Every investment a company makes is an answer to the same question, whether anyone puts it this way or not:
“How will you justify this?”
If the tone of the question puts you on the defensive it’s supposed to.
The term “justify” has its roots in theology. By justifying yourself, the classical definition meant you were showing your actions are right, reasonable and good.
Finance and business leaders might feel compelled to add “strategic” to that list. In other words, anything the company invests in should not only be reasonable but help achieve corporate objectives.
Whether you’re investing in hiring a new person or simply replacing a printer, justification is often more complicated than it sounds.
In most cases, you’re not just making a one-time investment. There are ongoing expenses to continue developing that new hire. Even the shiniest new printer will require regular purchases of ink and toner.
Now take a more substantial investment, such as a financial consolidation, close and reporting platform.
How can anyone possibly justify the initial outlay for such a complex piece of technology? And how can you possibly know what your true total cost of ownership (TCO) will be? If you’ve been plodding along with Excel, the justification might be even harder.
The only possible way – as is true with almost every aspect of running a successful company now – is with data.
New research to guide financial consolidation and close decisions
Some of the data you’ll need could come from within your own organization. However it’s also helpful to access third-party data that reflects what’s going on in the average business.
Nucleus Research Inc. is the kind of analyst firm that has a proven track record studying this kind of data. That’s why Fluence recently commissioned the company to develop a resource that could help finance leaders through this process. It’s called The Financial Consolidation And Close Solution ROI Framework.
As the report shows, this kind of framework is particularly necessary for complex companies. These are firms that are typically high-growth and have grown beyond a startup or small business. However they’re also not well-served by solutions that were conceived for the largest enterprises with significant IT resources, either. Complex companies have unique needs, which makes justifying an investment a more daunting exercise.
The point of this report is not to make it easy to justify any and all finance technology investments.
It’s a tool you can use to create a more constructive dialogue among the people involved in the decision. To build confidence in the decision that is ultimately made.
Here’s what Nucleus discovered through its research at a high level:
· TCO for the right solution pales in comparison with retired legacy technologies
· There are at least five solid revenue drivers when you make the correct choice
· You can speed up the close and ad-hoc reporting by orders of magnitude
· Modern financial consolidation and close platforms can bring critical but formerly hard-to-find data to light
· An overwhelming majority of finance leaders find adopting purpose-built technology has made their teams happier and more productive
Nucleus also found that complex companies can expect an average payback on a financial consolidation and close solution within a year. Best of all, modernizing financial consolidation and close should yield an average return on investment of between 50%-150%.
Tips to achieve maximum ROI (and lowest TCO)
Low TCO and high ROI don’t happen on their own, of course. It requires pairing the technology with an effective approach to deployment and management.
Fortunately, the Nucleus report isn’t limited to raw figures that can justify an investment. The framework also includes insight that can ensure what follows delivers on your business case.
1. Identify Specific Productivity Improvements
Yes, technology should broadly allow your organization to get more done. Yet the biggest ROI comes by assessing where increased productivity would bring value to your business first.
Although these areas could vary from one firm to another, Nucleus provides a handful of useful examples. These include:
· Automating the way data is formatted and flows across your organization
· The ability to generate reports automatically
· Customizing reporting with either low-code tools or even no coding at all
You can also plan for greater productivity by evaluating the people you have in various roles and what they’re paid. Then start to tally up the number of accounting tasks they could do faster after a deployment.
2. Quantify The Costs According To Risk And Opportunity
Too many companies are only one error away from financial disaster.
It can come through putting numbers out that are either inaccurate, outdated, or both.
It can come through the understandable fatigue of people doing manual grunt work.
It can come through not having a way to track all the changes that were made by people across the company.
Fears of making these kinds of costly mistakes can be one driver for investing in modern financial consolidation and close solutions. Ideally, though, these fears should be coupled with an interest in the opportunities to optimize costs as well.
Give yourself and your team the following self-assessment to balance the discussion around costs between risks and reward:
· What’s the total value of penalties we could avoid with more trustworthy numbers?
· How much could we save on outsourcing firms or short-term contractors to achieve a more efficient close?
· Where could we refocus our investment in talent around knowledge work, rather than data entry?
· What kind of hit will we take on legacy, on-premise solutions once the initial discounts we got expire?
· What IT maintenance and storage costs go away if we move financial consolidation and close to the cloud?
Note that each of these questions implies the kind of action you could take once a modern solution goes live.
You’ll be hiring differently (or avoiding unnecessary hires).
You’ll be shifting part of your IT budget from a capital expense to opex.
You’ll be conducting internal audits that pave the way for external audits that look a lot less scary.
3. Tie Organizational Agility To Revenue Targets
Handling organizational complexity depends upon being able to move without a lot of bottlenecks to squeeze through. One example is when determining whether to pursue a new project, becomes a project in itself.
Before developing a new product expanding into additional markets, for instance, most companies conduct a cost-benefit analysis. That’s when the drudgery can begin. The finance and accounting team might need to try and cull data from an ERP. Or multiple ERPs. If they’ve only managed finance data using spreadsheets, the detective work only becomes more onerous.
Getting a solid picture of your cash flow and a real-time view of financials should be straightforward. When a financial consolidation and close solution offers out-of-the-box functionality, it can be.
Nucleus suggests an intriguing idea: after you’re completed a successful initiative, don’t just do the regular post-mortem. Instead, try to calculate the revenue you would have lost if you’d acted more slowly based on your legacy systems.
Now estimate the revenue lift you get by using a new system to:
· Close off a “revenue leak” earlier than usual
· Absorb a new subsidiary more quickly
· Consolidate ERPs without hiring consultants
And so on. Agility, like productivity, becomes more valued by everyone in the business when it means more money coming in the door.
Summing Up: The Hard Truth About Soft Benefits
Accountants and finance teams have a natural inclination to want to measure the output of an investment with precision. As Nucleus points out, however, it’s not always possible.
Think about the possibility of dashboards that let you monitor all your essential key performance indicators (KPIs). That’s still relatively new in a lot of companies. We can’t know the full ROI because the smart people using them may benefit in ways we don’t yet understand. The only thing you can be sure of is that visibility into your operational performance is advantageous.
The same goes for employee morale. Yes, we might call it a “soft” benefit, but that’s only because human beings are complex creatures. We respond to streamlined processes and more fulfilling work in many different ways. With the fight to retain top talent greater than ever, though, you can’t afford to dismiss a strong employee experience.
In a sense, these soft benefits make TCO and ROI almost like moving targets. You might occasionally need to step back and take another look at both. In both cases, though, your priority should always be on improving over the long haul. I believe the research Nucleus has developed can help you do that. Download The Financial Consolidation And Close Solution ROI Framework and you’ll see what I mean.