In many finance departments, manual workarounds like spreadsheets and off-system tracking are a way of life. While these methods may seem like quick fixes, they carry significant hidden costs in terms of risk, inefficiency, and missed opportunities.
As a controller or CFO within your organization, it’s up to you to recognize and quantify these costs. By doing so, you can pave the way for targeted improvements that make your business more efficient and resilient.
The Prevalence of Manual Workarounds
Manual processes persist due to legacy systems, budget constraints, or resistance to change. All FP&A professionals rely on spreadsheets for reporting and planning at least once per quarter.
Take a moment to consider your workflows and identify areas where manual workarounds persist. How often does your team turn to old-school resources like spreadsheets? More importantly, how many hours do they waste hunting down obscure documents and looking for the information they need to get work done?
Off-system tracking, like manual reconciliations, is equally common (and just as wasteful). It’s up to you to find any such “workarounds” within your organization so that you can remedy them.
The Hidden Costs
Manual workarounds impose costs across three dimensions.
1. Operational Inefficiency
Spreadsheets are time-intensive and error-prone. Your organization could be wasting dozens of hours every month on manual account reconciliations. Imagine how much time, money, and effort you could save by ditching spreadsheets for automated reconciliation tools.
Manual processes divert staff from strategic tasks like variance analysis and forecasting. You are already pressed for time and talent. You can’t afford to waste any more of it on inefficient tasks that bog your staff down with redundant and frustrating work.
2. Financial Risk
Manual processes increase the likelihood of errors. Such mistakes can lead to restatements or missed opportunities. When manual oversight leads to compliance violations, the results can be catastrophic.
Off-system tracking is another major concern. When data is out of sight, business leaders don’t have access to the information they need to make informed, timely decisions.
3. Opportunity Costs
Perhaps the biggest cost of manual workarounds is lost opportunities. Time spent on manual tasks prevents your finance team from pursuing high-value initiatives.
For instance, a controller reliant on spreadsheets for cash flow analysis may lack the bandwidth to implement predictive analytics. The result is a missed opportunity to optimize working capital.
The opportunity costs of manual work compound with the scope of your project. For instance, performing manual M&A due diligence can delay deal closures and impact your organization’s competitive posture.
Real-World Scenarios
Look at a few possible situations that can help demonstrate the cost of manual workarounds.
In one scenario, a $1 billion manufacturer uses spreadsheets to track intercompany transactions across its 10 subsidiaries. A single formula error overstated revenue by $2 million. The issue was hard to detect, since the company was using off-system spreadsheet tracking strategies.
Damage control cost the company $500,000 in consulting fees and damaged investor confidence.
While you may operate in a different industry or company of a different size, you can easily contemplate how a similar scenario might play out within your organization. A “simple” Excel formula error or mistyped number can have huge repercussions for your business.
Another scenario involves a national retail chain that conducts manual inventory reconciliations. In this situation, the costs of manual workarounds are clearer.
Imagine the company needs 15 staff members to work 20 extra hours during quarterly inventory reconciliations. Implementing an automated system could cut down each employee’s hours worked to five. The result is thousands in annual savings.
How to Quantify the Cost
Here are a few tips to help you calculate the cost of manual workarounds:
- Measure hours spent on manual tasks
- Estimate error frequency and remediation costs
- Identify strategic initiatives that were delayed by manual work or mistakes
The goal of this exercise is to demonstrate the true cost of manual work and encourage the C-suite to make meaningful changes.
Solutions for Controllers
Once you’ve identified the true cost of manual workarounds, it’s time to facilitate lasting change. Here are three ways to do that:
- Adopt automation to reduce errors and free up staff time
- Consolidate data into a single ERP platform
- Upskill your staff so they embrace the new tools
Remember, manual workarounds are meant to be temporary. If you need to tackle a task or workflow manually to deal with a short-term problem, that’s okay. What you do not want is for your team to adopt these workarounds as the new normal.
Setting the Stage for Modernization
Are you ready to shed the cost of manual workarounds? Start by building a digital transformation roadmap that addresses your organization’s key challenges. Integrating systems and embracing automation enables you to transform the company’s workflows and deliver greater value to the organization.
