. Eihorn, Corey S. Barak, Toby Prince.
Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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