Risk Management through Finance Process Automation

Finance Process Automation

Claudia Pirko, ANZ Regional Director at BlackLine, discusses how to mitigate risk and improve efficiency through finance process automation.

Why Finance Process Automation?

In the current rapidly evolving business environment, there are a lot of risks keeping Chief Financial Officers awake at night. From potential cyber security threats and data breaches to the challenge of finding sufficient skilled staff, CFOs are being challenged on many fronts.

Faced with these risks, many CFOs are seeking ways to quantify them by applying the same level of discipline they bring to financial planning and forecasting. They want to be able to build models that accurately evaluate risk which, in turn, will allow effective mitigation steps to be undertaken.

A New Risk Management Paradigm

To achieve accurate modelling of risk, CFOs need to create integrated forecasts that bring together both the demand and supply sides of their business. These forecasts should be based on drivers and operational metrics for specific functional areas, such as manufacturing, distribution and sales.

It’s important for these models to also make use of advanced analytics to identify correlations between internal functional areas, thus incorporating probabilities and assumptions rather than relying only on single-point numbers. In this way, it can be seen how changes in one area of the business will have an impact on others.

The Role of Automation

To better deal with these risks, increasing numbers of CFOs are turning to automation as a means of streamlining processes, improving efficiency and lowering the chance of striking problems.

For example, automation of financial processes can result in the ability to have real-time verification and validation of inputs, transactions and outputs. This allows the finance team to quickly spot potential risks and flag them for management attention.

Automation also helps an organisation improve its levels of compliance through the consistent execution of processes. Audit trails can be automatically created and metrics provided that reflect actual, up-to-date data rather than manual estimates.

The Role of the CFO

When it comes to using automation to manage and reduce risk in these ways, the CFO will need to tackle a number of different tasks.

The first is the creation of a risk management strategy that will act as a guide for all finance staff. This strategy should outline specific approaches for a range of factors including achieving compliance and undertaking stress testing of processes. It should also cover the creation of a risk committee to oversee activity and steps to ensure board oversight.

The CFO must then accurately define exactly what will be tracked in terms of risk over time. Once these factors have been identified, management models can be created and integrated with each other to ensure all areas are covered.

Also, it’s important that the CFO has a clear understanding – down to the keystroke level – of the impact and consequences of automating manual processes. If this automaton is not carefully managed, it could lead to increased rather than decreased risk being experienced.

Monitoring Economic Variables

As well as putting internal strategies and automation in place, when it comes to having an effective risk management strategy CFOs also need to take into account a variety of macroeconomic variables.

At the highest level, these could include potential changes to global trade policies and patterns that might have an impact on the organisation’s performance as well as the shifting economic conditions in the markets of customers.

It’s also important to monitor the cost of complying with government regulations as well as any changes that could occur in either the cost or availability of labour. Such factors can have a rapid and profound impact on the organisation and therefore should be regarded as significant risk factors.

The CFO must also be mindful of new disruptive technologies that could outpace the organisation’s ability to adapt and compete in the market. Such disruptions can occur quickly and result in loss of market share or the sudden irrelevance of existing product or service offerings. 

Managing Operational Challenges

There are also a range of operational challenges that can have an impact on performance and so need to be monitored by the CFO and finance team as automation is being introduced.

These challenges include a potential inability to meet expectations or develop accurate forecasts. There may also be an inability to use big data and analytics to improve productivity and efficiency.

Other operational challenges needing to be monitored include risks associated with outsourcing, strategic sourcing or joint ventures. Each could result in higher risks for the organisation and so need to be included in models to allow for pre-emptive steps to be taken if required.

Putting Automation to Work

It’s clear that automation within the finance department can significantly improve an organisation’s ability to monitor and manage risk. By being able to spot risks earlier, steps can be taken to minimise  impact and shift operations as required.

While the CFO has a key role to play, it is important that the IT department be involved early in the process to ensure the most appropriate platforms and technologies are put in place. These will include everything from effective backup and security tools to controls that will allow automated processes to be carefully managed.

Also, it’s not simply a matter of setting up automated systems once and leaving them to complete the work. Ongoing monitoring is critical to ensure they are performing required functions even as the risks being faced are changing. Through following a strategy of careful planning and deployment, CFOs will be able to make use of automation to reduce the levels of risk faced by their organisation, allowing it to continue to thrive in uncertain business conditions.

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