The CFO’s Guide to Selecting Financial Accounting Software

August 4th, 2013 by

Financial accounting software will need to be replaced from time to time.  It really doesn’t matter why, but the firm’s key executives (CFO, CEO and CIO particularly) need to take charge and help the firm move to a more efficient, effective, competitive and profitable future.

Financial Accounting SoftwareNow let’s throw some ice cold water on your assumption that replacing your current financial accounting software will be relatively painless.  Studies have shown that 70% of software projects fail.  Some fail altogether (typically very complex system implementations), but many fail to achieve their objectives; not by a little bit, but a lot.

Although you might not be the project manager, as the firm’s CFO you need to take all steps possible to achieve a successful outcome.

If I were to create for you a detailed step-by-step guide to selecting financial accounting software, the document would probably exceed 100 pages.  While the process itself isn’t that complex, there are a significant number of steps to take and impediments to your success to avoid.

I have chosen instead as a first step to introduce you to the process of selecting financial accounting software.  I will list each significant step in the process and briefly describe the task at hand.  Since I have written a number of articles regarding selecting financial accounting software, I will include links to those articles as appropriate.

Note: I have elected to use the term “financial accounting software” to describe what you might refer to as ERP software, accounting software or business management software.  The process is pretty much the same in all cases with the exception that the complexity of the project increases significantly as you evaluate larger, more robust systems.

Financial Accounting Software Selection – Key Steps

The key to selecting financial accounting software is covering all of your bases.  Leave something out and I guarantee that the process could be significantly compromised.

Once you have decided to replace your current financial accounting software system (and that’s one of the most critical decisions you will have to make), study the task list below.  Define precisely the steps you need to take as a unique organization.  Don’t eliminate tasks.  That’s just challenging failure.

Expand the list to give you and everyone else greater clarity.  Describe each task in whatever level of detail you need.  Determine what needs to be done by whom and by when.  Then monitor the project and keep it on track.  If you haven’t figured it out by now, this is your financial accounting software selection project plan.

Start slowly and quietly.

The process of selecting financial accounting software isn’t a sprint.  You need to get people involved and the best way to do so is opening a general discussion about your current system.  Nothing specific, just get people involved in the conversation and therefore in the process.

The objective here is developing a picture of your current financial accounting software, its strengths and certainly its weaknesses.  The underlying objectives are deciding whether you need to do something about your current financial accounting software and getting everyone involved from the get go.

Agree to research financial accounting software alternatives.

If the general consensus of everyone involved in the initial discussion is that something needs to be done to improve your financial accounting software, the project needs to take on a slightly more formal approach.  Although you cannot put the question to all employees, their opinion would have already been expressed.

The decision to research alternatives needs to be made by all executives and line managers.  Although this isn’t a formal committee like decision, it does signal to all employees that the firm is going to evaluate their financial accounting software and determine next steps.

Appoint executive champion and project manager.

If you are going to research alternatives to your current financial accounting software, someone needs to assume the responsibility (multiple researchers doesn’t work that well) and that person needs to have the absolute support of an executive whose authority can be used to support the project manager if required.

Do your homework.

Before any decision regarding your financial accounting software can be made, you need to acquire knowledge that will contribute to that decision.  Specifically the project manager needs to collect actionable information regarding

  • the process of launching and managing a software selection project,
  • financial accounting software implementation failures,
  • business process improvement,
  • functionality and business information possibilities,
  • products that might be of interest, and
  • the cost of such products.

Selecting financial accounting software isn’t a project that can be done quickly and with little pain.  The project manager and everyone involved in the project must understand what they should do to achieve success.  Conversely the project manager must understand what they shouldn’t do.

Given the high failure rate (some say as high as 70%) of software selection projects, it’s critical that you understand why projects fail and what you can do to avoid impediments to success.

The purchase of new financial accounting software also gives the firm an opportunity to evaluate and possibly improve the firm’s business processes (it makes no sense to drop a 450 hp engine in a 1960 vehicle).  If change is needed, the project manager and other key managers need to understand how they should accomplish this task.

These first three tasks are critical.  The project manager needs to find information that will impart this detailed knowledge.  Obviously an Internet search would be appropriate.  If you want to avoid all of that marketing hype that typically is found with Internet searches, you might use GoogleBlogSearch to search for blogs and other articles regarding financial accounting software selection and similar product types.

The only way the project manager is going to find information regarding modern software functionality is by talking to people in the industry, primarily vendors and resellers.  While vendors and resellers are dying to show you their product in all of its glory, make it very clear that you are seeking specific information regarding modern financial accounting software functionality and business information systems.

Look at products that seem to be well received in your market.  Identify functionality that “might” be of interest to your firm (the fact that a financial accounting software product supports specific functionality doesn’t mean you have to “purchase” that functionality.

Don’t forget that business information is just as important as financial accounting software functionality.  Functionality helps you complete required tasks, but information helps you make sound business decisions.

Challenge your ability to create and manage a successful financial accounting software selection project.

Having gathered a significant amount of information regarding the process of selecting financial accounting software, your first hurdle so to speak is deciding whether you can pull this off.  This is going to be a complex and certainly challenging project.  If you don’t know what you are doing, admit it and bring in a software selection professional.  It really is that simple.  Yes, there will be a significant cost involved, but measure the trade off between the cost of a consultant and a failed project.

Justify the investment in financial accounting software.

Although you certainly haven’t received any official quotes (it’s way too early for that), you should have collected some cost estimates from the product professionals you met with as you explored financial accounting software product and functionality options.  You should have also asked each product prospect for suggestions regarding implementation costs.

Yes, these are very rough cut estimates, but you need something to help you and your team (executives and managers at this point in time) determine if the investment is reasonable.  To some extent this is a decision node.  Yes, we will move forward.  No, we need to look at less expensive alternatives.

Agree to launch a formal financial accounting software selection project.

If you and your initial team decide to move forward, the discussions and the project itself will tend to be more formal.  As I said above, this is your first critical transition point.

Appoint software selection steering committee.

You already have a formal project manager (or consultant if that was your decision) and an executive champion.  Now you need to select key stakeholders (executive, CFO, CIO, line of business managers, and operations representatives) who will oversee the project (not day to day control as that’s the role of the project manager), become familiar with the information being collected, and to some extent play the role of devil’s advocate to ensure that the project does not stray away from its most effective path.

Ultimately this committee will review all contract documents and make the final purchase decision.

Develop a vision of the future.

Before you start defining your requirements in any level of detail, you must define where you want to be.  As a unique firm what’s your vision of your future.  What industries are you going to be competing in?  What do you need to do to compete effectively?  How is your financial accounting software going to help you get there?

You cannot define your financial accounting software requirements unless you know where you are going?

Are you ready to change?

Your financial accounting software doesn’t reside within its own environment.  Its effectiveness is affected by business processes and your corporate culture.  You could improve your business management system and even improve your business processes, but if you don’t improve the business culture itself, success could be jeopardized.

If the people in your firm (from top management down) are not willing to change, it makes no sense to continue.  People will contribute to the success of an organization because the atmosphere in which they work is optimized for their personal success.  If you don’t have that, throttle back on your expectations for true success.

Build a foundation for success.

Financial accounting software will help you complete business tasks and make sound business decisions, but its effectiveness will be severely compromised if it is not properly supported by sound business processes.  Business Process Improvement (BPI) is a project within a project.  Since you are contemplating the acquisition of new financial accounting software, this is an ideal opportunity to figuratively take your business apart and put it back together so that everything is more efficient and effective.

If you are a relatively small company, you may not have to launch a full BPI project.  Maybe all you need to do is ask each person “How can we improve the way we run our business?

BPI can be extremely disruptive, but it really makes no sense to invest in new financial accounting software and not give it the best possible chance of success.  If you really don’t understand BPI, bring in an expert who does.

Evaluate your current financial accounting software.

You launched this process because a critical mass of your employees didn’t think your current financial accounting software was getting the job done.  That’s a valid sentiment but before you throw you current system in the dumpster see whether it’s possible to improve your current system and bring its performance to acceptable levels.

Create a blueprint for operational success.

How can your financial accounting software help you compete effectively?  That’s the underlying question you need to ask as you list the features, functions and reports that you need in your new system.

The requirements definition document you will create in this phase of the project will help you evaluate each product in which you have an interest.  Listing as an example the need for a sales order entry application tells you nothing.  Instead you need to describe in detail precisely what you need to create a sales order effectively.  Listing commonly available functionality won’t help either.  That just makes the requirements document excessively long.

This is perhaps the most tedious aspect of your search for new financial accounting software, but it’s also the most important step.  How can you identify best suited products if you have no basis for comparison?

Employees matter / involve all of your employees.

The easiest way to compromise the success of a software selection project is to leave people out of the process.  Your employees will help your business succeed, but only if they feel as though their contribution matters.  As you are defining your requirements, start from the bottom as well as the top of your organization.

Keep in mind one additional thought.  Who knows more (as an example) about the sales order entry process?  Operations managers or sales order entry employees?

Customers matter / involve your customers.

You can be successful only if people want to purchase your products and services.  Make sure that your new financial accounting software meets the needs of your customers.  Ask them what they want and incorporate that information into your requirements document.

Review a range of financial accounting software products.

The identification and evaluation of candidate financial accounting software products is a process that is launched the moment you agree to seek alternatives to your current system and end only when you make a purchase decision.

There are any numbers of information sources (primarily the Internet of course) that will enable you to identify candidate products.  Maybe you have heard of several that seem to be well received in the market.  Maybe your industry publications list products and even review them.

There are several very good software selection web sites (including The Accounting Software Library) that will help you define your requirements and identify best suited products.

How many products you add to the selection analysis is up to you.  You should start with at lease five, possibly more depending on how you would like to structure your project.  Learn from these vendors or resellers.  What can they do that’s of interest to you?  How willing are they to adopt a consultative selling role rather than just trying to sell you software?

Does their product seem to be structured in a manner that would be of interest to your users?  How well does the product meet your requirements (functionality and information reporting)?  Is this a product you would like to carry forward in your project?

One additional suggestion needs to be made.  Financial accounting software products span a huge range in terms of functionality, industry support and cost.  You certainly should never try to be the “best of the best” using every function available.  That’s overkill and very expensive.

Maybe you should take a moment to explore products that might not be quite so feature rich or costly, but which nevertheless get the job done for you.  Less complexity is always a good thing.

Learning from product providers is important, but your objective is coming to a purchase decision.  That’s why you need to eliminate products as you move forward.  This is a deliberate strategy that reduces the time required to review x number of products at some arbitrary point in the project.  Why follow this strategy?  Because you want to spend more time reviewing products that have passed judgment so far.

Evaluate mobile apps.

Today’s financial accounting software isn’t just about direct connections to the system.  Mobile apps are becoming part of the conversation, but the question you need to ask and answer is whether mobile apps are appropriate.  Can they help employees in the field access functions via their personal devices and is this type of access absolutely required?  If mobile apps will improve employee productivity, what specifically do employees need?  Is such functionality already available or does it need to be created?

Similarly do prospects and customers need to access the system?  Will such access help you compete more favorably?  What functionality is needed?  Is it currently available or does it need to be created?

One last question needs to be asked.  If you do need mobile apps, which products support such functionality?

Create business information blueprint for success.

If you are selecting financial accounting software, you have to determine precisely what information you need to become more effective, efficient and therefore more profitable.  Spend as much time as required to complete this phase of the project.  It’s your key to success.

As you are defining your requirements keep in mind two key thoughts.  Your requirements document is not a reflection of where you are today, but a picture of where you want to be in the future.  Second, just because a product supports specific “advanced” functionality doesn’t mean you have to utilize that functionality.  Your requirements document must reflect what your unique firm requires to be successful.

Functional requirements relate to getting a job done (e.g.  sales order entry).  Information requirements help people make sound business decisions.

Actually there are three different forms of information: financial reporting, operational control and strategic visioning.

Financial reporting is the production of financial statements and regulatory information.  Virtually every financial accounting software product can meet these row and column oriented reports as long as the system is structured to generate the required information.

Strategic visioning relates to what we would call business intelligence (BI).  Knowledge acquisition may also be a useful term.   BI helps firms analyze customer behavior or evaluate economic alternatives.  At its core BI is research that is designed to help firms understand what they could be doing or should be doing in the future.

Operational control information helps people identify where they need to concentrate their efforts and that’s where you really need to invest your time when searching for new financial accounting software.

Row and column oriented reports, pie charts and bar charts do not support operational control.  They are just a snapshot of a specific condition at a specific point in time.  If inventory turns (as an example) is critical to your success as a distributor, how can a single value help you evaluate inventory turns?  It won’t.  You need to create a “picture” that helps you understand your past, present and possible future.  You also need to include in this picture where you “want” to be.

Now you have a complete picture of inventory turns and a factual basis to decide whether something needs to be done.

It is virtually impossible to track every single factor that influences operational results.  What you need to do is decide precisely what information you need to effectively evaluate current operations.  You also need to define how this information is going to be displayed so you can determine which operations need your attention.

You also need some means to track these Key Performance Indicators and therefore evaluate the effects of the decisions you make.  This is particularly important since it would be rare where a single decision is made.  Operational control is the sum of many decisions taken by sometimes multiple people.  Your task is creating a system that allows you to track the effectiveness of your operational decision making.

Now let’s discuss one additional tool that might help you control your operations more effectively.  If an aspect of your operations is creating a problem for you and your financial accounting software can identify this issue via some form of KPI reporting, what do you do now to improve this issue?

Many financial accounting software products support some form of exception management, but they stop with the notification.  Then it’s up to you to investigate the issue and takes steps to resolve the problem.  In other words it’s all manual.

Truly effective exception management systems not only handle the notification process, they also give you a vehicle by which you and everyone else involved in this mini improvement project can discuss the issue (including attachments) and collaborate to improve the issue.

Practice effective meeting strategies.

Any project to select new financial accounting software is going to require the investment of a significant amount of time by a significant number of people.  Meetings will be required, but they can also waste a lot of time.  Meetings imply that a single person addresses everyone attending.  That’s a lot of non-productive time.

Meetings should fulfill one single objective: making a decision.  Why not adopt a different strategy.  If people need to present an update at a meeting, let them create and distribute a document that accomplishes the same objective.  If a decision needs to be made, distribute all of the information that relates to the decision before the meeting and then make the decision in the meeting.

If people want to discuss an issue informally, let them do so in private conversations.  This gives people the ability to interact with other people without wasting time.

Decide if the Cloud is a viable option.

Cloud computing is becoming an alluring deployment option for financial accounting software.  The question is whether it’s right for your firm.  Actually you should identify and evaluate Cloud systems just as you would on-premise systems.  The only substantial difference is the cash flow timing.  On-premise systems tend to be front loaded in the first year while Cloud systems exhibit an even cost over a number of years.  Assuming that a Cloud option offers essentially the same functionality as an on-premise product you are evaluating, you will need to use a tool such as Net Present Value to compare apples to apples.

Identify and calculate the benefits of financial accounting software.

As you and your extended team of employees define what you need from your new financial accounting software, please keep in mind the fact that this is an investment in your future.  In addition to identifying required functionality and decision support information, you need to identify the monetary improvements arising from this project.

You cannot just say you will reduce inventory by 12% or increase productivity by 15%.  You have to show the logic behind the calculation.  Don’t listen to vendors and resellers regarding productivity increases.  They are just trying to sell you some very expensive software.  Prove the returns.

Justify the investment in financial accounting software.

As suggested, you have to calculate the ROI of this project twice.  The first time was an estimation (although a very good estimation) to make sure the project made basic economic sense.  Now you need to justify the ROI of this project in detail.

You have talked to vendors and resellers in detail to understand what they can do and how much this investment might cost.  You have developed a very clear vision of your future and what specifically you will need to achieve that vision.

Now you need to stop for a moment and justify the decision to move forward to a purchase decision.  The analysis and the presentation to the steering committee has to be formal with realistic cost estimates and even more realistic benefits.  If you cannot justify this project, you should end it.

Identify best suited products.

As we discussed earlier, you should follow a very deliberate strategy of eliminating products from further evaluation when it is clear that a product or provider is clearly inferior.  No product will meet all of your requirements, but one or more financial accounting software products will meet most of your needs.

There are differing schools of thought regarding the process of evaluating products.  Some people, particularly product providers suggest that the process of defining requirements in detail is “old school”.  After all they have invested millions of dollars creating products that reflect best business practices.  If they have spent this much, you need to follow their lead.

I understand this logic, but I don’t necessarily agree with it.  Your organization is unique and it is critical that you find a product that meets your unique requirements.  Defining requirements in detail is an exercise that allows you to better understand your business and what it takes to become more successful.  If you just accept the functionality provided by a product, then you are no more than a clone of the product provider.

There is one additional reason why you should create a detailed requirements document.  You cannot rely on a vendor’s verbal assertion that they can do this or do that.  The last thing you want is a post implementation argument whereby you ask why a specific feature is not supported and the vendor responds by saying “You didn’t ask.”

You need to specify in detail exactly what you want from your financial accounting software.

Let’s assume you have created a requirements document that contains 400 features and want to submit it to several product providers.  What’s the best process to identify best suited products?

  • Each requirement needs to be understood by you and the product provider.  Create a short-form question and a longer description so product providers will understand exactly what you require.  Both of you need to be on the same page.
  • Submit your questionnaire, typically called a Request for Information (RFI) to only those product providers with whom you have already met.  Unsolicited RFIs will rarely be answered.
  • Ask each product provider to indicate whether they can meet each requirement and how they can meet the requirement.  Yes/No is easily understood but there are many ways a requirement can be met (a future release of the product, added fields to track information you require, third party products, report writers, and customization).  The fact that a product cannot meet your needs out-of-the-box should not be reason to eliminate that product immediately.
  • Include in the RFI (typically a spreadsheet) a field whereby the product provider can add notes to their responses.
  • Include in your version of the RFI a notation regarding the importance of each requirement.
  • Since your RFI might contain 400 or more requirements (of course it doesn’t have to), you will need to create some form of numerical scoring system that balances the importance of each requirement with the method by which a product can meet a requirement.
  • Once you have calculated a “score” for each competing product, you can use that to eliminate the lowest performing products and carry forward only those products that stand the best change of meeting your requirements.

Meeting functional requirements is but one element contributing to the final purchase decision.  You must form a business partnership with the product provider who will help you achieve success, not just today, but every day in the future.

As you move forward one product may start to be of significant interest to a critical mass of users.  That’s not a bad thing.  Encourage people to express their opinion.  Encourage people to “like” a product.  Make sure they understand that the product needs to meet certain functional requirements and they are going to have to work with the product provider.

If they understand this and still favor a specific product, listen to them.  They have to use the financial accounting software product on a daily basis.  You do not and this project is all about giving people the tools they need to achieve success.

The final purchase decision cannot be driven by a formula.  It’s a subjective decision.  Hopefully everyone will want the same product and the same product provider.  Just remember that your primary objective is buying a financial accounting software product you can actually use.

Touch each product multiple times.

Following a demo strategy of one and done does not work.  You have to touch each product multiple times if for no other reason than multiple people with different agendas need to evaluate each product.

Demo #1 – Do Your Homework: As we discussed earlier, one of your first tasks is learning more about today’s financial accounting software products.  While the objective of this step is knowledge acquisition your conversations with resellers and vendors will also give you an opportunity to evaluate each product.

Demo #2 – Confirm Functional Match: Once you have defined your requirements in detail, you must submit this document to each vendor or reseller.  This is the classic Request for Information (RFI).  Since you will have already discussed your requirements with these vendors or resellers, they will hopefully respond to your RFI.

If the RFI is positive (the financial accounting software product meets most of your critical requirements), you will need to meet with the vendors or reseller and request that they show you in their software how they can meet each requirement.

You cannot trust the vendor’s or reseller’s responses.  They must be proven.

Demo #3 – User Critique: A limited number of people (possibly only the project manager) will have seen each product at this point in the project.  Now individual users will need to view each product and critique it.  This should be an on-line review (saving everyone a lot of travel time).  This is not supposed to be an in depth review.  All you want is everyone’s first impression.  If a product seems to be a “friend” when first viewed, it will be that much easier for people to accept the product once it has been fully implemented.

Demo #4 – Evaluate Daily Operations: Once everyone has been exposed to each financial accounting software product, the analysis needs to concentrate on how that product will be used on a daily basis.  These reviews could be on-line or on-site (your site or the reseller’s site).

Demo #5 – Evaluate Key Business Processes: Since there are hundreds of functions users could access in a financial accounting software application, you need to identify and evaluate key business processes.  Take as much time as required for users to understand the flow between functions and decide if this is acceptable.

Demo #6 – Evaluate Business Information Systems: Information supports the decision making process and people are going to have to access and use that information easily.  For those people who use information generated by the financial accounting software, how difficult is it to retrieve required information?

Does the system support the tracking of KPIs?  How difficult is it to design these graphs?  Is the information easy to read?  Does the system support exception management functions?  Do these functions match the type of exception management system the firm wants to utilize?

Demo #7 – Visit Reference Sites: Getting references is key to the purchase decision process.  Talking to people on the phone helps, but you really need to sit down with them and discuss the strengths and weaknesses of their system.  An on-line demo might work just as easily.  The key here is that the review is between the reference site and your employees.  The vendor or reseller is not invited.

Demo #8 – Evaluate Business Partner Potential: As you are viewing the various levels of demo presentations, you will have an opportunity to talk to each competing product representative.  Is the person easy to talk to?  Are they knowledgeable?  Do they understand or seem to have the ability to understand your unique organization?  Do they want to help you achieve success or do they just want to sell you software?

Select and evaluate product finalists.

Once you have completed the RFI assessment and have viewed various demos, you should be in a position to make a purchase decision.  You know each product’s strengths and weaknesses with respect to your requirements.  Your employees have had multiple opportunities to touch each product on multiple levels.  You also know whether you will be able to form and effective partnership with the product provider.

The last step is soliciting a Request for Proposal (RFP).  Obviously you need to know what this project will cost in terms of software cost, implementation services, product customization (if required), training and every other cost element.  If you are evaluating a Cloud solution, you need to calculate the Net Present Value of the project so you can compare the investment over the proper time period.

The product you decide to purchase doesn’t have to be the least expensive product.  Instead you should purchase a financial accounting software product that you can actually use.  Find a product that people really like (which means they can use it effectively and efficiently).  Find a product provider with whom you can form a truly effective business partnership.  Finally find a product that falls within your budget.  Cost is important, but usability is even more important.

Summary

The process of selecting financial accounting software (or accounting software or ERP software or whatever you want to call it) isn’t something you should take lightly.  The product you select must do what you need it to do.  Your employees need to understand what is required of them.  You have to organize your business for success.  You have to give your employees an environment that encourages them to constantly strive for excellence.  Your financial accounting software is but a single element that will contribute to your success.

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One Response to “The CFO’s Guide to Selecting Financial Accounting Software”

  1. John Says:

    Indeed the most important step is to get the people involved, especially those who are going to work on the new system because there are lots of users who are quite comfortable with the old system and would hate to spend time to learn a new system. Slow process is the best to guide them and inspire them to move towards the new system.

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