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Improving on the Entity Close Process

By Elizabeth Milne, Sr Director, EPM Product Marketing, SAP

Originally published on SAP Analytics, 27 March 2015. Reposted with permission.

As part of our ongoing accounting and financial close series, today we’ll discuss best practices in entity close management.

So far in our blog series, we’ve addressed a number of different things that need to be addressed during the close process. Managing the entity close process is about keeping track of each of these different things that need to happen during the close process.

Many organizations manage this process with a check list, typically in Excel. Each entity within an organization needs to close their books and this involves many steps and often multiple people. Often different parts of an organization will manage subsets of the close, like by division or by geographical location. As such, many excel checklists are used to manage the process. As with most steps of the financial close process, such manual activities are error prone and time consuming. Managing the entity close process is one that can benefit from standardizing, centralizing, and automating.

Peter Drucker said “What gets measure gets managed.” Measuring and monitoring the close process is the best first step in improving the process as a whole. With manual processes like Excel, check lists measuring can be difficult – not impossible, but not necessarily easy. There are several technology tools available, such as SAP Financial closing cockpit, that can help to standardize, centralize, and automate the entity close process.

Let’s walk through four steps of entity close management:

Close Management Graphic

Step One: Plan

Centralizing and standardizing are key to the planning step. Assess all the different checklists that exist in your organization and design templates for each closing process (monthly, quarterly, and annually). Cross referencing each entity’s close process can help identify best (and worst) practices. Templates all may vary by entity type or regional differences. For example, they may handle local tax processes or handle a plant close for different types of manufacturing methods.

Asses all different types of tasks, including the following:

  • Notes to document instructions for manual tasks outside of any system or for sign-off tasks.
  • Calling up a transaction that needs to be executed, such as opening the next period for posting or posting journal entries for accruals
  • Calling up programs that you want to run online, such as a balance sheet report
  • Batch jobs, such as fixed asset depreciation
  • Process flows that include dependencies between programs and system jobs, for example, in product costing where the sequence of calculating work in process (WIP), then calculating variances, then a settlement run for posting the results to the appropriate accounts must be maintained.

Step Two: Execute

Once the plans have been made it’s time to execute. Based off of the templates created in the previous step, now create a task like with absolute dates and start cracking. Automation is a key factor in this step. Evaluate what steps could possibly be automated. Leveraging a scheduling tool such as SAP Central Process Scheduling by Redwood can be extremely valuable to help with automation of tasks. With such tools you can schedule task execution and monitor the results to ensure there were no issues running tasks.

Entity close management tools such as SAP Financial Closing cockpit have the ability to send notifications via e-mail once tasks are complete to streamline the execution of the next step. Additionally, such tools make it easy to track detailed status information on each task (who, what, when).

You can gain access to all system-created documentation (job logs, spool lists, application logs) and users can add additional external documentation to tasks. While you can manually track all these things in an Excel document entity close management tools can securely store all results with comprehensive audit trail.

Step Three: Monitor

By monitoring the entity close closely, you can identify issues, overdue tasks, and resource bottlenecks early in the close cycle before the overall close schedule is impacted. With tools such as SAP Financial Closing cockpit you can drill down on each task to view its status and other details that have been documented about the task. You can use notes and attachments to document any collaboration or the resolution of any issues that you encountered. For automated tasks, such as programs that were run, you can directly access system logs and spool lists from the SAP Financial Closing cockpit without needing to search for them. Plus the system provides a complete audit trail for configuration and execution. You can easily analyze any kind of status change, how often a task was executed, or who added or changed notes and attachments.

Whether leveraging an automated tool or not, creating a graphical dashboard to obtain an overview of the financial close can be a useful way to monitor the close process. You can create key performance indicators (KPIs) and calculate statistics, such as the percent of completion of the close, to allow you to quickly monitor the overall progress across regions and time frames. This enables managers, at head-quarters, shared service centers, or subsidiaries to monitor the closing process on their levels of responsibilities. Being able to monitor effectively helps the whole process run smoothly.

Step Four: Analyze

Being able to effectively analyze the results of a close process with a manual process leveraging Excel can be extremely difficult. Entity close management tools can automatically record the results. By results in this case, I don’t mean the financial statements that are produced by the close process, but the actual time it took to execute each task. You can analyze how long it took to complete each task and also compare it to the plan that you created with how long you expected that task to take.

Having the ability to analyze this makes it easy to identify bottlenecks in the process, and thus areas for improvement. You can also compare across entities and see which entities are closing faster than others and they can then share best practices with each other to improve their close processes. And lastly you can trend performance over time to see where you’re improving and where you’re losing efficiency.

In conclusion, “What gets measured gets managed.” Whether you leverage a manual process or leverage a tool such as SAP Financial Closing cockpit, measuring the close process itself is the first step to improvement.

To view all the blogs in the series, click here.

Elizabeth Bio & Pic