A strong foundation is your most important cost management weapon

Most finance departments strive for the full potential by creating value for the company and thereby the business throughout the entire process, from strong transactions to business partnering. But often we experience that there is a lack of quality and uniformity in the foundation that truly makes it possible to deliver across the entire value chain in finance. Therefore, we would like to champion the cause of prioritising getting your foundation in order – once and for all.

There are many components in the transactional foundation across the company – accruals, provisions, OPEX vs. CAPEX, tagging of costs (e.g. project number, PO, Intercompany etc.) and so on – and each component has its own subcategories. For this reason, we often see that it is difficult to get an overview of the entire foundation and thus find the areas where there are potential errors and shortcomings.

Which components are essential? 

Although in this article we advocate for getting the entire foundation in order, there will always be components that differ from company to company. If your company has a CAPEX budget, it is important to focus on capitalising costs. If your company has many large projects, it is important that you ensure you have control of the tagging of project numbers and the entire structure around this. 

How does the follow-up basis connect with historical figures and actuals? 

This point sounds banal but is often the cause of much frustration and wasted time. There needs to be coherence between how you allocate or categorise your costs and the way you will follow up on them. Here, the subsequent reporting and performance follow-up can become both time-consuming and inadequate. We often see the same problem when talking about historical figures, where, for example, organisational changes in the company continue to create noise in the reporting. In this case, it would be appropriate to restate the historical comparative figures. 

How does your current system landscape support the solid foundation?  

A clear alignment between your company's system landscape and the solid foundation is essential, as the systems help determine which solutions are possible. 

What policies and controls exist? 

Are there clear policies in the company – when is it OPEX vs. CAPEX – or a threshold amount for when something should be accrued? Do we have internal controls for correct posting that catch potential errors? 

The task can be broken down into four main phases. 

1. Mapping: The overarching question in this phase is how much a clean-up of your foundation will require. Here it is advantageous to be absolutely clear about what you want to achieve with the task, and what is most important to succeed with. Also clarify what resources you have to solve the task – both in terms of time, employees, competencies and systems. 
2. Design/solutions: Based on the mapping of problems, possible solutions are established. Do the solutions only involve finance, or are there other areas in the business that will be affected by the solutions, and are there competencies elsewhere that should be involved? Also consider which processes should be automated – automation ensures that the foundation is maintained.  
3. Implementation: We often find that the effort is underestimated – and is transferred to daily operations. Depending on the size of the task, it can be beneficial to focus on driving the change as a project or with a project approach in the form of clear focus areas, milestones and success criteria. Also make sure to concretise the necessary effort, allocate the necessary resources and decide how the solutions will be handled in a new everyday situation, so the problems do not arise again. 
4. Anchoring and adjustment: Unfortunately, we often see that the major work of getting the foundation in order is not anchored in the organisation. This increases the risk that the task will need to be repeated at regular intervals. Therefore, we recommend that you create a plan for how you will anchor and maintain the task.