Current finance data management landscape
Today’s dynamic marketplace calls for a new breed of finance. Finance as a function needs to transform itself to be more nimble and agile to meet stakeholder demands and serve as a true business partner rather than a back-office department focused on transactional processing and historical reporting. In other words, finance will have to disrupt itself to meet various demands, including pressure from regulators, corporate boards, sales and marketing departments, suppliers, customers, and internal and external auditors.
Due to a rapidly changing business environment, finance must address disruption head-on or run the risk of falling behind more nimble competitors. Leading chief financial officers (CFOs) focus on leveraging disruption into opportunities for competitive advantage and growth while also improving their delivery of products and services to their stakeholders. With the right strategy, CFOs can transform the finance organization into a strategic business partner while still managing costs across the enterprise.
Finance serves as an integral part of the executive management team to support value creation by identifying opportunities and providing critical information and analyses to make superior operating and strategic decisions. Finance also needs to define, manage, and secure data to ensure accurate reporting to comply with regulations.
One of the most prominent challenges organizations face is the fragmented nature of the systems and processes that simply do not allow business users to get the data they need on time. Finance users responsible for analysis, forecast, planning, and reporting activities rely heavily on IT to access the data they needed. Finance users also depend heavily on conventional tools. According to one Deloitte study, 75% of finance users say they use spreadsheets to prepare budgets. While spreadsheets are useful for many things, they are not designed for handling data quality issues in your business-critical finance data. They can create chaos as multiple versions of the spreadsheets get sent across emails, SharePoint, and other collaboration tools. You can’t rely on them for important decisions your executive management team needs to make to drive the business forward.
Why finance data management matters
The most valuable data we need for financial analysis resides all across the business. Finance data goes by many names—chart of accounts, cost center, product code, business units, projects, legal entities, and core reference data such as billing codes, taxonomies, geocodes, and product classifications. It’s a battle for finance users to find out who has the best data across CRM, HR, marketing, customer service departments, and finance systems. Financial analysts struggle to derive meaningful insights from data about expenditures, revenue, sales, assets, and liabilities. Financial planning & analysis (FP&A) teams spend an enormous amount of time manually crunching data to gain insights into the company’s financial health.
The finance functions of most organizations typically have a process for managing and changing finance data. Unfortunately, having a process isn’t enough: Many organizations struggle with visibility into finance data management processes, including which teams and systems are modifying the data. Finance teams rely on emails, phone calls, and spreadsheets to do everything from creating a cost center to managing a chart of accounts (COA) to reporting. And if the tools themselves aren’t confusing enough, the process for reviews and approvals can be just as frustrating. This is particularly true in large organizations with complex operations and multiple business units spanning different geographies, where—to put it politely—managing finance data can be extremely challenging.
5 tips for finance data management
Here are five tips to drive better finance data management in your organization.
1. Simplify management of chart of accounts
A COA is an index of all the financial accounts in a company’s general ledger. In short, it is an organizational tool that provides a digestible breakdown of all the financial transactions a company conducted during a specific accounting period, broken down into subcategories. Companies use a COA to organize their finances and give interested parties, such as investors and shareholders, clearer insight into their financial health. Separating expenditures, revenue, assets, and liabilities help provide clarity and ensure that financial statements comply with reporting standards.
Due to many factors, COA data tends to be inconsistent and out-of-date. Rules and definitions on how to manage this data are often unnecessarily rigid due to multiple business units and a lack of clear ownership. Additionally, the manual review and approval steps required for governing this data have a big impact on timeliness and accuracy of insights.
You can simplify COA data management by using technology designed to facilitate automation and governance. The right solution can help remove finance users’ reliance on emails, phone calls, and spreadsheets. By automating COA data management, organizations can:
- Ensure consistent and standard representation of COA across the enterprise
- Enforce governance and change management during onboarding of finance data, including hierarchies and crosswalks
- Streamline COA segment changes with workflow-based approval process, and capture audit and history of the changes made
- Drive better visibility into trusted data for planning, analysis, and forecasting
2. Increase productivity during ERP transformations
Facing an enterprise resource planning (ERP) migration project? You’re not alone. Thousands of enterprises are in the same boat. For some, it’s because of ERP vendor deadlines. For others, it’s because of the urgency to move to the cloud, leaving behind legacy on-premises ERP instances. Regardless of what’s driving the project, ERP migrations are typically complex, multiphased, multiyear deployments – with huge risks. Many ERP migration projects run aground utilizing manual interventions, which drive bad data quality and poor data synchronization. The cost of managing all changes and onboarding during the migration will have huge negative impact on the overall ROI of your ERP transformation journey.
You can increase team productivity and ensure your ERP migration is risk-free by leveraging technology designed to centralize and organize finance data. A finance data management solution can help you cleanse and standardize finance data and hierarchies to ensure you create accurate and trusted data for your ERP migration, leading to minimal downtime. The right solution will help you:
- Manage and synchronize data between current and new ERP and other systems/processes
- Enforce governance and change management during onboarding of all organizational data (not just financial information), including hierarchies and crosswalks
- Rationalize and improve the quality of master data for ERP systems
3. Streamline mergers and acquisitions
According to a PwC survey, 56% of CFOs are changing financial plans as a result of a recent merger or acquisition. That’s largely because organizations typically have hundreds of applications and systems where data is scattered. Finance data spans across several ERP systems such as SAP, Oracle, Workday, Lawson, and others. What makes it even more challenging is companies often go through mergers and acquisitions (M&A) and restructuring initiatives that bring more complexity to the already fragmented data landscape. These types of events wreak havoc on data traceability and trust leading to further data fragmentation. They also bring complexity by introducing new applications, ecosystems, and processes – not to mention varying data standards, strategies, technologies, culture, and processes.
By managing finance data centrally, finance teams can align account information between merged entities. A finance data management solution will allow you to redesign and build a new global COA as part of M&A activity and offer a flexible and agile approach to data management. Using a finance data management solution during M&A, organizations can:
- Reduce manual effort needed to gather and analyze data to identify overlap between customers, suppliers, and products
- Easily compare acquired entities’ account structures with established corporate account structures
- Model what-if scenarios to visualize the impact of changes
- Identify cross-sell, up-sell, retention, and win-back opportunities
- Deliver personalized customer experiences, timely regulatory reports, and critical executive decisions
4. Accelerate your journey to cloud
According to a PwC CFO Pulse Survey, 71% of CFOs are concerned about liquidity and cash management, and 86% are implementing cost controls during the pandemic. Modernizing financial applications and migrating them from on-premises systems to the cloud offers many advantages for CFOs. It helps companies avoid both one-time expenses associated with buying software outright and the cost needed to maintain those applications.
In addition, a cloud model means companies don’t have to worry about software upgrades or routine maintenance chores. Moreover, the time needed to implement new software is usually faster for a cloud model and it helps you breaks down data silos faster. While cloud provides a great boost in agility, it doesn’t eliminate fundamental data management challenges. You need to ensure your data in the cloud is of high quality and secure.
An easy-to-use finance data management solution, built on a cloud architecture with built-in intelligence, can help finance teams surface data-driven insights faster. It can also connect users to the source of data across enterprise applications and visualize variations and dependencies. Additionally, a cloud-native data management solution can help finance teams carry out routine changes to finance data such as cost-center roll-ups, account hierarchy changes, and adding new profit centers. By adopting a simplified, centralized approach to finance data management on cloud, your organization can:
- Enable self-service for finance users
- Reduce the dependency on IT for routine changes that can take days or even weeks
- Provide governance and accountability to changes made to the finance data
- Streamline changes with workflow-based approval process, while capturing audit and history of the changes
5. Establish an effective, data-driven reporting strategy
FP&A teams play a crucial role in companies by performing budgeting, forecasting, and analysis to support CFO, CEO, and board’ decision-making. Finance teams utilize both quantitative and qualitative analysis of all operational aspects of a company to evaluate progress toward achieving its goals and map out future plans.
While generating internal reports for executive decision-making is a priority, FP&A teams also spend a lot of time on month-end, quarter-end, and year-end reporting that needs to be sent in specific formats and in a timely fashion to meet external compliance requirements. Depending on the industry, these compliance requirements can vary from simple to complex reporting that have both financial and reputational risks associated with them. Financial reporting can take weeks and months and be a very time- and effort-intensive process. Compliance with regulations like Sarbanes-Oxley requires companies to have processes and tools that support data traceability, separation of duties, history, and lineage. Additionally, all data changes, approvals, and tasks have a date and time stamp. Finance teams often use Excel, email, and collaboration tools to manage finance data. As a result, many find it increasingly challenging to produce meaningful and timely responses, especially in analyzing results and preparing forecasts across various business lines in a volatile environment. According to PwC, even in top quartile companies, analysts spend 40% of their time gathering data, instead of working with it.
This makes it hard to speed up and improve the precision of your financial close process. This manual approach also hinders the CFO’s ability to gain insights and make data-driven decisions to guide the business toward success. Companies need to work smarter, so they can dedicate more time for analysis – and less on work susceptible to human error.
Finance needs to automate the reconciliation and validation of data across enterprise systems to improves the reporting process. By establishing an effective financial reporting strategy, organizations can:
- Automate compliance and regulatory submissions
- Complete month-end, quarter-end, and year-end financial reporting in days versus weeks or months
- Deliver accurate data and insights for executive decision-making
- Reduce financial and reputation risk
Establish a finance data management process
CFOs need to take steps to modernize their finance functions. The key to success is to create a blueprint for how the finance organization can turn disruptors into opportunities. Here are a few steps to get you started:
- Embrace cloud-based technologies to govern and manage finance data centrally
- Enable self-service of data to finance teams, so they do not have to rely on IT
- Create trusted and authoritative data about customers, products, suppliers, and finance data
Finance plays a critical role in ensuring business success. New practices and technologies can increase the effectiveness of the finance function. Advancements in technology, AI, and machine learning make it easier to automate finance data management.
I hope these tips help you land on a finance data management solution that automates time-consuming tasks—so you can focus on strategic work that drives business growth. Learn more about the Informatica finance data management solution now.