IBM BUSINESS ANALYTICS COGNOS FSR: MAJOR OIL AND GAS COMPANY

THE BOTTOM LINE

Nucleus Research recently examined the use of Clarity FSR at a major oil and gas producer to identify the benefits of using the application to create financial statements with XBRL tagging. Analysts found that Clarity FSR enabled the company to avoid service bureau printer costs and headcount growth while also improving accountant productivity.

ROI: 51%
Payback: 1.8 years
Average annual benefit: $212,077

THE COMPANY
The organization is one of the world’s largest oil and gas exploration and production companies and wished to participate in this case study anonymously. It is based in the United States and has more than 2,000 employees.

THE CHALLENGE
In early 2010, the company’s finance department was preparing to comply with a new Securities and Exchange Commission (SEC) requirement that all filings be created using Extensible Business Reporting Language (XBRL). The firm, like many other publicly held companies, found compliance to be an operational challenge.

Full compliance requires the attachment of an XBRL tag, containing definitional and contextual information, to every data point and table in a filing. Like most firms, the organization’s ERP and reporting applications did not have XBRL tagging functionality and performing this task manually for every published data point was beyond the scope of the finance department’s resources.

THE STRATEGY
Two options for complying with the SEC’s new XBRL requirement were considered: outsourcing to the company’s printing service bureau or deploying software that would automate statement creation with XBRL tagging. The company decided not to outsource to its printing service bureau because of control issues. The printing service bureau needed to have the financial statements in hand five to seven days before a filing deadline, but the company, like many publicly held firms, wanted the ability to make edits to its financial statements until their filing deadline. In addition, utilizing the printing service bureau would have required hiring an additional person in the finance department who would oversee and manage XBRLrelated work. Instead, the organization chose to implement a technology solution. After the evaluation of several tools, Clarity FSR was selected because it was found to have the strongest capabilities for combining financial data into statements with XBRL tags.

Clarity FSR was adopted over a 2-month period in the Fall of 2010 while the 10-Q (quarterly report) for the third quarter of 2010 was prepared. Five employees worked on the deployment at different times during the accounting cycle. In order to deploy the application, the team:
 Integrated. Accountants had previously manually built financial statements based on reports from SAP. These reports were integrated with Clarity FSR in order to automate the creation of financial statements.
 Tested. The accounting team performed parallel testing by creating the 10-Q for the third quarter of 2010 using both its long-standing manual processes and Clarity FSR. Because the application was easier to deploy than expected and parallel testing revealed no significant problems, Clarity FSR was formally adopted for the filing of the third quarter 10-Q. This was a fiscal quarter ahead of schedule.
 Trained. Informal training was given to 12 employees who would be responsible for building SEC-compliant financial reports, as well as creating and updating XBRL tags. Clarity FSR is used by 12 accountants, report builders, and managers in the creation of all of the company’s 10-Qs, 10-Ks (annual reports), financial footnotes, press releases, and the descriptions of operating results included in 10-Qs and 10- Ks.

KEY BENEFIT AREAS
Nucleus analysts found that by adopting Clarity FSR, the oil and gas producer was able to avoid additional printing service bureau costs and headcount growth while it
improved productivity. Specific Specific benefits of the adoption include:
 Avoided printing service costs. By using Clarity FSR to create financial statements compliant with the SEC’s XBRL requirements, the organization avoided turning to its printing service bureau for this work. The service bureau had bid on this work and estimated the first-year costs at $150,000 and
subsequent annual costs at $78,000.
 Avoided headcount. By using Clarity FSR for the creation of XBRL-compliant SEC filings, the organization avoided hiring a person who would have been responsible for working with its printing service bureau, overseeing project management, assisting in financial statement creation, and testing XBRL tag accuracy.
 Improved productivity. Clarity FSR adoption automated many labor-intensive tasks that had been necessary in order to create publicly-filed financial statements and related content. Clarity FSR automated both the creation of new statement templates at the beginning of a filing cycle and the transfer of data into these statements from SAP reports. Last-minute accounting changes now require far less work because when one is made, Clarity FSR finds all the impacted data points and automatically updates them. These process improvements reduced the amount of time spent by accountants on the quarterly filing process by 91 percent.

KEY COST AREAS
Key cost areas for the deployment included software, consulting, personnel, and training. Over an 8-week period, five employees spent an average of 50 percent of their time working with two Clarity consultants to integrate and configure Clarity FSR. Software costs included seats for 12 users who each received two days of informal training on the application. Because of the small footprint of Clarity FSR, the application was deployed on existing server space and no hardware investments were necessary.

BEST PRACTICES
One reason the deployment was so successful is that senior management understood that the benefits from Clarity FSR could extend well beyond just compliance with the SEC’s new XBRL requirement. Prior to the deployment, the controller and assistant controller presented a business case for adoption to senior management. Although the presentation argued for Clarity FSR adoption in order to improve productivity and avoid printing costs, more emphasis was given to control over the accounting process and changing the activities of accountants.

Control would be improved because with Clarity, edits to financial statements could be made up until the day of the filing. Service bureau printers cannot always handle last-minute accounting changes, resulting in delayed filings or amended filings, which can have a damaging, but unquantifiable, impact on a company’s cost of capital. The controller and assistant controller also advocated for Clarity FSR adoption because it would enable accountants to spend less time manually building financial statements and more time analyzing the company’s operating results and properly presenting them to the investing public.

CALCULATING THE ROI
Nucleus calculated the costs of software, consulting, personnel, and training over a 3-year period to quantify the company’s investment in Clarity FSR. Direct benefits included in the calculation of ROI included avoided service bureau printer costs, which was based on the service bureau’s proposed fees for submitting filings compliant with the SEC’s XBRL related requirements for the next three years. Also included as a direct benefit was the avoided cost of a person who would have been hired had the company used the service bureau printer. The benefit was based on the average fully-loaded cost for an accountant at the company. Not included as a direct benefit was additional fees that would have
been avoided as a result of edits to financial statements requested of the printing service bureau after its deadline. These fees were excluded because although edits are common, fees for them are relatively infrequent and charged at the discretion of the service bureau.

Indirect benefits calculated included the improved productivity of accountants who spend less time preparing financial statements for submission to the SEC. This was based on their average fully-loaded annual cost and an estimate of the reduction in time required per filing. This benefit was reduced by a correction factor to take into account the fact that not all time saved will be converted into additional time worked. Not quantified was the value of decreased risk of late filings. This was not quantified because the company did not have a history of late filings. Quantifying this benefit would have required an estimate of both the probability of a late filing and its potential cost.