Reengineering: Looking Sideways at the Finance Function

By Rujan, Adam J.; Pardee, Jeffrey C. | Government Finance Review, April 1996 | Go to article overview

Reengineering: Looking Sideways at the Finance Function


Rujan, Adam J., Pardee, Jeffrey C., Government Finance Review


Editor's note: The following article is based on a presentation made to the Michigan Municipal Finance Officers Association's 46th annual fall training institute in Kalamazoo on October 24, 1995.

Public-sector finance managers are becoming increasingly aware of one of the effects of the information age: changing customer expectations. Internal customers (e.g., the health department, department of public works, and sheriff) and external customers (e.g., the public, board/council, and other constituent organizations) are reshaping their needs and demands. Major trends include:

* recognizing transaction costs - the cost to purchase an item, generate a report, or produce a paycheck;

* increasing demand for analysis - customers are requiring more sophisticated analysis and want better access to data to perform their own analyses; and

* speeding up the process - customers want transactions to move faster, and month-old reports are no longer relevant information.

Reengineering has earned a reputation for being particularly proficient at addressing these specific issues. Reengineering is about operations, financial or non-financial. It is a methodology very adept at reducing costs, such as transaction costs; enhancing service levels, such as financial analysis and information accessibility; and decreasing response time. Financial managers, at all levels of government, increasingly are using the approaches and techniques of reengineering to achieve significant gains.

A Sideways Approach

The heart of reengineering is its sideways look at the organization. Most organizational charts look alike: they are hierarchical representations of positions arranged into departments. As the traditional approach to management and performance-improvement efforts, management audits focus on optimizing efficiency and effectiveness up and down the organizational chart but almost always within departmental boundaries.

Reengineering, as shown in Exhibit 1, is not constrained by departmental boundaries. In fact, the methodology essentially ignores organizational boundaries and seeks to optimize naturally occurring "business" processes. These processes, which always have a customer at the end, might include procurement, payroll, and financial reporting and analysis. The methodology then seeks to improve cost, service level, and/or time variables along the process to meet the customers needs. This cross-functional approach, particularly in a political environment, represents a significant undertaking. Process owners and customers throughout the organization must be involved to be successful. In many cases, the returns warrant this investment.

The finance department within a public organization has a number of roles and responsibilities. One of these roles is to serve as the hub for all financial transactions. Much like an airport facilitates airline traffic, the finance department facilitates purchases, information requests, paying employees, and so forth. These individual transactions generally are initiated and concluded by nonfinancial personnel and typically travel across numerous organizational boundaries. These processes often are fertile ground for reengineering efforts, as described in the remainder of this article.

Flowcharts to Identify Transaction Costs

An important tool of reengineering is the flowchart, and the simpler it is the better. A cross-functional team, representing both process owners and customers, usually can map out one financial process, at a high level, within a few hours. An example of a process map is shown in Exhibit 2. The flowchart provides a number of benefits:

* it identifies all the steps involved, particularly those outside the finance department, that will be the basis for costing the process;

* it displays all the redundant (or "shadow") systems in place;

* it reduces blame and establishes a common focus for the cross-functional team; and

* it educates participants in what actually happens during the process. …

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