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.
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.
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.
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.