Software selection: Finding the ‘best fit’ for your tax tech

The tax function is in a state of evolution. The increased complexity in global reporting requirements (e.g., compliance with the OECD’s Pillar 2 framework), a desire to use better data for tax planning and risk mitigation, and an evolving workforce that is changing how teams collaborate, among the reasons driving change in tax processes. Your organization may need new technology to help support its goal to improve its tax operations.

Those technology improvements can include migrating or upgrading to a new indirect tax engine, replacing complex Excel provision models with tax provision software, using data transformation tools to automate labor intensive workpapers, and implementing business intelligence tools that provide analytics that identify risk and opportunities.

While technology and software can be beneficial, it can also lead to frustration if the tools you invest in are not able to handle the unique requirements of your business and your team. Choosing the right software can seem daunting, but going through a selection exercise can ensure that appropriate options are considered and that you have the data and detail needed to make an informed purchasing decision.

Our recommended framework for choosing and implementing new technology for your tax function should start with defining how a particular tool should fit into your desired future state. A productive approach to these tasks starts with a structured methodology that differentiates capabilities between vendors, maps their capabilities to your requirements, and ranks the results according to your organization’s goals.

Determine what’s important

Before choosing a new technology, it’s helpful to understand the ideal future state of your tax function. A road map that focuses on the people, processes, data, and technology needed to align your tax team’s capabilities with business goals will help make your new technology’s requirements clearer. Include key stakeholders (tax, IT, internal audit, and others) in your discussions so that you’re able to address requirements holistically and avoid conflicts with other business processes and existing or planned enterprise-wide transformation efforts.

Also consider other factors that will affect the selection and implementation process:

• Budget – Some solutions are more expensive than others, and adding additional customized functionality can add up. It is important to know your planned investment so you can avoid favoring a solution that cannot receive approval.
• Timeline – Solutions that require more customizations can take longer to implement and may have a steep learning and adoption curve. It is important to know how quickly the solution can be ready for go-live as this can factor into decision-making.

Capture and prioritize business requirements

The next steps are to gather and prioritize the business requirements that are important to the company. Proceed by asking and answering these questions, and determine their priority (e.g., ranking them as high, medium and low):

• Is the tool or software “off-the-shelf” or something that requires significant customization?
• How does the tool integrate with source systems (ERP, consolidation, etc.), enterprise-wide software, and existing in-use tax technology? Integrations may include APIs, direct connections, and import/exports.
• Will the software integrate with existing accounting, finance, or other business processes? If so, what are their requirements?
• Are there specific tax or industry fact patterns that the tool must handle? 
• What specific tasks does the software need to accomplish?
• Does the software need to automate manual work that takes staff significant effort to produce? 
• What are the security requirements?

Develop a scorecard

A ranking system can be used to track each assessor’s opinion of how well a tool handles the selected requirements. One way is to define a range of values to apply to each requirement (i.e. three points if the tool exceeds a requirement, two for meeting a requirement, one for limited functionality, and zero points for missing functionality). The score values can be weighted by a requirement’s assigned priority, which prevents low-priority items having an outsized influence on results.

Vendor product demonstrations

In advance of the demos, consider providing potential vendors with a list of your requirements. This will drive consistency in the demonstrations and will focus the vendors on your specific facts and circumstances. If possible, have them structure the demo so that it follows a similar step-by-step process that you will eventually use. For your most important needs, challenge the vendors to fully demonstrate features versus allowing them to show previously generated outputs or just allowing them to describe functionality.

Stakeholders should participate in the demos and use the scorecard to independently evaluate how well each vendor handles the requirements. At the end of all vendor demos, the scorecards are collected, and their results consolidated. This will help demonstrate when there is a clear favorite and when decision-making consensus is achieved.