How Root Cause Analysis Powers Finance Performance Management

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Member Insights by Jim Buchanan, BlackLine

This article originally appeared in BlackLine Magazine and is republished by permission

One of the most significant parallels between advances in accounting automation and modern assembly line manufacturing is the importance of root cause analysis to promote operational excellence.

Invented by Toyota Motor Corporation founder Sakichi Toyoda in 1958, root cause analysis has become a staple for bringing total quality management and continuous improvement methodologies to production engineers and IT departments around the world.

Toyota’s concept was as simple as it was brilliant. It consisted of asking “Why?” when a problem arose. The trick: his engineers would ask the Why question five times, so that each successive answer would lead to the next-lower level of detail.

Simple In Concept

It’s simple in concept, but it quickly becomes complex when you consider the many-layered systems being questioned and the many questions that need to be asked today. Many IT professionals still struggle to automate their root cause analysis process, thanks to the complexities of software and hardware that typically make up multi-vendor, multi-location computer installations.

Older-technology accounting systems are facing the same problem.

Accountants and auditors are forced to hunt down the details of anomalies in the numbers. Account out of balance? Check with the preparer, then the cost center personnel. Perhaps a customer refused to pay an invoice because of late delivery. Check that. Have late deliveries been a problem in the past? Check that, too. Hunt down documentation, via email, phone, text. Copy department managers in emails. Multiple ERP systems? Check those for differences.

By contrast, advanced accounting automation bypasses this hassle by letting you dive down, or across, your accounting processes to find the root cause. It then helps you trigger the steps needed for the corrective action.

For an out-of-balance account, for instance, the accountant can send a query that will cross from one of the organization’s entities to another; find the affected cost center; investigate the cause of the error; then report back, and include any relevant documentation. If you request any additional documentation, it will append that to the record and the audit trail.

A Fit For Finance Performance Management

This not only saves time and cost, but it supports risk management initiatives and serves as a vehicle for continuously improving the accounting processes themselves.

To be effective, the automated solution should possess the following key elements.

Platform Cohesiveness

All automated modules, from account reconciliation and variance analysis through transaction matching and compliance, work from a single, central pool of data. This unified codebase lets queries and workflows run seamlessly across all the processes, and it ensures that all processes, queries, and reports are drawing from the same set of accounting numbers and the same process information. It also means that no detail is lost as a root-cause query flows from one module to the next.

Process Intelligence

Interactions and workflows can be tracked across the solution and across modules. Accounting and finance teams can measure and track their own performance and report results to user dashboards via standard and customizable KPIs. This gives the user a high-level view of any processes that may be behaving badly, or that look suspicious.

Reporting Integration & Performance

Dashboard reporting makes it easy for that same user to dive quickly down into the detail of the report, or even the item, in question. Reporting tools are integrated with the processes themselves, so the user doesn’t have to interrupt his or her train of thought while querying a process or an accounting problem.

Also, the reporting processes aren’t intimidated by large data volumes. BlackLine’s reporting module has processed as many as 650 million rows of data without an error.

Self-Analysis & Continuous Improvement

An important quality of root cause analysis, and a key enabler of finance performance management, is the solution’s ability to turn its reactive nature into a more proactive procedure over time. By tracking process KPIs and making positive adjustments, the user can begin to foresee problems even before they arise. This fulfills the intention of continuous improvement, and sets the finance operation – and the organization itself – on the course to achieving operational excellence.

Read this ebook to learn more about the power of finance automation.

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