5 reasons to invest in a Financial MDM

Using a dedicated solution to guarantee data consistency in heterogeneous architecture is self-evident for many financial departments. Whatever we call it: Master Data Management, Data Governance, Charts Of Accounts mappings, Reference Data, Hierarchies’ management, Master Entity management, Data Stewardship, Financial MDM… These initiatives bring significant results for the users and real added value for Corporate Finance.

 Using a core model is a good way for a company to structure and align business processes across the whole enterprise. However, it can be too rigid and therefore slow down flexibility in the changing business environment for complex architecture. We all know that enterprise systems architecture will continue to stay mo5-reasons-invest-financial-mdmre or less heterogeneous even if there are always some plans to rationalize it. Investing in a Financial MDM is a good way to align master data in different applications and does not require a huge budget. Financial MDM allows business users to centralize, update and publish trusted and relevant master data to systems and to end-users. The specific types of master data managed by financial departments are: charts of accounts, legal entities, organizational dimensions, analysis dimensions using general ledger accounting flexible fields and reference data. Financial master data needs to be governed. Flexibility is key to allow business users to easily update their own systems. These changes have to be part of a data governance initiative to structure the process in accordance to rules, policies and guidelines.

  1. Empower financial business users

Controllers, accountants, data stewards, local CFOs and everybody involved in finance processes should be owners of their data. These business users should be active in any process managing changes in master data. For example, they should have the possibility to create a new cost center or to attach an existing legal entity to a new management center. If users could benefit from this empowerment, the process would be more efficient due to their business needs knowledge and to their understanding of the potential impact in the financial reporting systems. They would also be able to audit and follow on-line their request in the different workflow steps. However, changes need to be monitored using compliance and policy rules and therefore preventing business users from compromising the integrity of the enterprise repository. The goal is to replace all disorganized request flows based on Excel files, emails or files between end-users and IT department by an auditable process.

Benefits include time and cost decreases in the change process and better confidence in data quality and figures.

  1. Ensure business hierarchies and related links consistency

Hierarchies and related links are key to using financial applications; they help to manage master data connections inside a hierarchy or between financial master data and other master data. For example:

  • When a new Chart of accounts is designed, linking an account to its parent is key for future aggregation of data.
  • When legal entities have to be sorted, hierarchies can be built according to dimensions such as geography or organizations.
  • In a General Ledger, every accounting flexible field is a potential analytical dimension.
  • Respecting relationships is also very important when reorganizing sales territories taking into account geography dimension, human resources, client or product information.

That’s why hierarchies and relationships are often used in EPM (Enterprise performance management) and Business intelligence. Financial Applications share entire or partial hierarchies with different levels of detail, different points of view. So, Financial MDM helps companies to be more efficient because hierarchies and their relationships are managed in a single place. Every modification impacts all applications at the same time. This increases consistency and data quality among all hierarchies. It also accelerates deployment of new applications based on existing validated hierarchies.

  1. Link local needs to corporate standard and consolidate all lines of business

Business models in many companies often rely on the autonomy of the subsidiaries or business lines to manage them as independent profit centers. The Corporate finance department must consolidate all activities of the group and also control the global consistency of these decentralized processes. Nevertheless, if the headquarters try to force a local subsidiary to adopt a core model without taking into account local specificities (market, policies…), they often fail.

Building a Financial MDM is the way to federate local needs with corporate standards. It ensures the convergence of all Finance statements and audit of published financial information. Using a role based security ensures that users only access data according to global governance. Business rules insure accuracy from local to corporate level. Finally, local reporting and corporate reporting are aligned. Auditability of all users’ actions is traceable.

Financial MDM provides a unique solution for both Corporate and local needs allowing all users to share corporate policies and regulations.

  1. Accelerate M&A

When a company wants to develop external growth by acquiring a new company or merging with another one, integration of systems is often a long process. You have to consolidate data from heterogeneous systems, different activities and different policies. Financial MDM maintains a trusted repository. Therefore, new applications from a new company can be easily integrated in this existing trusted repository. For each new company, you have to map the new financial system with your reliable foundation. It also helps considerably in the transition time (before the final process of acquiring a new company) to continue to process on two separate systems, sharing the same repository. Sometimes, for strategic or economic reasons, there is no need to integrate all systems in one. In this case, the strength of Financial MDM is to centralize and manage reliable mapping of all systems.

  1. Analyze your master data across heterogeneous environments

Financial MDM allows users to manage versions. To analyze, compare and simulate changes in master data across heterogeneous systems. It allows business users to search, query, compare and audit while looking for discrepancies and improving data quality. For example, you can easily find the differences between a chart of account in US GAAP in one application and another one in IFRS. Without Financial MDM, it’s difficult to do it especially when charts of accounts are located in different applications and from different software vendors. This quickly turns into a nightmare when you’ve got hundreds applications (per country, per business unit) running on heterogeneous environments (SAP, Oracle, in house development, Excel files).

The reporting capabilities allow individual business users to create reports based on reliable information from which ever source they choose. This kind of solution is also very efficient to produce a single point of documentation storing history and evolution based on versions and time periods of financial MDM. Changes can come from external context, major reorganization or migration from one system to another. Audit files store all changes and can be easily accessed by auditors to monitor the life cycle of the master data and be fully compliant with the Sarbanes-Oxley regulatory requirements.

Benefits

To summarize, here are the benefits for investing in a Financial Master Data Management solution that is totally adapted to the finance departments and their constraints:

  • Significant cost reduction for updating master data across all systems.
  • Risk reduction due to dedicated tools to manage financial master data instead of unstructured processes based on thousands of Excel spreadsheets, emails and phone calls.
  • Increase data quality for all financial reporting. The CFO is responsible for the accuracy of all data from their finance department.
  • Shorten smart close process by sharing the same repository, same rules and same policies within all financial applications.

Disclaimer: the views expressed are my own and do not necessarily reflect the views of Oracle.

MDM for Corporate Finance: Why not?

Master Data Management is gradually spreading to every department across industries. If not there already, Finance departments might be the next target. The objective is to guarantee data consistency across all applications of the Finance department.

Generally speaking, MDM applies to customer data or product data, sometimes employees’ data, seldom to master data used in Finance departments. Only two MDM domains are currently considered in the Gartner Magic Quadrant: the first is focused on Customer Data Solutions (previously Customer Data Integration), the second on Product Data Solutions (previously Product Information Management).

So, what about Master Data in Finance Departments?

Finance architecture is often complex due to multiple systems. Each system has got a dedicated repository. Therefore, it’s difficult to share data across a wide range of financial applications such as:

  • Transactional data sources: ERPs from various software vendors, multiple ERPs from single software vendors, general ledgers, sub-ledgers, local legacy systems, local accounting, operations software, in-house developments…
  • Enterprise Performance Management solutions: consolidation software, financial reporting, budgeting and forecasting, profitability and cost management, strategic planning…
  • Dedicated industry software: risk management, asset and liability management for banks…
  • Business Intelligence: data warehouses, datamarts, OLAP cubes, query and reporting tools, scorecards, dashboards…
  • Databases, Excel spreadsheets, custom developments…

Most of the time, companies manage financial master data in thousands of Excel spreadsheets, in an ERP finance module or sometimes in their financial reporting software. This creates difficult, manual and complex maintenance problems:

  • errors and generation of discrepancies,
  • expensive time and effort spent researching and mapping data,
  • uncertainty on the accuracy as well as compliance difficulties for legal reporting.

Why don’t we work with a dedicated solution? Let’s call it Financial MDM.

Financial MDM is The Solution. It allows the business users to centralize, update, clean, match, transform, organize and publish trusted and relevant data. This is valuable for all systems and employees in the company requiring financial master data usage.

Financial MDM has got the same DNA as other MDM domains. Nevertheless, Financial MDM manages specific types of master data:

  • Charts of accounts: consolidated, corporate or local. They can be different depending on application type. For instance, granularity is not the same for actual accounting or forecasting. They can be designed to meet different regulatory requirements: local, IFRS, GRI sustainability reporting or Solvency II in the insurance industry
  • Legal entities including different dimensions: geography, activities
  • Organizational dimension : departments, business units, cost and profit centers
  • Analysis dimensions: using general ledger accounting flexible fields such as sales channels or projects
  • Reference data: time, currencies, taxes.

Hierarchy requirements

Financial MDM allows the users to organize and display master data in hierarchies to meet the business needs. For example, sales departments want to visualize legal entities by sales territory dimension. Controlling departments have to analyze legal entities by management centers. Hierarchies could be tailored according to the type of user and role (management, operational, local users) with more or less details.

Attributes

Master data and hierarchies support different attributes that are shared across systems or are dedicated to a unique system. Attributes can be updated by business users. They can also be inherited or calculated, based on business rules, to gain time and to limit manual errors.

Financial MDM manages specific attributes:

  • Description: multiple names, alias, translation, documentation links
  • Finance: account type (asset, liability, expense…), Exchange rates (average rate, closing rate)
  • Hierarchy: tree name, planning point, parent, child, descendant
  • Life cycle: creation date, changed by, changed date, last update date, change approval, status ( active/inactive), effective date
  • Meta data model: detailed security access, applications target, user rights (read, write).

Updating master data? Data Governance based on a Workflow process.

Financial master data needs to be quickly and easily adapted to business changes at the fast pace of business. Financial MDM is essential not only for minor modifications in day to day business, when creating a new cost center or modifying an existing attribute for a legal entity, but also when making major changes such as mergers, acquisitions, reorganizations or regulatory changes.

Financial Master Data needs to be governed. Flexibility is the key to allow business users to easily make their own updates. These changes have to be part of a data governance process. A workflow is required to define roles and responsibilities. It is also necessary to structure a proactive governance process, to effectively manage master data in accordance to rules, policies and guidelines. Business rules help users to automate as much as possible and reduce manual errors. The goal is to ensure accurate, consistent and complete master data assets. For example, business users are not allowed to create a legal entity if the name does not follow the naming conventions. Another example, if the account type is liability, users can’t create that account in the income statement.

Analyze and Audit: a major requirement for business users.

The user friendly interface allows business users to easily analyze data: to search, to query and compare versions of master data. Versions of master data allow these users to store yearly or monthly history of the master data and compare it through a time scale. What/if version is also a good way of simulating changes and predicting future impact in systems. The interface needs to be intuitive to allow external users for example, audit people to be more efficient to access to the right information. Audit files store all data changes and can be easily analyzed to monitor the life cycle of the master data and to be fully compliant with the Sarbanes-Oxley regulatory requirements. Life cycle management of the master data is another compelling event that justifies investing in dedicated software.

Benefits

To conclude, here are the keys reasons for investing in a dedicated system that is totally adapted to finance departments and their constraints:

  • responsibility devolved to business experts
  • full audit and compliance assured
  • measurable reduction of inconsistencies and reporting errors
  • cost reduction, close times shortened, compliance risks minimized

Financial MDM is definitively part of the Master Data Management family. Some software vendors have always considered Financial MDM as a necessary component in their portfolio. Analysts should recognize Financial MDM as an entire domain. So, why not create a new «Gartner Magic Quadrant » for Financial MDM?

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Disclaimer: the views expressed are my own and do not necessarily reflect the views of Oracle.