Water rushing past river stones

Smart Control

Transforming controls to reduce cost, enable growth
and keep the business safe

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There is a common failure to recognize controls as foundational to all business processes and a key contributor to process costs.

Our experience indicates that up to 30% of process cost relates to controlling activities including reviewing, approving and reconciling process activities as well as securing access and data. In addition, there are significant testing and assurance costs associated with control-related activities.

A company’s control environment should support the execution of a profitable growth strategy. However, many organizations view their control environment as expensive, of limited value and, in some cases, a hindrance to the agility needed to respond to a dynamic economic environment.

The following are common trends in controls for large multinational companies:

  • Companies spend increasing amounts on control without any real ability to quantify the outflow or gain certainty that they are achieving the expected return on investment. Despite these expenditures, companies still experience significant control deficiencies and, as a result, are still exposed to risks.
  • As companies have allocated material resources in response to years of growing regulatory pressures, they have accumulated layers of redundant, ineffective and misaligned controls. Attempts to optimize these controls have primarily focused on reducing the level of testing and monitoring, forfeiting any real opportunities to drive efficiencies in the operation of controls.
  • Companies have developed control systems that are complex, duplicative, manual and disconnected from business operations. Instead of addressing the root cause of deficiencies, many organizations respond by installing controls in duplicate or even triplicate.
  • Enterprise Resource Planning (ERP) systems are generally underutilized. While companies have invested heavily in ERP systems, which often have built-in features to monitor financial or business controls, most only harness a fraction of their value.
  • Organizations also have to contend with a lack of transparency and confidence. Despite significant investment, many stakeholders still report that they are not confident that controls will mitigate unforeseen risks from internal influences (operational deficiencies, employee turnover) or external influences (regulations, economy, customers and suppliers).

In addition, strategic initiatives such as process transformation, shared service and outsourcing, offshoring, enterprise cost reduction, and mergers and acquisitions often change the risk profile of an organization, including risk tolerance, likelihood and impact.

Organizations often fail to consider the impact of these initiatives on controls and often do not realign controls with the new strategic focus of the organization, straining performance and driving up execution costs.

Value of Smart Control

There is a common fear that streamlining controls would reduce quality and expose the enterprise to risk. Even where organizations recognize an opportunity to improve their approach to controls, they often adopt a suboptimal response that does not realize the full potential benefit:

  • Deploying a monitoring tool on top of the existing controls rather than addressing the root cause of control deficiencies
  • Retrofitting instead of integrating controls to an existing transformation program such as an ERP implementation or shared services program
  • Not considering the changes needed in organizational design, technical proficiencies and behavior to reduce risk
  • Using compliance or assurance requirements as a lever to enforce change instead of motivating change as a business imperative

We have developed a Smart Control approach that helps companies realize reductions in the cost of controls, enable growth and keep the business safe by creating an integrated, streamlined and dynamic control environment.

Our Smart Control solution can deliver:

  • Reduced controls spend considers the key drivers for controlling spending, calculating the costs, and comparing financial outlay to risks and acceptable levels of risk exposure.
  • Improved accountability for risk supports the assignment of key risk assessment and mitigation activities to key people throughout the organization, empowering employees to manage risk through ongoing communication, training and reporting.
  • Accelerated process execution eliminates or automates labor intensive, duplicative or unnecessary process and control activities.
  • Alignment with strategy to confirm how well strategic objectives are supported by clearly defined and prioritized risks, as well as risk management effort/resources.

Our Smart Control approach is a well-defined work plan to help clients build a business case, design and implementation plan for controls transformation.

In the same way that shared services have driven the efficiency of finance functions, the ultimate goal of our 4-step approach is to provide “controls as a service” to realize efficiencies, embed new working practices and create a sustainable operating model for controls.

Risk and Controls Analysis Platform (RiCAP™)

We have developed a technology platform called RiCAP™ to evaluate an organization’s control environment and identify opportunities for Smart Control.

This platform evaluates key inputs, such as enterprise objectives, risks, controls, cost drivers and acceptable risk levels. The results provide insight on areas that are over- and under-controlled.

RiCAP™ provides actionable data and reports that can be shared with multiple stakeholders and used to support a business case for transformation. The output helps organizations to:

  • Align control expenditures to meet organizational objectives
  • Compare spend to the risk profile and degree of risk
  • Identify potential process inefficiencies and risk exposure
  • Identify controls that are unmapped to any risk resulting in immediate cost savings

RiCAP™ and our overall Smart Control approach are designed to accommodate the unique needs of more than 16 principal sectors. We combine our industry-specific perspectives and deep risk and controls experiences to create tailored solutions for our clients.

 

 

Zero-based controls framework

 

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Current state inputs

 

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