• Written by Sonali Subhadarsini, Product Manager

The category manager at a large manufacturing company is deciding this week whether to increase the budget for a particular supplier, and currently bases this decision on a combination of historical spending data, supplier performance metrics, and intuition about future demand, all of which are manually compiled and analysed, often resulting in delays and inefficiencies in the decision-making process.

Mapping the current process

Before automating any part of the finance process, it is necessary to map out the current steps involved in making decisions like the one faced by the category manager, including all the manual data collection, analysis, and communication with other teams, such as the procurement team and the finance team, to understand where the bottlenecks and inefficiencies lie, and where automation can have the most impact.

This involves observing and documenting the daily tasks of the shift supervisor, the category manager, and other relevant roles, to identify the specific pain points and areas where automation can streamline the process, such as automating the collection of data from the general ledger, or automatically generating reports on supplier performance.

By taking the time to thoroughly map out the current process, organisations can ensure that they are automating the right tasks, and that the automation will have a tangible impact on the decision-making process, rather than simply introducing new technology for its own sake.

The handoffs that create most of the delay

One of the main reasons that finance decisions are delayed is the handoff of information between different teams and systems, such as the handoff from the procurement team to the finance team, or from the general ledger system to the budgeting system, which can be manual, error-prone, and time-consuming, and can result in delays and inefficiencies in the decision-making process.

For example, when the category manager needs to increase the budget for a supplier, they may need to request approval from the finance team, which can involve a series of emails, meetings, and phone calls, all of which can take time and delay the decision, and may also involve manual data entry and analysis, which can be prone to errors and inconsistencies.

The finance data this depends on

The automation of finance decisions depends on access to accurate and up-to-date finance data, including the general ledger, budget, open commitments and purchase orders, receivables and terms, which provides the foundation for making informed decisions, and allows the organisation to track its financial performance and make adjustments as needed.

For instance, the category manager may need to review the general ledger to understand the company's current financial position, and to identify areas where costs can be reduced or optimised, and may also need to review the budget to ensure that the proposed increase in spending is aligned with the company's overall financial goals and objectives.

By integrating this data into the automation process, organisations can ensure that their finance decisions are based on accurate and timely information, and that they are able to respond quickly to changes in the market or the business, and can also use this data to identify areas for improvement and to optimise their financial performance, as described in more detail on our finance page.

What it changes about variance explanations and budgets

The automation of finance decisions can have a significant impact on variance explanations and budgets, as it allows organisations to identify and explain variances in real-time, rather than after the period has closed, and to make adjustments to the budget as needed, rather than having to wait until the next budgeting cycle.

For example, if the category manager notices that there is a variance in the spending on a particular supplier, they can use the automated system to quickly identify the cause of the variance and to make adjustments to the budget, rather than having to wait until the end of the period to explain the variance, and can also use the system to track the company's commitment coverage, and to ensure that the company is not overcommitted.

This can help to reduce the risk of overcommitting, and to ensure that the company's budgets are accurate and up-to-date, and can also help to improve the company's financial performance, by allowing it to respond quickly to changes in the market or the business, and to optimise its financial resources.

Measured with variance to budget, commitment coverage, and days sales outstanding

The success of automated finance decisions can be measured using a range of key performance indicators, including variance to budget, commitment coverage, and days sales outstanding, which provide a clear picture of the company's financial performance and allow it to make adjustments as needed.

For instance, the category manager may use variance to budget to track the company's spending against its budget, and to identify areas where costs can be reduced or optimised, and may also use commitment coverage to track the company's commitments and to ensure that it is not overcommitted, and can use days sales outstanding to track the company's receivables and to ensure that it is collecting its debts in a timely manner.

What this does not do

While automated finance decisions can have a significant impact on an organisation's financial performance, it is not a solution for all financial challenges, and there are certain situations where it may not be the best choice, such as in situations where the financial data is incomplete or inaccurate, or where the organisation's financial processes are highly complex or nuanced.

In these situations, it may be more effective to use other approaches, such as manual analysis or consulting with financial experts, and organisations should carefully consider their options before deciding whether to automate their finance decisions, and can contact us for more information on how to get started with automated finance decisions, or to discuss their specific needs and challenges, via our contact page.