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Technology

ERP Financial Reporting: Mind the “BI Gap”


by Wes Gillette

Asking these four questions when choosing BI tools and third-party reporting solutions—or when working with IT teams to select them—can go a long way toward helping CFOs close the “BI gap” or avoid it altogether.

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Today, the focus of the office of the CFO has significantly broadened to encompass both guide and governance responsibilities. This requires spending less time on traditional – and often manual – reporting, planning, and closing processes, and much more time on deep analysis to distill, uncover, and share strategic insights that help drive key business decisions in a much more timely manner.

Underpinning this new remit is the need for real-time data. However, financial data is growing in both volume and complexity, and is increasingly spread across a range of point solutions, where it isn’t connected and therefore loses invaluable business context.

It is this data challenge – and the rise of business intelligence (BI) software across other enterprise departments – that has created a real headache for finance teams.

The Rise of Business Intelligence

BI tools have become an enterprise software staple, and it’s easy to see why: The ability to explore, visualize, and share business data has made BI solutions a bedrock upon which faster, better decisions can be made.

In fact, market research expects the global BI market to grow at a compound annual growth rate of around 10%, more than doubling from $20 billion in 2018 to $43 billion in 2026. In large part, this growth can be attributed to enterprises increasingly moving more applications and data to cloud services, as well as their increasing demand for data-driven analysis and business decisions.

As organizations move to the cloud, BI software provides a powerful and intuitive graphical analysis tool that serves sales, marketing, operations, and most other departments well.

However, there is an exception: financial reporting.

Simply put, the reporting needs of finance teams are highly specialized and often intertwined with the complex and customized data structures of ERP systems that have reporting requirements well beyond what BI tools can deliver today.

Unfortunately for many finance teams, they learn this too late: usually in the aftermath of a BI implementation, since the selection of the reporting tools and technologies are often out of their direct control and reside with the IT team.  

At this point, finance begins the arduous process of trying to close this “BI gap.” Typically the starting point is the new BI tool, but eventually finance teams revert to dumping static data from their ERP system into Excel for manual manipulation out of sheer frustration.

Financial Intelligence is Now a Priority

As CFOs and finance teams are increasingly asked by boards and executive teams to provide more timely data and analysis to power strategic decisions, there is a growing understanding of the need to increase financial intelligence through access to real-time data and the ability to aggregate, analyze, model, report, forecast, plan, and close based on it.

In this approach, financial intelligence isn’t software; it’s how best-in-class finance teams operate based on data-driven, higher-order thinking that is elevated out of the overwhelming number of data sources across an enterprise. More specifically it means finance teams are:

  • Connected with immediate, real-time access to data instead of the time lag introduced by traditional “Extract-Transform-Load-like” activities
  • Proactive with real-time and predictive insights over basic historical reporting
  • Empowered with insights that create and enable value and provide transparency to aid compliance, rather than just reporting on business performance

And CFOs are clearly feeling the pain. In its 2020 State of the CFO report, NetSuite surveyed more than 160 CFOs across 23 different industries and noted some important trends around data and reporting. When asked to name their biggest challenges as CFO, 29% said “lack of access to accurate real-time information,” while 25% said it was “producing timely reports,” the third and sixth biggest challenges respectively.

When asked in the same survey about their top five priorities over the next two years, the CFOs said:

  • 55% - Better and faster reporting
  • 50% - Revenue growth
  • 41% - Increased data visibility
  • 39% - Implementing new financial software
  • 20% - Mergers & acquisitions

Based on their stated challenges and priorities, CFOs and their teams are clearly caught in this gap. They’re still looking to take more direct control over their reporting and data visibility to increase financial intelligence.

The Unique Reporting Needs of Finance

To understand the challenge caused by the “BI gap” and how to avoid it, let’s elaborate on why the reporting needs of finance are so different than other departments. Here are just a few common scenarios for these users:

  • When trying to reconcile accounts or identify variances, finance must be able to drill into the data at a granular level to examine balance sheets, general ledgers, and subledgers. In addition, when they post an adjustment, they need to see it reflected immediately in their reports.
  • They need to run comparative reports across different time periods, over budgets and actuals, and must be able to analyze and investigate variances.
  • They need to conduct complex searches on multiple entities. For example, they need to identify discounts associated with paying accounts on time, and conversely, where it makes sense to focus collections efforts for account receivables.

This is just a small sampling in a vast range of financial use cases. But they reveal why a high degree of flexibility—as well as formatting control—over reporting is needed.

Finance’s “Holy Grail”: Real-Time Data

While modern BI solutions have certainly moved the needle with self-service features that allow users to create their own reports, even these tools are unable to handle the “messy structure” of financial data, especially in ERP systems.

So, what’s next? Typically the initial suggestion is for IT teams to try importing data into a data warehouse with a structure that is optimized for financial reporting. However, this breaks the link to underlying transactions, losing one of the most critical aspects of financial reporting: access to real-time data.

This is crucial since it now means there is a time lag between data being entered into the ERP system and that same data flowing into the data warehouse and reports. At period end, when finance relies on the most current data to handle reconciliations and consolidations and produce financial statements, delays like this are unacceptable.

BI tools also struggle to handle changes to financial reporting structures. Even the slightest change to a chart of accounts will require reworking—often by IT—which again creates a major time, resource, and data relevance drain.

So, we’re back to square one. This is where finance teams take things into their own hands and start manually dumping data from their ERP system into Excel. However, there are lots of pitfalls to this approach, too.

First, there’s the lengthy data download process. Second, all of this data must be manually manipulated into the required reporting structures, which has to be started from scratch each time. This is onerous and time-consuming, but even more concerning, it introduces the risk of mis-keying errors.

This leads to yet another problem: Because the data has been manually manipulated, errors will be extremely difficult (sometimes impossible) to track and will require a complete redo of the report.

The issue looming over this entire approach is that it relies on static data, which means by the time finance teams create the reports in their desired formats, executives and other stakeholders are viewing numbers that are days, if not weeks, out of date.

Four Questions to Help You Close the “BI Gap”

Companies that have mastered financial reporting have learned that financial intelligence is not the same as business intelligence. One of the keys to unlocking greater financial intelligence is having the right tools available to support finance’s unique reporting needs.

Asking these four questions when choosing BI tools and third-party reporting solutions—or when working with IT teams to select them—can go a long way toward helping CFOs close the “BI gap” or avoid it altogether:

  1. Do you have access to real-time data?

As discussed, this is a “holy grail” in financial reporting, which is why it’s critical that any third-party reporting solution provides a direct connection to the ERP system that enables users to work with live data. Without it, finance is not only working with a static, error-prone process, they are reporting on stale data instead of delivering the most up-to-date financial information and analysis for decision-making.

  1. Is reporting automated?

Reporting tools optimized for finance should simplify complex reporting tasks and allow a wide range of reports to be generated instantly, including financial statements, period-on-period analysis, and variance analysis. This frees finance teams from a dependence on developers and IT and lets them operate at the speed business demands.

  1. Can you combine data from multiple sources?

Access to live data and automated reporting from the ERP system is crucial, but these advantages quickly lose their luster if you can’t integrate data from other business-critical systems (such as other ERPs, CRM, HRM, etc.). Cobbling together data and reports from more than one source in Excel only compounds the problem that already exists with manual reporting. Ensuring a reporting tool has the ability to combine real-time information and automate reporting from multiple, disparate sources should be a priority.

  1. Can you run complex reports yourself?

Self-service reporting isn’t new, but as discussed, native capabilities aren’t an option for the intricate needs of finance. Instead, financial reporting tools should have a deep understanding of the ERP system and its data structures so the finance team can create its own custom reports and ad hoc inquiries instantly, without detailed ERP schema knowledge or a reliance on IT.

While BI platforms are a strategic business asset, the reality is that finance teams have distinct reporting needs that are not met by most native BI capabilities. As more CFOs aim to make the leap from the legacy role of bookkeeper to strategic analyst and business partner to the CEO and other stakeholders, empowering them to connect to and make sense of their data, add context, and build confidence in their numbers to deliver more proactive, efficient, and timely insights are all key to driving greater financial intelligence across organizations.

Wes Gillette is vice president of products for insightsoftware.