Digitalization is rapidly transforming the work of financial professionals. More and more processes are being automated, while the scope of financial work continues to expand. In this article, you will read how Process Mining makes a significant contribution to the organization-wide improvement of financial processes.
Much is expected of the CFO and finance team within any organization, yet they often still lack the necessary tools, data or visibility to lead their own department and organization successfully. Moreover, there is often a disconnect or fragmentation between critical systems and a lack of collaboration with other business units.
To truly make a difference in such an environment, finance leaders must step outside the box and examine the entire business model to find growth opportunities.
Only with a data-driven approach and the right technologies can they improve their processes, optimize results and create insights to support strategic decision-making.
Process management and optimization are therefore hot topics within the finance domain. The challenge? Improving the 4 key elements: working capital, productivity, risk and compliance, and reporting.
Process challenges for CFOs
Your responsibilities as CFO are diverse. Some examples are managing cash flow, identifying and establishing important KPIs and assessing, controlling visualizing processes for a specific goal. Business planning, growth analysis, financial forecasting, ROI analysis, financial risk management and maintaining compliance with laws and financial rules are also part of the package.
Yet CFOs and finance teams still regularly encounter challenges and barriers in completing and performing these tasks. Take a look at the examples below.
- A failure to comprehend essential business drivers. In such cases, finance departments are frequently isolated from other departments and experts within the business. What is the solution? Collect more data and integrate it more effectively.
- Too long cycles for planning, forecasting, and reporting. Improve this by combining single-event planning with continuous planning.
- The “tyranny” of spreadsheets and manual work. You solve this with modern tools for data analysis and processing.
What is Process Mining?
With Process Mining, you solve many of the challenges mentioned above. Before we look at the power and benefits of Process Mining, it is good to explain what exactly the method and concept entail.
Process Mining is a technique for structurally analyzing processes within an organization based on raw data. Using special software, you analyze event logs that record actions taken by employees and systems.
For example, consider the duration of a particular action or the different steps an employee or department goes through when performing a process. The goal of Process Mining? To turn raw data from your IT systems into valuable insights.
Process Mining uses the power of automation and modern, advanced (often AI-equipped) analytics tools to examine the digital footprints left by activities within your organization. You get an instant picture of what a process looks like now and can explore how much it deviates from the ideal standard.
For example, you can identify deviations from the optimal standard in terms of time, outcomes, costs or the order of operations. Process Mining is an excellent way to identify obstacles that you don’t always notice while performing your day-to-day work.
Gartner also describes Process Mining as a technique for discovering, monitoring and improving actual processes (rather than assumed processes) by extracting readily available data from event logs of information systems.
Process Mining involves a four-step process:
- Collect information. From source systems, databases and cloud storage. You then translate that data into event logs, allowing you to visualize processes.
- Discovery. In this phase, you uncover the causes of a particular course of processes and visualize those processes.
- Improve. You look for intelligent solutions such as automating process steps and removing bottlenecks.
- Monitoring. This process step consists of tracking key metrics and ongoing benchmarking.
Compared to other forms of data analysis, Process Mining has two major advantages. First, you can make a direct connection between the course and the results of a process. This makes it easier to demonstrate and interpret cause-and-effect relationships.
Process Mining also provides an at-a-glance view of the process, making it a user-friendly tool for almost everyone.
Process Mining within finance
Improving financial processes mainly revolves around 4 main elements: working capital, productivity, risk and compliance, and reporting. Time to take a look at the challenges for each element and how Process Mining addresses them.
Working Capital
Working capital is the money you need to meet your financial obligations. It is the lubricant that keeps the business machine running. Major working capital challenges are:
- Paying invoices too early, for example, because suppliers send documents with the wrong payment date.
- Collecting payments too late because the billing process involves too many stakeholders.
- Excessive processing costs per invoice. We often see this in companies and offices that still barely use modern technology to automate certain steps of the invoicing process.
- Too little insight of credit risks and the creditworthiness of suppliers or partners.
Process Mining allows you to monitor why you structurally pay bills too early and collect too late, for example, by scanning payment deadlines and sending you notifications when it’s time to send or collect an invoice. Besides that Process Mining shows you which steps in the billing process are suitable for automation.
Productivity of the finance department
The financial process, like many business processes, consists of a series of actions with an intended and specific outcome. In the case of financial closure, it is about accurate financial statements and meaningful measures of business performance.
Unfortunately, financial information is a commodity that diminishes in value the longer you wait. The longer it takes to prepare statements, the less valuable the information becomes.
Therefore, when lead times are long, productivity, a second key element that determines the efficiency of your processes, is compromised. The most common productivity problems are:
- Processes are slow due to an excess of manual operations.
- A lack of automation increases the risk of error in processes and ensures that (manually performed) actions are not immediately visible in digital systems.
- Due to poor process alignment, employees often perform tasks twice.
Thanks to Process Mining, you make better and faster decisions, transforming CFOs and finance teams from simple “scorekeepers” into all-round business analysts. This also allows them to make better and more valuable financial forecasts.
Manage Risk and ensure regulatory compliance
Risk and compliance are important points of attention for any company working with financial and privacy-sensitive information. However, things often go wrong in this area.
- Purchase services or products outside of contracts (“maverick buying”). This leaves you with little insight into the security status of a product or service, but also leads to hidden costs.
- Poor separation of duties. This increases the risk of careless data management and data breaches.
- Failure to properly review or adhere to SLAs, leaving you in compliance trouble or having the wrong idea about the services and guarantees a vendor offers.
Process Mining gives you insight into your compliance level using up-to-date data on SLAs, licenses and data and privacy protection obligations. You will have the knowledge you need to conduct a proper internal audit. Or you can set up automatic notifications. These detect violations and prompt employees to take action. This prevents minor compliance problems from turning into major violations and massive fines.
Getting financial reports right
The final key element is reporting. Financial and managerial reporting should result in information you can rely on. Reports should create transparency and insight into operations and help you make the right decisions. Efficient, timely and accurate reporting systems lead to better and faster decisions.
The quality of data and the speed of reporting are especially important. Is information grouped and structured in such a way that you can immediately extract valuable insights from it? And can you get it fast enough to ensure your reports are still useful?
Because Process Mining is based on a rigorous analysis of event logs that accurately dissect all actions and process components, data quality greatly improves. You can also visualize and present your data in convenient real-time dashboards. The result? Faster and more informed decisions.
The following best practices will help you perfect your reports even more:
- Record transactions the moment the activity occurs. That way you have real-time data and you don’t have to search for it afterward.
- Simplify data entry, for example through automation.
- Enter only what you really need and will use.
- Check and correct entries immediately after entry, not after the monthly close.
- Ask your team what information they need to make the best decisions. Then actively act on the answers.
- Include important non-financial information in your management reports as well to give context to the financial statements and vice versa.
Want to know more?
As you can see, improving processes becomes a lot easier when you harness the power of Process Mining. At Deep Value, we know the power of Process Mining and use the technique to quickly realize operational efficiencies and improved process intelligence for your organization.
Curious about what we can do for your organization and finance department? Then feel free to contact us by calling +31 (0) 30 209 92 70 or emailing info@deepvalue.nl. You can also schedule a live demo to see Process Mining in action.
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