Regulatory agencies continue to enforce greater oversight on all financial operations and functions of leading financial institutions and publicly-traded companies in an attempt to increase transparency and improve accuracy in financial reporting.
As a result, financial executives and chief information officers are beginning to re-evaluate their financial reporting practices.
In fact, according to Aberdeen's Financial Executive survey conducted in January 2012, 69 per cent of the respondents cited better financial information and data visibility as one of the top financial management priorities for the year ahead.
Organisations are approaching the dynamic regulatory and economic environment by focusing on, and investing in, the technologies to manage process, knowledge, and organisational performance to improve financial insight, management, and transparency.
Best-in-Class companies lead the way in terms of implementation of these technologies, and consequently command greater control over their financial position.
For instance, as will be addressed in Aberdeen's March 2012 Cloud-XBRL and Cloud-Financial disclosure management study, leading companies are more than three times as likely as Laggards to standardise financial reporting procedures (65 per cent vs. 20 per cent, respectively) and 1.55 times as likely to standardise financial data management processes.
Best-in-Class companies understand that technology implementation is only one of the many steps before a company can actually realize a return on the investment.
It is equally important to obtain new solutions that integrate different systems and processes, document procedures for standardization, train and educate employees to facilitate transition, and dedicate resources for post-implementation maintenance.
And, to truly evaluate the performance of a new initiative, organisations must have capabilities in place to track the impact of these investments on the organisation.
Leading companies understand that it is important to have metrics in place against which the solution/system performance can be evaluated.
Consequently, Best-in-Class companies tend to implement more performance capabilities compared to their peers.
According to the Cloud-XBRL and Cloud-Financial disclosure management study, Best-in-class companies are nearly two times as likely as Laggards to assess and track financial reporting accuracy, with 73 per cent vs. 38 per cent, respectively. See Figure 1.
The ability to assess financial accuracy enables organisations to identify areas in need of improvement, take note of and replicate favourable events and outcomes.
One way to gauge the impact of this tracking and assessment capability is by comparing reporting accuracy of the Best-in-Class companies to that of Laggards.
Aberdeen research found that leading companies are over five times as likely to report data accurately as their Laggard counterparts (80.3 per cent vs. 15.5 per cent, respectively).
A similar story unfolds when comparing the ability of leading companies versus Laggards to track the timeliness of report filing. Best-in-Class companies are three times as likely to track on-time filings compared to the Laggards.
Companies can only measure and improve what they track.
Therefore, organisations which continue to track metrics such as filing timeliness, reporting accuracy, and percentage of unqualified audits over a period of time are able to identify a critical path and eliminate slack time, leading to a more efficient workflow.
While many capabilities are central to ensuring organisational growth, the ability to assess financial risk is perhaps one of the most important performance management capabilities that can provide companies with a substantial competitive advantage with regards to contingency planning and resource allocation.
After the recent United States real estate and mortgage crisis, regulatory agencies are working to identify Systemically Important Financial Institutions (SIFIs) in the global arena, and requiring executives of those institutions, particularly those in the financial services industry, to take ownership of risk management initiatives at a local level to build a robust and viable enterprise.
According to Aberdeen's January 2012 Financial Executive survey, conducted to gauge top priorities and concerns of C-level executives in the financial services industry for the year ahead, 77 per cent of the C-level executives expressed interest in improving accuracy of financial planning, budgeting, and forecasting via a risk-adjusted strategy.
However, despite the regulatory oversight and the myriad risk management technology choices available, Laggards still trail significantly behind leading companies (20 per cent vs. 53 per cent, respectively) with regard to regularly assessing their financial risk position.
Compared to a decade ago, there are far more technologies and content available today for organisations hoping to understand how they can improve their current processes and grow.
Yet the ultimate decision and power still lies with the budget holder at the C-level of the organisation.
Ultimately, it is up to the CIO to take ownership of the initiative and invest in the capabilities needed to help the enterprise achieve its strategic objectives.
Simply hoping for a favourable outcome rarely leads to one.
Ankita Tyagi is research associate, financial management and GRC for Aberdeen Group