Is your data comparable and consistent? If it isn't, that can cast doubt on the relevance and reliability of enterprise financial data. More than anything, companies need to manage fundamental changes to financial master data values.

What could be more orderly and accurate than data contained in a spreadsheet? Plenty. Physical appearances can be deceiving. In the post-Enron era, the integrity of corporate financial data is in the limelight, yet this focus can produce precisely the kind of publicity a company does not want--or need--in economically challenging times.

The old adage would have us believe "the numbers never lie." This is true only if the numbers reconcile both down the columns they reside in, and across the rows of all enterprise and local financial data resource systems. How then, does a company prove its financial data resource to be trustworthy?

Companies with operating enterprise resource planning (ERP) systems presumably feel confident that they will measure up. However, unless century-old principles rooted in library science are applied to all corporate financial master data values, the situation may not be as "transparent" as it seems.

For enterprise financial data to be relevant and reliable, it must be comparable and consistent from year to year and from decade to decade. This requires a standard for comparability. Financial master data stored in an ERP can play this role, but only if properly maintained.

Transactional data systems like an ERP record the present and are indifferent to the past or the future. CFOs and business financial analysts rely on data contained in an ERP to assess current business results and predict future earnings. A corporation relies on data contained in an ERP to comply with specific business and regulatory requirements. As a result, data captured in an ERP must be retained or destroyed based on its importance to the company as it relates to these requirements.

The importance of data varies over time. Specific financial data values and groupings used for collecting and comparing data can also change. It must be possible to access, sort and retrieve data in ways that relate to the different stages of its life cycle. This ability depends on having an enterprise strategy and supporting practices for managing fundamental changes to financial master data values.

To satisfy audit trail requirements, a company must be able to historically track and cleanly map existing data values to new data values. If a company cannot do this, it may suddenly find itself navigating treacherous waters, while bearing a heavy financial burden with serious potential impact to its bottom line.

A company's ability to rapidly and efficiently complete the complex tasks required to successfully handle just one of these scenarios will result in significant cost savings. While the exact monetary-impact is difficult to estimate, two questions arise: First, what is the value of ensuring that business decisions are based on the most current, accurate and complete financial data possible? And, how is financial data integrity best assessed?

The Comparability Standard

The ability to effectively cope with any of these scenarios depends on a company's consistent use of a single authoritative list of data values for each key financial business concept. Each of these lists is a comparability standard. (A comparability standard enables data to be grouped in the required ways, and simultaneously ensures that those groupings provide accurate and comprehensive results.)

For example, many companies use the term "business unit" to describe the way product lines are structured for financial reporting purposes. "Business unit" thus has a list of active and inactive data values associated with it. Librarians commonly call this type of list a "controlled vocabulary."

However, "business unit" is only one example of a key financial business concept with data values in need of control. Companies must identify all key financial business concepts and decide which require this kind of custodianship.

It is also important to understand which key financial business concepts relate to business concepts from other contexts, such as human resources or manufacturing. For example, does the list of "business units" used in all financial data resource systems match the list used in systems that contain data about employees?

Sharing commonly needed data values across different contexts of meaning is a challenge. For the greatest benefits, a company should apply these practices to data resource systems for all functional areas. Each functional area should identify its key business concepts and decide which ones require control. Everyone benefits from understanding how all key business concepts relate to, and overlap with, each other.

There are six practices required to create and maintain a controlled values list with long-term integrity:

1. Fully define the key financial business concept.

2. Identify all terms and phrases used to describe the key financial business concept.

3. Designate one term as the official term.

4. Determine the authoritative list of data values and the single data source for the official term.

5. Permanently preserve all active/inactive official terms and all synonyms in a platform-independent repository.

6. Develop and communicate the policies and procedures for creating, deleting, changing and obtaining access to data values for official terms. Periodically audit compliance.

These practices integrate with core principles contained in the mission statement of the Financial Accounting Standards Board (FASB):

* Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency.

* Keep standards current to reflect changes in methods of doing business and in the economic environment.

* Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process.

* Improve the common understanding of the nature and purposes of information contained in financial reports.

Following these practices requires a substantial amount of human mental and collaborative effort. The practices demand ongoing communication between many people who do many different things. This approach requires adherence to a series of disciplined behaviors. All of this must be accomplished as company needs evolve.

Implementing the Six Practices Of Discipline

Using "business unit" as an example, here is a brief summary of the actions a company could take to implement the six practices.

First, write a clear, comprehensive definition for "business unit" and compile a list of any equivalent terms. Highlight commonly used variations within the formal definition. Declare "business unit" to be the official term for the financial concept as defined. For example:

The entity by which Company XXX structures its product lines for financial tracking and reporting purposes. Typically, a business unit is organized around how products are being applied by our customers in specific industries. However, a business unit can also represent a specific technology or process that is being managed separately

Multiple business units are often combined for financial reporting purposes into a Business Group. A business unit belongs to only one Business Group. When a business unit fulfills functions like owning, selling, using or supplying product, it is referred to respectively as Controlling Business Unit, Selling Business Unit, Consuming Business Unit or Supplying Business Unit.

Business units subdivide into smaller units called Profit Centers, which, prior to May 2004, were called Strategic Business Units (SBUs). "Business" is often used as a synonym for business unit, Business Group or Strategic Business Unit.

Next, determine the official list of controlled values for "business unit," then identify the single authoritative source for those values. Preserve the official term "business unit," its synonyms and company decisions about the term in a platform-independent repository like a thesaurus, where information can be shared and periodically reviewed for validity.

Then, develop a centralized change management and auditing process for making any modifications to the official term "business unit," its corresponding definition, its controlled values list and single authoritative data source. Finally, designate a central group to administer the change management process, to manage the tools required to facilitate data sharing from official sources and to audit the policies, procedures and proper use of the term and its data values on an ongoing basis.

Benefits Realization

Disciplined adherence to a single list of controlled data values will eliminate rework stemming from the use and maintenance of redundant and disparate data value lists for key financial business concepts. Estimates indicate that at least one-third to one-half of all administrative costs are the result of rework.

Moreover, manually massaging data to adjust differences between multiple financial data resources will no longer be necessary. Organizational and other changes will be reflected in the data in a timely manner. Creating routine or ad hoc subsets of financial and related enterprise data needed for business activities will be easier.

Compliance with legal discovery requests and meeting records retention requirements will be more straightforward and faster to complete. Overall productivity will increase and operational risks will shrink.

Additional benefits can be realized when controlled data values associated with key financial business concepts are reused to organize non-tabular data (text) stored in other company systems. For example, by using the same list of "business unit" values throughout the entire company--in every electronic system where things are created and kept--all information relating to a specific "business unit" can be blended together.

A substantial portion of a company's intellectual assets exists in collections of non-tabular data. This data is created and stored in electronic work spaces like email, personal drives, portal document repositories, shared departmental drives, group collaboration spaces, document management systems and Web sites. Most of these are decentralized collections controlled by individuals.

Because these collections are decentralized, they lack a common element that would enable grouping items with similar characteristics. Adding a foundational level using the data values for appropriate key business concepts provides the missing element, resulting in a significant improvement in organizing these naturally chaotic workspaces.

The terms and data values associated with a company's key financial business concepts are already formally and informally used across the company in many non-financial contexts. Declaring official terms for clearly defined concepts and adequately controlling data values will ensure consistent use of important business financial terms within other contexts of meaning.

The use of financial controlled values to group and index non-tabular data can substantially enhance the speed and accuracy of retrieval for a variety of other purposes. Fully integrating a company's tabular and non-tabular data resources will provide significant competitive advantage as the long-promised rewards of an ERP are fully achieved.

RELATED ARTICLE: The Challenge of Standardizing Data

Most companies are unprepared to handle these common scenarios and the associated costs in terms of Money=$, Time=T, Risk=R:

** Acquiring a new business unit: Can data be quickly blended from the acquired business into existing financial data resource systems? $, T

** Divesting a business unit: Can the appropriate data be quickly separated and transferred to the acquiring company? $, T, R

** Merging multiple business units into a new single business unit: Can historical financial data relating to each previous stand-alone business unit be retrieved? $, T, R

** Renaming a business unit: Can the change be made once, and take effect in all financial data resource systems? $, T

** Complying with a legal discovery request for a business unit: Can financial data relating to a specific business unit be quarantined and frozen until the case is settled? $, T, R

** Complying with Sarbanes-Oxley requirements: Can data integrity be assured across all financial data resource systems? $, T, R

Sandra Fricker Hostetter ([e-mail]) is the Program Manager for the Electronic Content Management and Retention Program at Rohm & Haas Co. in Philadelphia, a manufacturing firm specializing in chemicals and paints.