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RESEARCH NOTE ASSESSING THE BENEFITS OF IBM COGNOS FSR

THE BOTTOM LINE
Nucleus Research analyzed deployments of IBM Cognos Financial Statement Reporting (FSR) and found that companies using the application were able to improve the productivity of accountants, report builders, and their managers. Nucleus analysts also found that the application enabled companies to avoid paying significant fees to thirdparty printers for XBRL tagging and financial statement production.

THE CHALLENGE
Although its relatively easy for publicly held companies to extract financial reports from ERP, finance, or reporting applications, most finance and accounting departments are challenged to cost effectively create financial statements for financial regulators and public consumption. Some of the obstacles include:

Compliance. The Securities and Exchange Commission (SEC) and other regulators of publicly held companies require submission of financial statements in extensible business reporting language (XBRL), a format that financial reporting packages typically can not deliver. Complexity. Publication of financial statements such as 10-Qs and 10-Ks for the SEC often require accountants to manually gather input from a variety of data sources and there are often many last minute changes, each of which can impact much of the content to be published. Control. Outsourcing the creation of financial statements is also problematic because print service bureaus often require five to seven days to create statements. This makes it difficult, and sometimes impossible, for companies to make last-minute changes to their financial statements, which can cause noncompliance issues. Some companies are reluctant to use third-party printers because of security concerns and issues related to early disclosure of financial results.

COGNOS FSR
Cognos FSR is used by accounting and finance departments to create financial statements for external publication. The application has features that include:

Report creation. Data from previous-period financial statements is automatically rolled forward into a pre-formatted template that already contains current-period data to accelerate report creation. XBRL tagging. Cognos FSR enables the attachment of XBRL tags information that defines and gives context to a financial data point or table

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TOPICS
Business Intelligence & Analytics Enterprise Applications

to financial data, which is required for compliance with regulators such as the SEC.

Audit trail creation. The application records every change to a document, and enables side-by-side comparisons of different versions of a report. Project management. Workflow management tools enable finance departments to manage financial report creation by tracking the status of each section of a document and applying rules that determine when, under what circumstances, and by whom steps should be taken in the creation of a set of financial statements.

Cognos FSR can pull from structured data sources including ERP systems, financial consolidation applications, relational databases, OLAP databases as well as unstructured data sources such as Microsoft Excel. The application can publish output in formats that include XBRL, Dynamic xHTML with embedded XBRL tags, Microsoft Word, Adobe PDF, Adobe InDesign, and Edgar-ready, which is a format used by the SEC for making financial statements available to the public.

BENEFITS OF COGNOS FSR

When Nucleus analyzed users of Cognos FSR, which had been known as Clarity FSR prior to its acquisition by IBM, analysts found the application enabled companies to improve the productivity of finance managers, accountants, and report builders. Nucleus also found that Cognos FSR enabled companies to avoid paying fees to print service bureaus. Improved productivity By automating many of the workflows required in the creation of quarterly and annual reports, Cognos FSR improves the productivity of accountants and report builders in finance departments. Users told Nucleus that after deploying the application, accountants and report builders spent far less time manually creating financial statements, populating them with data, combining data from multiple data sources into a single Microsoft Word document. Accountants also spent less time handling last-minute changes, which are common and typically impact multiple data points in a financial statement. The users Nucleus spoke to indicated that these benefits applied to the creation of quarterly reports, annual reports, financial footnotes, the descriptions of operating results that accompany financial statements, and press releases. In some departments, adoption of Cognos FSR improved the productivity of accountants and report builders, who then spent more time on analytical tasks. In other companies, more efficient report building meant lower overtime costs:

We cut the annual overtime cost for financial statement creation from $32,000 to $16,000. Before, a filing took five or six people two days. These are expensive people with CPAs. Now it takes one person just several hours. Morale is up because the process is no longer chaotic. People go home on time and dont have to work on the Qs and Ks on the week ends. Last minute changes happen all the time. But they are much more easily handled in Clarity because it automatically updates a value wherever it appears in the statements or impacts another data point. The average change, such as changing segment reporting, used to take a day and a half, now it can be handled in just a couple of hours.

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The three people who prepare the four annual filings each save at least half a day on each cycle because they dont have to pull data from five or six different sources or fine tune how content shows up in a Word document. At the beginning of each filing cycle, we go into Clarity and put in the parameters for the new accounting period. It automatically creates all the financial statements, which saves a lot of manual report building. This used to take three people two days, now only one person spends a day on it.

Nucleus analysts also found that finance managers used Cognos FSRs audit trails and other internal controls to reduce the amount of time they spent on project management. Nucleus analysts found that because financial statements and related documents can be so complex and require input from so many data sources, the creation of SEC-compliant statements required senior finance personnel to spend significant amounts of their time on project management. Offloading these complex tasks to Cognos FSR can free up time for managers:

I dont have to send pages and pages of review comments any more. I still review, but write far fewer comments because Clarity sends out emails for the bigger things such as prompting someone to prepare the footnote or table that they are responsible for. When were creating financial statements, which is about four months out of the year, I save about an hour a day, because instead of inquiring, harassing, and having meetings, Clarity gives me updates and prompts people when they need to do something. I still do some project management, but a lot less. The audit trail is a project management tool. I can go in and see when people have updated things and rapidly figure out if the project is on track.

Because Cognos FSR uses trusted data sources and eliminates error-prone manual processes, finance managers with responsibility for the accuracy of financial statements spent less time reviewing them. This happened because they were more confident about the data in the financial statements and because statement creation involved fewer drafts that needed to be checked:

For each quarter, my boss has to check the SEC filing four times, since there are three formal reviews and then a final review. Because she trusts the data more, each of these reviews requires 1.5 hours less than before Clarity. These statements go to the CEO, board of directors, and the SEC. Even with this requirement for accuracy, we spend less time double checking because of Clarity. Three of us check the statements before they leave the finance department and we spend about six fewer hours on review for each filing. Because we trust the data so much more, we spend a lot less time double checking it and a lot more time analyzing our operating results.

Reduced printing costs Nucleus analysts found that Cognos FSR users avoided fees by adopting the application rather than turning to external vendors for both XBRL tagging and the creation of statements that meet regulatory compliance. Without automation, attaching accurate XBRL tags to every data point and table in an SEC filing is both highly specialized and labor intensive. Although outsourcing this is one way to create SEC-compliant financial statements, its also very costly. Nucleus found that it is common for the first year of filings, which require initial tagging of all data points, to cost more than $100,000. Subsequent annual costs tend to be slightly

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lower. Although the cost of Cognos FSR varies with company size, Nucleus found that the cost was typically far lower than the cost of using a printing service bureau. One company discontinued its use of a third-party printer after adopting Cognos FSR and said, We eliminated a lot of printer fees for XBRL tagging and consulting. In the first year, the bill would have been about $150,000 for all the initial tagging and filings. Subsequent annual costs would have been about $75,000. Another user said, The XBRL tagging that we did for our first year would have cost well over $100,000 if we had outsourced it. And we would have had a lot less control. Printers need statements five to seven days before the deadline, but we make changes up until the last few hours before the deadline.

IDENTIFYING KEY PERFORMANCE INDICATORS

Managers considering the adoption of Cognos FSR should take steps to measure the potential benefits prior to a deployment. Knowing which KPIs are expected to improve and how much they will improve under best and worst case scenarios after the deployment enables accounting managers and other adoption champions to agree on criteria for success. Having a clear picture of the anticipated benefits of a deployment can also make it easier to obtain senior-level buy in. Metrics that champions should consider include:

Statement building time. Before the deployment, interview accountants and report builders to determine how much time is required to manually create statements which comply with the requirements of your financial regulator. Interview staff again after filing several quarterly statements and one annual statement using Cognos FSR to determine how much less time was spent creating the statements. Use your employees average fully loaded costs and the annual number of filings to quantify the savings. Not all time saved by these employees will be converted into new work, so Nucleus recommends applying a correction factor. Once youve quantified the productivity benefit, reduce it by 25 to 50 percent to translate from time saved to time worked. Statement review time. Identify all managers who are responsible for checking the accuracy of publicly-filed statements. Interview them to determine how long it takes to review a draft filing and how many iterations are reviewed for each filing. Interview them again after the deployment to estimate the value of less time spent reviewing draft statements for accuracy. Potential printer fees. Contact financial printers to obtain the estimated cost to create your financial statements with XBRL tags both in the first year and subsequent years. Cognos FSR eliminates the need for such printers, so the avoided payments are a direct benefit of the deployment.

CONCLUSION
Although many publicly held companies have made investments in systems for monitoring financial performance and extracting financial data, many of these companies also rely on costly manual processes for the creation of statements that they submit to financial regulators. Financial statement creation has recently become even more cumbersome because regulators such as the SEC in the United States have begun requiring XBRL tagging of all data points and tables in publiclyfiled financial statements. Nucleus found that by adopting Cognos FSR, organizations can achieve benefits that go beyond regulatory compliance. By automating the gathering of financial data, the creation of financial statements, the attachment of XBRL tags, and the processing of numerous last-minute accounting changes, the application makes accountants, report builders, and their managers

2011 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. NucleusResearch.com

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more productive. Companies that choose to adopt Cognos FSR rather than outsource financial statement creation to third parties can expect to avoid printer fees that tend to be significantly higher than the cost of Cognos FSR.

2011 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. NucleusResearch.com