Getting to Yes: Justifying Your AP Automation Project

Transcription

1 Getting to Yes: Justifying Your AP Automation Project Jonathan Casher

2 Jonathan Casher, Senior Consultant IOMA Advisory Services. Jon has worked with hundreds of organizations in the public and private sectors providing guidance and assistance on a broad range of Accounts Payable and procure-to-pay topics. He speaks at many conferences and leads training classes and workshops. From 1988 through 2007, Jon was the co-founder and Chairman of RECAP, where he was responsible for strategic planning and overall direction. He has been head of the audit committee of the Board of Directors of a public company and is an advisor to several firms. About Kofax: Kofax plc (LSE: KFX) is the leading provider of document driven business process automation solutions. For more than 20 years, Kofax has provided award winning solutions that streamline the flow of information throughout an organization by managing the capture, transformation and exchange of business critical information arising in paper, fax and electronic formats in a more accurate, timely and cost effective manner. Kofax solutions provide a rapid return on investment to thousands of customers in financial services, government, business process outsourcing, health care, supply chain and other markets. Kofax delivers these solutions through its own worldwide sales and service organizations, and a global network of more than 1,000 authorized partners in more than 60 countries throughout the Americas, EMEA and Asia Pacific.

3 Getting to Yes: Justifying Your AP Automation Project Accounts Payable (AP) is constantly under pressure to reduce costs and improve productivity. While these goals are attainable, AP is sometime unable to develop an appropriate strategy to justify the investment and get approval to proceed. In other instances, AP moves ahead with a plan and a project but cannot measure or demonstrate just how much improvement has been achieved. A companion white paper, Overcoming Barriers to AP Automation: A Roadmap for Success*, provides an overall strategy for AP automation. This white paper focuses on how to develop the business case for an AP automation project as well as how to measure the results. Key steps to building the business case are: Assess Where You Are Identify Where You Want to Be Determine What Must be Done to Get There * To download the white paper go to kofax.com 3

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5 Assess Where You Are Although AP or senior management may have a preconceived idea as to what should be done, it s important to assess the current situation. This includes identifying key pressures, key problem areas as well as constraints and opportunities. Do a Quick Survey Do a quick informal survey of your AP staff, key internal customers and key vendors to help assess the perceived strengths and weaknesses of your AP operation. Between 5 and 10 customers and a similar number of vendors should be surveyed. The following are examples of such surveys that can be done. Your AP staff should fill out each survey based on what they expect as answers from your key internal customers and vendors. Internal Customer Survey Please rate your satisfaction with Accounts Payable using the following scale. Dissatisfied Adequate Satisfied Very Satisfied Timeliness: Accuracy: Service: Clarity of our policies: Overall: What are some of the positive things we are doing? What do we need to do differently? Comments and Suggestions: Vendor Survey Please rate your satisfaction with Accounts Payable using the following scale. Dissatisfied Adequate Satisfied Very Satisfied Timeliness of payments: Accurate and sufficient information for you to post transactions: Prompt response to your inquiries: Understanding of how to do business with us: Overall clarity of policies/adherence to contract/po terms & conditions: What are some of the positive things we are doing? What do we need to do differently? Comments and Suggestions: 5

6 Analyze the results and focus on where performance is not adequate and suggestions. If you do not already have metrics to help assess the severity of problems, capture statistics for a short period of time to see if criticisms are justified or refuted. For examples of metrics that you may want to capture, see the companion white paper, Must Have Metrics: A Guide*. Review Your Processes Use the results of the surveys and additional statistics to identify key processes that should be examined closely. A common problem is that invoices take too long to get to Accounts Payable. As a result, discounts can be lost. And, vendors may be calling to find out when they will be paid. Another common problem is that when invoices require exception processing, additional effort is required within AP requesting and waiting for clarification from other parties. When looking at a process, look beyond AP. While AP has control of what is done in AP, it does not have control and is often impacted by what is done before transactions are received by AP and after disbursements are made. What happens before a transaction reaches AP, or after it leaves AP, may have a significant impact on AP or the perception of its performance. The following diagram illustrates the procure-to-pay process flow, from the time someone needs goods or services through the receipt and posting of payment by the supplier. Three Way Match Paper PO, Invoice, Receipt Requisitioner creates request Manager receives request Manager approves request Buyer receives request Buyer selects supplier Buyer places order with supplier Supplier picks goods Supplier Schedule release Supplier enters PO into supplier s system Supplier Receives order Buyer mails/faxes PO to supplier Buyer creates PO from request PO to A/P via Interoffice mail Supplier ships goods Receiving receives goods Receiving routes goods Requisitioner receives goods Requisitioner approves pack slip Supplier packs goods Supplier Prepares invoice Supplier mails invoice Requisitioner receives invoice Manager receives invoice Manager approves invoice A/P matches and files documents Computer prints check A/P enters invoice into A/P System A/P matches PO, invoice, pack slip A/P receives mail Invoice to A/P via interoffice mail Check mailed to supplier Supplier A/R enters receipt of check Supplier A/R deposits check Pack Slip to A/P via interoffice mail * Download the whitepaper from kofax.com 6

7 While this diagram is a good starting point for understanding the procure-to-pay process, it is an oversimplification of what actually happens. The process flow in this diagram does not include exception processing. Some examples of exceptions that are not included are: Handling an invoice where the line items or prices differ from those on the PO Handling an invoice where the vendor s remit to address is not in the vendor master file No receiving documents are provided Charges on the invoice are inconsistent with the charges allowed on the PO Sales tax is incorrect The ordering department needs to be contacted to verify the correct accounting codes A flow chart or data flow diagram that includes the exception processing should be prepared and verified against the actual process, as well as against any existing documentation. The flow chart should include details of all steps and decision points within AP and should include interfaces with external organizations and systems. Three Approaches to Documenting the Process AP Managers have used interesting approaches to document how their departments process invoices. Engaging the AP staff is critical to producing process flows that accurately describe the actual steps and decisions associated with processing invoices. Paper Trail One AP manager used very long rolls of paper hung along one wall of the AP department to prepare a diagram showing how invoices flow through the department. For a month, staffers were encouraged to update the diagram by adding post-it notes with comments, issues, problems and actions taken in the course of processing various types of invoices. After a month, the notes were reviewed with the staff and the diagram was updated to incorporate the information that was added. The process was then repeated for another month. The number of additional changes, additions and corrections that were made in the second month surprised everyone but resulted in a comprehensive flow chart of their process. Log Book Another AP Manager used a log book to track the flow of various types of invoices within the department. Staffers logged information including the date and time each transaction was received, what actions were taken, what issues had to be resolved, any contacts with parties or systems outside the department that were needed as well as the date, time and person or system that the transaction was next handed off to for additional processing. String Theory Another AP Manager had the AP staff create a network of strings above the cubicles and workstations within the AP department as they received and processed invoices. Tracking was initiated for one new invoice every hour for five days. Notes were hung from the strings to document decisions and other comments. After five days, the department was covered in strings and hanging notes for the 40 invoices that were being tracked. Interestingly, seven of the 40 were held up waiting for input from an approver, purchasing or a vendor. A few key business partners were invited in to see the massive string network and get their comments and suggestions. 7

8 If there are several types of invoices, it may be appropriate to develop several different flow charts rather than one comprehensive chart that becomes too complex. Examples of different types of invoices are those requiring matching against purchase orders and receive documents, those without purchase orders, check requests, recurring invoices for lease and/or rent payments, etc. Another way of differentiating might be utility bills, legal bills, insurance bills, bills for goods, bills for services, etc. A third way of differentiating might be by delivery method such as paper invoices mailed directly to AP, paper invoices mailed directly to the requestor or approver, invoices delivered as PDF files as attachments, spreadsheet, EDI, etc. In the course of reviewing the flow charts, focus on potential problems, unnecessary steps and possible process improvements. It may be appropriate to make some changes to streamline the process but hold off on making others until alternatives are identified and better understood. 8

9 Identify Where You Want to Be To help decide what you should be considering, it s important to find out what other AP departments are doing. Learning from the experiences of others can help identify alternatives that should be considered and greatly increase the likelihood of success. Many resources are available to assist. Quantitative Benchmarking Surveys Organizations such as IOMA, Aberdeen Group, The Hackett Group and others conduct surveys and provide reports of key performance indicators. However, comparisons are often difficult to use due to different interpretations or different ways of measuring. While many surveys try to quantify the cost to process an invoice, the variables that are included in cost calculations vary greatly from one organization to another. Furthermore, differences in the ways various types of invoices are handled may further complicate comparisons. However, cycle time, the time from receipt of an invoice by AP through the time that the invoice is successfully posted, is one useful metric that can be meaningfully compared across organizations. If your average cycle time is significantly higher than the average cycle time for other organizations, you need to find out why. You will not get this information from these surveys. Therefore, you should draw on the other resources identified below. White Papers, Case Studies and Research Reports White papers and case studies provide insights into alternatives as well as describe what others have done and are doing. Research reports typically go into additional detail. White papers, case studies and research reports are available from the aforementioned organizations as well as from companies providing products and services. Webinars and Audio Conferences Similar to white papers and case studies, webinars and audio conferences can provide information and insights from others. These are sometimes interactive and typically provide a limited opportunity for questions. Conferences and Workshops These events expand upon the above alternatives by providing additional opportunities for information sharing with speakers, vendors and other participants. Making contact with others faced with similar problems and issues as well as with others who have successfully addressed similar problems and issues is a key benefit of participation in these events. Qualitative Benchmarking Conference calls, web collaborations and site visits with other companies can all help to better understand what others are doing and provide insights into what you can and should do. In these meetings, focus on their process and how they handle exceptions. Identify what they do that can, might or might not be feasible or applicable to your own organization. Find out where they were and how they got to where they are. While quantitative metrics, such as cost to process an invoice, cannot be easily compared from one company to another, it is a useful metric when looking at your own organization. Before 9

10 identifying what process changes you are considering and/or technologies you are thinking of using, identify performance indicators that you want to use to evaluate the impact your actions. Once you do that, you should have some guidelines to help you identify appropriate tools. Performance Indicators The following are some examples of key performance indicators: Cost and Effort Time to process various types of invoices Number of people and skills needed Input Quality Number and percentage of transactions requiring exception processing Input Timeliness Number and percentage of transactions arriving at AP within X days Number and amount of discounts lost due to late arrival Process Quality Number and amount impact of errors made in AP Process Timeliness Cycle Time The previously mentioned companion white paper, Must Have Metrics: A Guide, provides additional information about most of these metrics. Capture information about these metrics before you embark on making changes. You may want to set goals for each of these as well. Whether or not you set goals, you should plan on using these same metrics to see the impact of changes. Common Sense Guidelines Change can be disruptive. Too much change in too short a period of time often ends up in failure. Do not just automate your current process. Be realistic as to what can be accomplished with the resources that are available to you. If you decide to tackle a large project, think about phasing so that interim results can achieve quicker payback, validate your approach and reduce risks. Many proven technologies are available. Identify what is feasible and appropriate for your company and your AP department. Determine what is compatible with existing automation that you intend to continue to use. Identify alternatives that are relatively easy to implement, low effort, low risk, have a short implementation time frame, and impact a small number of people. The white paper, Overcoming Barriers to AP Automation: A Roadmap for Success, identifies levels of automation and identifies some of the key issues associated with moving from one level to the next. Setting the Goal After reviewing the various sources of information, it s appropriate to pick a long term goal. Based on preliminary results from IOMA s 2010 Technology Survey and other recent surveys, if your company is like most others, it s likely that you would decide that your goal is to improve efficiency and/or timeliness with reducing costs a close second. To accomplish those goals, these 10

11 surveys indicate that implementing or increasing use of electronic invoicing is the key strategy. Based on your assessment of your current situation, the above common sense guidelines and white paper, you may want to have some intermediate goals. Draw on the resources mentioned earlier. In addition, work with vendors they ve done it before. Vendors can often direct you to similar companies that solved similar problems and issues. 11

12 Determine What Must be Done to Get There One you have identified your key goals and objectives, you need to identify and analyze alternatives. This is likely to include meetings with and proposals from vendors. As part of this process, you may be sending out Requests for Information (RFIs), Requests for Quotations (RFQs) and/or Requests for Proposals (RFPs). Depending upon an initial assessment of the impact, you may produce a preliminary business case. Once you ve decided on the likely solution, you are ready to prepare a business case documenting the problem and the proposed solution. How you make the case depends the approval processes within your company, as well as the size and scope of the proposed project. Understand Your Company s Approval Process Before preparing the business case, it s critical to understand who within your company must and should be involved both in the preparation of the case and in deciding to go forward with the proposed solution. A checklist should be used to identify which people and organizations should be involved in participating in putting together the business case and the people who will have to sign off on it. The people who will be the project sponsor and project manager should also be identified. Business Case Checklist Roles and Responsibilities Who/Function CEO/President CFO Controller Purchasing Manager Buyer Accounts Payable Manager Accounts Payable Supervisor Accounts Payable Staff Member Chief Information Officer (CIO) Information Technology Staff Member Business Analyst Business Unit Manager Business Unit Staff Member Internal Audit Other Role in Building the Business Case Role in Approving the Business Case 12

13 What Should be in Your Business Case Typically a document is prepared along with a presentation to the people involved in approving your recommendation. While the specific information varies from one company to another with the nature of the project, it is always helpful to start out with an outline or template to produce the document. If you don t have a sample to use, search the Internet where many examples are available. The following are some of the elements that are included in the preparation of most business case documents. Business Case Sample Outline I. Executive Summary II. Background III. Current Situation IV. The Problem V. Objective VI. Alternatives VII. Proposed Solution VIII. Benefits A. Tangible B. Intangible IX. Costs A. One Time B. Ongoing X. Assumptions and Constraints XI. Dependencies and Interdependencies XII. Return on Investment and Payback XIII. Risks XIV. Implementation Plan A. Resources B. Schedule C. Milestones D. Deliverables 13

14 Executive Summary The executive summary should include key information from subsequent sections of the document. The executive summary should typically be no more than two or three pages and ideally no more than one. It should include key objectives and the expected Return on Investment (ROI). Background This section should draw on material describing the current situation, the key problems that need to be addressed and the purpose and goal of the proposed solution. Metrics corresponding to the key performance indicators for the current situation should be presented. The importance of each metric and goals or expected impact should be provided. Alternatives Alternatives that have been investigated should be described. The strategy used to identify and define the alternatives should be provided. Criteria used to evaluate and reject each alternative should be identified. These may include cost benefit analysis, initial and ongoing costs, other financial considerations, and maturity of the solution. Effort, time frame, availability of resources and fit with your company s and your department s culture are also factors to consider. Inputs from organizations that have implemented or chosen not to implement alternatives should also be included. Proposed Solution A detailed description of the proposed solution should be presented. The vendor(s) involved in providing the solution can often provide a great deal of information that can be used to assist in preparing this section. Other companies that have implemented similar solutions should also be drawn on to help provide a comprehensive description of the proposed solution. Information obtained from others should be tailored and refined to directly address your current situation, your key problems, goals and metrics. Benefits Both short and long term tangible and intangible benefits should be covered. Benefits should directly address how the proposed solution is expected to change key metrics and the time frame for the impact to be felt. The benefits should address the impact on productivity, quality and timeliness, as well as expected cost savings and impact on internal customers and vendors. If your AP department has mission and vision statements, specify how the proposed solution aligns with them. Costs One time and ongoing costs and the associated underlying assumptions should be presented. One-time costs may include hardware, software, implementation costs, changes to facilities as well as costs associated with conversion, training, internal staff and external consultants. Ongoing costs may include hardware and software maintenance, license fees and transaction fees. There may also be ongoing costs associated with upgrading to newer versions of the products or services that are part of the proposed solution. Some of these costs may change over time as the number of users or number of transactions changes. 14

15 Some one time and ongoing costs may be incurred by other departments if they need hardware, software and/or training. Assumptions and Constraints Assumptions and constraints should be identified and documented. These may include assessments of how the proposed solution might be affected by significant changes in transaction volumes, staffing or technology. Regulatory and contractual constraints should be addressed. Dependencies and Interdependencies The proposed solution may depend on other concurrent projects or activities or the availability of various resources. To the degree possible, such dependencies and interdependencies should be noted. Return on Investment and Payback A business case should identify how quickly the benefits from the project will outweigh the costs. Return on Investment is a popular way of calculating the efficiency of an investment. ROI is calculated by dividing the financial benefit by the cost. Equally as important is the payback period, the amount of time it will take the financial benefit to begin to exceed the cost. Risks All projects have risks. If there do not appear to be any risks, it s likely that the solution is not well understood. Known risks should be identified along with an assessment of the likelihood and potential impact on success or failure. Key decision points and fallback strategies may need to be addressed. Implementation Plan An implementation plan should identify the internal and external resources that will be needed to implement the proposed solution. There is often an increase in staff needed during the transition period. When the new system goes live, productivity may initially drop. As staff becomes more familiar with the new system and procedures, productivity should increase. When a schedule is prepared, it should include allowances for holidays, vacation and other activities that impact availability. In preparing a schedule, some organizations assume that there will be the equivalent of four days of availability per week for individuals who are assigned full time to the project. This increases the likelihood of meeting the schedule even as unplanned project and non-project events and activities impact the availability of resources. Metrics used to monitor project progress against the plan should be also included. These should include measures of project timelines such as meeting of key milestones and deliverables and measures of project quality such as expected one-time costs and effort over the life of the project. 15

16 Once the Business Case is Approved Once approved, the real work begins achieving the expected results. Project Execution Successful project execution includes measuring progress against previously identified metrics. It also includes monitoring external factors and making changes to the plan when appropriate. Successful project managers are also on the lookout for unexpected events that might impact the project scope, approach or schedule. Good plans allow for contingencies. Going Live Cutover to a new process or new system may happen all at once or in phases. Although some changes may have immediate impact, others may take place over time. The metrics used to build the business case will now demonstrate how actual results compare to expectations. Additional metrics may be required to measure effects that were not originally anticipated. Share results with the people who approved the business case and with the people and departments affected by it. In Conclusion Careful planning and strategic thinking are key to getting approval for and executing successfully on AP automation projects. Using the approach outlined in this white paper, you will identify the high priority problems to address, develop the right solutions and find the right partners. By making a strong business case, you will get buy-in from the parties needed to justify the investment, approve your projects and be positioned to execute successfully and achieve the desired results. 16

17 A Complete End-to-end Solution from a Single Trusted Partner With intelligent document capture and MarkView workflows, Kofax offers an integrated end-toend AP automation solution that leverages best practices from hundreds of implementations in leading organizations worldwide. With the Kofax solution, AP is optimized along the entire invoice lifecycle. Invoices are captured and digitized at the point of entry and transformed into process-ready information. Classification, extraction of metadata down to the line-item level, and validation ensure the highest data and processing accuracy. The detection of potential recognition errors in the invoice process helps to significantly reduce risk and ensures that only accurate data is submitted to the ERP system. Real-time ERP integration with Oracle, Peoplesoft and SAP financial systems ensures a single source of the truth. Best practice workflows manage the review, coding and approval process that is required for non-po invoices, pre-approved invoices, supplier maintenance, and PO based invoices that do not match the PO or the goods received information. A robust actionable performance management application, MarkView Advisor lets Finance managers gain process intelligence and uniquely provides the ability to intervene in real time to optimize cash management and resolve process issues impacting performance. A supplier self-service portal, SupplierExpress automates routine supplier interactions including invoice submission and inquiries, reducing costs and errors and enhancing AP automation payback. Implementing the Kofax invoice processing solution yields the following benefits: Improved accuracy Real-time AP performance management Reduced processing time, cost and risk Increased visibility for achievement of service levels and compliance Improved cash management Payback in less than 12 months One enterprise-wide platform one solution one vendor There are many ways to learn more about Kofax intelligent capture, MarkView invoice processing solutions, AP performance management and AP supplier self-service. Visit Kofax.com/software or Kofax.com/solutions for more about product and solution offerings Go to to download white papers and research about financial process automation, AP metrics and more. Contact us to arrange for a demo, do an ROI or quick performance benchmark analysis, request a copy of The Buyers Guide: Technology Solutions in Support of Accounts Payable Business Process Automation. 17

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