DataRails study: Dysfunctional financial reporting set to cost US businesses $7.8 billion in 2022

TEL AVIV, Israel, Jan. 13, 2022 /PRNewswire/ -- DataRails, the Excel-based financial planning and reporting software company, commissioned a report about the economic cost of largely manually-prepared financial reports in business. The study was undertaken with economist Roberto Cavazos, professor at the University of Baltimore Business School, and Mikhail B. Pevzner, Ph.D, Professor of Accounting, University of Baltimore.

The report finds that financial planning and analysis (FP&A) teams spend at least two hours on manual work each week, such as budgets, month-end closes, and forecasts, with annual company budgets taking up to six months to prepare.

The economic analysis, based on composites of 839,8000 small to large companies in the US, finds that these burdensome manual processes are costing US companies $6.1 billion annually.

The study also finds that a further $1.7 billion of economic uplift could be released if FP&A departments hit a conservative 0.1% revenue uplift for their businesses through projects directly linked to top line growth. In total, the study finds that FP&A teams failing to capitalize on automation and insufficiently driving revenues will cost US businesses $7.8 billion in 2022.

The study notes that 0.1% growth in revenues is a conservative return on investment for inventive FP&A teams. For instance, Amazon's high performing FP&A units were responsible for the birth of Amazon Prime, which today counts 200 million members. Other revenue-driven FP&A initiatives include manufacturing company Chemours whose FP&A team improved margins for industrial plants at the $6 billion company, while other companies including Lego and HP used real time data to drive revenue during COVID-19.

The report notes that detrimental costs of poor manual financial processes could go beyond direct costs. Indirect economic costs include negative impact on retention and recruitment, inability to act on real-time economic data, and incorrect numbers hurting share prices and investor relations.

Professor Mikhail B. Pevzner says: "Since COVID-19, the role of financial planning and analysis (FP&A) has gained even greater momentum as businesses seek better understanding of their numbers. However, despite more than a decade of efforts, the daily life of an FP&A professional still involves strategy-sapping manual processes, including identifying and correcting errors, updating reports, and collecting data. This is essentially depriving both companies and the wider US economy of billions of dollars of economic opportunity."

Didi Gurfinkel, co-founder and CEO of DataRails adds: "We hear on a daily basis from FP&A professionals wanting to contribute strategic direction to their business. Despite being uniquely placed to deliver economic growth through measures such as scenario planning and responding to real-time data, FP&A professionals spend the vast majority of their time manually producing staple reports. This cycle leaves huge sums of money on the table by failing to capitalize on FP&A's insights, skills and ability to deliver top line economic growth."

Methodology

To assess the economic impact of FP&A processes, the study involved creating composite organizations representing 839,880 US companies (US small companies, small to medium, medium, and large) and their composite revenues. The study excludes the largest companies in the US, noting that Fortune 500 companies have mature FP&A departments often shadowing every business division. Such larger companies also have integrated Enterprise Resource Planning and connectivity, and often cost benefit analysis is factored into their performance metrics. Similarly, DataRails did not include companies with fewer than 50 employees in the US, as such companies rarely have an FP&A function. The calculation of hours lost through manual reporting was based conservatively on two hours lost on manual reporting a week multiplied by the $80,000 annual average salary of an FP&A professional based on the composite company sizes created. To arrive at the $1.7 billion unrealized economic uplift, the study used a 0.1% potential composite uplift for all companies in our study which carried out FP&A functions.

Professor Roberto Cavazos, Executive in Residence at the Merrick School of Business at the University of Baltimore, has over 25 years' experience in economic analysis, statistical & data analysis, project and program management and policy, and technology with experience in financial, data and analysis for government and private sector organizations.

Professor Mikhail B. Pevzner, Professor of Accounting and Ernst & Young Chair in Accounting has been a faculty member at the University of Baltimore's Merrick School of Business since 2013 where he teaches primarily in auditing and financial reporting areas.

About DataRails

DataRails is a financial planning and analysis platform that automates financial reporting and planning, while enabling finance teams to continue benefiting from the familiar spreadsheets and financial models of Excel.

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SOURCE DataRails