Rocket Science

In my earlier life as a Corporate Banker, I have done a large number of Financial Statement Analysis. But I never thought that so much goes behind generating those three statements Balance Sheet, Income Statement, Cashflow Statement and the notes associated with them.

From a lenders point of view, some numbers are very important and thats what we focused on when analysing the statements or forecasting the numbers or doing a variance analysis. However, when its your own organization not some but all numbers are important and significant importance is given to all variances.

I told my chartered accountant colleague that I never considered that so much goes behind generating these statements. Its like a different world altogether. He comforted me that 'you can easily master it; its no rocket science'. I replied that I excelled in such subjects in academia as Derivatives, Options and Futures, Fixed Income Securities and Financial Engineering, Ito's Lemma, Black Scholes, Greeks etc. otherwise known as rocket science.

However, this cost allocation, internal pricing, warranty amortization, labor cost, bonuses, etc. and to top it all of budgeting, strategy planning, balance scorecards, feasibilities and forecasting is driving me nuts. The other day I was at the office on a weekend finalizing the budget numbers. An ex-colleague of mine in Pakistan found out. He was flabbergasted, "Working on a weekend in Middle East? Qiyamat ki nishaani hai (sign of the end of the world)!!!"

Financial Database

How many system can an organization have? Having worked for a Bank, I always thought that a single system usually does the job. For different functions or departments it might have different modules but in the end they must all work together like the cogs of a machine. For smaller tasks, spreadsheets such as MS Excel could be used but it would be just a simple analytical tool and not a system. How wrong was I?

The company uses one finance system at the Operations Site. However, to analyze the data it is uploaded into another project management software in my division. However, the vouchers are also sent directly to Central Accounts division who upload the data onto an Oracle database. Whereas the first system was for financial and material consumption aspects, for services rendered by the Operations another database is used. To top is all off, report generating solution is used to generate information from the data generated by all these systems. The authenticity of data is not assumed correct unless the numbers tally with the Oracle output. I am sure you are finding it confusing. Believe me I have been at the company for around a month and I still find it confusing to obtain all kinds of reports from different systems. For a further analysis, all of this is downloaded in Microsoft Excel where a day is usually spent in organizing the data using VLOOKUP etc. followed by the analysis.

To top it all off, everyone knows that system generate inaccurate information. They always ask for information outputthat is 80% accurate (for an actual revenue and associated numbers – not some false forecasts). This is the situation when we are using 5 systems. How did they work before computers arrived?

Earlier I have worked in Banking sector of Pakistan in operations at Branch level. My first experience was at a small IT oriented bank and we were used to closing our books daily online. It also gave us a clear idea how an efficient system should work. By nature, banking solutions need to be accurate. My second stint was at one of the Big Four banks of Pakistan where they were still using paper registers and ledgers in tandem with computers to keep track of assets and liabilities. Though the system may be inefficient in terms of time and effort required for daily balancing of books yet it was accurate.

Using a computer based solution is much easier once you get the hang of it as everything flows smoothly through the system. The paper and pencil system requires a special skill and temperament which is developed after years of working through the system. I was involved in the migration from paper and pen based system to fully computer based solution. Overnight the skills honed after years of burning oil in branches become useless. The computer does everything automatically. Consequently, a lot of people lose their jobs and even if they don’t lose their jobs, the importance of their jobs gets reduced very much.

At the present company, they are bringing some new consultants next week who are going to make a presentation on a Enterprise wide solution. I am looking forward to the meeting. Its not that I expect the system to be implemented and all the old stuff to be thrown out. On the contrary, I expect it to be one of the numerous meetings I would attend during my time in this company without any change. The advice that I have seen many people recommend as the best advice for Middle East is “Don’t try to change the system.”

Whether I will heed it, the answer is No.

The Beginning: A Faux Pas

I have been posted as a Finance Manager in a large family owned enterprise. I would mainly be involved in analysis which will be based on information generated from accounting data. Not only I have to streamline the system but also provide ways of generating new information that is useful (with useful being the key word).

The accounting department prepares a number of statements weekly, monthly etc. Having worked earlier in retail banking, I am used to preparing similar statements. However, in banking such statements were considered distractions from normal everyday work i.e., to be completed as soon as possible in extra time (late evening) so that we can continue with the normal work during working hours.

There are two sorts of monthly statements i.e, one for internal reporting and one for external reporting. The accountant explained to me that from the 1st till 7th of the month, he is busy in internal statements. Onwards till 15th he is busy in external statements.

Then I asked “What statements do you prepare from 15th till 30th ?”. He was taken aback. From my side it was an innocent query. However, his expressions conveyed that he did not consider them innocent questions. It was a perfect example of starting relations on the wrong foot in a country where relationships guarantee the effectiveness and completion.

Hope I did not ruin my relations with accountant on the first day.