Role of Controller in Financial Analysis and Budgeting

(Disclaimer: some will disagree with the opinions below and are reflective of my experience and observations across a fair number of generally large companies)
Almost every organization once it passes a certain size evolves an analytical function separate from the accounting function. This is an evolution of sophistication and generally requires acceptance and embracing of the rest of the organization to be successful. I am a strong believer in a hard separation between the accounting team and the analysis team within a financial organization. This comes from my observation of several potential issues with having the accounting organization performing analysis of the business:
1. Illusion of Precision: As a generality, accountants are very detail-oriented and both training and education reinforces it. As you aptly noted, this causes analysis and reporting to drag far too long to be actionable to the organization. In most cases, a 70-80% effort is sufficient to derive an actionable result. Being trained in the art of precision and accuracy, many accountants have difficulty pulling away from the details to get an actionable result quickly.
2. Accounting cycles: The accounting function typically has extreme periods of workload which makes getting information and analysis performed very difficult during certain periods of the month and year. This does not suit the needs of a business where challenges are a daily and weekly occurrence.
3. Purview to the organization: By function and necessity, accountants are generally shielded from many aspects of the organization. That will seem incorrect to some as most things in business have a financial consequence and the accountants always touch said consequences in some manner. In this interaction, however, accountants tend to be an “inch deep and a mile wide” wherein their depth of understanding of the operations is frankly shallow. This isn’t an indictment of accountants but rather the reality of being responsible for a function (tracking and recording all financial activities) rather than being primarily responsible for supporting and driving an operational area.
4. Recognition of information: In my experience, many accountants believe that most of the information necessary to manage and drive an organization is embodied within the accounting/ERP system. In reality this has been 25-30% in the businesses I have worked. The rest of the information is very operational, sometimes unstructured, and is only indirectly related to resulting financial activity. Additionally, there is a tendency to think that reporting equals analysis (how many reports have “analysis” in their title?). Reporting addresses the question of “what is it” while analysis addresses the question of “why is it” and decision support addresses the question “what do I do”.

I have a strong preference to have a dedicated analytical team whose skill and dedication is to understanding the “why’s” within the business and partnering with operational areas to provide not only data but also information and knowledge to support business decisions. This is a highly unstructured activity by nature as the situations, challenges, and needs change regularly. It is extraordinarily difficult to train for this type of activity and invariably requires more of a generalist rather than a specialist as accountants typically are. It also requires a dedication to the problem-solving process which is likewise difficult to task to the accounting team who has other key responsibilities.

I also have found that most accountants make poor analysts. Most accountants have spent a large part of their training and development understanding rules of accounting and digging deep into minutia of financial transactions to reconcile, balance, and track. These activities, while valuable to the organization, are usually poor training grounds for analysts. The best analysts come from varied backgrounds and are the ones who have seen a myriad of different situations, circumstances, and activities. As a result, strong analysts build a large toolbox of methods and frameworks that are applied in a Lego fashion in new situations.

When such a function should evolve within an organization is a function of size, cost, and profitability. In small entrepreneurial organizations, the entrepreneur performs this function intuitively. Once the organization is too large for the leader/entrepreneur to wrap his/her arms around everything, analytical roles start to form as analysis becomes the substitute for intuition by a select few. At the end of the day, the function should add more value than it consumes within the organization. This is generally easier to measure at the inception of a group rather than years later.

I fully support the comments made by both David & Michael. As a business controller myself, I lead a team with various responsabilities and while certainly we have to work closely with accounting, at te end of the day our role is not only to explain what happenen in the past, but to recommend the business route(operationally and financially) in the future.

Accounting teams are imperative to any organization for the reasons mentioned by my collegues above, but very few accountants can actually wear the hat of an analyst or a consultant. Indeed, I pick my team based on the variety of experiences, even at their hobbies because analysis, modelling, recommending, managing growth...etc. is all about fragmenting one's personal & professional experience and rebuilding a coherent solution for a problem with many variables.

For your organization, I would strongly recommend building in a FP&A team. If they are still at a point where the costs are unjustified, use a third party service but at least hire internally a junior candidate that could be groomed to take charge once the costs could be accomodated.

Michael (Wow, a lot of Michael's around here)

I concur with many of the previous comments, but I am not sure that a $75MM enterprise can financially support a separate FP&A function. In my last position, I couldn't weasel a full time FP&A resource until we were over $125MM.

I think, however, that you may need to work with your accounting function to develop an interim financial reporting process (tell them its like "unaudited" statements, that might help them understand). These metrics or key performance indicators should be produced nearly automatically by your system or via simple spreadsheet analysis. These metrics should be reported "as is" in the form of a dashboard, to help management understand the basic direction of the business's operations. Further analysis can be done later, unless a metric is showing a huge variance from expectations, then the accountants should be able to build a variance analysis pretty quickly.

Clearly, 45 days to get financial reports out is completely unacceptable, so someone in senior management is going to need to reset the controller's performance measures. A typical public company close takes 3-7 days.

To help with the planning side of things, the business does need at least a part-time resource focused on building and monitoring budgets and forecasts. That person may be someone that can be pulled from the controller's shop, but they will need supervision. I started out in Accounting and moved over into FP&A, so I understand the issues that Accountants and Controllers have in moving over. GL accountants are not always able to deal with the ambiguity associated with the financial planning part of FP&A, however they are normally very good at the analysis part (if taught how to do it properly).

If the business is expecting solid growth, the CFO may indeed feel it is approaching time for a separate FP&A function, but I think that a part time resource working directly with the CFO may be the best route to start.

Best regards, --mike

Although I agree with most of the above comments I am surprised by the amount of time it takes to close for this company. I always dedicate resources to improving processes so reporting is as automated as possible and close can be done within 5 days in a format that can stand an audit. There is no reason you can't keep your books as clean on a daily/weekly/monthly basis to make an audit a non-event. With close complete at the beginning of the month you are left with three weeks to focus on analysis.

A company at the $75M revenue level might not be able to afford a full time FP&A. The accounting staff needs to know how to make their metrics work for the benefit of the company as they continue to grow to this level. Not to mention that their hands would be tied in relation to useful inforamtion if they were unable to move foward until the financials were completed.

I currently handle all of these functions where I work and good processes and time management enables me to see the whole process through and offer valuable and timely advice. It also makes me a more rounded professional which increases my value at my current company and for others in the future.