PROCESS
IMPROVEMENT FOR
EFFECTIVE BUDGETING
AND FINANCIAL
REPORTING

PROCESS
IMPROVEMENT FOR
EFFECTIVE BUDGETING
AND FINANCIAL
REPORTING
NILS H. RASMUSSEN
CHRISTOPHER J. EICHORN
COREY S. BARAK
TOBY PRINCE
John Wiley & Sons, Inc.
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Preconditions for BPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
What BPI Can Do for a Company . . . . . . . . . . . . . . . . . . . . . . . 14
BPI Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3 Small and Large Projects and Associated Resources . . . . . . . . . . . 18
4 Return on Investment of BPI Projects . . . . . . . . . . . . . . . . . . . 21
5 Best Practices, Trends, and Technology . . . . . . . . . . . . . . . . . . 23
Technology Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Analytics and Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . 41
Impact of the Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6 Selling Change to Your Organization . . . . . . . . . . . . . . . . . . . 49
How to Sell a BPI Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Part Two Business Process Improvement Project . . . . . . . . . . . . . . . . 53
7 Getting Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Budgeting and Reporting Overview: So You Want Perfect Analytics
Processes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Preparing for the BPI Project . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Summary of Current Issues: Simplified Example . . . . . . . . . . . . . . . 63
Using Diagrams to Visualize Processes . . . . . . . . . . . . . . . . . . . . 63
8 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Company Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Strengths and Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9 Improving the Budgeting Process . . . . . . . . . . . . . . . . . . . . . 76
Establish a Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Improve Data Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Do Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Report on Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Complete Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Enforce Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Support Enablers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

13 Capital Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Customer Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Dimensions and Chart of Account Considerations . . . . . . . . . . . . . . 120
Top-Down or Bottom-Up Approach . . . . . . . . . . . . . . . . . . . . . 120
vi CONTENTS
Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Special Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
14 Balance Sheet and Cash Flow Statements . . . . . . . . . . . . . . . . 126
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Customer Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Dimensions and Chart of Account Considerations . . . . . . . . . . . . . . 127
Top-Down or Bottom-Up Approach . . . . . . . . . . . . . . . . . . . . . 127
Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Special Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
15 Alternative Budgeting Approaches . . . . . . . . . . . . . . . . . . . . 133
Zero-Based Budgeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Activity-Based Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Beyond Budgeting Round Table . . . . . . . . . . . . . . . . . . . . . . . 136
16 Improving Financial Reporting Processes . . . . . . . . . . . . . . . . 137
Ethical Concerns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Financial Reporting as a Business Process . . . . . . . . . . . . . . . . . . 139
What’s Wrong with This Picture? . . . . . . . . . . . . . . . . . . . . . . . 140

Ideal Length of Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
23 COA Development Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Development Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
International Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . 205
Sample COA Project Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Recommendations and Other Considerations . . . . . . . . . . . . . . . . . 207
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
Part Four Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
24 Robert Blake, Microsoft Corporation . . . . . . . . . . . . . . . . . . 211
25 Dean Sorensen, Bywater Management Consulting . . . . . . . . . . . 213
26 Bill Ellenback, Software User . . . . . . . . . . . . . . . . . . . . . . . 217
Part Five Software Tools and Resources . . . . . . . . . . . . . . . . . . . . 223
27 Selecting Analytics Software . . . . . . . . . . . . . . . . . . . . . . . 225
Devise a Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Using a Software Selection Company. . . . . . . . . . . . . . . . . . . . . 231
28 Software Evaluation: Factors to Consider . . . . . . . . . . . . . . . . 233
Current and Future Use Requirements . . . . . . . . . . . . . . . . . . . . 233
Winning Company Buy-in . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Cost/Benefit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Return on Investment Analysis for New Software . . . . . . . . . . . . . . 236
Features and Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Compatibility with Existing Software . . . . . . . . . . . . . . . . . . . . . 238
Ease of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Software Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Vendor-Related Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Working with an Implementation Partner . . . . . . . . . . . . . . . . . . . 241
How to Select: Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
29 Software Buyer’s Guide . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Query and Reporting Systems . . . . . . . . . . . . . . . . . . . . . . . . . 242
Decision Support Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . 244

porting processes. Our goal for this book is to help you to be realistic about the out-
comes you can deliver with your available time and resources. To that end, we have
applied the well-known 80/20 principle, meaning that we aim to help you improve
80 percent of all inefficient processes, and in 20 percent of the time it would take
to attempt to fix 100 percent of all processes (which we believe is close to impossi-
ble due to the frequently changing nature of organizations and technologies).
This book focuses on using business process improvement (BPI) to help you
analyze your company’s current inefficiencies and to create a strategy to improve
your planning and reporting and management decision-making processes. In short,
the book will help you to address the issues shown in Exhibit P.1.
Another objective for this book is to provide a tool for anyone who sees a need
to improve their company’s budgeting and reporting processes, not just by buying
new software or adding interesting reports, but by addressing the broader underlying
organizational process issues. The point is to achieve long-term improvement that
will have a significant positive impact on the business.
Probably many of you have been involved in or have observed business process
reengineering projects that have failed or at least failed to live up to their promise.
We do not want this to be like other BPI projects; rather we want to provide an effi-
cient and reusable tool that you can take with you in different financial jobs and that
you can feel comfortable using to streamline any company’s budgeting and report-
ing processes.
Our combined years of consulting experiences, across all major industries and in
organizations of different sizes, with widely different management styles and cultures,
have taught us that a process redesign needs to be the following to be successful:
• Specific. Addresses the most important issues
• Simple. Provides easy-to-understand tools for analyzing issues and creating the
change needed
• Achievable over a fairly short time frame. Keeps cost low, ensures complete
implementation, and provides readily measurable results
• Sustainable. Enables the redesigned budgeting and reporting processes to eas-

PART ONE: INTRODUCTION TO BUSINESS PROCESS IMPROVEMENT
This part introduces you to financial business process analysis. Here you’ll read about
the trends financial managers must be aware of today if they are to effectively man-
age their companies’ planning and reporting processes and the tools necessary to im-
plement those processes. The following topics are covered:
• About BPI
• When BPI is valuable
• Small and large projects and the associated costs
• ROI of BPI projects
• Best practices, trends, and technology
• Selling change to your organization
PART TWO: THE BPI PROJECT
In this part we cover the business process improvement project itself. You will be
guided through the following BPI activities:
• Preparing for the project
• Profiles of budget models and approaches
• Your company’s budgeting and reporting diagnostics
• Key budgeting and reporting process criteria
• Key budget process building blocks
• Financial reporting process improvement
• Recommendations for implementation
PART THREE: DESIGNING THE ULTIMATE CHART OF ACCOUNTS
Most companies with an accounting system are continuously modifying, redoing,
adding to, and deleting items from their chart of accounts. And, every few years, most
accounting departments have the same goal: to finally clean up that old, messy chart
of accounts and create a new one so that they can:
• Easily adapt to changes and/or additions in the business (departments, prod-
ucts, etc.).
• Write reports easily because the COA is clean and structured.
• Incorporate a code system to better capture relevant management information.

In order to save you time and money in your software selection and implementa-
tion process, several useful documents from the appendices are provided on the Web.
Please visit www.wiley.com/go/processimprovement. The user password is process.
These documents are in Word format and you will be able to download and adjust
them as necessary.
xiv PREFACE
PART ONE
INTRODUCTION TO BUSINESS
PROCESS IMPROVEMENT

3
1
ABOUT BUSINESS PROCESS
IMPROVEMENT
INTRODUCTION
What is business process improvement (BPI)? It is a systematic methodology devel-
oped to help an organization make significant advances in the way its business
processes operate. Business process improvement is not a new concept (See Exhibit
1.1). It has been around for as long as there have been businesses whose owners/
managers have consciously (or unconsciously) pursued changes to improve the way
different activities in their business were handled. Modern BPI projects can range
from the very extensive and expensive, involving everyone in the organization, to
short-term and highly focused, involving just a few people.
Improving budgeting and reporting processes does not have to be a major un-
dertaking but the payoff should make the effort well worthwhile. That said, if you
intend to achieve major and highly visible improvements, plan to spend significant
amounts of time, money, and resources on the project. If you are in a midsized to a
large company, you will have to involve a number of people in the project, and no
doubt many “political” opinions will have to be heard along the way.
As the popularity of modern analytics software and related Web-based tech-

toward, as well as a road map of how to reach them.
• It puts the budgeting and reporting activities in a system.
• It helps explain how budget input eventually leads to report output.
• It offers guidance as to why errors are made and how to avoid them.
• It provides a means to predict and manage change.
• It improves the company’s competitiveness by improving key aspects of the
planning and decision-making process.
POSITIVE EFFECTS OF BPI
A number of positive effects of BPI are clearly identifiable:
• Improved reliability of business processes
• Improved response times (e.g., ad hoc reports and on-the-fly forecasts)
4 INTRODUCTION TO BUSINESS PROCESS IMPROVEMENT
EXHIBIT 1.1 Progression of Business Process Improvement
First Wave
1970s and 1980s:
Productivity
Second Wave
Third Wave
1990s:
Administrative
Processes
2000s:
Business
Systems
• Lower costs
• Improved customer (i.e., users of reports/budgets) satisfaction
• Improved employee morale
• Reduced bureaucracy
• Improved quality of reporting
• Better financial control

ABOUT BUSINESS PROCESS IMPROVEMENT 5
2. Sell. If the research phase uncovers enough improvement opportunities to make
it worthwhile to go ahead with the BPI project, this phase focuses on creating
a sales pitch to achieve management buy-in, and then to sell the project to the
rest of the organization.
3. Plan. Create a detailed project plan that describes each activity in the project,
including the people involved.
4. Design. Streamline old processes and design new ones, as required. An impor-
tant part of this phase is to document any new processes.
5. Execute. Implement the new and improved processes, measure and record im-
provements, and make necessary adjustments.
Much of this book will focus on phase 4, the design of the business processes,
as this is usually the greatest challenge for a company. The following delineates the
methodology employed in the design phase:
1. Break up each process in subprocesses, activities, and tasks (see Exhibit 1.3).
2. Identify improvement opportunities:
• By focusing on obviously weak areas.
• By observing best practices, competitors, outside consultants, and other
resources.
6 INTRODUCTION TO BUSINESS PROCESS IMPROVEMENT
EXHIBIT 1.2 BPI Methodology
Research
Sell
Plan
Design
Execute
3. Select changes to implement.
4. Adapt changes to own administrative processes and needs.
5. Document the new processes.
All the project phases come together in a BPI project plan and the accompanying

start planning:
• Ongoing support from management. Don’t start, or continue, a BPI project
without first assuring that key decision makers are with you and will provide
the necessary support.
• Long-term commitment. The last thing you want is to start a project and then
discover that the people involved are not committed. This can be avoided or
minimized by putting the right people on the team, as well as by good planning
and information flow.
• Effective implementation methodology. All successful projects start with a plan.
Don’t underestimate the value of thinking about the big picture as well as the
details, in terms of:
• What you want to achieve
• How it is going to be done
• Timeline for implementation
8 INTRODUCTION TO BUSINESS PROCESS IMPROVEMENT
EXHIBIT 1.4 Budgeting and Reporting Activities
Strategic Planning
Target Setting
Allocations
Assumptions/Drivers
Defining Security
Budget Workflow
Defining Corporate
Information Needs
Defining Input Form
Layout and Functionality
Defining Version Control
Setting Deadlines
Defining Approvals and
Routing (approval workflow)