In this new era of technology, modern CFOs recognize the need and importance of financial management systems that empower them to take control and solve current problems and manage future challenges effectively. Information Systems have become an integral part of financial management in organizations of any size and nature. A good financial management system forms the backbone of an organization providing insights into the most critical areas of the business. It not only helps businesses with reporting, and handling day-to-day financial transactions but also increases the visibility of the company’s finances.
Despite knowing these facts most organizations still fall short in their attempts to upgrade their financial systems. Outdated systems cost businesses more than new systems. With the limited options available these old systems can handicap the business’s capabilities and adversely impact its performance. Let us dig a litter deeper into the issues in the financial management systems that are plaguing the business performance.
Issues in Financial Management Systems
- Broken Systems – This issue is quite common in the case of mergers and acquisitions, or when a new entity is integrated with an existing one. Improper integration of systems might result in the loss of vital data that might affect the day-to-day activities of the business. Also, it increases the manual activity and adds to the complexity of the existing business flows.
- Data Accuracy – Financial management systems with poor system checks and improper validations are the main reasons for data inaccuracy. Financial data drives business strategy and decision making, hence, there should be ideally no scope for any manual or system errors when dealing with such data. Having robust systems and standard procedures is the only way to tackle this issue. A good financial management system maintains a single source of truth and well-defined workflow mechanisms which allows businesses to maintain desired data quality.
- Duplication of effort – At any point in time, the same business transaction should not be recorded in the system more than once. Duplication of effort happens when there is an overlap of responsibilities among two or more departments. A good financial management system should be able to identify such transactions and eliminate them.
- Lack of Transparency – A wrong choice of a financial management system can be a business’s worst nightmare. It is cumbersome, slow, and with a lot of loopholes allowing leeway for businesses to fudge the numbers. In contrast, a good financial management system brings visibility to the movement of cash within an organization’s value chain. It enables businesses to track and trace all the transactions accurately and consistently which is vital not only for day-to-day activities but also for future planning.
- Short Term Thinking – The amount spent on technology should be looked upon as an investment rather than an expense by businesses. Going for quick fixes and finding the lowest-priced technology vendor or service from the market that solves the issue temporarily will prove costly in the long run. Technology should be made an integral part of organizational growth and must be viewed as a long-term investment.
- Lack of right technology perspective – In any organization, people are inherently opposed to change, technological change in particular. The underlying fears that make them oppose the change maybe job security, increased workload, or increased work complexity. However, what they fail to recognize is the significance of the change. To survive and thrive in the competitive business world businesses have to keep up with the technological advancements or perish. Moreover, the business will be in jeopardy anyway if their organization is not able to compete due to the lack of technological capabilities. Hence, businesses and employees need to work together and create an atmosphere, a culture, and a mindset where change is encouraged. They must view technology as a tool that can augment their efforts and improve their performance but not as a hindrance. Gaining this perspective cannot be achieved overnight, it takes conscious effort and considerable time from management as well as employees.
- Improper Communication – How many times we see businesses trying to perform month-end reconciliation of their accounts. Even after having proper systems in place why is this problem persistent? This happens because each department works in isolation without any communication with other departments and does not take into account the overall impact that their transactions have on the businesses. A good financial management system follows an integrated approach that enables the communication between departments working on the same financial transactions eliminating the chances of improper entries.
- Delay in Business Processes – All the above-mentioned points in some way or the other delay the business processes. This results in unwanted bottlenecks and harms customer satisfaction.
Selecting the Right Financial Management Technology
The following points must be carefully analyzed before selecting a new technology related to financial management systems.
- Cost of the Project – A budget for the proposed technology or system change should be fixed and this budget should ideally be communicated to the team in charge of assessing the available options in the market. The cost of the new technology or system must include all the software, hardware, training, support, and maintenance.
- Resource Allocation – Finding and allocating the right resources must be the top priority of management. Bringing together a balanced team of seasoned professionals and proactive employees will help organizations in the effective implementation of the new technology or systems.
- Contribution to Process Improvement – The proposed new technology should solve the problems of the existing processes, smoothen the unevenness in the workflows, and reduce the complexity of day-to-day accounting activities. The best way to assess this is by implementing a pilot. This helps in understanding the capabilities, advantages, and limitations of the new technology and any shortcomings can be improved before proceeding with a full-scale implementation.
- Cost Savings – Ultimately any financial decision boils down to the numbers. Assessing the impact of the proposed technology change on the bottom line sets the right expectations and timelines for the return on investment.
Managing the technology changes
As with any other type of change, managing technology changes comes with its own set of challenges and opportunities. Below are some points which businesses can consider to manage the technology changes efficiently.
- Accountability – The key to the successful implementation of new technology needs people who are willing to take the initiative and people who are not afraid of failure. Proper knowledge of technology and information systems will be an added advantage. It is the responsibility of the management to find and encourage such people by extending their complete support.
- Value Addition to all the stakeholders – Any proposed technology change should take into account the impact that it will have on all the parties involved in the business. The value added by the new technology should be evident in the form of improved business processes, reduced costs, and decreased task complexity for all the key stakeholders in the business.
- Building Trust – Adoption of the new technology is as important as the implementation. For this to happen a mutual trust must exist between management and employees. Trust can be built over time by constant communication about the need and importance of change, training, and support from the management.
- Effective Change Management – To effectively handle the technology transition and reap its benefits organizations must have a technology change management framework in place. Such a framework helps businesses to stay flexible, makes them respond quickly to technology changes, improves the adoption rate, and helps them to stay ahead of the curve in the long term.
How to start and not stop at the end of this article piece?
I would recommend starting simply by just taking this approach, which has negligible risk, simple and yet an amazingly effective positive step towards our goal of a proactive strategy
A) Take pen -paper or manual method (start now)
Start identifying key issues and eliminate them by implementing the recommended strategy using your existing technology resources for a known and low-risk segment of customers within your business to find out what works and what doesn’t. Indeed, this causes efforts, but this will pave the way for better clarity around unknown risks.
B) Take help from technology
Work towards making it unattended, assisted by using Super-fast digital solution such that it works autonomously without losing its efficacy by engaging a solid, affordable Business and Technology solution partner.
If you are a CEO/COO/CIO/Managing Director/General Manager who is spending more time in reactive/preventive mode than future-facing, please reach out for an exploratory conversation.
Our Contact details
Abhinav Bhatnagar (Chief Financial Officer)
Pradeep Mishra (Director and Co-founder)
Ashok Mulchandani (Partner – Business Success and Strategic Transformation)
Please feel free to leave your suggestions and thoughts in the comment box below!