Optimising financial processes

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Optimising Working Capital With Exception Analytics

Today’s global business challenges together with the recognition that working capital is the fuel for the organization’s growth engine create a compelling case for action to dramatically improve the management of this most valuable of assets.

Introduction – World Class Finance

World class finance functions enable the optimisation of four key objectives:


Continued changes in the economic, regulatory and competitive landscape have refocused attention back on Working Capital Management (WCM) and the opportunity for the Finance Function to partner with the business to protect and create value. World class finance needs an effective approach to managing working capital.

For companies facing pressures from global markets, capital investment requirements, foreign exchange volatility and costs of capital, the optimization of WCM promises to unlock significant value. This released value provides both an immediate impact on the bottom line as well as releasing funds for R&D investment. Done in the right way attention to WCM can support rather than detract from other strategic business initiatives. We believe the time is right to place WCM firmly back on the agenda.


Point Of View

Despite the importance of WCM, many organizations struggle at some point with maintaining an effective approach. The reasons are manifold, and from our perspective the principal issues tend to be:

Value leakage

While organizations focus externally on growing market share, innovating around new products and maintaining margins in increasingly commoditized markets; many are experiencing value leakage from their back office processes. Typically these processes have become shared, outsourced or off-shored to make them both more efficient and cost effective; but in five critical areas they have become less effective and typically many millions in value is leaking invisibly from the bottom line, cash reserves and even market capitalization.

These leaks are to be found in the key processes that drive WCM:

  • Order to Cash (O2C) – financing excessive debt/bad debts/suboptimal terms
  • Source to Pay (S2P) – overpaying, high total cost of procurement, failure to leverage payment terms/sub optimal terms
  • Forecast to fulfill (F2F) – over/under production
  • Inventory Management (IM) – financing inventory holdings/obsolete stock
  • Treasury Management (TM) – foreign exchange exposure, failure to leverage cash balances, suboptimal financing costs and banking arrangements

Challenges in identifying the granular issues

To address the value leakage challenge, organizations must have an effective approach to identify the leakage areas and the individual transaction level exceptions as well as the aggregate impact. Many organizations rely on standard applications that are designed for transaction processing or for generic ‘business intelligence’. The challenge of identifying exceptions is specific and different to identifying trends and summary variances.We need tools and techniques that enable us to find and classify all the ‘needles in the haystack’.

A lack of process integration:

To address WCM effectively companies must view the component processes as a whole rather than independent from each other. Value is lost at the boundaries between these processes. In particular effective IM and TM are both heavily dependent on the first three processes (O2C, S2P, and F2F).

Frequently the root causes of poor performance in all five processes can be found in one or more of the other four processes. The reason being that they are interdependent. Yet many companies manage these in isolation.
Little cross functional collaboration Effective WCM is the outcome of cross functional collaboration between Finance, Supply chain, and Sales with:

  • A balanced scorecard of objectives which incorporates WCM measures alongside other strategic and operational objectives underpinned by effective management information systems. This includes service level agreements with shared service centers and the providers of outsourced services.
  • Transparency and accountability across the component processes and functional silos
  • An effective forum for WCM supported by appropriate governance structures, procedures and controls

Limited standardisation, simplification, codification or automation.

The transparency and collaboration necessary for effective WCM is enabled by having a greater level of consistency across the enterprise in the way processes are executed. Standard procedures, terms and data structures are the foundations on which to embed effective, sustainable WCM. Removing unnecessary complexity from the above processes and documenting the rules which define effective procedures and controls around WCM makes the detection of value leakage and its remediation simpler. Automation of processes reduces error rates and enables preventive controls to be embedded and the detection and reporting of value leakage to be automated. Typically there is a reality gap between the theoretical process (the process of data entry into ERP) and the work-around and the behaviors of operators (the business process as operated). This gap needs to be exposed and addressed.

Few incentives to empower and reward the WCM team.

In our experience significant numbers of staff who directly impact WCM performance:

  • Do not regard themselves as part of an integrated WCM team
  • Have not received adequate training and lack the tools to be effective in identifying and resolving WCM issues
  • Are not empowered to prevent value leakage or pursue value capture strategies and are rewarded against a different set of objectives

Problems in starting and maintaining a sustainable journey.

Many organizations recognize the problems associated with maintaining an effective WCM regimen. What makes this complicated is:

  • Capturing value along the journey as well as sustaining it once a desired end state has been achieved. It is essential to demonstrate early success with measurable results
  • Winning the buy-in and support of a wide stakeholder community across the business, so this is not seen as just another Finance initiative, but as a strategic transformation and partnership
  • Releasing already stretched resources and creating a team which will lead the analysis and transformation and become the foundation and champions for new ways of working. Where organizations use consultants it is critical to transfer skills and tasks to line staff as soon as practical.

In the next section we describe how we approach these opportunities and issues in WCM. In particular how:

  • We build the Working Capital Management community
  • Leverage tools, procedures, controls and performance measures to deliver early wins and sustainable value capture.
    We outline the methodology; tools and style of working that we believe distinguish us from traditional approaches.

Approach to WCM

To be truly effective and long-term, WCM initiatives have to be treated and managed like any other organisational change. To that end it must address and define clear objectives; set out a defined journey and route map for delivering the change; using a range of targeted tools and techniques; defining, tracking and locking in benefits and building an effective WCM community. Value must be delivered during the journey as well as at the close of the project. The benefits must be sustainable and based on new ways of working which have become embedded in the organisation.

Each of these elements is discussed below.

Transformation Objectives

  • To identify the value at stake and the categories where value is leaking across the business
  • To baseline current performance and
    establish benefits tracking mechanisms to measure the change and achieve early wins
  • To trace the leakage to the root causes for example:

1. Process and Controls

  • Suboptimal policies or failure to apply policies effectively in processes and procedures
  • Failures in or absence of controls and the inability to identify non-compliance with ease. Failure to embed effective WCM controls in systems.
  • Failure to integrate processes at critical points or apply best practices
  • Suboptimal performance measures
  • Lack of timely information
  • Process complexity and lack of standardization

2. People, Organization and Governance

  • Failures in governance and accountability
  • Team work, collaboration and organisational boundaries
  • Skills knowledge or behaviour

3. Systems

  • Failure to leverage systems functionality
  • Lack of integration between systems
  • Lack of standardisation of systems and coding structures
  • Essential/desirable functionality absent from systems and tools
  • Lack of visibility of controls effectiveness

4. Relationships

  • Suppliers of Materials
  • Customers
  • Outsource providers

5. Physical infrastructure

  • To identify Value Capture remediation strategies which can be piloted, proven and subsequently rolled out in a coordinated plan
  • To build the teams that will both transform WCM practice and the WCM community that will sustain and continually improve it.
  • To establish a knowledge base of policies, procedures, best practices, tools and techniques, and performance measures together with training programs to embed better ways of working


The Journey

The journey typically consists of three key phases:

  • Mobilize & Focus – where the team is built, priorities set & quick wins initiated
  • Pilot & Validate – where the cycle of; issue identification, root cause analysis and remediation is tested and refined delivering focused benefits within the
    pilot scope.
  • Transform & Capture Value – where the
    experience and knowledge gained is rolled out across the business and the full scope of the value at stake captured.
    Value is delivered from the mobilisation phase onwards and accelerates over a six month period to full scale capture on a sustainable basis.


Value Capture strategies are executed through three techniques:

  • Quick wins – where the WCM community can discontinue bad practice or adopt a better practice based on communicated requirements within 6 to 8 weeks.
  • Work-outs – where a specific issue exists that can be resolved by bringing the parties involved into a workout during which the remediation strategy can be agreed and implemented within 6 to 8 weeks.
  • Structural change – where the solution to a root cause problem (or problem set) requires investment in a holistic solution that typically impacts systems, processes, skills & governance structures and requires asystematic design and build.

Phase 1 – Mobilise and Focus

This will entail the following:

  • Identifying the value at stake using
    workshops together with high level data-mining (on priority areas) , process walkthroughs and analysis
  • Identifying and building the WCM community
  • Selecting the pilot area and identifying the quick win opportunities
  • Establishing the communications and stakeholder management processes

Phase 2 – conduct pilot study and commence value capture

This will involve the following:

  • Implementation of selected value capture strategies following detailed workshops, data mining/exception analytics, process walkthroughs and analysis
  • Capturing lessons learned and adapting the approach
  • Extending the pilot where appropriate to similar areas
  • Creating the knowledge database defining the operating standard for the business scope covered by the pilot
  • Developing the global rollout plan and communication of early wins

Benefits delivered- savings established together with new ways of working in the pilot area

Phase 3 – Replicate pilot in multiple areas

This will entail using pilot team members as work stream leads and involve:

    • Embedding WCM reporting into monthly management meetings
    • Documenting the new ways of working and conducting training
    • Using data mining/exception analytics techniques to provide continuous monitoring and identification of noncompliance with new procedures policies and controls
    • Analyzing savings delivered against plan

  • Embedding savings in future budgets
  • Establishing continuous improvement process together with centers of excellence within the WCM community
  • Renegotiation of service level agreements where appropriate with shared service centers and outsource providers.


Benefits delivered – savings established and continuing across the entire business. WCM community established with appropriate tools and continuous improvement plans.

Tool / Technique How applied
Exception Analytics To identify the specific instances of value leakage are occurring, through analysing transactional data against specific WCM rules. This highlights where controls and best practices are not being applied. To use data mining to identify both symptoms and potential root cause problems. To establish examples, significance and impact of poor practice. To highlight specific areas where Working Capital is not being optimised.
Best Practice gap analysis and benchmarking To establish performance gap and potential best practices that may close the gap
Scenario modeling To calculate the impact of changes on performance measures and support the optimisation of WCM
Process & controls analysis &redesign
To identify the extent to which greater standardisation and simplification would improve WCM. To optimise design and embed in new ways of working
Root cause analysis To separate the symptoms of poor WCM from the fundamental root causes and focus the change where it makes the highest impact
Opportunity assessment workshops
To hear the voice of the customer, supplier and operators of WCM processes. To break down the silos of knowledge and define the WCM opportunity
Six sigma/Work-outs To establish process objectives and measures and define the acceptance criteria for quality work. To establish a zero defects mindset in back office processes impacting WCM. To take specific root cause problems (where appropriate) and resolve them with the relevant parties for immediate or urgent transformation. To create continuous incremental improvement towards the target WCM design
WCM score card To create a visible set of measures to focus and reward the WCM community in achieving targeted improvements
Benefits realisation To link transformation initiatives to real, delivered savings. To focus design decisions on delivering savings. To measure and demonstrate that the project delivers what it sets out to do in terms of benefits and $savings in particular
Stakeholder Management & communication To interest, inform and involve key stakeholders and create and maintain the momentum for change
Knowledge management & Training. Centres of excellence To make “doing the right thing” readily available to the WCM community and create a common language and taxonomy for sharing best practice and continual improvement. To create centers of excellence and go-to subject matter experts for the WCM community
High level systems assessment To identify opportunities to leverage existing functionality to improve performance in the WCM community and identify any barriers or priority areas for improvement such as standardisation and improved integration

Realizing the benefits

As the WCM program takes shape and builds momentum, it is essential that the business outcomes which the customer is aiming to achieve remain a central focus. Many of the tools and techniques described in this paper are already in use in the organisation. It is a question of harnessing he right techniques within the WCM programme. However, typically the organisation falls short in the techniques and tools for identifying the value leakage in a systematic way. A key technique that should be piloted (through, for example, a Consider Solutions ‘QuickScan(TM)’) is that of exception analytics. This approach is used to identify variances to best or acceptable practice WCM policies and controls through analysis of 100% of transactional activities in the target area
This together with the program plans, milestones and associated resources will be used to manage the transformation. In particular it will allow the leaders of the transformation to:

  • Ensure project and programme activity is directed towards the business outcomes they are expected to achieve
  • Constrain scope creep by starting with business outcomes and then working back into the project activity. This will help to avoid unnecessary project activity from occurring and create the fastest route to completion
  • Assess what value (i.e. benefit) might be at risk as the program is executed and, in those cases where value is at risk, take appropriate action to protect the delivery of the benefit.
  • Test different scenarios as the program progresses to understand the impact on delivery risk, timescales and benefits (value). Typical scenarios might include accelerating one or more projects, increasing resources or assessing the implications of a delay or slippage. So rather than looking at the projects in isolation, or in purely project terms, this will provide the opportunity for near real-time decision making based upon outcomes and value

Building the WCM Community

Change happens through people and teams. Creating a Working Capital Management Community with:

  • A balanced set of objectives and supporting management information
  • A forum for raising and resoling issues and making operational decisions that require multidisciplinary input
  • A mechanism for sharing knowledge and best practice and building skills and competencies is critical to achieving sustainable value capture.


This approach to optimising the management of working capital is just one strategy leading to world class finance. The Finance function needs to be the catalyst for these transversal improvements in the business through enhanced partnering, more relevant information and analytical support to drive the overall efficiency and effectiveness that is needed to deliver a truly World Class Finance function.

About The Author


Dan French is CEO of Consider Solutions, a firm that provides business solutions and consulting services to help organisations on the journey to World Class Finance. The firm applies management advisory and technology capabilities focused on finance process optimisation, risk management and reducing the cost of compliance, control and assurance. Consider Solutions’ methodologies deliver rapid, cost-effective results whilst providing the flexibility required by business management.

Dan has run the firm for 12 years and has a background of 25 years in general management, performance improvement, process change and technology. Dan advises organisations in Europe, US and Asia on strategies for continuous monitoring and exception analytics. Dan claims to live in London despite his travel schedule. He can occasionally be observed playing blues guitar or sampling fine red wines, but rarely at the same time for reasons of practicality rather than preference.

Dan can be contacted at dfrench@consider.biz.