May 18, 2022

Poor financial reporting estimated to cost businesses billions

Dysfunctional, manual financial reporting processes are expected to cost U.S. businesses $7.8 billion this year, according to a new report, due to financial planning and analysis teams spending at least two hours on manual work each year. week, with companies’ annual budgets taking up to six months to prepare.

The report, released Thursday by financial planning and reporting software company DataRails, in conjunction with economists from the University of Baltimore, examined the economic impact of financial reporting processes in the United States. The researchers performed an economic analysis based on composite revenues of more than 839,000 U.S. businesses of varying sizes.

The report comes at a time when companies are facing rising costs of goods and materials due to supply chain constraints and high rates of inflation, and are also facing severe staff shortages. finance and accounting.

The report found that $6.1 billion in economic value is lost each year due to inefficiencies in the traditional FP&A role of preparing reports such as income statements, pay statements and flows cash using manual means, including siled work methods and lack of data integration. . An additional $1.7 billion is estimated to be wasted by not capitalizing on growth opportunities in the FP&A.

“Beyond the sizable figure of $6.1 billion, the challenge of manual labor also produces secondary economic downsides for businesses,” said the report, co-authored by professors Roberto Cavazos and Mikhail Pevzner of the University of Baltimore. “These represent indirect economic costs that undermine the ability of the CFO’s office to function as a strategic advisor and create greater impact on the business.”

The authors believe that at least an additional $1.7 billion in opportunity is not materializing due to a failure to push the appropriate levers and skills within the FP&A function.

The study analyzed the economic impact of manual labor related to financial reporting and the economic damage causing a loss of FP&A and overall financial productivity. It also looked at the longer-term economic value and new revenue streams that can be opened up through the FP&A function.

The researchers believe that 0.1% revenue growth is a conservative return on investment for inventive FP&A teams. For example, they pointed to how Amazon’s high-performing FP&A units were responsible for the birth of Amazon Prime, which today has 200 million members. Other revenue-focused FP&A initiatives include manufacturing company Chemours whose FP&A team improved the company’s industrial plant margins by $6 billion, while other companies, including Lego and HP, used real-time data to generate revenue during COVID-19.

The report found that the damaging costs of poor manual finance processes can go beyond the direct costs. Indirect economic costs include the negative impact on retention and recruitment, the inability to act on real-time economic data, and incorrect numbers that harm stock prices and investor relations.

“Since COVID-19, the role of financial planning and analysis (FP&A) has grown even more prominent as companies seek to better understand their numbers,” Pevzner said in a statement. “However, despite more than a decade of effort, the daily life of an FP&A professional still involves manual processes that undermine strategy, including identifying and correcting errors, updating reports, and data gathering. This essentially deprives corporations and the wider US economy of billions of dollars in economic opportunity.

“We hear daily from FP&A professionals who want to contribute to the strategic direction of their business,” DataRails CEO Didi Gurfinkel said in a statement. “Despite being uniquely positioned to drive economic growth through measures such as scenario planning and responding to real-time data, FP&A professionals spend the vast majority of their time manually producing reports basic. This cycle is leaving huge sums of money on the table by not capitalizing on FP&A’s knowledge, skills and ability to generate superior economic growth.

The report highlighted opportunities to use more automated FP&A systems, especially in the face of uncertainties caused by the COVID-19 pandemic. Using scenario analysis tools, financial decision makers will be able to identify ranges of potential outcomes and estimated impacts, assess possible responses, and manage how the business will act given the positive possibilities. and negative.

“Over the past decade, FP&A has moved away from a strict focus on budgeting and P&Ls, balance sheets and month-end reporting, to becoming stewards of ‘value creation,'” the report states. “This involves moving beyond a traditional reporting mindset to support revenue growth with timely and relevant insights and forecasts. This shift peaked during COVID-19 when improved financial analysis, scenario planning and modeling capabilities made the difference between growth and failure for companies.