“In terms of an ERP system, I do believe you need to have a controlled system. It’s important. This applies to the CFO, the controller, in fact all employees benefit from the use of centralized controlled system. Specifically, for the finance people, there are many benefits in this kind of system.”
Mike Cleary joined CuroGens in November 2018 as vice president of finance and operations. He has worked in finance for 25 years, and prior to working with us, he was a self-employed financial consultant focused on process improvement and operational efficiencies that support growth initiatives. At CuroGens, Mike oversees the company’s financial matters, as well as assists in potential mergers and acquisitions, and has oversight responsibility for operations. We sat down with Mike to get his perspective on how a CFO can utilize an ERP system for the benefit of the whole company.
Can you discuss the difference between an accounting system and an ERP?
Sure, accounting has been around for hundreds of years, with your debits and credits system. The ERP system is much broader, and it can potentially, if done correctly, control all aspects of the operations. The accounting module is just one module, but with the ERP system, all the modules are integrated. What an ERP system brings to the table is context. If I’ve got a question, whether on the income statement or the balance sheet, an ERP system gives me the ability to go into the operational side of things and drill down and understand why a number is what it is. It gives me the “why”. Sales are going to be sales, costs are going to be costs, it doesn’t matter what the category is, but If I see something I didn’t expect, I need the ability to examine the cause, so I can determine whether it is normal operations, or if it is an outlier. This leads us to the question of forecasting.
Discuss the advantages to a CFO with using the right ERP System and forecasting.
It gives me a one source of truth for realistic expectations for my business. One thing that is paramount in my opinion when forecasting- you have to time stamp that, and you have to put a stake it the ground and say, “at this point in time, here’s what our latest thinking is”. There’s an old saying about forecasting, “the minute you put it to paper its wrong”, and all that means is the world is always changing, it’s not static and that’s ok. One of the hallmarks of forecasting is: what were all of our assumptions behind that forecast? One of the beautiful things about the ERP system is it allows us the opportunity to put that data into one data set and have a repository of information, and then you are able to say, “at this point here’s what our thinking was, here are all the assumptions, and here’s how we came up with those expectations of what was going to happen.” Just as powerful is when the those actual results happen. The ERP system is very well designed to compare variances and giving reports that say, “here’s what the forecast was, here are the actual results, what is the difference between the two?” If there’s a wide variance, whether it be on revenue or expenses, or whatever the case may be, you then have the ability to do a deep dive into what makes up that component. This can shed light and insight into the variance and get to the “why” it happened, it takes out the guess work. Now you can repeat this process again and again, and what tends to happen is that forecasting becomes very accurate because you are basing it on data driven information. Historically, you can collect large data sets over large periods of time. That’s one of the things that ERP systems lend themselves well, collecting a lot of uniformed data, versus outside of a controlled system where you have all these different individuals doing their work separately and trying to come together. There’s no guarantee that the process is done the same way, month in and month out. All of this data consistently uncovers trends to make it easier to do accurate forecasting.
How does having all the separate operations streamlined into one central location assists the CFO?
Business transactions happen every day. Operations happen every day. I think the biggest thing the ERP system brings to the table is, depending on how its set up and how it’s structured, is the ability to capture all that activity in a centralized place, in one cohesive place, where it’s all interconnected. That is much broader than just an accounting system, where you just keeping the books and just producing financial statements. If I don’t understand the operations of a business, the numbers are meaningless. In a controlled system it’s much easier to spot trends. The data input gives me a database that can be used for analysis by either person or system. The advantages of creating a powerful data warehouse and partnering that with a Power BI tool and I can figure out what the Key Performance Indicators (KPI) that are important to my business.
For every business, it’s different. There’s no such thing as a “one size fits all” universal solution. It will depend on what industry you are in; it depends on what the nature of your business is.
If you can narrow it down to the KPIs, and see correlation between certain activities, once again it reveals important understanding for forecasting. You can start to derive correlation, which brings itself back to data sets, and be able to see correlation between activities, not causality- that’s much tougher, but correlation really helps you be much more predictive. It is much harder to do this if you’re not in a controlled system like an ERP.
Explain how the ERP can assist with business growth.
Within the ERP system, there are all these different modules for professional services, that are all integrated. If a question arises about something specific, for example bill rate per hour, I can do a deep dive into projects and see which projects are driving that. In the manufacturing world, let’s say a question were to arise around the cost of a certain good the company is producing. A deep dive into billed materials to see what the feed stock that goes into that item is costing, maybe it’s something different than expected , I can start to challenge my assumptions.
Adjusting based on accurate information makes the next forecast process even better than the last. I have always believed it’s more valuable to be looking forward, but with accurate data from the past. The key to better forecasting is being within a small percentage of error, and having a robust ERP system is a powerful tool to help you do that.
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cfoERPFinance and OperationsMicrosoft Dynamics 365