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Is your data integrated - and under your control?

If you're not sure if you should commit the resources to re-engineering your finance department, think about how integrating your firm's financial management systems may change forever the way you use information.

Do you feel you're working harder than you did say five years ago, trying to keep up with requests from your colleagues for good financial information? It's no revelation that increased competition has placed an extraordinary burden on CFOs today because so many business decisions are based on financial data. However, the demands for accurate, consistent and timely information stretch the limits of what conventional systems can supply.

Corporate finance departments that have traditionally used a variety of systems to handle each of their many functions -- transaction processing, data collection, financial consolidation, management reporting and information access -- no longer can. The new CFO recognizes that this patchwork approach simply can't keep up with the needs of a forward-looking company and that he or she must lead the drive to implement a more integrated approach to provide useful information.

Today's most successful companies are beginning to recognize the long-term benefits of redesigning their entire financial management process. And now CFOs have access to many tools necessary for making such a major change, thanks to the current revolution in computer technology. Incorporating these tools is often the first step in revamping the finance department, so it can directly contribute to the company's success. But technology upgrades alone won't always provide all the answers. You must re-engineer the financial management process, and this requires you -- indeed, your entire corporation -- to rethink your goals. Ultimately, the changes you make at every level should have one purpose: to make information more valuable for corporate decision-making.

ANALYZE DATA? WHO HAS TIME?

The 1980s' wave of corporate mergers and acquisitions left organizations with a variety of financial systems on disparate platforms. Take the month-end close activity: Typically, financial results are sent to headquarters at the month's end in a variety of media and formats, often requiring manual data re-entry. This process and subsequent reconciliations often take so long that month-end close activity never really ends. Many costs are associated with these outdated systems, not the least of which is the frustration felt by financial executives who are told they must provide critical information sooner than they are able. An organization that integrates its entire financial management process addresses this frustration by giving tools to its financial executives that enable them to provide faster access to accurate data.

For example, one large computer company that uses integrated financial management systems maintains direct operations across the United States, Canada, Europe and Asia. In the United States, the reporting process is fairly straightforward. Because each site uses the same system, financial data is sent to headquarters either electronically or on disk. Employees don't have to rekey data, and they can easily roll up and consolidate the information with information from other domestic reporting sites to create complete, accurate management reports.

The situation at the company's overseas offices is different. Many of the foreign sites are set up as separate companies. Each has its own set of issues relating to transfer pricing, journal entries, intercompany eliminations, statutory reporting requirements, accounting rules, tax laws and foreign exchange. However, as with the domestic offices, each subsidiary submits monthly financial data electronically or on disk. By using the same reporting system to handle monthly closings, all the offices speak the same language. And, because the application includes a high level of built-in "financial intelligence," the company doesn't have to be concerned about its foreign managers' lack of familiarity with U.S. accounting rules. Each site is set up with a template so reporting requirements are clearly spelled out.

Maintaining the entire organization's financial data in one system therefore simplifies the company's monthly closings, leaving more time for analysis. For example, corporate managers can quickly see the effect an acquisition has on results -- helping them make a before and after analysis that would require weeks of reprogramming without an integrated system.

A seamless flow of information also improves the work flow of financial executives. Tight integration provides them with access to both summarized, enterprise-level views and underlying supporting detail. If an executive questions a specific line in a report, he or she can use the system to track that item to the detail level.

For instance, imagine that you're reviewing a summary P&L in which variances to budget are presented on the highest consolidated level. Using an integrated system, you can decide for yourself what level of detail to examine. If you review the supporting detail, it might reveal an out-of-pattern amount in one category. Within a matter of minutes, through successive keystrokes or mouse clicks, you can extend your examination ("drill down") ultimately to a field location, an invoice or even a check.

UNDERSTAND THE TECHNOLOGIES

Unfortunately, many organizations haven't been able to implement an integrated approach because they continue to use financial systems selected 20 years ago by people who had vastly different needs than today's end users. Since these systems were purchased independently, often from different vendors, they generally don't interact with each other and require almost constant maintenance.

These organizations are often reluctant to abandon obsolete systems because of the costs of retraining staff, further investment in hardware and possible corruption of data. However, with today's advanced technology and open architecture design, fully integrated systems are becoming more widely available.

But, before you start exploring the possibilities, you should have a basic understanding of the technologies that can best support an integrated approach. Some of the most useful are networked personal computers, client/server computing, relational data bases and graphical user interfaces.

Networked PCs provide faster access to information than a mainframe or minicomputer can. While a company's MIS department usually centrally controls the firm's large systems, network-based systems distribute information directly to end users. This eliminates the need for you to work through MIS to obtain reports and also reduces the time it takes to generate them.

Client/server computing is an extension of networking. It provides the most cost-effective means of downsizing high-volume applications -- like financial applications. By separating the data base from the functions that the user performs, client/server computing optimizes hardware to balance speed, volume and cost, while users have direct access to the information they need.

Relational data bases provide data views that the user can define on an ad-hoc basis. Data is organized so it can be related and indexed without predefined relationships.

Finally, graphical user interfaces (GUIs), such as Microsoft Windows, make information easier to use and reduce the learning curve. The interface is intuitive and gives you mouse-driven access to the application.

The combination of these technologies allows the finance department to create a flexible, easy-to-use system without losing the security and control of a mainframe. However, you must properly apply these technologies to support an integrated approach to financial management.

JUST WHAT DO YOU NEED?

In the past, system design dictated financial processes, and financial executives were presented with a limited number of options to perform tasks. Today, an effective re-engineering project should be information-driven. That is, it should view the delivery of management-level information as a critical part of the process. And management's information requirements should drive decisions about what data should be collected and at which level.

So, if you decide to re-engineer your financial processes, here are some basic steps to take as you begin:

* Identify the information needs of corporate decision-makers in light of your long-term objectives. For example, a manufacturing company may plan to double the growth of a product line over the next five years. Corporate decision-makers therefore need access to product line information on a regular basis. A system that can provide product-line P&Ls automatically, without requiring reconciliations to unrelated data bases, will directly support the corporate objective.

* Consider modularity, flexibility and integration. In order to support an information-driven re-engineering project, the system must have a modular approach whereby financial functions -- transaction processing, data collection, consolidation and reporting -- interact to satisfy corporate information requirements. Such an integrated set of modules maximizes access to information at all levels of the financial management process. For instance, a service company that's attempting to improve productivity will require accurate staffing information that's integrated with revenue components to identify opportunities for productivity gains.

Also consider flexibility. A system that's designed with a layered architecture will give you flexibility by allowing you to update the technology without affecting the application layer. This reduces the likelihood of obsolescence. You also gain flexibility when you have the option of building custom applications.

In a large organization with multiple, worldwide reporting sites, the potential for savings is enormous if you implement a fully integrated financial system across all locations as part of your re-engineering effort.

* If you need a vendor to support you as you re-engineer your company's financial processes, find one that understands your corporate needs. The right vendor should understand the information needed by your firm's decision-makers; deliver a comprehensive, modular product line that fully supports integrated financial management; demonstrate proven success in applying new technologies to real business problems; provide systems architecture that allows your company to meet its own unique requirements; have expertise in implementing enterprise-level financial applications; and, of course, provide ongoing support after the system is installed.

FINANCE AT THE HELM

While implementing a fully integrated financial system should help maximize your company's competitive advantage as you become more responsive to changes in the market, it can also reduce operating costs. A networked system typically requires less support and maintenance from the MIS staff than do older systems.

But, just as important, with an integrated financial system in place, the MIS department can then focus on the critical task of ensuring that the system fits well within the organization's overall information technology plan and can concentrate on managing the network. And the financial staff can maintain and control the nuts and bolts of the application -- the financial intelligence.

Ms. Ricciardi is vice president and CFO of IMRS in Stamford, Connecticut.
COPYRIGHT 1993 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Management Strategy
Author:Ricciardi, Lucy R.
Publication:Financial Executive
Date:Jul 1, 1993
Words:1677
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