SF October 2022

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FEATURE ARTICLES

THREE MINDSET SHIFTS TO ACHIEVE AUTONOMOUS FINANCE

COVER STORY The biggest obstacle to autonomous finance doesn’t reside within the technologies involved. Rather, it’s the minds of CFOs. Three common assumptions get in their way.

BY DENNIS GANNON

IMPROVING BUSINESS RESILIENCE

Resilience in challenging times requires not only the ability for companies to adapt on the fly, but also advanced planning based on analytical techniques and machine learning.

BY SHIRLEY J. DANIEL, CPA, PH.D.; YUANZHANG XIAO, PH.D.; AND TING-TSEN YEH, PH.D.

THE CASE FOR BPM

Conversion to a BPM enter prise solution requires an initial standardization of business-unit processes and data across all seg ments, early cooperation, and final governance and maintenance of the sin gle source solution and its intelligent automation tools.

BY DAN CAMPBELL, CPA, AND DEBORAH C. MICHALOWSKI, CPA

BUILDING BETTER REVENUE MANAGEMENT, PART 1

A study of revenue manage ment practices at small and medium-sized hotels during the pandemic identifies 10 ways SMEs can be better prepared to face unexpected change and optimize profits.

BY JODIE MOLL, PH.D., AND OGAN YIGITBASIOGLU, PH.D.

CFOs need to adjust their thinking in three key ways before they’ll be ready to fully embrace the technologies needed for autonomous finance.

TO

BY GWEN VAN BERNE, CMA

BY ROBERT LEE, PH.D., CMA, CPA,

LEE

BY PAUL MCDONALD

TECHNOLOGY

TECH FORUM BY MICHAEL CASTELLUCCIO

61 TOOLS OF THE TRADE

BY MICHAEL CASTELLUCCIO

62 EXCEL

BY BILL JELEN

64 TECH PRACTICES

BY AHARON YOKI, DBA, CPA

AIMING

BY MARCINE JOHNSON, CPA

BY HARI RAMASUBRAMANIAN, PH.D., CMA, CA

BY KUN HUO, PH.D., CPA, CA; KHIM KELLY,

FCPA, FCA

AND

READ STRATEGIC FINANCE ONLINE: Read every article of SF at SFmagazine.com and enjoy additional online content, including the SF Technotes and IMA Moments blogs—all in a digital format that’s easy to read, share, and print.

BY MARK L. FRIGO, PH.D., CMA, CPA,

ROBERT HIRTH AND RAY WHITTINGTON, PH.D., CMA, CPA

EDITOR-IN-CHIEF CHRISTOPHER DOWSETT, CAE cdowsett@imanet.org

SENIOR EDITOR ELIZABETH KENNEDY ekennedy@imanet.org

SENIOR EDITOR NANCY FASS nfass@imanet.org

TECHNOLOGY EDITOR MICHAEL CASTELLUCCIO mcastelluccio@imanet.org

FINANCE EDITOR DANIEL BUTCHER daniel.butcher@imanet.org

STAFF WRITER/EDITOR LORI PARKS lori.parks@imanet.org

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Strategic Finance® (ISSN 1524-833X/USPS 327-160) Vol. 10 4, No. 4, October 2022. Copyright © 2022 by IMA. Published monthly by the Institute of Management Ac coun tants, 10 Paragon Drive, Suite 1, Montvale, NJ 07645. Phone: (201) 573-9000. Email: sfmag@imanet.org

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Music to My Ears

BY GWEN VAN BERNE, CMA

O

VER THE LAST FOUR YEARS, I’ve served as treasurer of the Delft Chamber Music Festi val. For me, there’s no greater delight than listening to great performances in our beautiful concert hall at the Prinsenhof (translated as “The Court of the Prince,” it was a residence of William the Silent, considered the father of the Dutch nation).

The pandemic proved to be an enormous challenge for the organization, but we weathered the storm and came back strong last summer. From a financial perspective, I’m still concerned about the long-term effects of the pan demic on the cultural sector in Delft as well as the Netherlands, but we managed to arrange this year’s funding and sold our tickets.

Makashvili, who wanted to study in Paris to become an independent woman, but her dreams came to an end when the Russian army invaded Georgia in 1921. Sadly, Maro was killed two days after she volunteered as a nurse. Maro is a well-known national hero in Georgia, someone who wrote passionately about freedom and the independence of her homeland in a diary that was later published. She’s sometimes called the Georgian Anne Frank. With stories such as these, not only did Nino Gvetadze bring great musicians to Delft, but she also made wise artistic choices, opening everyone’s eyes and hearts with her highly relevant thematic concerts. Most import ant, she did this with flair and sensitivity.

Gwen van Berne, CMA, is director of finance and risk at Oikocredit and Chair of the IMA Global Board of Directors. She’s also a member of IMA’s Amsterdam Chapter. You can reach Gwen at gwen.vanberne @imanet.org or follow her on LinkedIn at bit.ly/3LVeRGM

My management accounting skills allowed me to challenge our budget forecasts and define mitigation plans for nega tive scenarios. We as finance professionals play these roles everywhere: to optimize and protect the resources of our organizations. The festival sur vived last year, and my successor is already planning for the next year to make sure we can continue to organize our chamber music festival in the years to come.

This summer, the festival’s new artistic leader, Nino Gvetadze, created history in our incredi ble setting. Born and raised in Tbilisi, Georgia, Nino leads an active international musical life as a soloist and chamber musician. She brings a fresh perspective to the long-standing tradition of chamber music. Through her programming, she shared personal stories linked to diversity, inte gration, and international conflict.

One multidisciplinary performance featured the story of a young Georgian girl named Maro

The festival proved a reminder for me about the importance of diversity and integration for our future. IMA® is also keen to promote cultural diversity. As an organization, we’re highly committed to creating and nurturing a diverse, equitable, and inclusive member community and finance profession. Diversity, equity, and inclusion (DE&I) is one of my key themes as IMA Chair, and I will continue to do everything I can to stimulate progress in this field. We want to recognize the progress we’ve made as a profession but also acknowl edge that there’s still much we must accomplish. Ultimately, we want to ensure that those who optimize organizational resources and steer discussions about scarcity come from different backgrounds and cultures but share the same val ues of respect, passion, integrity, innovation, and teamwork.

Please join IMA in our efforts to raise aware ness about this critical topic. And check out IMA’s DE&I page for our latest research in this area, including some fascinating regional findings (bit.ly/3RCkvRZ). I also invite you to share your thoughts with me about the importance of diver sity in your own life or organization. SF

«IMA is keen to PROMOTE CULTURAL DIVERSITY.»

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Diversity,

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This five-course certificate program provides critical knowledge, skills, and effective practices to help accounting and finance professionals foster a diverse, equitable, and inclusive environment.

SHARE YOUR IMA STORY

IMA members share a strong spirit of camaraderie. What have your experiences as an IMA member been like? Do you have a story about them you’d like to share? If so, please consider writing an IMA Life column that will be published in Strategic Finance. You can be a student member, a young professional, in the midst of your career, or retired. If you’re interested, please email Lori Parks at lori.parks@imanet.org

IMA AND NABA FORM STRATEGIC ALLIANCE

IMA® (Institute of Management Accountants) and the National Association of Black Accountants (NABA) have partnered to sup port each other’s mission to reduce inequalities for Black people in the accounting pipeline by cross-promoting membership op portunities and benefits of both organizations to professionals and students as well as launching a joint membership drive for Black college students.

This alliance comes on the heels of a global diversity, equity, and inclu sion (DE&I) research series culminating in the capstone report, Diversifying Global Accounting Talent: Actionable Solutions for Progress, of which IMA was a cosponsor and NABA was a DE&I advocate (myima.org/DEIsolutions).

“It is inspiring to see research translate into transformative ac tion,” said Loreal Jiles, IMA vice president of research and thought leadership. “By joining forces with NABA, we are ensuring that Black students and professionals are given the opportunity to develop and leverage management accounting skills to succeed and excel as Black business leaders.”

Students will have the ability to join both organizations for free, and professional members of each organization will be able to join the part ner organization at a reduced rate. IMA will sponsor a select number of students and NABA professional members to participate in a compli mentary CMA® (Certified Management Accountant) self-study cohort and pursue the CMA.

IMA and NABA representatives will visit historically Black colleges and universities and other universities to raise awareness of the oppor tunities available through a management accounting career path and encourage membership in both organizations.

Source: Gartner, gtnr.it/3RnlGoh

See “Three Mindset Shifts to Achieve Autonomous Finance” on p. 28 for more.

IMA and NABA will also enhance and elevate Black students and professionals through joint webinars, podcasts, speaking engagements, published articles, and cohort meetings. —Nancy Fass

THE STATS

IMA/

of CFOs invest significant personal time in learning about technologies for autonomous finance and their applications.

WELCOME,

IFAC’S NEW ACTION PLAN FIGHTS CORRUPTION

The International Federation of Accountants (IFAC)

issued Action Plan for Fighting Corruption and Economic Crime in September 2022 to enhance the accountancy profession’s con tribution to, and support of, a robust anti-corruption ecosys tem. The action plan sets out more than 30 specific actions for IFAC and the accountancy profession related to education, evidence-based policy, global standards, partnership, and thought leadership.

The action plan provides a framework for enhancing the accountancy profession’s role in combating corruption and economic crimes, thereby advancing the United Nations Sustainable Development Goals. The framework is organized into five overarching pillars: harnessing the full potential of education and professional development; supporting global standards; contributing to evidence-based policy making; strengthening our impact through engagement and partnership; and contributing our expertise through thought leadership and advocacy. The 30 specific actions are meant to evolve over time.

“Corruption and related economic crimes, such as money launder ing, bribery, tax evasion and fraud, are significant obstacles to economic growth and human development and, ultimately, to achieving the UN Sustainable Development Goals—all 17 of them,” said IFAC CEO Kevin Dancey. “Our Action Plan illustrates some time tested and some new ways that make it clear that the global accountancy profession is a central ally in the fight. We look forward to working with our member organizations and other partners to make a real difference and drive positive change.”

The action plan embodies an enhanced commitment by the accoun tancy profession to fighting corruption and economic crime more broadly. It harnesses the profession’s reach across public practice, business, and the public sector to contribute to the fight against corruption directly and indirectly by supporting integrity and transparency in business and gov ernment as well as effective global and domestic policy making.

The action plan was developed with extensive engagement across IFAC’s 180 member organizations, as well as its advisory groups, network partners, and other key global organizations. The action plan was inspired by and developed in close coordination with the Anti-Corruption Strategy for the Legal Profession of the International Bar Association. —Nancy Fass

IMA members became CMAs between August 1 and August 31, 2022.

The names of all the new CMAs can be found on the Strategic Finance website at sfmagazine.com/issue /october-2022

For more information on CMA certification, visit www.imanet.org /cma-certification

Bu llet in

WHAT CAN ACCOUNTANTS LEARN FROM AMAZON?

The accounting profession has continued to evolve in the Digital Age, and Amazon’s path to success offers relevant lessons.

John Rossman’s Think Like Amazon: 50 1/2 Ideas to Become a Digital Leader is a thoughtful explanation of some of the key concepts that have enabled Amazon to reach a $1.2 trillion market capitalization, experiencing explosive growth during the COVID-19 pandemic while thoroughly disrupt ing the retail industry that we once knew. By examining the ideas driving Amazon’s success, the book provides insights about how to address strategic planning in the Digital Age.

A former senior executive at Ama zon, Rossman has created a playbook allowing the reader to quickly grasp 50-plus key ideas and actions that Amazon’s leadership has used to ensure a vibrant, creative, driven culture that seeks growth opportu nities for every area of the business. These ideas are actionable and grounded in concrete examples. The book is organized into four sec tions: culture, strategy, business and technology, and approach and execution.

My favorite chapter is “Pizza for All,” a description of the “two-pizza team,” so named because Amazon CEO Jeff Bezos believes that most work is best done by a small autonomous team that can be fed by two large pizzas. Other chapter titles include “The Door Desk,” recommending frugality; “Launch and Learn,” advising professionals to experiment to learn what works and what doesn’t; and “The Future Press Release,” which reveals communication best practices. Accoun tants will find a lot of good information and an interesting perspec tive to help them drive success. Chapters such as “Get to Yes,” “Blow up the Org Chart,” “Lies, Damn Lies, and Metrics,” “Do the Math,” and “Finance for Fools” all point to how individuals can con tribute to the success of the finance team and overall organization. Amazon is numbers-driven, but reporting isn’t its focus. Knowing the business is.

Finance professionals who are curious about contributing factors in the mega-success of Amazon and want to better understand how they can help their own company to thrive in the digital world will find this book of interest. If your company is competing with Amazon al ready, then you should read this book as competitive intelligence. Even if you’re in a totally different vertical or industry, you’ll gain insightful, practical ideas that you can use to give your career a boost. I highly recommend this book. Jim Scott, CMA

SURVEY/ OVERCONFIDENCE

IN CYBERSECURITY

A survey commissioned by Kroll shows a disconnect between the confidence that CFOs have in their organizations’ cybersecurity abil ities and the actual damage that cyber incidents are inflicting. Cyber Risk and CFOs: Over-Confidence is Costly finds that a majority of CFOs are highly confident in their compa nies’ cybersecurity capabilities despite being somewhat unaware of the vulnerabilities their companies face.

87 %

of CFOs are confident in their companies’ cybersecurity capabilities.

37 %

of finance teams have never received briefings or updates from the information security team (and only 40% receive regular briefings).

79 %

of companies represented in the sur vey had at least one security incident that resulted in compromised data or financial loss in the last 18 months.

Download the report at bit.ly/3QLcNnp .

SF

format that’s

Technotes appears as a twice-monthly blog on the website.

Moments appears as a once-monthly blog on the website.

ETHICAL WORKPLACES ATTRACT THE BEST AND BRIGHTEST

Cultivating an ethical organizational culture is often more art than science, but finance leaders have a key role to play.

BY PASSARD DEAN, DBA, CMA, CSCA, CFE

MANY INDIVIDUALS APPRECIATE WORKING IN AN ETHICAL ENVIRONMENT, so management accounting and finance professionals who instill an ethical culture will boost their company’s ability to recruit and retain the best and brightest and help avoid reputational damage. So how do organizations achieve this? The first place to start is formulating a code of ethics and set of core values, the importance of which can’t be overstated.

Even organizations that don’t have a formal code of ethics are likely to have a statement of core values that encourages ethical behavior. For example, the following are the six core values of Saint Leo University, where I work.

Excellence. Faculty members work hard to ensure that our students develop character, learn skills, and assimilate the knowledge essential to becoming morally respon sible leaders. The success of our university depends on a conscientious com mitment to our mission, vision, and goals.

Community. Saint Leo University’s mission is to develop hospitable Chris tian learning communities. We foster a spirit of belong ing, unity, and interdepen dence based on mutual trust and respect to create socially responsible envi ronments that challenge all of us to listen, learn, be open to change, and serve.

Respect. We value all individuals’ unique talents and dignity and strive to foster their commitment to excellence in their studies and work. Our community’s strength depends on the unity of purpose and diversity of our people; the free exchange of ideas; and learning, living, and working harmoniously.

Personal development. Saint Leo University stresses the development of every person’s mind, spirit, and body for a bal anced life. All members of the academic community must demonstrate their commitment to personal development to help strengthen their character and the reputation of our institution.

Responsible stewardship. We foster a spirit of ethical service to employ our resources to improve the university and com munity development. We must apply the resources of our community to fulfill the university’s mission and achieve our goals.

Integrity. Saint Leo University’s commitment to excellence demands that its community mem bers embody its mission and deliver on its promise. Faculty, staff, and students pledge to be honest, just, and consistent in word and deed.

These core values are integrated into the courses taught at the university. Each course has at least one of the core values included in the curriculum’s learning outcomes, with specific assignments to ensure that students get more familiar with them.

TONE AT THE TOP

Having a code of ethics and a set of core values is generally useless if the tone at the top isn’t appro priate. Many employees take their cue from those in leadership whom they respect and seek to emu late. Therefore, leaders must always execute their responsibilities ethically to set a good example.

This responsibility includes not tolerating any type of misconduct from any employee, no matter how brilliant they may be or how well they perform. Failure to deliver consistent consequences for uneth ical behavior may cause ethical employees to leave the organization, leading to a decrease in morale and productivity. Additionally,

the company’s reputa tion may be negatively impacted.

Another way leaders may fail at setting the appropriate tone at the top is by not being trans parent in their communi cations. When important information goes unsaid by leadership, it creates an environment in which employees are left to cre ate their own narrative, which is often negative. This leads to rumors spreading and distrust between employees and leadership. Therefore, leaders should commu nicate important infor mation frequently with as much detail as possible without compromising the organization’s competitive advantage.

MAKE ETHICS ROUTINE

There are many ways that organizations can communicate the impor tance of the code of eth ics and core values to encourage employees to live and work ethically every day. For example, employees could be pub licly acknowledged when managers or peers notice ethical behavior. I worked in a company that encour aged employees to tell each other when we saw a good job being performed. The culture exudes ethics and fairness, which starts with the example set by executives at the highest level.

As a result, many employees stayed in this company for numerous years. Initially, I thought employee loyalty and lon gevity were inspired by the company’s compensation and benefits, but as I got to know my colleagues,

IMA ETHICS HELPLINE

For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.

In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.business.att.com /collateral/access.html, then the above number.

The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.

I learned that they loved working there because of the ethical culture. Employees felt that they could trust leadership and were being treated fairly.

There was a time when the company needed to cut expenses, which included reducing the number of employees. As a result, senior management offered those who were close to retirement age an extremely attractive package, including post-retirement benefits. This not only benefitted the retirees who accepted the package but also employees who got to stay at the place where they loved to work.

If organizations cre ate a code of ethics and a statement of core values and communicate them to educate employees about the importance of living out these ethical principles and standards in their daily activities, it will make a positive impact on the organization’s culture and boost its attractiveness to current and prospective employees. It’s a best prac tice to weave ethics and core values into as many discussions and meet ings as possible, as well as during interviews and hiring and onboarding pro cesses. It’s of paramount importance that man agement accounting and finance leaders’ conduct exudes ethics. SF

Passard Dean, DBA, CMA, CSCA, CFE, CIA, CFSA, CRMA, FLMI, is a professor, director of graduate studies, and chair of the Department of Accounting, Economics, and Finance at Saint Leo University’s Donald R. Tapia College of Business. He’s also a member of IMA’s Committee on Ethics. You can reach him at passard.dean@saintleo.edu

GAS TAX AT THE FEDERAL AND STATE LEVEL

Discussions are taking place regarding federal and state gas tax holidays, but it’s unclear how much actual relief, if any, they’d provide to taxpayers.

BY ROBERT LEE, PH.D., CMA, CPA, AND JUSTIN LEE

PURRED BY A COMBINATION OF THE CONFLICT IN UKRAINE as well as rising inflation rates, gas prices are up in the United States more than 50% over last year. For some states, such as Arizona and Massachusetts, gas prices have gone up more than 60% from last year. As usual, western states, such as California, Hawaii, Alaska, and Nevada, have the highest gas prices, while southern states, such as Georgia, South Carolina, Mississippi, and Arkansas, continue to have the lowest gas prices. Across the nation, gas prices are historically high and could continue to increase over time.

High gas prices have left millions of people in tough financial predica ments. With many Amer icans living paycheck to paycheck, gas prices are a pressing issue. Currently, the federal government taxes 18.4 cents per gallon of gasoline and 25 cents per gallon of diesel.

In response to this nationwide issue, Presi dent Joe Biden has called on Congress to suspend the federal gas tax for three months. Yet Speaker of the House Nancy Pelosi and others have ques tioned how much this legislative decision would actually help people.

Conversely, some are asking if simply taxing excess profits for major gas companies would be more practical and bene ficial to the public.

HIGHWAY TRUST FUND

Unfortunately, the poten tial for a three-month gas tax holiday doesn’t seem to pass the cost-benefit anal ysis check. Currently, the funds from the federal gas tax go to the Highway Trust Fund, which contributes to highway expenditures and public mass transit, such as subways and buses.

The White House pre dicts that if the gas tax holiday were passed, the Highway Trust Fund would lose approximately $10 billion. And although the president has said that other sources of revenue can compensate this loss, this remains uncertain.

While the White House said the president knows the gas tax holiday won’t solve the problem of rising gas prices, he believes it will provide “breathing

TAXES

room” for Americans. But if we look further into how much breathing room would be provided, the savings are quite minimal.

For example, let’s con sider someone who drives 12,000 miles per year in a car that averages 20 miles per gallon (to use a con servative estimate). If the gas tax holiday was imple mented, the savings would only be around $10 dollars per month, for a total of $30 during the threemonth span.

With the rise in demand for hybrid and electric cars over the last 10 years, most cars aver age more than 20 miles per gallon, decreasing the savings even further. And with inflation, these sav ings would be even less.

STATE TAXES

Although the possibility of a federal gas tax holiday occurring looks slim, gas tax holidays may appear at

the state level. Each state can have a state excise gas tax and other gas taxes, such as oil inspection fees, county and local taxes, underground storage tank fees, and environmental fees. The total state gas tax is the sum of the state excise gas tax and other state gas taxes.

According to the American Petroleum Institute (API ), the national average state excise tax is about 26.2 cents per gallon for gas oline and 26.7 cents per gallon for diesel. The national average for other state gas taxes are 12.5 cents per gallon for gasoline and 13.5 cents per gallon for diesel. This is a total gas state tax average of about 38.7 cents per gallon of gas oline and 40.2 cents per gallon of diesel.

Combined with the federal gas tax of 18.4 cents per gallon of gasoline and 25 cents per gallon of

diesel, the total state average gas tax would be 57.1 cents per gallon of gasoline and 64.6 cents per gallon of diesel.

Looking further at the state level, the range of total state gas tax can range from state to state. According to the API, the states with the total highest gas taxes are Cal ifornia (68.2 cents per gallon ), Illinois (59.6 cents per gallon ), Pennsylvania (58.7 cents per gallon ), Hawaii (51.7 cents per gallon ), and New Jersey (50.7 cents per gallon ).

The states with the lowest gas taxes are Alaska (15.1 cents per gallon), Mississippi (18.8 cents per gallon), New Mexico (18.9 cents per gallon), Arizona (19 cents per gallon), and Missouri (19.9 cents per gallon).

Just as the federal gas tax supports the Highway Trust Fund, state gas taxes are primarily used for highway and road expen ditures, such as construc tion of new highways and roads, and maintenance and repair (i.e., snow removal and safety issues).

GAS TAX INCENTIVES

Given the current high prices of gas, many states are looking at various gas tax incentives to help their citizens. Some states are proposing a gas tax holiday for 30 days, while others are proposing a holiday until the end of the year or for a full year.

States are also looking at different gas tax savings, such as suspending their state gas tax, decreasing the gas tax, or providing gas tax rebates.

Earlier this year, Mary land became the first state

in the U.S. to suspend its gas tax. (It was later joined by Georgia, Connecticut, New York, and Florida.)

Maryland Governor Larry Hogan enacted a 30-day gas tax holiday that saved state residents 36 cents per gallon. He later tried to extend this holiday period for another 60 days, but this was ultimately denied by the state legislature.

Similar to the federal government, states are having a difficult time passing some form of gas tax holiday. But if gas prices continue to stay at their current level or rise, the gas tax holiday will continue to be discussed, whether at the federal or state level or both.

In addition, with spec ulations of the economy going into a recession coupled with national holidays around the cor ner and many Americans traveling to see friends and family, high gas prices will continue to be a problem. The question is: Are gas tax savings truly beneficial to individuals in the long run? And are the savings they receive from a gas tax holiday worth reducing revenue from state and federal funds? SF

Robert Lee, Ph.D., CMA, CPA, is an associate professor of accounting in Pepperdine Univer sity’s Graziadio Business School. He also is a member of IMA’s Los Angeles Metro Chapter. Robert can be reached at robert.lee2 @pepperdine.edu.

Justin Lee is a research assistant at Pepperdine University’s Graziadio Business School. He can be reached at justinbertlee@gmail.com

© 2022 A.P. Curatola

MANY STATES ARE LOOKING AT VARIOUS GAS TAX INCENTIVES TO HELP THEIR CITIZENS. SOME ARE PROPOSING A GAS TAX HOLIDAY FOR 30 DAYS, WHILE OTHERS ARE PROPOSING A HOLIDAY UNTIL THE END OF THE YEAR OR FOR A FULL YEAR.

HOW TO ONBOARD REMOTE WORKERS

A few simple steps can help ensure new remote workers will be positioned for success in your organization.

BY PAUL MCDONALD

THE PANDEMIC-INSPIRED “NEW NORMAL” has quickly become just the plain normal. For example, the practice of employing workers on a remote or hybrid basis is now so commonplace that it’s hard to remember when (or why) it was considered an uncommon perk. Many financial companies are finding that reporting, auditing, and other processes can be completed remotely just as efficiently as on site.

The stats back up this sentiment. The Robert Half Salary Guide (bit.ly/3QDE241) found that 80% of companies plan to hire fully or partially remote workers in 2022. Additionally, 40% of employees said they want more flexibility to work remotely—that’s on top of the 53% who already have it.

Remote working is popular with employers and workers alike. But its benefits, such as reduced turnover and improved employee engagement, don’t happen by magic. To reap them, compa nies need to optimize every stage of the remote employee journey, begin ning with the very first stage: onboarding.

THE IMPORTANCE OF ONBOARDING

Onboarding allows new employees to learn about the company they’re pre paring to join, understand the expectations associated with their job, and get to know their new cowork ers. It’s essential to making them feel like they’re part of the team, and it goes a long way in enhancing employee success and job satisfaction.

Yet onboarding remote workers presents employ ers with a unique chal lenge. How do you make new hires feel like they’re seen, heard, and part of the team when they’re working hundreds—or even thousands—of miles away?

TIPS FOR ONBOARDING REMOTE EMPLOYEES

Whether you’re currently hiring remote employees or looking to do so in the not-so-distant future, here are a few ways to make far-flung recruits feel at home.

1. Plan their first week. For remote onboarding to be success ful, you can’t wing it. Set up a schedule for your employee’s first day and week. Where possible, make sure that schedule

includes all the same ele ments you’d have with an in-person orientation program.

This should include a virtual meet and greet with your current team, including fully remote, hybrid, and on-site work ers. It can be part busi ness, with team members sharing their responsi bilities, and part social hour with everyone intro ducing themselves and sharing a few words about their hobbies or interests. An underrated advantage of virtual meetings is that everyone’s name is clearly displayed, sparing newcomers the awkward ness of asking for reintro ductions. They can also be recorded for future reference.

Another first-day prior ity should be a one-on-one meeting with the new hire when you talk about the company’s overall mission and your team’s contri bution to it. Explain your organization’s general pol icies as well as any special rules or policies pertaining to remote workers.

Human resources may want to have a similar con versation with your new hire. While it’s fine if both you and HR cover similar ground—indeed, it can help reinforce the most import ant points—coordinate with your HR colleagues to ensure you don’t contradict one another or send mixed messages.

When you’ve finalized the virtual onboarding schedule, email the details and any pertinent instruc tions to the employee before their first day. Doing so will show them how glad you are that they’re joining the team and that you’ve put in the effort to

make their first few days go as smoothly as possible.

2. Set them up for success. New employ ees may need hardware and software to do their jobs, and you should take care of this well before they start. Make sure you allow plenty of time for your organization to order equipment and ship it to the employee as well as time for your employee to set it up. Be sure to include detailed instruc tions on how to set up the equipment along with contact information for the IT department in case any questions or issues arise. It’s important that this step is as easy and straightforward as pos sible because setting up new equipment on your own can sometimes be a daunting experience.

For financial organi zations handling sensitive data, there’s more to this process than sending new employees a laptop already loaded with relevant soft ware. As well as general tech support, your recruit will need a briefing by someone on your security team—particularly if they’ll be using cloud-based financial software that can be vulnerable to cyberat tacks. It isn’t enough that your new team member can log in—they need to log in securely.

Finally, create and share a quick-reference guide. This can include the information on the collab oration app your company uses for phone calls and virtual meetings as well as a list of email addresses for team members.

3. Help them learn the ropes. Consider pairing your new hire with an established remote worker

SF SAYS

For more on leading and managing remote employees, check out episode 153 of IMA’s Count Me In podcast (bit.ly/3PZ4Pqd), where Heather Polivka of HeatherP Solutions discusses the changes that leaders need to make in managing remote and hybrid teams. Find more episodes of Count Me In at podcast.imanet.org or on your favorite podcast app.

who can help answer questions while they’re settling in. This buddy sys tem doesn’t take the place of formal training, but it’s a helpful addition that will allow new hires to build confidence during their first few weeks.

4. Prioritize balance. Because they aren’t in the office where they can be observed on the job, some remote employees may feel like they have to be available 24/7 or “always on.” This can quickly lead to excessive stress, exhaustion, and—if left unchecked—burnout. As an employer, it’s critical that you help new hires set boundaries.

Share your team’s standard work hours so your new employees know when they should be online and available. Beyond that, focus on results and productiv ity, not hours spent in front of the screen. If you hired someone to work remotely, it’s presumably because they have a great track record of delivering high-quality work from home. If the secret to their success is starting late and working an extra hour in the evening, don’t meddle

with their routine unless you begin to witness poor performance or a decline in work productivity.

5. Offer support. Your new employees need to know you’re invested in their success, so keep your door (so to speak) open and check in with them regularly during the first few weeks.

If you think it’s prema ture to talk about career development during the onboarding process, think again. The sooner your new hire begins to visual ize a long-term future at your company, the better your chances of retaining their talents in this pun ishingly competitive hiring market.

Finally, remember that your virtual onboarding process should constantly be evolving. Ask for hon est feedback from your employees who go through onboarding, learn from any missteps, and adjust your processes accordingly. SF

Paul McDonald is a senior executive director at talent solutions and recruiting firm

Robert Half and a member of IMA. You can follow him on LinkedIn, bit.ly/3oj8PGf

NAVIGATING THE PERFECT STORM

Businesses have faced many unforeseen issues for the past few years and survived. Now all sectors of business face a new challenge: inflation. BY MARCINE JOHNSON, CPA

WHEN ENVISIONING A “PERFECT STORM” SCENARIO, the factors in the mix are typically a chance set of circumstances that blend to create a difficult or disastrous or catastrophic result. Enter 2022, when a combined set of events resulted in climbing inflation around the world. It actually began with the COVID-19 shutdown around March 2020. During this time, employers were forced to dismiss workers, meet new regulations for safety, and change the way business was done–less in-person engagement and a more distributed workforce. In the tightrope walk that ensued, how have small businesses coped with the evolving circumstances?

Most organizations applied to receive financial assistance to cover wages, rents, etc., when people weren’t working and space wasn’t being used. These funds were provided to help consumers continue buying and to keep the economy growing even when goods and services were unavailable. Small businesses worked hard to adapt to the lack of work ers (labor inflation) and reduction in production of goods (supply inflation).

As many companies closed their doors, their employ ees in the United States and elsewhere sought extended unemployment benefits, leading to infla tionary cost of capital.

When restrictions were lifted mid-2021, a glimmer of sunny skies appeared with economic potential. Right away, however, the tsunami of supply chain issues hit. Lack of work ers on site contributed to reduced production and an inability to ship and deliver during this time. As demand exceeded supply, three iter ations of inflation spiraled.

Labor and wage infla tion occurred as fewer workers were filling vacancies and employ ers were pressured to pay higher wages to try and get back to pre-COVID levels of availability for goods and services, often driving cost-push inflation. This price inflation meant fewer goods could be bought due to the lack of employment and shortage of supplies.

LABOR AND WAGE INFLATION

In the U.S., the approx imately 11 million jobs available combined with

a low unemployment rate to drive wages up. Yet jobs aren’t being filled. Many other countries have con tinued providing govern ment assistance to their citizens to cope with fac tors contributing to their labor and wage inflation. For instance, Germany is providing a onetime payment of €300 to help with energy costs (see insidegermany .co). Australia provides assistance to employers per austrade.gov.au, and workforceaustralia.gov .au helps workers find jobs and obtain some financial assistance.

Wages aren’t the only impact on employment.

According to a Monster sur vey of 1,000 employees in the U.S., 34% said their job affects their mental health with 41% experiencing anxiety, 24% depression, and 12% physical illness. With fewer workers, the ones still working are showing signs of stress— feeling overworked and underpaid, having limited resources, and being unable to unplug. This contributes to lower productivity.

In addition, the best job seekers are pursued for the same positions. While small businesses want to hire, going from interview to hiring can take many months due to economic uncertainty such as new outbreaks of COVID-19, new regulations, new taxes, and supply availability to allow a continuation of business. Businesses often reach out to hire a candi date to find out they took another position. Then the hiring cycle starts again.

Small businesses hop ing to address these chal lenges can make an extra effort to support workers,

keeping them engaged and connected to the business. For example, managers can minimize multitasking requests and allow time for request fulfillment. And if a company provides food or beverage benefits, it can continue offering this option even if it means cutting back on choices to reduce costs. Providing individual recognition benefits such as movie tickets, early Fri day time off, or late arrival Monday mornings vs. across-the-board incentives can also be a cost-effective approach. Whatever the methods, it’s important for retention vs. a cycle of retraining to look for ways to help reduce employee stress and provide work flexibility.

PRICE INFLATION

Pent-up consumer demand for products not avail able during the pandemic has caused prices to soar around the world, as sup plies are still being replen ished and aren’t back to normal levels in all areas of the world. Turkey, for example, had the highest inflation of all countries at 54.8% at the time of writing. And according to a new report by Natasha Turak of CNBC’s View from the Gulf, the annual infla tion rate was 78.62% for June 2022, according to the Turkish Statistical Insti tute, surpassing forecasts (cnb.cx/3S0phZt). That’s the country’s highest annual inflation reading in 24 years. The monthly increase was 4.95%.

According to a financial market commentary in the U.S., driving a May 2022 increase in prices for goods was a 5% increase in energy prices, with prices for gaso line advancing 8.4%. Energy

prices are up 45.3% since May 2021. More than half of the increase in prices for services was attributable to a 2.9% increase in prices for transportation and ware housing services. Energy, fuel, and delivery costs have driven up prices worldwide. Organizations have everything to gain from making calculated deci sions in response to these unfavorable conditions.

First, conduct a data anal ysis and determine loss leaders and profit makers. Focus on those profit mak ers and confirm what can be supplied. Every business doesn’t need to provide extensive choices, so now is the moment to reduce or eliminate cost drains. Companies can also ben efit from partnering with competitors and pooling resources for purchasing power or outsourcing if the cost makes sense. View all line items for elimina tion, better use, and better costs—especially office supplies—and make more of your reports paperless. Buy local to reduce deliv ery costs. Consider going back to stocking inventory vs. Just-in-Time to reduce the additional fuel and delivery costs. And contin ually examine consumer interest and change your business products or ser vices to meet that interest, as appropriate.

CAPITAL INFLATION

As more currency has been made available, each monetary unit has become less valuable. Therefore, that unit isn’t “buying” as much as before. The cur rency value shrinks, even as costs increase for goods, services, and the cost of borrowing. Though this is

driven more by govern ments than the private sector, there’s still room for an organization to be responsive and agile.

It’s more important than ever to build a six-month cash reserve. Manage cash to avoid any overdrafts, usually $30 per return item, which could be an employee hourly and bene fit amount. Eliminate excess or obsolete inventory—free up cash. Know and provide ratios for turnover to show money management, which may influence potential investment either from your bank or another inves tor/partner. And finally, know where the majority of the money is spent, the expected returns, and have a plan of action to pivot quickly if returns dimin ish or products or services aren’t readily available.

When a perfect storm hits, the small businesses that survive do so by cut ting back on unavailable products, low margins, or on services not providing value. Companies can’t be all things to all cus tomers, and it can help to zero in on one service or product with the needed margin and availability while increasing cus tomer appreciation for the value charged. Keep your employees, shareholders, and bankers informed to avoid gossip and misin formation. Smart strategic decision making can help companies get through this global economic infla tion stronger. SF

Marcine Johnson, CPA, is president of Accounting & Tax Advisory Services Inc. and a member of IMA’s Atlanta Chapter. She can be reached at marcine@atasinfo.com

STRATEGY MAPS IN CHANGING TIMES

A strategy map is a useful tool when it’s accurate, but it can cause problems when it becomes outdated as the organization’s business environment evolves.

BY KUN HUO, PH.D., CPA, CA; KHIM KELLY, PH.D., CA (SINGAPORE); AND ALAN WEBB, PH.D., FCPA, FCA

MANY ORGANIZATIONS DEVELOP

STRATEGY MAPS as a central part of their strategic performance management system. A strategy map translates the organization’s strategic objectives into a visual graphic that depicts management’s current understanding of causeand-effect relationships among performance measures. Such a map can be immensely powerful because it forces managers to translate what they need to achieve into simple and measurable performance outcomes that are then used to monitor progress toward attainment of strategic objectives.

The strategy map is also a powerful communication tool that can help employ ees understand how they can best direct their actions and resources to help the organization achieve its strategic objectives.

Many organizations face an ever-evolving business environment, encountering changes to operating con ditions that are difficult to foresee. The frequency and magnitude of such changes have increased in recent years, with examples rang ing from major technologi cal breakthroughs (e.g., AI) to pandemics to geopolit ical conflicts, all with the potential to significantly impact how businesses operate and survive.

For companies facing such rapid changes, the value of developing and communicating a strat egy map is questionable given the likelihood that it will quickly become outdated as the organiza tion’s business environ ment evolves. Moreover, would using an outdated and inaccurate strategy for decision-making pur poses end up harming rather than benefiting the organization?

For example, imagine if Netflix had continued to use a strategy map ini tially developed based on mailing DVD rentals. Would doing so have delayed the company’s industry-changing shift to streaming video on demand in 2007? Would it have fallen behind com petitors who recognized the implications of highspeed internet for home entertainment prefer ences? It seems likely that in this example, continued reliance on an outdated

strategy map would have been detrimental to com pany performance.

Our research focused on what organizations can do if their strategy maps become outdated. Specifically, we conducted a study to better understand how managers perform when the orga nization’s strategy map is initially accurate but later becomes outdated, and how to improve the performance of managers in such settings (“The Beneficial Learning Effects of Combining a Hypothesis-Testing Mindset with a Causal Model,” The Accounting Review, 2022).

ACCURATE STRATEGY MAP

In our study, partici pants acted as managers in a business simulation game in which they were required to discover how best to profitably allocate company funds among three investment areas over multiple time periods. Unbeknownst to partici pants, the most profitable investment area changed from one area to another sometime during the mul tiple time periods when they were investing the funds.

We provided half of the participants with a strategy map that reflected the cause-and-effect rela tionships between the different investment areas and financial performance, accurately depicting one investment area as the most profitable area prior to an unexpected change in the operating environment. The other half of the par ticipants didn’t receive a strategy map.

In the time periods when the strategy map accurately depicted the

most profitable invest ment area, participants with the map performed better than those without it, investing considerably more funds in the most profitable investment area. This result supports the idea that an accu rate strategy map can be a powerful tool to help managers direct their attention, effort, and resources to enable the organization to achieve its strategic objectives.

The main purpose of our study, however, was to demonstrate what hap pens when the competitive landscape for a company quickly evolves such that the most profitable invest ment area changes from the one depicted by the initially accurate strategy map. That is, what hap pens when a strategy map becomes outdated?

INACCURATE STRATEGY MAP

The tendency to look for information that confirms prior beliefs or views is a well-known psychological bias. People find it easier to mentally process infor mation confirming existing views rather than informa tion that challenges their views, particularly when those views are strongly held.

In the context of our study, this confirmation bias is worse when par ticipants were provided with a strategy map that was initially accurate and resulted in successful out comes, thus strengthening beliefs about the value of continuing to use the map to make investment deci sions. Consequently, when the strategy map became inaccurate, it was more

difficult for these partici pants to learn that the most profitable investment area had changed.

Indeed, we found that in the time periods when the strategy map had become outdated and no longer accurately depicted the most profitable invest ment area, participants with the strategy map per formed worse than those without a map, investing much less in the current (new) most profitable investment area.

HYPOTHESIS-TESTING MINDSET

The crux of our study was to demonstrate how to help managers over come the crippling effect of the confirmation bias that can arise from using a strategy map that was initially accurate. Psy chology research suggests that encouraging people to consider alternatives to established beliefs can be a helpful way to combat confirmation bias. In our study, half of the partici pants were encouraged to adopt a hypothesis-testing mindset (HTM) and to use available data to test cause-and-effect relation ships. The other half of the participants didn’t receive this encouragement.

Without encouragement to adopt an HTM when the strategy map became inaccurate, participants with the map performed worse than those without it. Yet we found that when encouraged to adopt an HTM, participants with the strategy map did no worse than participants without the map. In other words, adopting an HTM allowed participants with the out dated strategy map to over

come the negative effects of confirmation bias.

Importantly, encouraging vs. not encouraging an HTM preserves the beneficial effects of a strategy map during the time when it’s initially accurate. Partici pants with the initially accu rate strategy map performed better than those without the map in the periods when the map was still accurate, to similar degrees whether or not they were encouraged to adopt an HTM.

Overall, strategy maps may not be updated fre quently enough to reflect important changes in the operating environment. Managers benefit from the strategy map when it’s accurate, but they’re ironi cally better off without one in the first place if the map becomes inaccurate. Yet if the company reminds man agers to conduct hypothesis testing and to use the strat egy maps as a starting point, the benefits of strategy maps can be enjoyed when they’re accurate and the downfalls avoided if they become inaccurate over time. SF

Kun Huo, Ph.D., CPA, CA, is an assistant professor at Ivey Business School at Western University. Kun can be reached at khuo@ivey.ca

Khim Kelly, Ph.D., CA (Singapore), is the KPMG Professor of Accounting at the Kenneth G. Dixon School of Accounting at the University of Central Florida. Khim can be reached at khim.kelly@ucf .edu

Alan Webb, Ph.D., FCPA, FCA, is the Deloitte Professor at the School of Accounting and Finance at the University of Waterloo. Alan can be reached at a2webb@uwaterloo.ca

SUSTAINABILITY AND LONG-TERM VALUE CREATION

Sustainability standards present new opportunities for management accountants to improve governance, strategy, risk management, and metrics.

BY MARK L. FRIGO, PH.D., CMA, CPA, WITH ROBERT HIRTH AND RAY WHITTINGTON, PH.D., CMA, CPA

THE ULTIMATE PURPOSE OF STRATEGIC MANAGEMENT IS to enable companies to achieve their corporate purpose and objectives, which include sustainability/environmental, social, and governance (ESG) objectives. The seven-step Strategic Risk Assessment (Figure 1), a continuous process for organizations to assess and manage risks, provides a systematic way for companies to assess sustainability/ESG risks and opportunities to guide sustainability accounting internally and externally.

Described in the 2020 COSO paper Creating and Protecting Value: Understanding and Implementing Enterprise Risk Management (by Richard J. Anderson and Mark L. Frigo, bit .ly/3wxywrF), this process can be useful for companies seeking to address the International Financial Reporting Standards (IFRS) S1 General Requirements for Disclosure of Sustainability-related Financial Information exposure draft, which requires disclosure of significant sustainability risks and opportunities. The IFRS exposure draft provides a common structure for sustainability disclosures, including governance, strategy, risk management, and metrics and targets information.

The Return Driven Strategy framework and the Strategic Risk Assessment process can guide sus tainability accounting within a com pany as well as for external report ing. For each of the seven steps in the Strategic Risk Assessment process, sustainability risks can be addressed as follows to guide development of a sustainability accounting strategy.

1. Understand the strategies of the organization. Companies identify sus tainability risks that would prevent the organization from achieving its strategic objectives and purpose. In this step, we use the Return Driven Strategy framework, which provides a way to describe how sustainability/ ESG strategies create long-term value for the company and its stakeholders, serving as a guide for the sustainability accounting strategy of the company.

2. Gather data and views on sustain ability risks and opportunities. Companies assess sustainability capabilities and identify key sustainability risks and opportunities. In this step, the Strategic Risk Management framework homes in on key risks and opportunities and serves as a guide for developing the sustainability accounting strategy that’s the best fit for the company for both internal and external reporting.

3. Prepare a preliminary sustainability risk profile. Companies develop a pre liminary risk profile for sustainability risks.

FIGURE 1: STRATEGIC RISK ASSESSMENT FOR SUSTAINABILITY/ESG

Source: Adapted from Mark L. Frigo and Richard J. Anderson. “Strategic Risk Assessment: A First Step for Risk Manage ment and Governance.” Strategic Finance (December 2009) and Frigo, Mark L. and Richard J. Anderson, Creating and Protecting Value: Understanding and Implementing ERM (COSO 2020). Used with permission.

4. Validate and finalize the sustain ability risk profile. Companies finalize the key sustainability risk profile.

5. Develop a sustainability risk man agement action plan for sustainability risks. The plan includes identifying and selecting risk responses, mitiga tion activities, and risk monitoring; sustainability accounting strategy; use of Sustainability Accounting Stan dards Board (SASB) metrics/Interna tional Sustainability Standards Board (ISSB)/IFRS disclosures; updating the assessment process; and internal risk reporting with balanced scorecard (BSC) strategy maps.

6. Communicate the sustainability risk profile and action plans. The sustainability risk profile and action plan include the sustainability accounting strategy of a company and are communicated to the board of directors and management team.

7. Implement the sustainability risk management action plan. We move to the next cycle, helping the continu

ous development of organizational knowledge and capabilities in assessing and managing sustainability risks as a company within a knowledge-building culture.

SASB metrics can be evaluated using the Strategic Risk Assessment process to describe, articulate, and understand the sustainability/ESG strategies of a company and how they create long-term value of the com pany and its stakeholders. This artic ulation can be useful in developing required qualitative disclosures under SASB standards in a company’s sus tainability accounting strategy. These qualitative disclosures can be driven from internal risk reporting with the BSC strategy maps in step 5 of the Strategic Risk Assessment process. The SASB-required qualitative dis cussions could be the most valuable part of SASB standards from the per spective of sustainability strategy and strategic risk management.

NEW DEVELOPMENTS IN SUSTAINABILITY ACCOUNTING

Mark L. Frigo and Ray Whittington discuss the latest developments in sustainability accounting, including recent actions and disclosure deci sions among standard setters.

MLF: What are the most import ant recent developments relating to the SASB that CFOs, manage ment accounting professionals, and accounting educators should be aware of?

RW: Acceptance of SASB stan dards received a significant boost in August 2022 with the consolidation of [the SASB’s] parent, the Value Reporting Foundation, with the IFRS Foundation to create the ISSB. The standards issued by the SASB are now under the oversight of the ISSB, which will integrate and build on the standards to create a set of interna tional sustainability financial disclo sure standards. The ISSB is commit

ted to the industry-based approach to the development of standards—the approach that has been used by the SASB since its inception. The merger will serve to elevate existing SASB standards to a level similar to that of IFRS issued by the International Accounting Standards Board (IASB). This has the promise of resulting in an accepted set of global standards for sustainability disclosures. (Edi tor’s note: For more on this topic, see Amanda Pavan and Jerry Kreuze, “The SASB and Sustainability Stan dards,” Strategic Finance, September 2022, bit.ly/3xlDUyE.)

STARTING AT THE TOP

Robert Hirth shares his insight with Frigo on the latest developments, the future of sustainability accounting, and the importance of starting with the organization’s top strategies and business objectives as a guide for sustainability accounting.

MLF: The starting point for enter prise risk management (ERM) needs to focus initially on the organization’s top strategies and business objec tives. ERM doesn’t start by simply attempting to identify risks; it starts with a thorough analysis of the orga nization’s key strategies and business objectives. In your opinion, how does this theme impact sustainability and ESG risk assessment and guide sus tainability accounting?

RH: Companies should take a close look at their sustainability and ESG-related objectives. These objectives are becoming more and more clear—part of strategy, reported publicly, longer term in nature, tied to incentive compensation, tied to investor valuation, and attentive to expanded stakeholder interests, etc.—so they clearly matter.

And this now extends to multiple board committees. It continues to be a nomination and governance commit tee topic. This is where it first seemed to get slotted. An additional issue is on nominations to consider ESG exper tise. The audit committee addresses the public reporting aspect and the likely upcoming assurance require ments and expanded U.S. Securities & Exchange Commission (SEC)

disclosure if the SEC rule passes. Even if it doesn’t, ESG assurance is going to become more commonplace.

The compensation committee gets involved as ESG targets become a KPI [key performance indica tor] for incentive compensation. This ESG ERM process will likely cascade below the board level to management as many of those ESG objectives get driven into various functions like HR for DE&I [diversity, equity, and inclusion]; emissions, waste, and water reductions into operations; cyber matters into IT; fair tax payments into the tax and finan cial planning functions; and ESG compliance into internal audit and compliance functions.

MLF: From your perspective, what will be the effect of the consolidation of the SASB with the IFRS Foundation on sustainability?

RH: It’s yet to be seen just exactly how the SASB standards will be used going forward.... But there is a strong indication that the SASB standards will form an integral part of the ISSB’s standard-setting process and be included as industry-specific require ments after an ISSB due process.

MLF: When do you believe regu lators will begin requiring disclosure of SASB metrics as part of sustain ability accounting?

RH: If the ISSB requires the disclo sure of industry-specific (SASB) stan dards as it plans to, then the various IFRS jurisdictions would require their use after jurisdiction by jurisdiction adoption, which is voluntary. For the most part, though, the adoption of the SASB standards has been market driven, not regulator driven, with the largest institutional investors request ing, if not requiring, their use.

MLF: What is the future of accoun tants’ involvement with SASB disclo sures and sustainability accounting?

RH: Assurance and advisory ser vices related to sustainability disclo sures and ESG reporting in general are fast-growing areas for accounting organizations in all major countries. Many large companies around the world already obtain third-party assurance at the limited assurance level, primarily for greenhouse gas emissions. But some companies have

This article is part of the Creating Greater Long-Term Sustainable Value series in Strategic Finance launched by the October 2018 article “Creat ing Greater Long-Term Sustainable Value,” by Mark L. Frigo, with Dominic Barton, bit.ly/2RfcMwm.

also chosen to obtain third-party assurance on more than greenhouse gas emissions, including SASB or other recognized standards as suit able criteria. ESG assurance and reporting as well as related advisory services are clearly going to become an important strategic initiative for accounting firms around the globe.

Corporate accounting and finance professionals will likely need to develop some additional technical expertise in this area, though many of their core skills are relevant and applicable to sustainability reporting such as process flow understanding and automation, development of internal controls, compliance orien tation, report development, and for matting and documentation. SF

Mark L. Frigo, Ph.D., CMA, CPA, is the cofounder of the Center for Strategy, Execu tion and Valuation and the Strategic Risk Man agement Lab in the Kellstadt Graduate School of Business at DePaul University and Ezerski Endowed Chair of Strategy and Leadership Emeritus in the Driehaus College of Business at DePaul. You can reach Mark at mfrigo @depaul.edu.

Robert Hirth is senior managing director at Protiviti, served as co-vice chair of the SASB, is COSO chair emeritus, and currently serves on the American Institute of Certified Public Accountants Sustainability Assurance and Advisory Task Force. You can reach Bob at robert.hirth@protiviti.com

Ray Whittington, Ph.D., CMA, CPA, served as director of the School of Accoun tancy and MIS in the Driehaus College of Business at DePaul University, where he also served as dean. He is spearheading the Sus tainability Accounting and Reporting Initiative at DePaul with Mark Frigo. You can reach Ray at rwhittin@depaul.edu

THREE MINDSET SHIFTS

TO ACHIEVE AUTONOMOUS FINANCE

CFOs need to adjust their thinking in three key ways before they’ll be ready to fully embrace the set of technologies needed for autonomous finance.

BY DENNIS GANNON

Can you picture an autonomous finance function in which the majority of operation—and even a significant amount of management—is conducted by machines with no need for human intervention? This is a concept that goes far beyond current conceptions of finance automation, which often are really “interrupted automations” that are still heavily supervised and reliant upon human judg ment to run and maintain the process.

Nearly two-thirds of the CFOs Gartner surveyed on this topic can indeed picture autonomous finance and believe it will be a reality within the next six years (gtnr.it/3RnlGoh). This is partly driven by their own experiences as they and their teams get increasingly comfortable with some of the underlying technologies that support it, particularly those commonly referred to as AI.

Gartner already sees a sufficient number of organiza tions willing to experiment and solve business problems

with AI that we predict half of all large finance departments will be using AI by next year to create their short-term financial forecasts. The technologies themselves are also maturing at an astonishing rate.

Despite CFOs’ vision of a fully autonomous finance department within this decade, few are embracing the full set of technologies that support an autonomous finance function that will deliver the very future most are predicting (see Figure 1 for examples of use cases ). For instance, only 21% are currently using machine learning, 19% prescriptive analytics, 12% natural language pro cessing, and 8% blockchain.

The risk is that much like in the months and years following the outbreak of the COVID-19 pandemic, we’ll witness yet another new digital divide—this one between finance organizations that are opening up entirely new pathways to revenue generation and cost savings with autonomous capabilities and those that aren’t. The very nature of these technologies, with their ability to self-learn and rapidly improve, means that the organizations that are

FIGURE 1: TECHNOLOGY USE CASES IN AUTONOMOUS FINANCE

AI-enabled process mining algorithms capture all variations and exceptions in P2P and O2C.

Back office

Middle office

Front office Office of the CEO

Vir tual assistants process transactions with machine customers and vendors.

Blockchain enables an audit-ready continuous close.

Smar t contracts enforce accounting controls and intercompany adjustments.

Machine learning identifies new variables to improve cash and investment forecasts.

Decision intelligence powers financially savvy tactical and operational decisions.

DeFi enables innovative options for raising captial and insuring against financial risk.

Natural language processing enables better understanding of retail investor sentiment

Source: Gartner.

Source: Gartner.

Why have some companies become AI leaders while others remain frozen in

We have to experiment broadly to realize value from technologies for autonomous finance.

We need to give technologies for autonomous finance as much credit as we give people.

My team’s behavior toward technologies for autonomous finance will change when my behavior changes.

early adopters are more likely to compound their lead on the following pack.

Why have some companies become AI leaders on the pathway to an autonomous finance function within the decade while others remain frozen in hesitancy? The answer has less to do with the complexity of technology or any external factor and more to do with CFOs’ own mind sets about technology.

When asked about what was preventing them from taking the first steps toward embracing autonomous finance, CFOs indicated that their own mindsets were among the top barriers. While at first it may seem sur prising that “mindset” is ranked as a bigger barrier than obstacles like cost and expertise, this just speaks to how fundamentally different an autonomous finance function really is. These technologies are conceptually challeng ing in a way that traditional finance technology never was.

A CFO’s mindset—what he or she believes to be true and why—will underpin every decision about where to invest, where to pilot a new approach, and what is worth pursuing. The reason mindset is so foundational is that all the pro cesses, approaches, and strategies that CFOs have thus far built out, that are used to manage and lead, get wired into their brains based on certain beliefs they have about how the world works. And a lot of that wiring is unhelpful as they try to move toward an autonomous function.

Because of the fundamental differences that go into creating an autonomous (as opposed to automated) finance function, the actions and strategies that feel right to CFOs end up being the wrong things to do.

Automation isn’t hard conceptually; most CFOs today using robotic process automation (RPA) in some form can understand the steps that the technology will be taking to get from point A to point B. But autonomizing a function is difficult in a different way—it’s difficult to know exactly what’s going on in (for example) a private blockchain or to understand intellectually how machine learning works.

Autonomous finance isn’t just difficult to start on because it’s new. It’s difficult because these concepts are inher ently difficult. As CFOs face decisions around autonomous finance, they must (1) recognize how their current mindsets hold back the levels of experimentation necessary to make needed progress and (2) embrace the mindset shifts that may feel unnatural, or even wrong, to them today.

After working with CFOs extensively on their autono mous finance strategies, Gartner has identified the three most important mindset shifts needed to embrace the future of autonomous finance (see Figure 2). The three ways

in which CFOs’ brains are wired against the technologies that will enable autonomous finance:

1. Believing finance should start small to avoid costly failures with technology investments

2. Believing finance should use technology as a tool but rely on people to make decisions

3. Believing their teams will embrace technology only when they see its benefits

These mindsets served as illuminating starting points to help stuck CFOs look more deeply at his or her beliefs and create a set of contrary guiding principles that will guide meaningful action toward autonomous finance.

Experiment

When it comes to making what’s perceived to be risky technology bets with the budget, CFOs are conscious that

they may be held to different standards than other parts of the organization. Costly failures are considered unaccept able for a function such as finance, which acts as the gate keeper for responsible spending. CFOs believe responsible spending means narrow experimentation with technology and waiting to scale until the application is proven.

As one CFO told us when discussing this topic: “Finance is not given the same permission to fail. We have to be purer. We’re giving everyone else a hard time about the numbers.” Unfortunately, this conservative mindset runs up against the reality of maximizing the benefits of autono mous technologies, which rewards greater experimentation and the creation of more learning opportunities.

Gartner analyzed survey data on finance functions’ use of AI and found that organizations that pilot AI broadly in the first 12 months identify twice as many applications of AI over the next several years than their peers (see Figure 3). And this is despite no meaningful difference in spending compared to organizations that pilot AI in a more limited fashion. There’s every reason to think that those organizations that open up such a lead in the number of AI pilot projects will continue to put space between themselves and competitors as the opportunities and learnings compound with the maturity of their autonomous finance systems.

Rather than starting with a small number of pilots, CFOs must encourage running several pilots simultaneously across finance subfunctions. This helps to reinforce a men tality across the team that this sort of experimentation with new technology isn’t confined to one part of finance, nor is it optional. Instead, it surrounds every finance employee and encourages further learning and adoption.

The fear of failure and a potential for wasting resources often hold finance functions back from broad experimen tation in the early stages. But demystifying failure reduces this failure phobia. To demystify failure, CFOs can borrow an approach from author Tim Ferriss and complete a fear-setting exercise. Ferriss’s approach to overcoming the fears that hold back personal growth (bit.ly/3pCLuAv) also maps well to how a team or individual can identify the obstacles that prevent them from pursuing a bold innovation (and the risks of inac tion). Our slightly modified approach is:

1. Start by defining the worst things that could happen if you were to pursue the innovation. Try to get beyond an intellectual analysis by visualizing what would happen if the worst occurred.

2. Determine how to prevent the worst from happening.

3. Identify how to lessen the consequences if the worst really did occur.

4. Write down all the benefits of pursuing the innova tion. (Presumably, the innovation is worth pursuing because of the possible future benefit.) Provide as much detail as you can about the benefits.

5. Most importantly, write down the cost of inaction—the cost of not pursuing the innovation in the short term (such as after six months).

6. Finally, expand on step 5 by writing the cost of inac tion in the longer term (such as after 18 months).

Taken together, these steps will pave the way for the necessary mindset shift by helping you enable more exper imentation with less worry about negative outcomes.

When given a choice between human judgment and algorithms, humans pre fer what they’re familiar with: other humans.

Don’t Hold Technology to a Higher Standard

CFOs believe finance should use technology as a tool but rely on people to make decisions. Even when there’s evidence that technology is better or more accurate than humans, people are reluctant to trust it. This is a phenomenon referred to as “algorithm aversion.” When given a choice between human judgment and algorithms, humans prefer what they’re familiar with: other humans.

Algorithm aversion often manifests as holding tech nology to a higher standard than human counterparts. For example, in our survey, CFOs report the maximum acceptable variance for a traditional financial statement forecast generated by humans as 10%. In comparison, the maximum acceptable variance for a technology-generated forecast is 5%.

This discrepancy likely results from finance comparing algorithm performance to a specific target, often an overly lofty goal—or even perfection. Instead, finance should

FIGURE 4: ALGORITHM PERFORMANCE COMPARED TO HUMAN PERFORMANCE

Current View

Alternative View

Algorithms must meet an absolute threshold.

Source: Gartner.

Algorithms should perform as well or better than humans.

compare an algorithm’s performance to human judgment (see Figure 4).

Going forward, CFOs and their teams need to give tech nologies for autonomous finance as much credit as they give people. In order to get to that point, however, leaders and their teams will need to build trust in AI and other technologies through autonomous decision-making guard rails. These guardrails include:

■ Fairness: The decisions must be made free of bias and discrimination and not manipulated to benefit insiders.

■ Clarity and transparency: Decisions made must be understood by humans and well-documented—no black boxes and no “just because.”

■ Accountability: Who is responsible if an autonomous decision results in harm?

■ Security and safety: Any autonomous process must respect data integrity and privacy.

■ Human-centricity: The more important a decision, the more it needs to be made in the name of benefiting humans.

It’s clear that getting comfortable with how autonomous technologies make decisions and developing appropriate guardrails are significant undertakings involving AI ethics; appointing and managing the right AI talent; and develop ing in-depth documentation, safety, and security practices.

CFOs can start now by taking some basic steps and then building more complex processes as needed, including:

34 / STRATEGIC FINANCE / October 2022 Algorithm

1. Understanding and addressing common ingrained perceptions about technologies for autonomous finance: Ask stakeholders what they’ve heard to address their specific concerns.

2. Showing a comparison of human and technology error rates in forecasting: Conduct an exercise in which the team compares its own forecast predictions to that of an algorithm and discusses the results.

3. Diving deep into how the tool works: After a new tool is introduced, explain to the larger team the model’s logic and how it was built, and allow employees to pressure-test it before launch.

4. Shrinking the risk space: Match the technology’s complexity to the operations it needs to perform. For exam ple, choose the least sophisticated AI technology capable of achieving the objective.

5. Assigning “grandmaster” designers who monitor technologies’ performance and take responsibility for it: Designers should anticipate what behaviors the technolo gies could develop after their initial launch, seek out unan ticipated consequences, and address them.

6. Investigating the feasibility of building a “conscience” for technology: Devote the budget to building a parallel

system in sophisticated technologies that checks the behav ior of the primary algorithms.

Don’t Keep Technology at Arm’s Length

Most CFOs believe their teams will embrace technologies when and as they see the benefits. But while CFOs are usually excited to sponsor exciting new technology invest ments and tout their transformational potential, finance employees see those same leaders displaying little practical knowledge about the applications of these technologies and keeping an arm’s length from their use. Only 29% of CFOs say they invest significant personal time in learning about technologies for autonomous finance and their applications.

Changing their personal behavior toward technolo gies for autonomous finance is a superior way for CFOs to achieve employee behavior change. Employees don’t change because leaders ask them to; they change because of how leaders behave. It isn’t enough for leaders to talk up the potential of autonomous finance. They must also create an environment that enables everyone to live the culture of change.

This means CFOs must be strategic about role-modeling desired behaviors, rather than waiting for their teams’ behav ior toward technologies for autonomous finance to change through a bottom-up approach.

CFOs should demonstrate new behaviors with “culture hacks.” A culture hack is a small change that exploits a sin gle area where your culture is vulnerable to change. In this context, hacks are small, emotional, immediate changes that have big impacts.

Examples of culture hacks include:

■ Setting a minimum failure rate for innovators, signaling that if the team isn’t failing a minimum amount, it isn’t innovating properly.

■ Asking people to draw a concept (for example, “transfor mation”) in under one minute using no words and then having everyone describe what they drew.

■ Including an examination of what the team should stop doing (including behaviors, projects, assumptions, and habits) in every conversation about embarking on something new.

■ Asking the team, “What would this look like if it were easy?” when presented with a new initiative that appears time-consuming, complicated, or difficult.

Case Study on Leading from the Front

Here is how one client company, a large multinational con sumer company, approached “leading from the front” in technology.

CFOs know how a lack of digital skills throughout the finance team hinders the return on digital finance investments. To tackle this problem, the company set out to bring up the entire finance team—from junior analyst to the CFO—to a foundational level of digital skills in less than a year. It accomplishes its universal digital upskilling by mandating digital foundations training for the compa ny’s finance leaders. This aligns the digital skills training with its finance competency model, allowing freedom in how staff members complete the training and fostering a digital community with new social media communication channels, digital learning champions, and progress monitoring.

The benefits of this approach include:

■ Executive leadership signals the criticality of digitally upskilling the finance team by mandating finance lead ers lead by example in completing the digital foundations training program—even the CFO.

■ Finance collaborates with HR to curate a digital skills training curriculum explicitly targeted to specific skills in the digital finance competency model.

■ Finance leaders promote “freedom within a framework,” allowing staff to achieve digital foundations certification through multiple learning formats (such as individual or group learning, structured vs. unstructured curriculum), subject to the achievement of passing scores within a specified time frame.

■ Finance creates a learning network with dedicated learning leaders and social media tools to foster group learning and engagement.

As its digital foundations training nears 100% com pletion, the company’s finance team is already realizing higher returns on its digital investments. The team has seen a 50-fold increase in the number of active Microsoft Power BI users. And several users have moved on to obtain “superuser” status. Agile is now not only commonly used but commonly understood throughout the finance function, with its applications being considered in many digital proj ects relating to finance process improvements in ways big and small.

Embrace Autonomous Finance Today

Confronting the way CFOs’ mindsets are wired against technology is the hardest barrier to overcome in the journey toward autonomous finance. Successful CFOs will embrace broad experimentation with technologies from the outset, build trust in working alongside new technologies, and recognize that personal behavior change is the best way to encourage employee behavior change toward technologies for autonomous finance. SF

Dennis Gannon is vice president, Research, at Gartner. He can be contacted at dennis.gannon@gartner.com

This article is based on a study funded by the IMA® Research Foundation.

IMPROVING BUSINESS RESILIENCE

Part of a management accountant’s job is to help guide the company through challenging economic times. Data analytics can help.

BY SHIRLEY J. DANIEL, CPA, PH.D.; YUANZHANG XIAO, PH.D.; AND TING-TSEN YEH, PH.D.

Distress and disruption caused by natural disasters or pandemics like COVID-19 have increasingly strong impacts on individual nations and the global economy. In today’s interconnected world, a single crisis can destroy infrastructure, degrade public health and workforce resources, and disrupt supply chains. These events, in turn, may lead to inflation and broad economic downturns. While some businesses may prosper during a crisis, many others may fail if they’re unable to react quickly to the changing environment.

Business resilience involves both taking advantage of unexpected opportunities and mitigating the damage from new threats. Organizations may need to modify their business models by engaging differently with customers and suppliers, realigning their workforce, accelerating their digital capabilities, and optimizing their asset base through divestitures or acquisi tions. Financial structures may also need to be modified as credit markets change and public sector relief resources and incentives become available. In short, individual companies are in dire need of guidance on how to make timely decisions to survive the crisis and foresighted decisions to thrive afterward.

Adapting on the Fly

Examining business failure and resilience has been a perennial topic for academics, investors, and lenders. IMA® (Institute of Management Accountants) issued a Statement on Management Accounting (SMA) titled The Profitability Analytics Framework in November 2020 to provide a practical, high-level road map for management accountants to play a more active role in their organization’s strategic and risk management at all levels (bit.ly/3xFn10r). The Profitability Analytics Framework (Figure 1) is a useful template for dis cussing various strategies to remain profitable and resilient.

Starting with market strategy, a company must examine its products, services, customers, and channels from which strategic business units derive revenue. As always, the competitive landscape must be carefully considered at this stage. For instance, many restaurants modified their menus during the COVID-19 pandemic to offer meals that were bet ter suited for takeout, modified their space to allow for more outdoor seating, or partnered with delivery services to make it easier for customers to get their products.

In the retail industry, many brick-and-mortar retailers quickly switched to e-commerce and provided delivery services or easy pickup options. And the education sector

FIGURE 1:

rapidly shifted to online learning, resulting in new products and skills in the workforce while overcoming long-term resistance on the part of many faculty, stu dents, and employers. Textbook vendors with inadequate online materials found that they lost market share.

Planning for Resilience

Businesses also need to address the resilience of their internal capabilities and operational strategies. One important lesson learned from the COVID-19 pandemic is the need for ongoing training in the workforce as well as flexibility in terms of hours and venues of work (home vs. office ). Current labor shortages in some sec tors have resulted in some companies reconsidering their hiring requirements and weighing the trade-offs between formal education and on-the-job training.

In addition to personnel shortages, supply chain bot tlenecks have become one of the most difficult opera tional challenges for manufacturing, construction, and retail companies. While Just-in-Time manufacturing and low buffer inventories have been advocated for many years, supply chain disruptions during the pan demic led to serious work stoppages and revenue losses

ANALYTICS FRAMEWORK

STRATEGY VALIDATION (Causal Models)

STRATEGY EXECUTION (Forecasting and Decision Making)

in many industries. Diversification of the supply chain will become increasingly important going forward, and businesses will need to seriously consider the trade-offs between sourcing locally, buying from a cheaper foreign source, or storing larger inventories in case of logistical disruptions.

Finally, many organizations will have to reconsider their financing strategy going forward. Low interest rates over many years have encouraged businesses to take on greater amounts of debt. But with rates on the rise, CFOs will need to rethink their companies’ financing strate gies. In future down cycles, there may not be government stimulus funding or equal financing in every sector. In that case, even though stock buybacks were common over the past three years, businesses may need to maintain a greater cushion of cash reserves in order to remain sol vent. That said, new technology and equipment will be

needed to meet demand as well as challenges from com petitors, which means that financing for these investments must be adequately planned for. Investor relations experts will need to make the case to the CFO for cash reserves, arguing that while extra cash may reduce current prof its and return on assets (ROA), it may insure against risk during economic downturns.

Avoiding Failure

To take any steps on the path to resilience, an organization must first avoid failure, which can be facilitated through an examination of the Altman Z-score, one of the most widely used analysis metrics in business lending for more than 50 years. (See Edward I. Altman, Edith Hotchkiss, and Wei Wang, Corporate Financial Distress, Restructuring, and Bankruptcy: Analyze Leveraged Finance, Distressed Debt, and Bankruptcy, Wiley, 2019.)

TABLE 1: LEADING AND LAGGING FACTORS TO USE IN FORECASTING

Type of Company

Large fast-food chain

■ Price points

Leading Factors

■ Product mix and duration

■ Unemployment rates

■ Local market saturation

Nonprofit professional association

Start-up online retailer

■ New student members

■ Number of virtual conferences and events

■ Price points, seasonality, market trends

■ Social media trends

■ Estimates from sales team

■ Prior month sales

Rideshare (e.g., Uber, Lyft)

Airline

Health maintenance organization (e.g., Aetna, Cigna)

Car dealership

Advertising

■ Number of vaccinations

■ Hotel occupancy rates

■ City size

■ Uber and Lyft rider volumes

■ Time of year (season)

■ Average caseload-to-staff ratio

■ Employer retention rate

■ Customer acquisition cost

■ Number of trade-ins

■ New claims for unemployment

■ Facebook leads

■ Time it takes to close a deal

■ Average price of a deal

■ Duration of the client onboarding process

■ Average renewal rates, repeat business

■ Conversation rates at each stage of the sales process

Lagging Factors

■ Traffic per store

■ Same-store revenues

■ Number of members

■ Membership dues

■ Total visits

■ Time per visit

Bounce rate

Rideshare volume

Airline passenger volume

■ Employer retention rate

Market share percentage

Number of new customers

Number of new clients

Average revenue per client

Source: Kip Krumwiede, Lawrence Serven, and Robert Liou, Overcoming FP&A’s Biggest Challenge: Predicting the Future, IMA, August 2021, bit.ly/3xlRwac

The components of the Altman Z-score can be easily derived from typical financial statements. They include:

■ Working capital/total assets

■ Retained earnings/total assets

■ Earnings before interest and taxes (EBIT)/total assets (TA)

■ Market value of equity/book value of liabilities

■ Sales/total assets

Weighting these components, the Z-score model results in a score that typically reflects the company’s likelihood of default. The three Z-score ranges are:

■ Z-score >2.99 = “safe zone”

■ Z-score between 1.81 and 2.99 = “grey zone”

■ Z-score <1.81 = “distress zone”

By keeping a close eye on these metrics, management accountants can conduct scenario planning on the model component ratios that result from the various marketing, operational, and financing strategies considered in the plans.

In their book, Altman, et al., discuss the common causes of business failure, including poor operating performance, lack of technical innovation, deregulation of key industries, high financial leverage, poor liquidity and funding shocks, and unexpected liabilities from litigation. It’s easy to see how these parallel the Profitability Analytics Framework. For example, unexpected international competition or loss of regulatory protection from competition may lead to business failure. Lack of technological innovation can result in the company being less competitive in the marketplace, either in product offerings, sales and distribution options, or opera tional efficiency and cost. Poorly executed strategic investing decisions, such as acquisitions that aren’t well integrated, can also lead to business failure.

Overcapacity as a result of poor marketing forecasts or unwise investing can lead to uncompetitive cost and price out comes. External commodity price shocks that can’t be passed along to customers can lead to business failure; such cost increases may result in customers seeking substitute products or sourcing them from lower-cost countries. Other business failures fit into the “financing strategy” category. High financial leverage leads to a higher cost of capital and more financial risk in times of downturns. Even with short-term financing strat egies, insufficient liquidity and cash reserves can also lead to failure if credit supplies unexpectedly dry up, as they did in the United States during the 2007-2009 downturn.

Finally, a robust enterprise risk management assessment is a key to avoiding failure, particularly in industries like pharmaceuticals and mining, where unexpected product or workplace lawsuits can lead to unforeseen liabilities and result in bankruptcy.

Improving the Use of Data Analytics

Financial planning and analysis (FP&A) for resilience and adaptability in uncertain times requires a more sophisti cated approach. In August 2021, IMA published another SMA addressing the use of more innovative data analytics in strategic planning. Overcoming FP&A’s Biggest Challenge:

Predicting the Future provided updated insights on how to use data analysis to implement the Profitability Analytics Framework (bit.ly/3xlRwac). Increasingly, organizations are developing (and sometimes sharing) nonfinancial data sources, which many management accountants typically haven’t used in the past, to assist in FP&A.

Combined with new data analytics tools, such as machine learning, this data may prove useful in fore casting sales as well as cost components to achieve more accurate financial planning. Examples of potential causal relationships in a sales forecast model for various types of companies are provided in the SMA and in Table 1.

In this new era of data analytics, management accoun tants are challenged to improve their skills and use more creativity in developing forecasting models. Many data sets can be found on the internet and social media. For example, Google News allows for queries on how many publications contain certain keywords on a given day. An analysis of this data could help accountants forecast demand patterns on specific days of the week or months within the year. Wiki pedia provides daily visitor statistics per page. This infor mation could be useful to detect trends in sales or costs, as well as additional information about new products or competition. Financial data for public companies in the U.S. is freely accessible on the U.S. Securities & Exchange Com mission (SEC) EDGAR data site. Open-access programming sites can be used to develop a relatively simple method to download this data from the EDGAR site (bit.ly/3ASRg6l).

For more localized data, each U.S. state collects eco nomic data provided by economic development agencies, local universities, city governments, and many nongov ernmental organizations. Industry associations, tourism authorities, and think tanks around the world can also provide relevant data. Academic research, too, has pro vided many examples of using unstructured data to predict changes in stock prices, including using word sentiment analysis in blogs or forum posts, page views of Wikipedia to predict stock market declines, Google search volumes to detect stock market movements, and linking financial news to stock returns. Twitter feeds may be used to predict vola tility of stock prices and abnormal stock returns.

Data Analysis Tools and Techniques

Once a causal model has been identified, there are many analytical techniques that can be applied to explore the relationships between variables. Traditional trend lines, bar graphs, and linear regression analysis can be applied using simple Excel tools. Many companies also apply machine learning modeling techniques. One potential advantage of machine learning is that it can model complicated rela tionships compared to linear regression. For example, deep neural networks, a predominant model in state-of-the-art machine learning systems, are capable of modeling arbi trarily complicated relationships in theory, although the performance in practice is limited to the amount of data available and the affordability of computational resources.

The second advantage of machine learning techniques is that they can incorporate multimodal data, either

TABLE 2: HYPOTHESES OPERATIONALIZING THE PROFITABILITY ANALYTICS MODEL

Strategy Element Hypothesized Relationships that Can Influence Strategy/Increase ROA Quantitative Measurement Variables for Phase 1

Marketing conditions and strategies

Market competition for the indus try and company can be quantified using the Herfindahl-Hirschman Index (HHI). In this category, struc tured and unstructured variables from the company 10-K manage ment discussion and analysis section will also relate to revenue management, pricing, competition, advertising, new product offerings, extended locations/market expansion, etc.

Operational conditions and strategies

Operations relates to capacity, capability, cost issues, supply chains, employment policy, outsourcing, etc.

Investing and financing conditions and strategies

Investing relates to acquisition of long-term assets, including research and development (R&D) investments, patents, and dives titures of major units, as well as financing strategies, such as long-term debt, stock sales and purchases, etc.

■ Market concentration and competition

■ Advertising

■ New products, customers, and distribution channels

■ Better customer satisfaction measures

■ Companies with barriers to entry

■ HHI

■ Advertising cost-to-revenue ratio

■ Revenue from new product lines and new geographic regions

■ Customer satisfaction

■ Unique intellectual property/ patents

■ R&D spending

■ Cost controls

■ New supply chains

■ Labor productivity initiatives, training, and automation

■ Economies of scale and consolidation of facilities

■ Process improvement initiatives

■ Investment in new equipment

■ Patent filings

■ Acquisitions

■ Divesting underperforming assets

■ New borrowings at competitive rates

■ Refinancing at lower interest rates

■ Decrease in various operating costs

■ Increased inventory turnover

■ Increased revenue per employee

■ Various productivity/efficiency measures (occupancy rates, etc.)

■ Cash flows from investing

■ Cash flows from financing

■ Interest expense-to-revenue ratio

■ Percentage change in cost of capital

■ Change in liquidity

structured (quantitative data in financial balance sheets, for instance) or unstructured (such as textual data from financial reports). For example, natural language process ing can be useful to analyze investor earnings calls, text in regulatory filings, newspaper and media articles, and other documents. Fortunately, there are a lot of open-source pro gramming resources that can be used to bootstrap the use of machine learning in a specific business situation.

In addition to forecasting, machine learning may be helpful in various process control and improvement initiatives. Most credit card companies use machine learn ing applications to detect fraud, and many job posting and filtering companies use machine learning to sort appli cants and identify the most desirable candidates based on

specified criteria. In fact, machine learning tools may lend themselves to any number of decision tasks or process characteristics.

Making Resiliency Real

Our research draws on the two IMA SMAs to examine how organizations can be more resilient during times of eco nomic crisis. Drawing on The Profitability Analytics Framework, we developed a series of causal hypotheses and possible data measurements for manufacturers that we could derive from published SEC filings. Table 2 provides many of our hypotheses, causal relationships, and data that we used to implement the Profitability Analytics Framework.

Input

●

Unstructured

●

Preprocessing

2:

MACHINE

MODELING PROCESS

Meta Learning

Prediction using neural networks

Specifically, we wanted to explore how companies’ char acteristics and management actions implied in the Profit ability Analytics Framework affect ROA, EBIT, and Tobin’s Q (the stock market-to-book value of the business). Focusing on U.S. manufacturers, our initial models used structured data from values and ratios reported in the companies’ Form 10-Ks from 1996 through 2018 (available through EDGAR and Compustat).

Figure 2 illustrates how the machine learning modeling process incorporates a variety of data and modeling meth ods. The input module takes in multimodal data, whereas the preprocessing module performs necessary prepro cessing of the data. The prediction module trains a neural network model to fit the data. The meta-learning module tunes hyperparameters (step sizes in the training process, for example) and optimizes the architecture of the neural network (such as the numbers of layers and neurons). The output is ROA, EBIT/TA, Tobin’s Q, and sales growth.

Using primarily quantitative (structured) data from the financial statements, our models allow us to explain about 86% of the current year variation in EBIT, 70% of market-to-book value, 70% of the variation one year in the future, and more than 60% two years in the future. Table 3 provides the results using ordinary least squares (OLS), classification and regression trees (CART), and neural network models, the latter of which are the most accurate.

The Impact of Additional Variables

We also incorporated variables created using unstruc tured data from the 10-K filings for 1996-2018. Using these and other data, we derived variables that represent (1) the impact of natural disasters on the company, mea sured by specific words from the 10-K (such as flood ing, freeze, severe storm, tropical cyclone, wildfire, and winter storm) and (2) measures of business and eco nomic stress exposure (such as disruption of operations, lower demand, employee layoffs, lockdowns, liquidity shocks, and supply chain disruption) and management responses (cost cutting, community engagement, digital transformation, and new product development) using the 10-K text and word dictionaries developed by Kai Li, Feng Mai, Rui Shen, and Xinyan Yan. (See “Measuring Corporate Culture Using Machine Learning,” The Review of Financial Studies , July 2021 .)

We also incorporated variables created using unstruc tured data from the earnings call transcripts for 2001-2018. Using these and other data, we derived variables that repre sent measures of corporate culture variables from rhetoric in the earnings call transcripts, using words representing innovation, integrity, quality, respect, and teamwork, from dictionaries developed by Li and colleagues.

TABLE 3: THREE MODELS FOR FORECASTING EBIT

Ordinary Least Squares (OLS)

Classification and Regression Trees (CART)

Neural Network

Train Test Train Test

Year t 0.780 0.834 0.799 0.868 0.848

Year t+1 0.614 0.668 0.658 0.715 0.694 Year t+2 0.546 0.621 0.595 0.643 0.608

Note: Results of forecasting EBIT in current year (t), next year (t+1), and two years forward (t+2).

When Disaster Strikes

While natural disasters marginally improved the explan atory ability of the models, the most useful part of our analysis was exploring how the interaction between the occurrence of disasters and various management responses affected company performance. Specifically, the interaction between disasters and the increase in inventory and capital expenditure, and long-term debt reduction, are signifi cantly and negatively associated with EBIT, while the sale of investments is significantly and positively related to EBIT. Unlike results for ROA and EBIT, the interaction between disasters and the increase in inventory and capital expendi ture is significantly and positively associated with the com pany’s market value (Tobin’s Q).

In addition, the interaction between disasters and adver tising activities and increases in investments is also positively related to market value, suggesting that investors react favor ably to these decisions. On the other hand, the interaction between disasters and sales of common and preferred stocks and other financing activities is significantly and negatively related to the company’s market value, indicating that inves tors don’t value these decisions. These results highlight the fact that the impact of management’s actions on accounting mea sures of performance, which are focused on past events, aren’t always consistent with the market’s assessment of the impact of these actions on future stock prices.

Our analysis shows that company actions, as measured by text analysis variables, in times of disasters influence performance in periods after the disaster occurs. Cost cutting seems to be the variable with the most consistent positive results for ROA and EBIT, as might be expected. If, however, the decisions are made during disaster years, they’ll hurt both current and future performance. In fact, the benefit of cutting costs is offset by the interaction between disasters and cost cutting. The analysis indicates that cutting costs during the disaster year will have a nega tive cumulative effect on ROA and EBIT. There were, how ever, opposite impacts of these actions on market-to-book performance—the analysis shows that cutting costs during the disaster year will have a positive cumulative effect on performance. Interestingly, we found that the impact on

performance, as measured with accounting variables such as ROA and EBIT, was quite different from the impact on performance as measured by the company’s market value.

Over the past year, we’ve tested dozens of models with a variety of variables. We’re continuing to refine the models by obtaining additional text resources from earnings calls in order to more accurately measure the external exposures that com panies face as well as their real-world actions and responses.

The perennial question of how businesses can improve their resilience to cope with significant economic shocks, as well as ongoing competitive pressures and challenges, is a key issue that deserves attention. With support from the IMA Research Foundation, we’re pursuing answers to how companies can better address this question using a variety of structured and unstructured data and machine learning analysis. Using non traditional data sources and innovative analysis techniques, management accountants and other financial professionals can now deploy data-driven decision making to advance risk man agement and mitigation practices to a higher level.

What do we hope to accomplish through our research? In short, our desired outcome is to develop a better under standing of how to create more resilient businesses and economies using better business planning and forecasting to withstand severe and, as we’ve already seen as a result of the recent pandemic, unanticipated economic stress. SF

Shirley J. Daniel, CPA, Ph.D., is a professor of accounting at the Shidler College of Business, School of Accountancy, at the University of Hawai’i at Manoa. You can reach her at (808) 956-3249 or sdaniel@hawaii.edu

Yuanzhang Xiao, Ph.D., is an assistant professor of electrical and computer engineering at the Hawaii Advanced Wireless Technologies Institute, University of Hawai’i at Manoa. He can be contacted at (808) 956-2623 or yxiao8@hawaii.edu

Ting-Tsen Yeh, Ph.D., is an assistant professor in the Department of Accounting & Business Law at Louisiana State University Shreveport. Ting-Tsen can be reached at (318) 795-4210 or tingtsen.yeh@lsus.edu

THE CASE FOR

Business process management offers continuity and consistency to an organization, enhances productivity, and can improve the quality of both data and decision making.

BY DAN CAMPBELL, CPA, AND DEBORAH C. MICHALOWSKI, CPA

Timely delivery of data depends on the quality of the processes that drive it. As the call for delivering more meaningful data faster, more frequently, and with flexible and insightful variance analytics increases, there’s a corresponding surge in the demand for more consistency in the way the data is organized and flows. Ulti mately, it’s process quality that drives the quality of the decisions made by those who use that data.

There are endless options for comprehensive software solutions intended to help accounting and finance ana lysts and controllers manage the flow of financial data from source to report and streamline that reporting through “touchless” financial dashboards. These solutions are only as good as the integrity of the data structures that support them. Further, a network of supporting processes is integral to these structures that deliver the data. The creation, adoption, and maintenance of those process networks and their underlying structures make up the business discipline called business process management (BPM; see “BPM Defined”).

In relation to the business finance, accounting, and reporting goals of an enterprise, the adoption and adher ence to the concepts and principles of BPM can ultimately result in greater satisfaction and sense of purpose and ful fillment with both work and life. It also can lead to the sup port of robotic process automation (RPA) that often creates efficiencies for small and medium enterprises.

It Should Be Simple

There’s broad agreement on the need to reduce reliance on disconnected Excel files to communicate data. In most going concerns, this is a time-consuming and heavy lift, encumbered at scale by the volume of people, business groups, geographies, and data types involved in the consoli dation of reporting segments.

Software vendors offer solution packages that make bold promises using flashy marketing showing sharply dressed financial analysts manipulating touchscreens that display instant business metrics and analytics. These tend to be far less magical than the marketing suggests. Con version to an enterprise solution is labor-intensive—it’s a labor of planning, organizing, and standardizing, and of convincing human beings to change.

For a single-source system to function and report timely and accurately, data structures between individual autonomous product lines and business segments must agree. This often requires the people in control of these segments to conform their thinking and find commonality toward the shared enter prise goals. Real-time financial reporting—flexible, manipu lable, and drillable to any level—is entirely contingent on the commonality of the financial hierarchies that support it.

Common standards in the way that people apply data structures depend on agreement among people. People often have preexisting notions of how to define and view their business structures. When a voice from the top suggests that producing an answer to a complicated question “should be simple,” that request is equivalent to asking someone to change the way they’ve always done things.

A Story in Practice

Several years ago, our organization decided that it needed to transform its financial culture to produce a financial work force that conformed to a world-class set of standardized processes and systems. The top brass selected a leadership team. That leadership team selected a software solution that bolted onto the enterprise reporting system. The software solution would be tasked to integrate all financial forecast data from different locations, business segments, and prod ucts into a “single source of truth.”

It was an ambitious goal and a long and arduous jour ney. In the first level of growth and development, there was an agreement on standards within multiple data hierar chies. The setting of these standards required fundamental changes in the methods that certain business groups used to apply those hierarchies. Some very basic examples of these data structures are as follows:

■ Product-specific data

■ Engineering projects

■ Cost centers and business units

■ Employee data

These hierarchies all needed to communicate with each other in a way that allowed, for example, data at the lowest level of inventory to track all the way to producing meaning ful results on the enterprise’s balance sheet, income state ment (P&L), and cash flow levels for forecast and actuals.

In the process of attempting to implement a single-source solution, the team encountered organically grown, somewhat autonomous functions. The consolidation required human knowledge of unique legacy applications of the system to make the data communicate with itself in a meaningful way. Any possible reform required governance at the top to con form these historically disparate uses of the same tools and hierarchies.

Establishment of a working governance model was an evolution in leadership, and the solution required teams of specialists to address the detailed logical principles for the business data structures to hash out and link up the functional, locational, and strategic differences that existed. More importantly, the effort required agreements among the many character profiles of business leadership at these functional and geographic nodes.

The Seed Project

As the teams set out to build standards, we collected an inventory of common problems plaguing finance groups across the business segments. The feedback was hard to ignore. Across all business groups, journal entries reas signing operating expenses from one group to another, generally without changing any of the general ledger characteristics of the expense, were a pervasive and widely reported problem in finance consolidation.

The purpose of these “billbacks” was, ostensibly, to pro vide accurate cost accountability. In reality, the billback environment amounted to budgetary horse trading, with budget managers going to great lengths to move costs off of their own P&Ls. It was a logistical nightmare, rife with

inefficiency and conflict among finance and operations groups throughout. There were hundreds of thousands of immaterial transactions, causing strain on the journal entry processing infrastructure, moving relatively low dollars, and generating internal debate between department and divi sion controllers. All of this ultimately had a net-zero impact on the overall consolidated P&L. All parties agreed this was a problem, but there was no ownership of the solution.

As the governance model developed and the teams began to normalize the use of the basic business unit hierarchy structure, the data tree was starting to communicate more effectively. This improved data communication produced an opportunity to build a more standardized mode of allocating costs based on a previously established set of drivers. Those drivers would flow spending forecasts and actuals through a system script that allocated costs to their appropriate cost centers. The end result was an automation of alloca tions from engineering; selling, general, and administrative expenses; and corporate overhead services. The solution found ownership through the establishment of standards.

This happened through the standardization of the busi ness unit hierarchy as well as governance and ongoing maintenance of those standards. And it was sustainable because of an established set of process workflows that identified and documented the way that each of the sup pliers, process executors, and consumers of the data results performed their respective processes.

BPM Methodology Principles

The improvements materialized thanks to a disciplined approach to establish and execute process: BPM. The spon sors of these changes, and the teams they sponsored, applied the following core tenets set forth in BPM methodology:

Business process ownership. The team identified the people who owned the data and decisions at every stage of the transaction cycle.

Knowledge management. The team identified and defined the processes these owners perform and compared the objectives of the individual processes. They scoped the similarities and differences within those stages, document ing suppliers, inputs, process, timing, outputs, and consum ers of information at each stage. The team observed how and where systems were engaged.

Defining the start and endpoints of multiple processes allowed for the building of process structure and net working. It illustrated the connectivity of people, data, and systems. In performing this comparison over the multiple locations and stages pursuing common objectives, the team was in a unique position to begin to propose standards in the usage of those systems, data structures, and interface.

Oversight structure. Having performed the compar isons and derived proposed standards, it was critical to obtain the commitment from stakeholders that would adopt them. The allocations team needed the approval and endorsement of the governance structure. Through combined improvement efforts, a structure of governance boards and functional area councils developed that would oversee and monitor process activities. This was the evolu tion of the delegation and structuring of BPM governance.

BPM DEFINED

BPM is a discipline to discover, model, analyze, measure, improve, and optimize business processes. It’s the brain center, nervous system, skeleton, and muscle that combine the human and system elements of data flow and communication.

BPM applies to all functions of business. It’s used as a model for manufacturing, for management, and for finance. It’s a model for business living and continuous improvement. An enterprise can realize process success that exceeds the most ambitious goals and expectations through diligent maintenance of the principles of BPM.

One of the most important fundamental decisions taken by these oversight boards was the agreement on a common vir tual location to organize, store, and maintain the inventory of process owners and documentation. This critical decision pro liferated culture and access for the BPM community.

Metrics and indicators. Once the processes were implemented, owned, documented, and governed, process owners needed to monitor their performance. This required an established set of business metrics and process health metrics that would allow for a periodic scoring of process performance.

There are abundant examples of these types of metrics. Some are specific to the business needs of the process. Some are specific to the timing and completeness of the execution. Others measure the accuracy of the results. Each process is different and requires use of tailored metrics specific to the process and common metrics shared across processes. The important binding component is that the ownership and governance structure must have a forum and a frequency of review and then take action based on the results of process monitoring.

Quality and change management. For ongoing sustain ability, the process environment needed a common format for owners to log errors, timing and system problems, or other events that prevented timely and accurate execution. Sustainability depends on the collection of data on the nature and disposition of these quality events.

The same is true for improvement needs. Ideas for change from the ground level of individual process exec utors up through the chain of process ownership require coordinated effort for decisions on how and when to make improvements. Process owners and oversight bodies must make decisions based on priority, connectivity into other processes, and resources.

SAMPLE SOP TABLE OF CONTENTS

1. Process owner. Person who owns, maintains, and executes the process (L2 Business Process Delivery Lead). See BPM House Pillar below with L2 and other process roles

BPM House Pillar

Process Leadership Process Management

BPO Business Process Owner

L1 Business Process Leader

Process Execution

L2 Business Process Delivery Lead

L3 Business Process Performer

2. Document history and revisions/approvals. Record version number, revision date, expired date, and document history, which includes areas updated in version number, person making the change and his/her position, and person approving the change and his/her position.

3. Process overview/objective. Provide all the information necessary to explain the process including any supplemental information not included in the following sections.

4. Process flowchart. Best to use a simple flow with no more than five procedures, usually including: process kickoff, gather and consolidate data, review data, report out data, and extract learnings.

5. Systems/tools used. Be very specific so that users can easily find the systems/tools used.

6. Reference materials. List all the potentially online courses, policies, standards, or guidance that might apply to the entire process.

7. Frequency of process. List how often this task/process is conducted (e.g., daily, weekly, etc.).

8. Risks and mitigations/business continuity plan. Risks due to misstatement, existing internal controls, account risk, SOX key controls, etc.

9. Indicators/measurements/key performance indicators (KPIs). Describe how this process is measured.

10. Procedure. Explain the procedure by using a step-action table numbering out each procedural step and the general steps to complete the action. Always end the procedure with “end of procedure,” and the next to last step is to extract learnings from the procedure being executed.

Wind in Our Sails

Separate from the allocations project, financial leadership ini tiated a structural project to create automated P&L forecasts at the individual product-line level. Each reportable segment of the company would consolidate its product line forecasts into autonomous segment P&L statements, each of which would then consolidate into the overall corporate P&L. These collapsing levels of consolidation needed to agree with the mapping of actual accounting data flow and structure that ultimately routes to external U.S. Securities & Exchange Com mission reporting. Ultimately, the investing public is the endstate consumer of forecast to actual analyses, so this ability to reconcile data is critical to all levels of management.

Like the allocations project, this was a tremendous, ongoing multiyear effort. It couldn’t continue to succeed without daily adherence to the principles of BPM, following the tenets set forth previously and leveraging the ground

work of the many cleanup efforts that preceded it. This project produced its own set of structural alignments and standardized usage and governance of data hierarchies. While this was a separate effort engaged by teams separate from the allocations work, an interesting cross-pollination occurred.

The same groups of people who resisted change in earlier efforts began to realize the results of the changes that these teams implemented. Product-line revenue, cost, and allocated spending were now successfully flowing from source to report in a more organized fashion, and the owners of that data were able to access the consolidation in com prehensive and drillable reports. Upon realizing this, data consumers began to use the process documentation and quality management records to learn more about processes upstream and downstream of the processes they owned.

Previously reluctant customers of process change began to inquire whether they might incorporate other areas of

data flow into the automated allocation system to land on automated P&Ls. In two quarters alone during 2022, six different types of cost of sales and spending activity were automated to land on product line P&Ls using structural allocations mapping that originated through the effort to eliminate billbacks.

The journey to link process and data will never be com plete, but the consistent application of BPM principles has produced an environment where analysts at all levels of the business are spending increasingly less time on data tie-out and discrepancy resolution, and increasingly more time on trend analysis and meaningful variance explanation. The automation journey is taking shape and aiding in the transi tion of data owners from number crunchers to well-informed editors of the business story.

Intelligent Automation Tools

These tools are better suited for small and medium-sized com panies that don’t have the economies of a large enterprise. They provide BPM efficiencies, nevertheless. Our enterprise was fortunate to have the resources for an enterprise-ready solu tion that gave us the tools to perform the task. We also had the necessary personnel to see the project to a successful imple mentation. When you speak of BPM, there are many small and medium businesses that need BPM solutions but may not have the resources afforded to a large enterprise nor the time and labor force required.

Thankfully, BPM works nicely with intelligent automa tion tools, including RPA and robotic desktop automation (RDA). One such tool is Microsoft Power Automate. Power Automate is an RPA package available to both businesses and individuals, for personal use, through MS Office 365 subscriptions. Like BPM solutions, to start implementation, you need to first understand the process you want to auto mate, who owns the process, and the stakeholders who will provide inputs or use the output. It’s also important to ask certain procedural questions:

■ Is the process fairly consistent or standard?

■ Do you need to allow for exceptions (nonstandard)?

■ Are there any risks to be considered if the process isn’t performed or is performed incorrectly?

When going through this exercise, it’s important to doc ument your findings in a standard operating procedure template, or SOP. The SOP describes the process and usually includes items such as process ownership, risks/mitigations, and procedures in the table of contents (see “Sample SOP Table of Contents”). The SOP should be written in a way that anyone interested in the process could understand, and it should be maintained and kept current by the process owner.

The difference between a process and a procedure is significant: A process is more surface level, and a procedure is a lot more detailed. The process is used by management to analyze the efficiency of its business, while a procedure includes the exact instructions on how the employee is supposed to carry out the job.

After completing your SOP, you can start to develop the Power Automate flow. The Power Automate software includes templates that you can use to capture the flow that

best matches your process to improve the process efficiency and accuracy. No stones go unturned. When the template is completed, it’s next required to differentiate the electronic process to maintain the Power Automate flow (process detail map) from the human process (SOP).

The electronic process is somewhat like a macro in an Excel workbook. The process might be complex or just a simple repetitive process that makes work more efficient. For instance, you could set up a process to assist with storing attached documents in email to their respective location in a folder, such as a Dropbox folder. In that case, you would simply use the Power Automate template “Save Gmail attachments to a Dropbox folder” and specify the details of “which email” and “what Dropbox,” allowing access to your Gmail and Dropbox accounts, respectively. You’d get a notification from Dropbox that a document was just saved. The human process is generally used to initiate, execute, upload inputs, and utilize outputs, as needed. If the human process is detailed, you may need to create an additional desktop procedure document to accompany the RPA SOP.

Robotic Desktop Automation

RDA, also known as attended automation, refers to a desk top bot or virtual assistant bot that lives on an employee or end user’s desktop. Not only does it drive efficiency and productivity, but it also helps to boost employee productiv ity and increase customer satisfaction.

RDA bots are useful for automating repetitive, high-volume business processes that require no human judgment—for example, extracting data from an invoice using optical character recognition. But most business processes involve tasks and decisions that call upon some human intervention. So where do you start with setting up an RDA? The starting point begins with an SOP for the required process to automate. After it’s tested, you can create the process detail map for the RDA and then an updated SOP for the human steps needed to manage the RDA.

BPM and intelligent automation mirror each other in that they allow an enterprise to implement enterprise-wide digital data transformation that will streamline the business process, bring continuity and consistency to business pro cesses, enhance productivity, and make life that much more enjoyable because of it. SF

The information and opinions expressed in this article are solely those of the authors and don’t represent their employer.

Dan Campbell, CPA, is a manager in the Corporate Finance Modernization team at Intel Corp. You can reach him at dfcampbe @hotmail.com

Deborah C. Michalowski, CPA, is a tax manager within Global Tax SOX and BPM Management at Intel. She is also a member of the IMA Global Board of Directors as well as IMA’s Arizona Valley of the Sun Chapter. You can reach her at debmichalowski@gmail.com.

BUILDING BETTER REVENUE MANAGEMENT,

1

Improving revenue management efforts can help SMEs weather the challenges that arise in times of unexpected change.

BY JODIE MOLL, PH.D., AND OGAN YIGITBASIOGLU, PH.D.

This article is based on a study funded by the IMA® Research Foundation.

Revenue management has evolved into a complex and critical function in many businesses. For example, many businesses that use revenue manage ment practices uniquely bundle and price products and services to create customer value in different segments. Research suggests that successful rev enue management can increase profits by as much as 50% (Göran Skugge, “Growing effective rev enue managers,” Journal of Revenue and Pricing Management, April 2004).

Following the COVID-19 pandemic, which had a profound impact on businesses and their practices, we set out to get a better understanding of the current state of revenue manage ment practices among small and medium-sized enterprises (SMEs). We did this specifically by investigating how SMEs in the hotel industry in Queensland, Australia, transformed their revenue management during the COVID-19 pandemic (see “How We Conducted Our Study”).

We chose SMEs as the focus of our study because their size makes them particularly vulnerable to the effects of the pandemic (bit.ly/3AXd8yQ). In addition, many SMEs operate with limited cash flows and rely on internal funds and bank loans to finance their activities. And we focused on hotels because the hotel industry has used revenue management practices for decades to innovate and segment products and services to maximize profits—in fact, it was one of the first to adopt revenue management. And much like the world in general, the hotel industry was impacted significantly by the COVID-19 pandemic. Sharp increases in cancellations and large declines in bookings created major challenges for hotels—particularly SMEs.

Revenue Management in Hotel SMEs

Our work builds off the IMA® Statement on Management Accounting (SMA) Revenue Management Fundamentals (bit.ly/2R1fJmF), which provides a framework that busi nesses can use to evaluate the maturity of their reve nue management practices (see Table 1). The framework includes four classifications of revenue management ranging from lower intensity (Level 1) to higher intensity (Level 4). We found that SMEs in the hotel industry tended to have Level 1 and 2 revenue practices. In other words, since the pandemic began, they made few changes to how they undertake revenue management.

Many managers working at SMEs rely on market-standard prices. During COVID-19, with the market upended and signif icant uncertainty, they also relied on their intuition to predict customer behavior. Their approach is to adopt overly simplis tic practices, like a one-size-fits-all product or service that’s priced the same for all customers. These are consistent with Level 2 pricing-basis practices described in the SMA (see Table 2).

This won’t optimize the business’s profitability, yet many SMEs continue to use it as the basis for decision making. While the reduced cognitive load required by

HOW WE CONDUCTED OUR STUDY

For our research, we interviewed revenue managers of hotels and consultants in the hotel industry in Queensland, Australia. The tourism industry is a sig nificant contributor to the economy of Queensland— indirectly, it employs 1 in every 11 people in the state according to the Queensland Government tourism market profile (bit.ly/3QZZtfW).

The sample included 14 hotels that were considered small, employing fewer than 20 employees. There were seven interviews with medium-sized hotels and three with consultants from the industry, totalling 24 interviews. Two participants were part of a revenue management team that managed a small chain of medium-sized hotels, and the remaining hotels were independent. In terms of locations, there were 14 hotels from coastal southeast Queensland, three from coastal north Queensland, and the remainder were not on the coast.

this approach may allow for rapid decision making, businesses that use it continue to invest in unprofitable customer relationships, resulting in excessive margin leakage.

Based on our observations, we’ve identified 10 ways businesses can unlock their revenue management potential to be better prepared and well-positioned to optimize their profits when unexpected change occurs (see Table 3). Part 1 of this article will look closely at the first five, and Part 2 in November will look at the last five.

Though not every industry and business will benefit from the lessons we outline for building better revenue management practices, our findings may apply to busi nesses in other industries that operate with a fixed capacity of a perishable product.

1. Develop your revenue management knowledge and capabilities.

When asked about the capabilities and skills that are critical to building effective revenue management, general

TABLE 1: FRAMEWORK OF REVENUE MANAGEMENT PRACTICES

REVENUE MANAGEMENT PRACTICE

LOWER INTENSITY (LEVEL 1) (LEVEL 2) (LEVEL 3)

RESOURCEFOCUSED

PRICING BASIS

Pricing is primarily cost-plus or follow ing not-for-profit objectives.

AD HOC

INVENTORY ALLOCATION

No change or infrequent changes in price and customer priorities, often informed by unstructured judgment.

PHYSICAL DIFFERENCES

PRODUCT CONFIGURATION

Offerings are made using diverse inputs and processes. Product range doesn’t aim to segment customers.

Pricing follows market standard prices. Limited variation in prices among different groups or area trends.

A fixed schedule determines how prices and priorities change over the year. These are across-the-board changes.

Offerings vary in either inputs or processes. Radical new products are introduced as tactical responses.

Pricing is strategic, aimed at a price point relative to the market. Pricing captures differences among groups or area trends.

Periodic review to inform price and priority changes. Changes target groups of products and broad time periods.

Offerings are built from a set of core inputs and processes. Occasional use of radical new products. Product range is structured around add-ons.

HIGHER INTENSITY (LEVEL 4)

CUSTOMER NEEDS-FOCUSED

Pricing is based on the value of specific product attributes. It captures differences among customer segments.

SYSTEMATIC Constant review to inform price and priority changes. Changes target individual products and specific time periods.

NONPHYSICAL DIFFERENCES

New products are regularly created using existing core inputs and processes. Product range is structured around restrictions and add-ons.

REACTIVE IMPROVEMENTS

DURATION CONTROL

Initiatives target overall improvement or to speed up internal processes as problems arise without focusing on reducing customer variation.

Initiatives detect and alleviate bottlenecks. The focus is on internal activity, with indirect effects on reducing customer variation.

Initiatives actively mitigate the internal effect of customer variation. There is limited focus on changing customer behavior.

STABILIZING USAGE

Initiatives regulate customer arrivals and discourage be spoke requests with a strong focus on changing customer behavior.

Source: Julie Harrison, Frederick Ng, Paul Rouse, and Monte R. Swain, Revenue Management Fundamentals, IMA, October 2020, bit.ly/2R1fJmF

managers suggest that those involved in the revenue man agement function can benefit from learning a wide range of technical skills, including how to scan the market and how to understand and develop products and services that create value for profitable customers. They also feel that

some staff lack knowledge of basic accounting principles, such as calculating profit margin and break-even point. In an interview, one manager said, “The revenue manager that I originally had here just stared at me blankly when I asked her what our profit margin was, so she did not

Pricing is primarily cost-plus or following not-for-profit objectives.

TABLE 2: PRICING BASIS PRACTICES

Cost-plus

■ Labor, materials, overhead

■ Manufacturer’s suggested retail price

Fixed prices

■ Set and forget

Ad hoc goals

■ Reaching a one-off target

■ Sustainability

Pricing follows market standard prices. Limited variation in prices among different groups or area trends.

Seasonal pricing

■ Winter vs. summer

■ Public holidays

■ Artist is touring

Matching competitors

■ Follow market rate

■ Recession-adjusted

Product popularity

■ Prices up if sales are high

■ Quality level

Pricing is strategically aimed at a price point relative to the market. Pricing captures differences among groups or area trends.

Differential pricing

■ Time/day part

■ Different channels

■ Zone pricing

Group attributes

■ New target market

■ Corporate rates

Strategic ■ Lead-in prices

■ Customer psychology

Pricing is based on the value of specific product attributes. It captures differences among individual customer segments.

Individual attributes

■ Pay for features

■ Terms and conditions

■ Advance bookings

Eliciting willingness to pay

■ Dutch auctions

■ Negotiation

■ Customer elasticity

■ “Tall” price range

■ Dynamic pricing

Source: Julie Harrison, Frederick Ng, Paul Rouse, and Monte R. Swain, Revenue Management Fundamentals, IMA, October 2020, bit.ly/2R1fJmF

understand what we had to sell [rooms] for breakeven. It just went over her head.”

General managers and revenue managers note an increasing expectation today that revenue managers have strong analytical skills. Supposing the intent is to provide information to support others in the decision making, which was typically the case for medium enterprises, general managers may also require revenue managers to know data visualization best practices.

Few managers that we interviewed had training in reve nue management. One was studying revenue management as part of a master’s degree, and several others had majored in accounting for their undergraduate degree. We found that the career path for most revenue managers and others tasked with revenue management began in the hotel recep tion. Over time, people worked their way up to be part of a dedicated revenue management team.

Accounting and finance professionals are well-positioned to support revenue management. Pricing decisions usually draw on techniques familiar to finance professionals, such as competitor- and cost-volume-profit analysis. When forecasting profits and making pricing decisions on new products and offerings, it’s important that revenue manag ers and finance professionals agree on the assumptions and

TABLE 3: 10 WAYS TO BUILD BETTER REVENUE MANAGEMENT

KEY QUESTIONS TO ASK

1. Develop your revenue management knowledge and capabilities.

■ Do you know how to compute the break-even point or conduct a cost-volume-profit analysis?

■ Do you know how to use calculations to determine your most profitable customers?

■ If you provide information for others to make decisions, do you know how to choose/create an effective visual?

2. Review your revenue strategy.

■ Does your revenue strategy change in response to the changing market conditions, like those that have occurred since the onset of COVID-19?

3. Focus on value instead of price.

4. Develop clear price fences.

5. Consider which businesses are in your competitive set.

6. Avoid lowering prices and deep discounting.

7. Forecast your revenue.

8. Reconsider your performance metrics.

9. Develop a communication strategy.

10. Integrate accounting and nonaccounting data.

■ Value, not price, is the lifeblood of your business. What are the most valued aspects of the guest experience?

■ Do you charge guests for services that aren’t part of a package?

■ How frequently do you consider which businesses should be part of your competitive set?

■ Lowering prices and discounting may affect your profitability in ways you might not expect. Do you have a clear pricing strategy that doesn’t compromise long-term profits for short-term gains?

■ What data sources, including historical and external (e.g., COVID-19 numbers, air travel schedules), do you use to forecast revenue?

■ Do you use performance metrics such as Total RevPar and conversion rates to support your revenue goals?

■ Do you believe that all customers are equally profitable? Do you lead with price in your communications, or do you focus on the unique experience being offered?

■ Do you have well-defined processes to collect and assemble internal and external data sources for decision making?

variables of their financial models, including the drivers of revenue and costs. Finance professionals are also likely to be knowledgeable of antitrust legislation. They can advise management on illegal pricing practices like collusion.

In several small hotels that didn’t have a designated revenue manager, the managers outsourced their revenue management function to external parties to benefit from their in-depth market knowledge and superior data anal ysis capabilities.

2. Review your revenue strategy.

According to Rita McGrath, a professor at Columbia Business School, businesses operate with a transient com

petitive advantage. From a revenue management perspec tive, this means they need a strategy that identifies the most profitable customers for the business. That strategy will guide the organization for any subsequent actions.

To calculate which customer segments provide the most significant returns, businesses need an understanding of the customer value, the customer’s willingness to pay, and the costs to serve. Customer profitability analysis and customer lifetime analysis can support the development of revenue management strategy decisions about customer segments.

Our study found that the target customer segments changed for many hotels during the pandemic. For instance,

block bookings from international tour agents stopped in Queensland because of government-related travel restric tions. There were also times when travel restrictions were introduced between states. Hotels were forced to rely on local “drive” markets (i.e., people who lived locally in South East Queensland wishing to have a vacation but staying close to home). According to our participants, the drive market guests tended to stay for shorter periods than inter state/international visitors, but their willingness to pay was generally higher.

Revenue managers also noted that some guests’ length of stay also changed. For example, some guests may prefer more frequent but shorter stays. In such situations, under standing the cost to serve the customer and their willing ness to pay is helpful for developing a business revenue strategy that will optimize the business profitability.

In noncoastal and northern Queensland, many hotels operated with a revenue strategy that previously targeted “gray nomads” (people aged over 55). Many of these peo ple tend to live in southern Australian states and travel to Queensland during winter months and the low season. A local tourism advisor in central Queensland and some hotel managers managing properties in North Queensland suggested that since the onset of COVID-19, there had been increasing interest in traveling to these locations from fami lies with small children and people with pets.

Prior to COVID-19, many hotels in cities such as Bris bane and the Gold Coast had relied on events near con vention centers to bring them customers. They lost their target market due to the government measures introduced in response to COVID-19. Travel restrictions between states also meant that hotels in cities that relied on corporate travel experienced a sharp decline, forcing them to review their revenue strategy.

Since the pandemic began, many hotels with clear rev enue strategies have discovered they’d become complacent about their revenue strategy. In an interview, a manager commented:

[We had many] group tours coming in—cheap rate, cheap din ner, and taking up most of the rooms. And what compounded that misery was the fact that the tour companies would come to us every year and go, “Oh, can we just roll the contract over for next year?” And this place would go, “Yeah, no problem” and not even ask for a rate increase, which, for me, is just insane.

Several hotels that took part in our study had allocated bookings to corporate clients and had agreed on a corporate travel rate. But as time went by, they neglected to update the rate and had overlooked the cost of serving these cus tomers. The sharp decline in corporate customers prompted them to review the terms of their agreements with corpo rate clients and recalculate the cost to serve this segment.

In doing so, some revenue managers realized they had more profitable customer segments they could have served and that their rates weren’t providing the margins they expected. By setting aside such a large percentage of rooms for customers in this segment, these businesses weren’t optimizing their revenues. The takeaway is that if you don’t regularly review the business’s revenue strategy, it may be long overdue for an update.

3. Focus on value instead of price.

Businesses need to consider what they offer to their target customers. What would make a particular type of customer’s stay more enjoyable or productive? For instance, business travelers may consider how their stay may affect their productivity. They may look at the dis tance of the hotel from any meetings they’re attending or the availability of room service if they intend to work in the room and are trying to limit their use of communal spaces. A family may look for benefits that make their stay more relaxing, such as room service, kids’ clubs, and the availability of other leisure activities. They may look for bundles such as room rates that include breakfast or “kids eat free” promotions.

Before vaccination programs were rolled out and when it was commonplace for new border restrictions to be put in place at a moment’s notice, all hotels we spoke to had changed their cancellation policy and refunded guests when payment had been taken in advance. Toward the end of 2020, when uncertainty about the pandemic remained high, many SME hotels also changed their booking policy so they would only take payment 24 hours before arrival because of the significant work involved when refunds are requested.

Some hotels have been innovative in developing new customer packages to gain market share. One, for instance, developed a package that sought to address the unmet needs of customers—in this case, couples who would usu ally vacation abroad. The hotel developed an international date-night package to reproduce a traveler’s experiences in countries like France. Aside from the room, the package included food and experiences (e.g., boat rides) that might be typical of the international location. A manager of a hotel said:

We’ve recently launched an international date night with a French theme so that people will stay and can eat in our French restaurant. And there are little French touches to what they do. The thought process behind [the package] is, “Well, we can’t travel the world. We’ll bring the world to you.” And there are recommended French movies on Netflix.

Others included free parking in their package, recog nizing that the new “drive” market was likely to value this add-on. Hotels can provide some of these services at no additional cost to the business. Some hotels include other products, such as a free welcome drink at the bar, expecting to increase total revenue per available room (Total RevPAR) since customers will often decide to have more than one drink. Because of COVID-19 measures, several hotels that didn’t have restaurants organized partnerships with food delivery companies and arranged for the cost of any orders to be charged to the client’s hotel bill.

It’s worth noting that a better understanding of what services and products add value from a customer perspec tive can help identify nonvalue-added services that the business can stop offering.

Understanding the value of the business’s product or service bundle from a customer’s perspective need not be an expensive exercise given the prevalence of online surveys and rankings such as Tripadvisor. For instance,

Organizations need to develop a systematic approach to monitoring their competitive set.

services. The critical question is: What would the customer do if the business stopped operating? Answering this ques tion will help managers identify the competitive set.

But keep in mind that the competitive set isn’t static, and challenges faced by SMEs since the onset of COVID-19 could mean that the set of competitors may have changed. For instance, our research shows that some hotels weren’t fully operational during the pandemic because they couldn’t find the staff needed to operate at total capacity. Others may have ceased operating entirely. Still others may have tried to reposition themselves and upgrade their offer ings or provide different offerings. For instance, one man ager explained that they had upgraded some of their rooms: We introduced a new premium range, and that range allowed us to market the property at a much higher rate per night and put it into a different category. That’s been quite a big deal.

Any of those potentialities could impact the com petitive set. Organizations need to develop a systematic approach to monitoring their competitive set and regularly revisit whether that same set should be used to bench mark performance.

our research found that some hotels strongly encourage customers to post reviews on ranking websites. By keeping track of these reviews, revenue managers can learn more about the value of their products from the voice of the customer. As part of their revenue management practices, other hotels send customers a survey once they depart to learn more about their experience and what they look for when choosing a hotel.

4. Develop clear price fences.

Once a business has segmented its customers and sought to understand how particular segments perceive value, it can establish price fences. A price fence ensures consis tency in the experience and helps avoid revenue leakage.

Listing pricing fences in the business pricing policy means clear guidance is available about what options are available to customers in different packages. The pricing policy should describe what differentiates the packages so additional services not included in the package aren’t offered or negotiated. If a guest wishes to have additional services, they should be charged in addition to the rate of the package. For example, a hotel manager commented: The only way they would get to our hotel is by driving, so we offered complimentary parking…. But we can’t go on forever [offering free parking]. So we’re slowly telling them we’ve now gone from complimentary parking to a $19 valet parking.

5. Consider which businesses are in your competitive set.

Benchmarking performance against a competitive set is a critical process for understanding how the business offer ing may add value to customers in unique ways. It also helps to gauge the customer’s willingness to pay for particular

But managers don’t have to base the competitive set on a hunch. According to participants in our study, the num ber of customer inquiries that hotels receive has increased since the pandemic began. Customers are making more phone inquiries to ask about price matching and offerings. This provides an opportunity to learn what these potential customers perceive to be the hotel’s competitive set. Online travel agent (OTA) platforms may also provide a cheap and easy way to learn more about competitors. They provide detailed information about competitor offerings and pro motions.

A Step Forward

These first five ways to build better revenue management are only the beginning of the conversation. (The next five will be covered in the November 2022 issue of Strategic Finance.) While the focus of our research was on SMEs in the hotel industry, we do believe the overarching concepts are broad enough to be applicable elsewhere.

SMEs on the lower-intensity side of the revenue man agement scale have an opportunity to take simple but effective steps to build up the intensity and sophistication of their practices. Moving from relying on instinct and one-size-fits-all decisions in regard to pricing and offer ings to a data-backed understanding of their customers, their business, and the market will not only help them weather challenging times but also give them an advan tage over their other competitors. SF

Jodie Moll, Ph.D., is an associate professor at Queensland University of Technology and a member of IMA. Jodie can be reached at j2.moll @qut.edu.au.

Ogan Yigitbasioglu, Ph.D., is a senior lecturer at Queensland University of Technology. He can be reached at ogan.yigitbasioglu@qut.edu.au

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TECH FORUM

A GLASS KEYBOARD THAT TAPS BACK

BY MICHAEL CASTELLUCCIO

Innovations for personal computers are almost always about anything but the keyboard. New processing chips, new all-in-one or two-in-one configurations, curved monitors, ergonomic mice, multilens cameras, upgraded speaker systems—yet the system’s most essential interface, the 142-year-old QWERTY keyboard, is mainly forgotten.

Today, however, there are rumors that Apple is work ing on a revolutionary allglass Mac keyboard, and a London-based start-up, Pentaform, is offering on the Indiegogo funding platform a conventional-looking key board called Abacus that’s a complete computer. Neither product is currently available, but you can get a preview of Apple’s new way of typing on a glass screen in the iOS 16 update.

Apple is one of the most suc cessful tech companies at keeping quiet about what they’re working on next, but there’s a way to get a glimpse inside. Apple patents often foreshadow what’s to come, and the www.patentlyapple.com blog reports on and dissects the company’s lat est intellectual property. For Apple, these patents can appear in sudden bursts. On July 5, 2022, the blog reported that Apple won 53 patents that day, covering touch ID for the Apple Watch among others, and a similar headline on August 30, 2022,

claimed Apple won 66 patents that day.

HAPTIC GLASS

The speculation about an all-glass Mac keyboard derives from two Apple patents and a subtle feature embedded in the iOS 16 update that allows you to turn on haptic feedback for keyboard taps on your iPhone. The official release for the new phone operating system was September 12, 2022, and for those downloading it, there’s a haptic feedback toggle in the settings that can add a fingertip bump on the keyboard as you type. The tap-back is actually caused by a localized vibration through the phone’s glass. This haptic feedback add-on might also be Apple’s way of paving the way for a major Mac debut later.

Apple’s first patent for a glass key board was granted in August 2021 (#11,099,649). The patent papers describe a device that includes “a base portion flexibly coupled to the display

TECH FORUM

portion and comprising a glass member defining a keyboard region configured to receive user input, a first haptic actuator configured to produce a first haptic out put at a first area of the keyboard region, and a second haptic actuator configured to produce a second haptic output” for a trackpad area.

Patent #11,366,523 (June 2022) is even more interesting. The sketch Apple provided (see p. 59) shows an all-glass keyboard, a fingerprint sensor field (the circle at the bottom right), two wrist sensors that disable the trackpad while you’re typing, and a rectangle in the lower left to set your phone on for wireless inductive charging. In addition, “The sensing system (glass) may include a touch sensing system configured to determine the location of the touch input and a force sensing system.” The glass layer will be able to “locally deform” or actually depress with the force of the touch, mimicking the feeling of key travel as with mechanical keys. That flexibility in the glass also could be used to let you feel not only the depressing action but also edges of the keys to locate your touch.

Alex Blake of Digital Trends writes that kind of glass might remove the embedded keyboard mechanisms in MacBooks, allow ing Apple “to make its laptops even thinner [and lighter] than they already are.”

Other benefits would involve swap ping language keyboards quickly and easily, and Apple might even add the type of customizing you can get with mechan ical keyboards, which let you change the key switches for a louder or softer click and a stiffer or softer touch. And would it be possible for an AI function to track and learn your peculiarities and weak nesses, which keys you most often miss, for instance, to slightly adjust key size and locations to correct that for you? If the haptic, deformable, all-glass Mac keypad ever gets developed, this certainly would offer a notably different way to interface with our computers.

One other recent experiment with key boards, the Abacus personal computer by Pentaform, is in the final funding stage of its campaign on Indiegogo. This small keyboard raises the question: How much more porta ble would your PC be without its monitor? The base model is $149, and you can con nect it to video devices such as smart TVs, computer monitors, tablets, and computer and gaming monitors. It has Windows 10 on board, and it will run Linux as well. The Abacus is definitely worth watching when it’s released in February 2023.

These two interesting exceptions hopefully will encourage other exper iments with the oldest component still plugging along in our modern computers, the keyboard. SF

“Haptics is the missing piece of the puzzle in our interactions with technology.”

—ultraleap.com blog

Pentaform’s Abacus keyboard computer, www.pentaform.co.uk

1 GALAXY Z FOLD4

Samsung released two new foldable phones and a new generation of smart watches at its annual August Galaxy Unpacked. The new Galaxy Z Fold4 has a slightly wider screen, measures 6.11" ✕ 2.64" ✕ 0.62" closed, and weighs 9.28 oz. The 6.2" cover screen offers the benefits of a conventional phone, but the folded-open 7.6" screen with Multi win dow provides twice that for a tablet-size work area or a side-by-side dual screen. You can split the screen to use up to three apps, with drag and drop across the apps, and the task bar has been improved to see more apps in Multi window. The overall size is thinner and lighter than the Fold3, mak ing it more comfortable in your pocket, and there are improvements for durability. The phone and the hinges are aluminum, and the cover screen and back cover are Gorilla Glass Victus. The body provides IPX8 water resistance. Improvements for the cameras include an increase in the wide camera to 50MP, and the telephoto now has 3X optical zoom for a 30X Space Zoom. Lowlight environments are now more manageable with a premium-level Nightography. www.samsung.com

2 GALAXY Z FLIP4

When open, the Galaxy Z Flip4 looks and works like an ordinary smartphone with a 6.7" Dynamic AMOLED 1,080 ✕ 2,640 screen, but when you fold it, the size collapses to about three inches with a 1.9" Super AMOLED

screen in the cover. With that cover screen, you can display a calendar, notes, the weather, and a clock; unlock the device with its fingerprint reader; use its quick settings to silence the phone or answer phone calls; use a button to snap photos; and much more, all without opening the phone. And there’s a load of widgets and apps to add to the list of functions. If you’re still curious about the fold failing, Samsung says the flip should be good for 200,000 folds—that’s about 100 folds per day over five years. The glass panels and cover screen are Gorilla Glass Victus, and the frame is Samsung’s own Armor Aluminum. www.samsung.com

3 GALAXY WATCH5

The new Watch5 from Samsung combines fitness and health features with the Wear OS codesigned by Samsung and Google.

The watch body still has an aluminum frame, but the display now is sapphire crystal instead of the previ ous Gorilla Glass to ensure a scratch-free lens. Water and dust resistance rating is still MIL-STD-810H, pro tecting against water up to 50 meters. The battery is slightly bigger than the Watch4. Samsung’s Health app lets you track workouts, record your sleep, and mea sure heart rate, ECG, blood oxygen, and body compo sition, and it has added the ability to measure changes

to 1TB. The ports include two USB-A, one USB-C, one HDMI, an audio jack, and a proprietary charging port. The battery lasts up to 10 hours. www.hp.com SF

in skin temperature. To take advantage of this new func tion, you’re asked to estab lish a baseline by taking readings over time. www.samsung.com

4

HP PAVILION

AERO 13

The HP Pavilion Aero 13 is a nicely designed, very capable, lightweight ultra-portable laptop for less than $1,000. It weighs only 2.2 lbs. and measures 11.7" ✕ 8.2" ✕ 0.7". The cover is aluminum, and the keyboard is compact with a glass touchpad and a fingerprint reader below it. The Aero display is 13.3" with 1,920 ✕ 1,200 pixels. The central processors are available from AMD Ryzen 5 to Ryzen 7, memory is from 8GB to 16GB RAM, and stor age SSDs range from 256GB

Keep up with the latest tools and trends in technology with SF TECHNOTES, now a semimonthly blog at SFmagazine

NEW FORMULA TO SHOW IMAGES IN EXCEL

A new IMAGE function has been released to Microsoft 365 Insiders. It allows you to easily insert an image in any cell using a formula and the image URL from the web.

near the buyers so each buyer knew to keep those 10 handbags in stock at each store.

When Microsoft released the new IMAGE function in late August 2022, I called Jerry to tell him that his idea was 20 years ahead of its time. That difficult dashboard of the top 10-selling prod ucts can now be done easily using one regular Excel formula.

In the simplest form, the basic syn tax is =IMAGE(“Image URL”). That’s all you need to display an image in a cell. When inserted among several rows of data, as shown in Figure 1, the images will be rather small. But hover over a displayed image in Excel, and a larger version of the image appears as a pop-up card next to the cell.

Optional arguments allow you to specify alternative text for the image and to control the sizing of the image within the cell.

EASY TO SORT OR FILTER

BY BILL JELEN

I remember receiving a telephone call in February 2002 from Jerry Kohl, who owned a chain of 20 women’s boutiques. He could get a report from the pointof-sale system showing all items sold in the last week across the entire chain. With 2,000 items for sale, no one was taking the time to glean anything useful from 40 pages of Excel data. Jerry knew how to use Excel to filter to all handbags and how to sort the report descending by quantity sold. But it was still a boring black-and-white printout.

Jerry had an awesome idea: Is there a way to filter to the top 10-selling handbags in the last week and display a one-page report with their images? Back then, I had to write some code in Visual Basic for Applications (VBA) to achieve the goal. But the report quickly became popular: It was hung up in the break room of all 20 stores, was posted on the bulletin board in the home office where the designers were working on new products for next season, and was posted

In the past, if you tried to insert an image into a cell, you had to be care ful that the cell was never resized to be smaller than the image. In those cases, the images would fail to sort if they weren’t completely inside the cell. Filtering would work, but using the Advanced Filter to copy to a new range would cause the images to not appear in the output range.

The image returned by the new IMAGE formula is a new data type that resides in the cell. You can easily sort or filter the data, and the image moves with the cell that contains the formula. You can use Filter, Advanced Filter, and even the XLOOKUP, SORT, and FILTER functions to move the images to a dashboard or report.

EXCEL CACHES THE IMAGES

When you first display an image in the workbook, Excel will download the image, compress it to one-fifth the original size, and store the image in the workbook. If you copy the IMAGE formula to 100 rows of data, you’ll see each formula change to a #BUSY! error for a few seconds while the images are downloaded and pro

cessed. Once the images are stored in the workbook, it will be very fast to display the images, even if you’re using FILTER or XLOOKUP to deliver certain images to a dashboard.

While this strategy is generally good, I’ve heard of a few people who want to link to a dynamic image that changes throughout the day. This isn’t going to work with the IMAGE func tion. Once the image is cached in the workbook, Excel isn’t going to waste bandwidth pulling a new image at every recalculation of the workbook.

LARGER CELLS DISPLAY LARGER IMAGES

If you increase the height and width of the cell that contains the image, the image will resize proportionally until it matches the height or width of the cell. In Figure 2, rows 13 and 14 have a row height of 133. Columns H:J have a column width of 21. A single formula in H13 returns all six images shown in the figure: =IMAGE(WRAPROWS (FILTER(D4:D500,E4:E500= "Featured"),3)).

Working from the inside of the for mula, the FILTER function finds all the image URLs where column E indicates that the product is a featured product. Next, the WRAPROWS(…, 3) function wraps the list of matching image URLs into several rows of three columns each.

Finally, the IMAGE function retrieves the images of the six featured products. In this scenario, you wouldn’t need to show the hundreds of images in C4:C500. The FILTER function iden tifies the top products, and then the IMAGE function returns the image of just those items.

That single formula in Figure 2 replaces more than 50 lines of VBA code that would have been required previously. SF

Bill Jelen is the host of MrExcel.com and the author of 67 books about Excel. He helped create IMA’s Excel courses on data analytics (bit.ly/2Ru2nvY) and the IMA Excel 365: Tips in Ten series of microlearning courses (bit.ly/2qDKYXV). Send questions for future articles to IMA@MrExcel.com

To preview the IMAGE function, search for “Join Office Insider” and follow the steps for Insider Beta Channel.

Figure 1

Figure 2

TECH PRACTICES

TIME FOR NEW GENERAL LEDGER SOFTWARE?

BY AHARON YOKI, DBA, CPA

General ledger accounting software is the primary resource for information the CFO communicates to the organization’s stakeholders. Shifting to remote work during the pandemic raised many orga nizations’ awareness of their current software limitations and inspired CFOs to consider upgrading their software. This accounting software can be gener ally classified into five categories:

1. Manual bookkeeping. This includes paper ledgers and computer-based spreadsheets. Manual bookkeeping can be an easy start-up tool for a small, cash-based sole proprietor, but it’s quickly outgrown.

2. Small business. Small business software was historically the “off the shelf” option, either net worked locally or a single installation, but small businesses have mostly shifted to cloud-based subscription services.

3. Mid-market. Mid-market systems, such as Sage Intacct, Microsoft Dynamics, and NetSuite, provide another cloud-based option for greater customization and capacity for more complex transactions in a much larger accounting data base. Mid-market systems require more time for software research, understanding the vendor options, implementation planning, and multi ple discussions with implementation vendors prior to moving forward. Each organization must include impacted teams in the discussion and ensure the implementation vendors can deliver the promised system integration.

4. Enterprise. Enterprise software, or enterprise resource planning (ERP) systems, include gen eral ledger functionality and reporting, and also software modules to manage human resources, supply chain and procurement, production, and sales and customer relationship management. Initial implementation of an ERP system can

take years, roll out in segments, and cost from millions to tens of millions of dollars. Organiza tions justify the hefty ERP implementation costs by considering the benefits of consolidating dis parate data from multinational operations with different reporting dates and foreign exchange calculations.

BENEFITS AND RISKS OF SOFTWARE UPGRADES

Advances in accounting software can eliminate manual processes and provide better report writing tools, improved data input, and better security. Organizations have historically asked the accounting office to provide interim data to operations and marketing, who then have had to massage that data into their report structure needs. Accounting departments have been reluc tant to provide system access to outside depart ments because of internal control considerations, and rightly so. Role-based security that enables view-only access can provide credentials to non accounting managers to generate on-demand reports. From application program interfaces to operational and marketing systems, these reports can greatly reduce the cycle time to provide data to internal customers.

A key consideration for any organization is its accounting software’s risk of software obsolesce. Obsolete software may cause unex pected conflicts with current operating systems, server software, device drivers, and security applications. A server update that prevents the accounting system from loading would bring the accounting shop to a standstill and require an immediate unanticipated spend for software updates. The scenario would be significantly more precarious if the general ledger system were no longer supported and not compatible with current operating systems. In that case, a

The decision to implement new general ledger software requires research, project planning, and engagement with all the stakeholders it will impact.

potential software failure could lead to cata strophic data loss and interruption.

EVALUATING NEW ACCOUNTING SOFTWARE

Internal personnel, interdepartmental, and external impact are important factors with new software. The software change will impact the accounting office the most, and if your accounting office is small enough, you should invite everyone to the initial internal conversations.

There are three major reasons for this. First, it’s useful to collect information about the cur rent system’s limitations from the team that’s hands-on with the software daily. Second, it’s an opportunity to gain buy-in from the team. Third, the team will have concerns about learning new software, their ability to continue to process transactions daily while migrating to the new system, and job security. The news of automa tion’s impact on the accounting profession has caused some job fear, and leadership needs to present the software installation as an opportu nity to help the staff focus on core functions and increase their value to the organization.

WHAT’S THE ROI?

The return on investment (ROI) of new accounting software includes reduced personnel training time, improved system interfaces, and reduced risk of data loss; other returns, such as better engagement with other departments, may be more difficult to quantify, but from a net-present-value perspective, we can identify the initial software costs:

■ Current, first-year costs incurred: initial soft ware, configuration, installation, and training

■ Annual costs discounted to first year: subscrip tion, hosting, maintenance, and training

■ Technology costs released: current IT support, current subscription and maintenance costs, and current on-site hosting and data manage ment

■ Accounting costs released: current additional activities that may be automated, such as interim reporting, operational reporting, bank reconciliation, and accounts payable key data entry

■ Intangible costs released: reducing the risk that the existing system will no longer be supported

The risk of interruption from software failure or data loss should always be a consideration. Be careful of the sunk cost fallacy: Just because the organization purchased servers and on-premises resources in the past doesn’t mean you should be obligated to continue using obsolete technology. To the contrary: The local technology team can be released from server management obligations and pivot to higher value-added tasks.

SELECTING AND IMPLEMENTING

The first step in installing new accounting soft ware is to contact multiple developers and ask for demonstrations of how their software can meet your needs. You will find that in addition to the current limitations you’ve identified, they’ll likely present other potential risks. Be prepared to invest time providing background information about the number of users, both in accounting and other areas, transaction volume, and the nature of the transitions. You want to ensure you have provided potential vendors with a thorough scope of the system needs.

Most implementation teams are separate enti ties from the software developer, often a tech nology consulting practice of a public accounting firm. The implementation team may have exclu sive rights with the developer, but don’t hesitate to explore a different implementation team if you don’t feel the team presented to you will meet your needs. The implementation team should be able to provide a firm commitment to the “go live” date and to clearly outline the amount of included support and training post “go live.”

Investing in new general ledger software is an expensive proposition that should engage your accounting team, other departments, suppli ers, and customers. Careful software selection, project planning, and a strong implementation team that takes the time to learn your business and processes will help align software with your needs and reduce the potential for unexpected delays during implementation. SF

Aharon Yoki, DBA, CPA, is an assistant professor of instruction at the University of South Florida, Muma College of Business, and a member of the IMA Technology Solutions and Practices Committee. He can be reached at yoki@usf.edu or aharonyoki.com

Aiming High

BY HARI RAMASUBRAMANIAN, PH.D., CMA, CA

HE FIRST TIME I HEARD ABOUT THE CMA® (Certified Management Accountant) cer tification was in January 2017. I was a doctoral student at Michigan State University at the time and went to the American Accounting Association’s Man agement Accounting Section meeting in Puerto Rico. At that meeting, I met Lisa Beaudoin (then director of educational partnerships at IMA®), who told me about the CMA Scholarship, among a number of other opportunities. After researching the certification, I discovered that it would be useful to my career and could help in academic collab orations as well as with integrating research and practice.

provided an opportunity to witness the inner workings of the association. It was a tremendous privilege to meet many IMA senior leaders and to network with other young professionals from around the world.

My experience with the YPLE inspired me to continue my involvement with IMA. As a university professor, it’s my pleasure to tell students about my experience with the CMA. Numerous times over the years, I’ve invited Lisa to speak with my managerial accounting class about the benefits of the CMA and IMA membership. I’m also currently working with the IMA Europe office to find a way to offer CMA prep courses at the Frankfurt School of Finance & Management, where I’m currently on the faculty.

Ph.D., CMA, CA, is an assistant professor of managerial accounting at the Frankfurt School of Finance & Management in Frankfurt, Germany, and a member of IMA’s Germany Chapter. You can reach Hari at h.ramasubramanian @fs.de

Receiving the finan cial support from the scholarship was very motivating. I decided to sit for the CMA as soon as possible, despite having to manage two seminar courses and an econometrics course in my Ph.D. program at the same time. I took both Part 1 and Part 2 in February 2017. Although I was confident of passing the exams and wanted to aim high, I was overwhelmed when I received the news that I had scored the highest marks for a student during that testing period. This achievement earned me the Priscilla S. Payne Outstanding Student Performance Award, which is given to the top-scoring student in a testing window. Winning that award was a key factor in my being selected later that year for the IMA Young Pro fessional Leadership Experience (YPLE), which

My advocacy for the CMA hasn’t stopped at the classroom, however. While I was preparing to take the CMA, I also encour aged my wife, Hetal Adhia, also a student at Michigan State Uni versity at that time, to pursue the CMA, and she did. She later was selected for the IMA Student Leadership Expe rience, where she too was able to attend an IMA Global Board of Directors meeting and network with other members and volunteer leaders. Hetal and I also attended the 2017 Student Leader ship Conference in Houston, Texas, where Hetal received and accepted a job offer from Cummins.

We both are extremely grateful and happy for the opportunities IMA has provided to con tribute in whatever capacity possible. I look forward to many opportunities of volunteering for IMA and supporting its mission to create awareness about the importance of manage ment accounting.

Hari

Ramasubramanian,

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