Master data management (MDM) is a relatively new technique with many potential applications in Global 5,000 companies. Examples include controlling supply chains more effectively and uniting disparate views of the customer. A third, applying MDM to achieve a unified chart of accounts (COA), is one of the most straightforward ways to demonstrate the value of MDM, and Ventana Research believes it can deliver a significant payoff to corporations. We advise all senior finance executives of large companies to assess the value of applying MDM to achieve a globally unified COA in 2006. By doing so, almost all organizations can get more accurate information sooner and at a lower cost. What’s not to love?
Few Global 5,000 companies have a single chart of accounts. As business units deploy different accounting software in different business units or as companies acquire others, the charts of accounts fragment. (For a complete review of the issue, see “Consolidating the Chart of Accounts,” 11/23/05).
The chart of accounts is not just a bookkeeping convention. It has a significant (though underappreciated) impact on the quality and reliability of the information that managers and executives use. Consequently, from the standpoint of information management, many benefits may derive from harmonizing its multiple incarnations. Corporations that support multiple COAs spend substantial amounts of time translating the results from their local operations to the central corporate structure. Much of this effort stems from trying to map the data from one system to another, but some business units try to game the system to ensure the results reported up show the unit in the most favorable light. Either way, the time could be spent more profitably.
Using master data management eliminates the often time-consuming activity related to mapping because it allows reporting directly from local systems. As a result, the management accounting cycle can be cut, often by days. Using MDM to resolve the COA also can improve data quality. Since it automates the data classification, it enforces consistency in how data is aggregated so subsequent analysis will be more consistent, too. Reducing the ability to game the system can enhance accountability. In addition, enforcing consistency in how data is treated can expose overlooked but persistent gaps in communications between regions, business units and headquarters, an issue all global companies face.
Multiple charts of accounts prolong the accounting cycle and are more costly to maintain, but the difficulty of harmonizing disparate account structures across the enterprise and keeping them aligned has proven too daunting for most corporations. That, too, is a time-consuming task (and therefore expensive in its own right), and corporate politics often make it difficult even to agree on a new account organization. Putting the new structure in place is another set of battles, fought over recoding and restructuring IT systems. Companies have to synchronize these changes globally and across multiple systems. Worse, their highly complex and integrated enterprise resource planning (ERP) systems, which may span accounting, HR, supply chain purchasing and distribution, must incorporate these changes in all their modules. The promise of MDM is that, through a software-defined abstraction level, top-down decisions about the “virtual” chart of accounts can be made without having to change underlying systems. If realized, this approach saves considerable time and expense in both initial implementation and ongoing maintenance.
For CIOs, Ventana Research asserts that unifying the chart of accounts is a great demonstration project for master data management. The COA is not nearly as dynamic a data set as customer and product lists and the amounts aggregated are, with few exceptions, always currency, substantially reducing the potential complexity of the effort. MDM applied to the COA is not a quick fix, but if managed properly it will save time, cut costs and improve the performance of the finance organization in particular and the company in general. It demands that companies apply quality management practices. It requires solid IT governance practices, senior-level ownership and involvement by finance, IT and business operations. For CFOs, we believe the payoff from this investment — at a minimum, improved financial reporting and a faster close at a lower cost — should put it at the top of their list of initiatives for 2006.
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© 2005 Ventana Research