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February 15, 2010

Improving the Month-End Close Process

Our client, headquartered in New England, has expanded rapidly in recent years through mergers and acquisition. This resulted in significant system integration problems to the point which year-end financial statements literally took months to close – causing much consternation to shareholders and debt-holders.

 

The management team identified the pressing need to be able to close its month-end books in 8 days. BMA was asked to help in the Spring of 2009.

 

The first phase of our work was a two-day training event for the company’s finance team on process mapping and improvement tools. As part of this training, teams were selected to map the month-end close process and a current state map was developed. The key measures of the effectiveness of the process were also identified (notably activity cycle times, and waiting time at each stage).

 

Five weeks later (giving time to refine the process maps and gather data) we facilitated a three-day “kaizen” improvement event with the finance team. The finance staff had no previous experience of process mapping and had made a good attempt at identifying the steps in the month-end close process and in collecting data.

 

A significant amount of time was spent looking at the work that the team had done, reviewing the data and the maps, and exploring what each individual had observed and learned. The process map was not prepared in a fancy software suite but with sticky notes on brown paper, with delays and constrictions in the process highlighted in marker pen.

 

Further work was done to examine the root causes of the delays and constrictions to the process, in order to start to identify improvement actions. Key targets were set for improvement. These were to achieve the month end close in 8 days, and to minimise the amount of rework required (through additional postings and adjustments). The team then moved to map the “Future State”.

 

In order to achieve the improvement targets it became clear that the sequence of work had to be changed. Many activities could be started before the end of the period, and other activities could be simplified. One of the key delays identified was the time it took to get vital billing information from operational departments, and one of the most important action items from the kaizen for the finance team was to build closer working links with other departments.

 

The outcomes from the three-day kaizen were considerable and included a future state process map (the target state); a number of critical improvement action items delegated to sub-groups (many of these related to systems improvements); and a timeline of activities to be done by certain dates in the month in order to achieve the eight day close.

 

This timeline of activities is a key measure of performance for the company. Each month they can plot their progress against the timeline – highlighting any problems or delays as they arise so that remedial action can be taken promptly to get back on track. The Month End Close Timeline has become a significant visual tool for the finance team, and the project team continues to address the action items through a number of ongoing projects.

 

To be able to move from a horrendous month-end close process to a clearly planned and stable process in such a short period of time was a major step forward for the company. Other benefits included a greater understanding of finance processes, how they work, and how seemingly trivial barriers can have a major impact on the whole process. Teamworking was also greatly improved. Indeed the building of better communications with operational departments has had a revenue impact as the operational teams now understand the importance of collecting accurate information promptly. This has resulted in more billable work being presented for invoicing more quickly, improving cashflow and revenue.

 

I’d be interested to hear other people’s experience of improving financial control processes.