Corporate risk management is quickly gaining disciples among the top executives and board members of the world’s largest businesses. As a result, more and more CEOs are now looking to their CFOs for guidance on how to turn what might have been an ad hoc collection of security mechanisms into a formal program for instilling a risk-aware culture into all levels of the organization.
At the same time, increasing numbers of CFOs are taking this opportunity to bring formal considerations of “risk-appetite” into top-level strategic planning.
According to the recently updated “Enterprise Risk Management – Integrating with Strategy and Performance” framework from COSO, the Committee of Sponsoring Organizations of the Treadway Commission, best-practice ERM should permeate the organization.
Robert Hirth, COSO’s current chair, believes that the CFO is ideally positioned to take the lead in bringing this to reality. In fact, says Hirth, “If a CFO believes ERM could benefit the organization, it’s almost their implicit duty to advocate for it or at least bring it up for review, analysis, and debate.”
But savvy CFOs know that this isn’t something that can be accomplished overnight. They know that finance must first win the trust of the business units.
One way to win that trust is to demonstrate how best-practice process automation can improve risk management in finance.
Enter Variance Analysis
Put simply, variance analysis, or “variance,” is a mechanism for measuring actual vs. planned results across any number of dimensions: purchase price, overhead spending, and selling price, to name some examples.
When variance is used correctly, it can deliver visibility into how the business is performing. And it can help uncover risks that, without it, the business might be late to discover.
Until now, many managers have seen variance as less than critically important because it typically took place at the end of the accounting close cycle. It was also typically performed manually by the controller or the CFO and would add time to the period close – time that is extremely precious for getting the financial reports together.
Enter Continuous Accounting
Now, with advanced automation tools performing key closing tasks such as account reconciliations throughout the month, finance professionals can apply variance throughout the month, as well. Thanks to integrated automation tools, the CFO can now add a new, automated variance process to the already-in-place reconciliation processes.
Like automated reconciliations, the variance module is process-aware, so it automatically applies a wide range of standard or custom rules as the reconciliations come in.
“With Continuous Accounting, the variance module can perform its analysis on a daily basis,” says BlackLine Product Manager Thyra Hunter. “It quickly reviews and identifies any anomalies that it sees, and that gives the accountant or controller a chance to investigate it. They can then apply any necessary documentation to the file, and they’re not adding extra time at the end of the close.”
Variance analysis greatly aids the organization’s ability to catch risks before they turn into disasters. And it shows how intelligent, automated processes can make continuous improvement come true for a critical asset of the organization – its core financial practices.
Read this blog to discover how to use variance analysis to inform your business strategy.