Over its first 5 years in the market, Gemotest was growing at a rate of 80% per year. The company’s dynamic growth was associated with communication problems within the team, insufficient understanding of certain business processes, and operation in a crisis management mode. The existing accounting system met neither RAS nor IFRS requirements, did not reflect the company’s operating profit and investment in its development. According to the reports, the company investing billions in its chain had a zero balance sheet and it was quite hard to make this fact look like a mark of success. To report straightforward and intelligible business and financial data to banks, owners, and potential investors, the company needed to create a new system that would make it possible to separate and reflect chain development investments and revenue adequately. Furthermore, Gemotest needed an advanced toolkit to estimate production costs. All factors above, including the new investor’s requirement to bring business in conformity with the best international practices encouraged the company to introduce a managerial accounting methodology compliant with IFRS standards.
Alexander Apollonov, Chief Financial Officer, shared the company’s experience with modelling managerial accounting during BDO Unicon Outsourcing business lunch “Managerial Accounting Models: Concepts and Implementation”.
Project Stages
Gemotest launched the effort to build the managerial accounting system jointly with KPMG — this company designed a methodology that is the best fit for the customer’s needs. This made it possible to identify a set of problems at the start-up stage and adjust the key objectives of the project. Apart from implementing a new format of IFRS managerial accounting, we had to finalize the existing functions, automate all processes, and streamline the operating system.
In spring 2017, the company embarked upon a search of the system implementation contractor, but had to abandon this idea a few months later, as we did not see the understanding of the peculiarities of our business on the part of potential contractors. In the end, Gemotest reasonably assessed the existing risks and chose to use its own resources to implement a new managerial accounting system by reference to the survey data at the company’s disposal.
The project was officially launched as early as in late June 2017 and comprised several stages. Within the first six months of the project, the company collected analytical data and designed the core for 1C:ERP system to enable integration of all other modules. As early as in April 2018, the company prepared the reports for the first quarter using the new system. The next stages provided for adjusting the budgeting sub-system and debugging the software processes. The final project cycle was completed in March 2019 with the transfer of the Vehicle Management subsystem to 1C:ERP. We filled in the Production reference data and adjusted research cost estimation. 18 employees of the company’s IT department were involved in the implementation of the new system.
Challenge
Time constraints represented a major problem. The task of switching over to the new 1C:ERP platform from 1 January 2018 required a transfer and verification of a large body of data. Despite the fact that the accounting and IT department employees had to work overtime, the implementation of the new accounting system was completed a quarter after the scheduled deadline.
The need to pay extra for the employees’ overtime and unbudgeted purchase of new servers led to an increase of the project cost from the expected 23-30 million to 41 million.
The peculiarities of the new information system affected the speed of the financial system (generation of reports, requests, closing of the period) as compared to 1C:UPP.
Despite the fact that the production reference data have been duly generated and filled in, the cost estimation has not been fully automated and this area will require additional work.
Project Deliverable
The company re-engineered and automated multiple business processes: rolling budgeting has been brought in conformity with the international standards, reports, cash and bank transactions have been automated, all work with paper records and involvement of finance department employees in such work have become virtually non-existent. IFRS managerial reports have secured an unqualified audit report. Implementation of the new accounting system is expected to reduce the company’s expenditure by 5-10%, which will significantly raise its competitive strengths from the perspective of participation in government contracts.
Plans
Gemotest does not intend to stop its work on the project here. The company is planning to develop new modules. Even now, certain offices of the chain are testing 1C:MIC supposed to be integrated in all Gemotest divisions in the future. In addition, the company is planning to expand the existing managerial accounting form by making it much more detailed and adding the options associated with the warehouse, delivery, inventories, remote staff training, and itinerary arrangement for vehicles.
