Ep. 86: Mitchell Powell - Financial Performance Management
Mitchell Powell, CFO at H.J. Russell & Company, is a versatile, creative, well-rounded, and hands-on CFO who brings broad functional breadth and team leadership. Throughout his career, he has a successful and demonstrable track record of putting in place scalable, best-in-class finance teams and financial infrastructure. In this episode, Mitchell shares his insight and perspective on financial performance management software. He explains the basic benefits for those who may be new to FPM and shares some use cases to illustrate how it can further improve the operations of those who do have a background with the software. For practical applications and more information on financial performance management, download and listen now!
FULL EPISODE TRANSCRIPT
Hello and welcome back for episode 86 of Count Me In on your host Mitch Roshong and I'm happy to bring you another engaging conversation on this accounting and finance podcast. Today's guest, Mitchell Powell, joins my cohost Adam to talk about financial performance management. Mitchell is the CFO at HJ Russell company, construction services, business, specializing in construction program management and property management. In this conversation, he introduces the concepts and uses for financial performance management software, and he also offers insight into how it can benefit your operations. So to learn and hear more, let's go over to the full episode now.
So can you give us an overview of what financial performance management software is and how it is beneficial?
Absolutely. So, I could talk all day about this stuff, generally, you know, in tech, finance generally and financial performance management particular, because, let's see, I probably started using this about 15 years ago and it has continued to evolve in terms of the sophistication and capabilities as well as pricing. So, you know, these products are now available to, you know, wider variety of companies that used to could afford them if you will. But for me, it's, you know, it's kind of financial performance management is just, you know, kind of one tool in the toolbox. If you think about all the tech involved in the finance operations, obviously the ERP systems to Excel, you know, whatever, this is just another one of those tools, but it's, it's kind of a critical one because it's kind of the glue that pulls everything together. And I guess as we talk about it, I'll illustrate with some examples, but it's funny, I actually came up with an analogy just before this call, and it's kinda like a carpenter, right? So all carpenters have their tools and there's some basics, right? So there's some fancy gizmos, not all of them need, but you know, you've got to have a hammer and you’ve got to have a saw. And so to me, it's like, if you see a carpenter with a handsaw spending all day, you know, kind of sawing wood and I show up and say, well, why don't you get an electric buzzsaw circular saw and you can do in 10 minutes, what you did, what's taking you all day. So it's really applying the right tech to what is a pretty complex operation, ultimately trying to pull together a lot of information in one place. You know, as I look back over the three years, I've been with my current employer and, you know, close to 10 at the previous, butwe do and I have to credit financial performance management applications with this, probably twice as much work if you will, in terms of, reporting and information provided, but we do it with less people. And so in the transformation that can be enabled through the appropriate application of technology in general, and in the case of this conversation for financial performance management properly implemented, it's a tool that really pulls together, all of your information in a single database. And so maybe what I should do is just give you just a broad overview of kind of what performance management software is and how it works. So, you know, many of your listeners have probably either had some exposure or have heard of some of the brands out there. There is Anaplan, Oracle, Hyperion, Adaptive planning. We use IBM Planning Analytics, which used to be called TM1 And it's subsequently been rebranded as IBM Planning Analytics through our acquisition, but that's the class of software that this is, and, you know, properly implemented, it pulls together in one place, all of our actuals from our GL and pulls together or budgets. And so you have a one place, the ability to kind of drill in and report with an agility and flexibility that you just couldn't, if you either had your data sets and different disparate places like budgets and Excel and all your actuals in your ERP. So this enables that kind of flexibility. So that in a nutshell is what financial performance management software is. Maybe what I should do is let me give you a kind of an example. It is, financial performance management software is a multidimensional database. So you, when you, when your data comes in, it's categorized, according to the typical ways you typically think about it in your business. And I'd say probably the five usual suspects, are of course the entity or company, the accounts, the period versions, whether that's a budget or a current forecast or actuals or whatever, more on that later, because that's a very powerful capability. And then lastly, the measure, he's talking about balances, activity so forth and so on. And so when data comes in, either through your budgeting process or your ERP, it's already, pre-calculated internally, according to the hierarchies you set up in those various dimensions. So obviously we have hierarchy set up for periods often for the companies and consolidations, obviously there's an account tree. And so to put all that in one place and then kind of categorized in those ways enables quite a bit of flexibility. So that, that's one of the two components generally in terms of how these various packages work. Is it's based on dimensions. and it's a typically called a multidimensional structure. The second is it's kind of like a blank slate.. So there are various BI packages that you can often buy. Some are associated with the various ERP systems. Some are offered by third party vendors, and often they are directed at a particular industry vertical or a particular solution. The class of products I'm referring to on the Anaplan, the IBM Planning Analytics, Adaptive planning, those are really more of a blank slates. So if you think about opening up an Excel spreadsheet, you have a blank slate. You can do anything you want to with it, and so these are products that you can, the sky is kind of the limit in terms of the kinds of things you can do with it in the same way as you think about an Excel spreadsheet. So it's extremely flexible to set up however you want to meet the needs of your particular business. So in terms of, you know, typical uses for these, I'd say there's probably two main things that they're often used for, reporting is a big one. I mean, it's a great reporting package. People struggle with reporting the export data to Excel and manipulate it, and so, you know, once your data is in this system and categorized correctly, and especially if you have, if whatever product you end up with operates through Excel as a reporting interface, which I think most of them do, certainly the one we use.Then you have a very flexible reporting interface, a very agile, and you can do some great ad hoc reporting. So reporting is number one, and then budgeting and planning, forecasting is the second kind of major category that people use these products for. And so I could talk all day about, you know, kind of the things that it will help you do to streamline your budgeting process, but maybe we'll talk about that a little later and then some other benefits besides those two main buckets, we have found that to be a tremendous benefit in streamlining our monthly close. We have found it to be a benefit in, various, consolidation exercises, ad hoc query and drill downs, great for that. And it's lastly a great, great control mechanism, both in the monthly close, as well as I could go through a whole list of stuff I probably will later. And it's also a great control mechanism. So in a nutshell, it's the place that everything comes together. It's kind of the glue that pulls your disparate data sources together and gives you a great deal of flexibility and agility on your reporting
So reporting and consolidations were one of the several uses you mentioned. Can you give us some examples of how FPM improves that process in your organization?
Absolutely. So, as I said, that's one of the main uses and, you know, the, the agility that this has given us and others who use these products, like what you do is just, it's just incredible. Again, thinking back to the basic structure where you've got the, your data as it comes in from either your ERP system or your budgeting is categorized by various hierarchies that you define. So if you just think about that, in combination with typically Excel as a reporting interface, you have a tremendous amount of flexibility to do some pretty agile reporting. One example that comes to mind, and this kind of gets to the setup as well. So none of this happens automatically. So, you know, you have the power of the product, but back to the blank slate Excel analogy you know, you can do all kinds of very complex things in Excel, but you have to kind of know how to use Excel as well. And so, you know, this example illustrates both the agility, but also the need to kind of think through your set up properly. We had a situation in which we wanted to look at, behavior of our accounts receivable for the first six months of the year, and so we have about 25 major customers in this particular use case. And so I looked at the cash flow statements and I said, okay, here's our, you know, kind of trend. It looks like our AR is building up.,and so I went to my controller and I said, I need to understand, you know, of these 25, which are kind of contributing to this trend that I'm seeing. And so she started by, as you would expect printing a listing of balances at the end of June. And I said, okay, that's fine, but if I want to look at the trend, I need to know what they were at the end of the previous month, and the previous month, previous months. In other words, in order to get to, the trend over time, which shows up, of course, on the cashflow statement, we need to know the balance each month. And so she spent about a day and a half kind of going through a little mini archeological dig and compiling that information. The thought occurred to us, okay, we've done this, let's go ahead and incorporate that into our data load so that we don't have to do this again. It's just part of our reporting, which we did. And so now, instead of having to go through an archeological dig, the next time that question is asked of us, we can literally just double click on a spreadsheet and it pulls out automatically the trend in, in those 25 different customers over time. And so we turned, and this is my point, we turned a day and a half process on an ad hoc process into a doubleclick, and I could go through example after example, after example where that kind of reporting flexibility, saves so much time and effort. And again, it comes down to value, right? So that the day and a half exercise was a low value add, right? I don't want my staff spending time on low value add activities,and so that's a pretty good example of the kinds of things that from a reporting perspective, it gives you. We'll probably talk about budgets maybe a little later on, but another area and reporting is a lot of people do this and they want to report some version of, you know, actuals to date forecast of some sort for the rest of the year and various mechanisms exist to do those kinds of things. But again, when you think about all your actually being in this, in this database and your forecast, whether it's the original budget or a current forecast, if you do rolling forecast and it's all in one place, and you have the ability very quickly to do that kind of actuals plus forecast, reporting, and there's some other things I'll probably talk about a little bit later, but you can, you can also do things like compare to previous forecasts and so forth. So that's reporting in a nutshell. From a consolidations standpoint, you know, that's probably another one of the biggest uses for these products, and I would probably divide that into kind of two buckets. One is the real simple one, which is just basically kind of thinking about your entity structure. A lot of companies, certainly that I've been involved with have a number of companies and areas and so forth, and they roll up into a certain way. It's pretty easy to define those kinds of hierarchies in your, in your data. And you can just report on various, report on your hierarchy. That's pretty easy. I think another area where it's very commonly used and we're starting to do more of this and I see a lot of companies do this, which is integrate disparate companies either through an acquisition or for some other reason that have different accounting systems. So if you think about, and we have this here, we don't, we don't have an acquisition per se, but we have entities and companies that have evolved over time, and so it's really a systems integration issue. So you get your data out of this RPE for one company and a different one for another company. And of course, it's all mapped to a master chart of accounts all the way in, but once it's in, then you have the ability to do reporting. And so this is very commonly used in the case of acquisitions in particular, or if you have the need to bring in data from other, other systems.
So you keep mentioning planning and budgeting, you know, can we see how FPM addresses those needs?
Absolutely. Again, that's one of the two major use cases here. You know, I can't even imagine, doing any kind of sophisticated budgeting, forecasting planning, without a capable FPM product, and you know, budgets in spreadsheets are the old way, of course, you know. I've seen countless situations where, you know, you'd do a bunch of budgets. Especially if you have a number of companies. I mean, it can get fairly complex. So in our case it is probably a decent example. We have, we have four divisions, in addition to four divisions, we have seven shared services, costs centers, you know, legal, IT, accounting, so forth, and so on, those of course get allocated out. And so if you think about a typical budgeting process, ah, you know, it's probably three months. It's Excel base, you've got spreadsheets being emailed back and forth. You'll have a who's on first version in question all the time. If something changes in one place, how do you roll it up and reflect it in the consolidations? And, it's just a miserable process. Everybody hates it. It's time consuming, it's error prone, it's low value add. And so, you know, we have moved that situation to one where we do a rolling monthly forecast updates. And the only way you can possibly do that is if you have the systems to support that, right. You couldn't possibly go through that miserable process, I just described with any regularity at all, not even in quarterly. And so we've literally got it down to the point where people don't really even realize we're doing budget updates, because it has simply become part of our monthly close process. There are certain things that get updated. Some of them get updated automatically. Others are very automated for those that require some degree of thought or input, and it's very, very powerful. And so we have, I would go as far as to say, completely eliminated the dreaded annual budget process. And the only way we could do that as having the proper technology. And so, just to drill down a little bit, to give you a kind of a real world sense of how that works, people still need to input budget stuff, right? And so there's a number of ways to get data into the system. as I mentioned, most of these products operate with an Excel interface. So we still have the option of entering budget data in Excel, but it doesn't live in Excel. It's written back to the database, and so that's key difference. So everything is in this one station, you have a point of control. So, that's the primary difference. To give you another little example. I had mentioned that we have several shared service cost centers that get allocated. If you think about what it would take to do that in Excel spreadsheets, perform the math, import that into other, to, you know, the operating expenses of the divisions that received those allocations, pretty miserable, prettyerror prone. We've got it to the point where it flows automatically from we actually created a little web based data input template for each of the shared services divisions. You change the number in the projection for the shared services division. It goes through and it gets automatically allocated and automatically shows up on the operating divisions financials. And there's nothing to think about. There's nothing manual. So what used to be a very time consuming error prone process is something that we don’t think about it. And so it's pretty amazing when you think about the power that that can bring to an organization and the ability to do these kinds of rolling forecasts. You know, I think the concept of rolling forecast is generally becoming more accepted as best practices. The question is how you implement that. And, again, I don't think you could really do it with any efficiency at all without the proper technology. And so, like I say, we've got it down to the point that it's almost invisible. And, so, and another very powerful feature on the budgeting and forecasting I should probably mention, and this is pretty standard on these FPM applications is versioning. So if you think about, you know, your typical versions, you have actuals and budget, of course. And then if you have a, you want to do some form of rolling forecast or update your budget, so whatever you decide to do that, that's your current forecast. That's a version. You can take it a step further and do what we do, which is do it monthly. And so we archive those numbers every time, every time we do the close and we update the forecast, it gets archived into a March forecast, April forecast, May forecast, and so on. There is a standard version that's called previous forecast. And so that, I may be getting ahead of myself cause I want to talk a little bit about the monthly close process, but, being able to compare to what you thought the numbers would be last time you did this to what they are now, which is to say, give me, compare my current numbers to my previous numbers. And it's automatic, I mean as long as you've got all your versions and your data, there is also a very powerful thing. So in a nutshell, you know, these, these, this is the magic that enables that kind of rolling forecast processes that are increasingly becoming accepted as, as best practice across the board.
Definitely. So you keep mentioning this monthly close process and anybody who works in an accounting department knows how important it is to have an efficient, monthly close process. You know, you've even mentioned that you want to get rid of low value add activities for your, for the people that work for you is to make sure that they're doing things efficiently. You know, how has, can you give us some examples on how, the FPMs have been able to make the monthly close process more efficient?
Yeah, absolutely. And so, I mean, there's a number of, typical things that happen in a monthly close. A lot of times the numbers are exported from your ERP into Excel, for manipulation and whatever, all kinds of things. Everybody knows that, we've pretty much eliminated, the need to export and manipulate. And if you think about this, I'll, I'll digress for just a moment, because this is for me, a fundamental guiding principle to the extent possible. You want an unbroken chain from your transaction level to the final report. There should be no case in that chain in which, the chain is broken, if you will, because if something changes back at your transaction level, you need to make an adjustment. You have to re-export re-manipulate and you have all kinds of possibilities for bad things to happen. Not to mention that it's inefficient. And so something as simple as exporting data to Excel to do various account reconciliations has now been replaced by, an Excel report that's hooked into the database. So it sounds pretty simple, you know, as you recall, Excel is one of the primary interfaces for many of these products. And so once you kind of write your report, you can pull in anything you want. And so that's live, if you need to make change, and then you just make your change, back in the GL, you pull a report on there it is. And so that kind of solves the problem of disconnected data, and so pretty basic stuff. There's a couple, I mean there that, so that's basic, I would consider that basic, you know, there's a number of very sophisticated things you can do, that's, again, replace, time consuming error prone processes with, with automation. And so I give you just a couple of examples. I mentioned that we have several shared services departments and, you know, not uncommon I'm sure. So I'm sure many of your listeners can relate, but each of these departments have costs for the month in question, and there's an allocation of some sort that goes out to operating divisions. And, so how do you do that? Right? And so the way it used to be done is print a GL for the month and key it into Excel and do the math, and take that and make a journal entry on the operating divisions. And again, you have several problems there, it's time consuming, you have the broken chain again. So now what we do is, it's been an evolution actually, I'll tell you where it, where the first step in the evolution and the second. The first step in the evolution was to say, okay, now that we have an FPM product that's hooked them to our GL effectively, let's write a report in Excel that just pulls that data in and does the math and creates a journal entry, which we might, could then say, upload if you structure it correctly. So that's a big improvement. You don't have to print anything, you don't have to rekey into Excel, and you can even maybe have that create an uploaded journal entry for you. It was a big improvement. So we were pretty proud of that. I mean, that's, it helped us, I would say that was a benefit, so great. But then we got to thinking about and we said you know, we can take this a step further rather than actually through the stuff, because we back up a second, what happens when something changes and it inevitably does, somebody reviews their numbers for whatever reason I changed while you've got to run it through that entire process again. And so you're kind of chasing our tails a little bit. So we said, wouldn't it be cool if instead of going through that, what is still a manual process, albeit somewhat more automated than it was, what if we set this up so that whatever numbers exist in a shared services department get automatically within the system, within the FPM product, to the associated operating division. So I'll stop there for a second and say, this is basically a top side entry. Most people in finance are familiar with the concept of the top side entry, where it's really an adjustment or entry that's made at the reporting level and not at the GL level. And so mechanically , we set our FPM to, to take whatever's there and automatically via formula, not a process, a formula, allocate that to the divisions and what that means is two things. There is an unbroken chain. It's impossible for there to be an error or a lag or anything happened in the process of pulling data from the GL, doing the math, and then allocating it to the division. When a number is changed in any of the shared services department, it is automatically instantaneously reflected on all of the operations that receive an allocation of that department. And so we no longer have the chasing our tails doing this two or three times, you know, to fix errors or to repost when something changes. So we've basically taken, and this is the takeaway here, the entire process of allocating our shared services departments has been entirely eliminated from the close, think about that for the minute, entirely eliminated. And we're sure that it's always right instantaneously, because it's like an Excel spits a formula in Excel with one number changes, the associates number changes, right? It's that integrated. And then once we're done and we've issued the financials after the, after the close, then we go back and we take those entries that were computed and posted if you will, as a top site and post them in the GL. So it's basically a moving something from the monthend peak to sometime afterwards. So, and again, that's a basic principle of a fast close, when you can take things and you can move it, you can do it either before or in a rears. And that's what we've done.
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