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Should You Relegate Finance Tasks to Automation?

June 20, 2019
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Time to recognize the many advantages of employing automation in finance

One of our manufacturing clients here in the Pacific Northwest has been growing their business in the last 40 years but their main challenge remains finding and retaining qualified employees.  With the booming economy and record low unemployment this challenge is bigger than ever.

The company is currently evaluating and testing a range of fabrication robots that can be programmed and taught to perform repetitive tasks such as welding, replacing (actually filling in for those non-existent workers) manual labor with automated processes.

The advantages to this other than the obvious one of solving the labor shortage problem are consistency, lower cost as production quantities increase, better safety and improved quality.  Another advantage is that robots never complain, usually don’t get sick and generally show up for work on time.

Since it makes perfect sense to employ automation in industry, why not in accounting and finance functions?  No, I don’t mean replacing accountants and financial analysts with robots nor do I suggest employing a robot CFO.  What I mean is implementing computer and software systems that will help with important tasks in these business areas, to supplement the already existing systems and help deliver information and insight on the business that will aid management in making better decisions, quicker and with higher confidence.

Nowadays you would be hard-pressed to find a business that does not have a computerized accounting system – in fact, many organizations have multiple systems with the core system known as ERP (Enterprise Resource Planning) linked to one or more peripheral systems to perform automated collection of data, such as engineering data from design systems (CAD, CAM, etc.) or interact with marketing and sales activities (e.g.,  CRM).  This is increasingly becoming popular with web-based (cloud) solutions.

This is in sharp contrast to the early days of corporate computing when only the largest companies were able to employ such (and very primitive by today’s standards) technology.  It was not unusual to see a company use (or time-share) a mainframe computer (e.g., IBM System/360) just to perform bill of material processing, or just accounts receivable or maybe accounts receivable interfaced to a general ledger.

So, it makes perfect sense to exploit technology and put it to use wherever possible.  What is surprising to see is that finance functions do not always utilize the latest technology products and services.  It appears that in the daily rush to complete the various tasks, always under deadlines, there is no time or desire to investigate new alternatives to some of the manual operations.

Those engaged in internal or external audit of internal controls in accounting and finance know well that implemented automated controls are much more reliable than manual controls and therefore can undergo a lower level of testing (lower sample sizes) than their manual controls counterparts.

For example:  Automating the warehouse receipt process by scanning incoming shipments against approved POs and flagging out only the exceptions creates an environment where accuracy and completeness of transactions are nearly guaranteed, whether you receive 200 shipments per month or 5,000,000 across the enterprise.

Another popular example is implementing EDI (Electronic Data Interchange) and ensuring the same is done in all vendor locations – some large companies insist on vendors becoming EDI compliant before they are allowed to sell to the company.

With EDI automation, many business documents are transferred among various computers (e.g., between a customer and its vendors).  This eliminates manual entries with their inherent errors, low speed, inferior internal control over transactions, etc.

This implies that automation must also find its way into the office of finance.  Functions like planning, budgeting and analytics are perfect examples where automation should be welcome.  Moving all planning and budgeting functions from spreadsheets to purpose designed FP&A (Finance, Planning and Analysis) software applications is a natural choice and many companies have already taken that step.

The next step in automation is employing applications defined as “intelligent” in their area.  A good example might be an FP&A solution where all budget tasks are performed without entering formulas, functions and links, and where the budget, regardless of how many business entities participate in its preparation, drives a set of forecasted financial statements that look and behave exactly like the actual accounting financial statement, except they represent future accounting periods.

Having such information, coupled with actual accounting data, automatically transferred into the FP&A software at period end allows analytics to do its work and through automation there too, generate pre-determined, pre-formatted reports that are automatically distributed to their designated users who can quickly and clearly read, understand and make decisions with confidence.

Such systems, currently available to organizations of all sizes, including SMBs are starting to gain popularity and are replacing manual systems in all finance functions.  The users of such systems, however, still need to be of the human variety at this time.

Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software.  In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.

Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.

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