A Practical Application of the Universal Process Framework

New standards, additional disclosures, and changing business operations are an all too familiar fire drill for finance professionals. The incorporation of new requirements to reporting and business processes is a quarterly, if not more frequent, event. There is truly no shortage of work.

In this article we will discuss a real-life example of how one finance team empowered itself to take on process improvement—creating repeatable and sustainable processes that allowed them to meet growing demands and improve quality.

Key takeaways:

An explanation of the Universal Process Framework
The value of process improvements on a micro-level
A detailed case study of how to implement the Universal Process Framework

Content Summary

Increased regulatory pressure
The Universal Process Framework
Putting the framework into practice
The gather stage: reaching back
The aggregate stage
The share stage: reaching forward
Conclusion

Increased regulatory pressure

Those driving these changes to process and reporting output expect no drop in the quality of data or output. As a result, many organizations are doubling down on the expected reporting quality and have countless projects in flight. This should come as no surprise given a recent report from The Economist Intelligence Unit that reported 52 percent of CFOs see data accuracy as the biggest obstacle in their jobs. This concern is further reinforced by the 2015 Ernst & Young survey Regulation Now, which reported that 40 percent of regulatory teams perform in excess of 500 manual adjustments to data.

Unsurprisingly, the increased pressure on finance professionals continues to grow both in volume and quality, all while ensuring the accuracy and integrity of their work. The same Ernst & Young survey found that firms continue to spend more than 50 percent of their time preparing reports versus performing analysis and review.3 This situation is crying out for action to be taken—but what can one individual do to combat this enormous problem?

This situation is crying out for action to be taken—but what can one individual do to combat this enormous problem?

The Universal Process Framework

In Process Improvement: A Universal Framework for Effecting Change, author Constantine Kokolis breaks the myth that process improvement can only be accomplished with an expensive, large-scale initiative rolled out over several years by trained professionals. He shows how the framework helps teams visualize their processes and identify unique constraints quickly, simply, and cost-effectively by anyone working within that process.4

That paper discusses how a common concern accompanying process improvement implementation is an uncertainty of where to start. The task at hand often appears daunting. The

Universal Process Framework posits that the most effective place to start is the process you are personally responsible for. The framework is designed to allow people within any larger process to examine the subprocesses involved and look for opportunities to improve efficiency.

Processes that grab the attention of change professionals are usually at the macro level—such as a 10-K, CCAR, or board report. However, by allowing teams to take a step back and see how these macro-processes are actually a collection of subprocesses, such as financial statement close, fair value modeling, segment reporting, and stress testing, reporting professionals can begin to see how their roles fit into the larger picture. Furthermore, the Universal Process Framework reveals how they can individually help to improve the larger process. Starting with what you own frees you from waiting for others to decide your part of the macro-process.

Starting with what you own frees you from waiting for others to decide your part of the macro-process.

Putting the framework into practice

The Universal Process Framework lays out three phases to any process:

Gather: collect source information for a process
Aggregate: effort is applied to transform data
Share: create the deliverable of content

Universal Processes

Without the benefit of an on-site consultation, it can be difficult to visualize exactly how applying the Universal Process Framework to a specific subprocess would actually play out. This section of the paper will walk through how the implementation of the Universal Process Framework occurred at a Fortune 1000 company—specifically around the improvement of financial statement close process. For the purpose of this paper, the organization will be referred to as Company A.

Company A experienced the effects of empowering its finance team to own the change in its process when it made the decision to reduce its financial statement close time by 40 percent with zero post-close adjustments to the ledger.

The gather stage: reaching back

At the gather stage, data and information is collected in a variety of formats—structured data systems and unstructured information—from a variety of sources. The shift in thinking that the Universal Process Framework necessitates is to stop perceiving information in the gather stage as simply that—information gathered.

Ultimately, all information in the gather stage, regardless of where in the macro-process this stage is occurring, is the product of the share stage directly proceeding it. A system of siloed microprocesses encourages process owners to focus solely on how that information is useful for their steps.

The shift in thinking that the Universal Process Framework necessitates is to stop perceiving information in the gather stage as simply that—information gathered.

This is where efficiency in the macro-process starts to break down.

As reporting requirements evolve, so does the information needed in the gather stage. The additional needs of one person’s gather stage ultimately impacts the output of the share stage for the proceeding process.

With more data being produced during the process, the length of time required, as well as the risk of error, increases. Ernst & Young reports that 80 percent of data providers do not perform detective controls for data quality.5 This is irrespective if the data is in a structured system populated by others or submitted in manual files.

This means that increasing the amount of data provided at the gather stage equals more time spent validating and reconciling the information being collected. The result is less time for reviewing the activities performed in the aggregation phase of the process. As the ever-evolving cycle of increased data requirements continues, less time is available for reviewing and analyzing. This then compounds the time needed for review by the following process.

Now, consider that this compounding of effort grows exponentially across every micro-process within a singular macro-process, such as a financial statement close, and you can start to see how quickly things can get out of hand.

End-to-End Reporting Process

This cycle is exactly what Company A was facing with its financial statement close. The first step Company A took in its effort to accelerate this macro-process was to have all those involved evaluate what they received at the gather stage against what was actually required. Process owners reviewed the information collected and identified the extraneous elements. They uncovered an excess of elements in the files provided—many of which were no longer, if ever, required for their processes.

Data gatherers connected with data providers and clearly articulated the essential inputs to their processes. This chain of reaching back happened at every microlevel throughout the entire macro-process. What they uncovered together was that additions to data continued to be bolted on as the process evolved, but elements that were no longer required were never communicated back to data providers to stop producing. As a result, the share stage continued to expand with unused inputs being produced, sorted through, and discarded.

Step one:

Review the files and information you receive at the gather stage, and evaluate what data elements are not required for your process.
Look back to your data providers, and give them a fresh set of requirements based on your review.
Empower them to adjust their processes, if desired, to eliminate the nonessential data elements.

The aggregate stage

This stage is where the most benefit to an organization can come from implementing the Universal Process Framework. By streamlining the volume of data being gathered at each micro-process, an unprecedented amount of time becomes freed for process owners. They were able to immediately reduce their cycle times by eliminating extraneous activities. At Company A, many microprocess owners were able to reinvest the saved time on analysis and review—improving the quality of data provided.

They uncovered an excess of elements in the files provided—many of which were no longer, if ever, required for their processes.

At the share stage, the efforts of the aggregation phase are packaged and assembled for consumption. Output may be in the form of templates, presentations, or loaded to structured databases. But, regardless of output, all information is developed for consumption by others as a means of building the macro-process.

Simply put, the share stage activities are the inverse of the gather stage. The needs of those who consume your output change over time. More often than not, the volume of their requests increases at a steady rate. This addition of required data to a process creates strain in the aggregate and share stages if deadlines are not extended. In most instances, deadlines are not modified, leaving quality in jeopardy. The cycle continues, and the quality of data being shared is passed on to the owner of the subsequent process—who is now in the gather stage. And so a pattern emerges.

One employee at Company A reported that after moving through the gather stage, he discovered no one in the organization had contacted the producers of a daily reporting process created for senior leadership during the peak of the financial crisis. This highly detailed report was intended to allow leadership to monitor the daily balance sheet for a specific business unit. The process owner proactively reached forward to those on his distribution list to inquire if the report was still meeting expectations and if there were any elements that were no longer required.

Company A realized that the consumers of the report had long forgone using it after the health of the economy had stabilized. Due to the large distribution of the report, individual recipients assumed others were still consuming the information and didn’t question its relevance. The amount of time and resources given back to the team developing this report was staggering—and was put to use by increasing the scrutiny given to other reporting responsibilities. While this is an extreme case, instances like this illustrate the importance of proactively reaching forward to all consumers on a periodic interval to evaluate their needs.

Step two:

Identify all of your data consumers, and set intervals to evaluate the effectiveness of your outputs in meeting their needs.
Explicitly ask your data consumers what they use and don’t use.
As you eliminate excess from your process, return to step one to ensure your data collection is re-evaluated and inform data providers of your changing needs.

Conclusion

Company A empowered everyone involved in the financial statement close to look back and reach forward. In doing so, conversations were started not just around eliminating excess outputs, but insights began to flow between departments and teams that had not considered themselves partners beyond hurriedly developing their outputs for the next team. In only 8 short months after starting its effort to accelerate the close, Company A achieved its goal of reducing close time by 40 percent with no post-close adjustments.

Process owners continue to apply the Universal Process Framework and this simple methodology to reduce effort at the aggregation stage and apply more time to analysis and review. They have effectively improved both the speed and quality of their reporting process without the need for a large-scale process improvement implementation.

The two-step process of looking back and reaching forward is an attainable first step in starting the process improvement journey. It can be done as part of an organization-wide initiative or for the processes and subprocesses within any finance professional’s responsibility. The benefits as shown can be tremendous in reducing cycle times that can be reinvested in new requirements or in review and analysis.

Even more importantly, it can be done by anyone at any level within the organization. And, while the individual impact one person can make within a large process may appear minimal, the collective impact across a large process can be enormous—equal to the level senior leadership would expect of a costly and lengthy process improvement rollout, but without much, if any cost.

And, while the individual impact one person can make within a large process may appear minimal, the collective impact across a large process can be enormous…

Working with business partners in this manner begins to build a culture of continuous process improvement leading to sustainable and repeatable processes, which is the ultimate goal of any process improvement framework.

Source: Workiva