Consultant's Corner October '09

29th Oct 2009

In the Consultant's Corner this month is Sue McLeod.  Based in Perth, Sue is currently working with Cliffs Natural Resources where she has helped them successfully implement Hyperion Financial Management, Hyperion Financial Data Quality Management and Hyperion Planning.

Sue is going to look at a common challenge for our customers; that of aligning financial reports with the chart of accounts to facilitate analysis and drilldown to the detail.

 “When we start work with a new customer we nearly always face the same scenario.  For various reasons, most clients have reports that contain different account definitions and mappings depending on the entity.  For example, one part of the organisation may classify a particular cost centre as cost of goods sold; another part classifies the exact same cost centre as administrative expenses.

This approach is problematic as it causes confusion, makes it difficult to drill down on the data, can impact negatively on user confidence and in our opinion should be considered bad practice.

The fix for this type of problem is centred on eliminating the spider’s web of mappings that often exist and replacing this with a clean, logical hierarchy of accounts that delivers consistent reporting information across the organisation.

At a more detailed level this means that a single expense code or cost centre must be classified in a single and consistent fashion across your business. This includes assessing the usage of cost centres and expense codes and equally importantly assessing how these cost centres and expense codes are grouped together. This grouping should relate to the subtotals presented in your financial reports.

This is important for two main reasons:

• Alignment allows you to efficiently render financial reports and drill down to expose more detail
• During the process you’ll engage with operational managers and assist them in managing their own areas of financial responsibility

We have found that the most successful way to deliver improved reporting is to approach this systematically, starting with an analysis of the current state to understand the extent of the problem (typically we’d find that 5% or less of the expense codes or cost centres are causing issues).  Typical reasons given for these inconsistencies are:

• Accounting regulations means costs for this part of the business have to be categorised different from the same costs for another part
• We’ve always done it this way
• We asked for a separate account a long time ago but it was not forthcoming

 After identifying the issues, the next thing we do is engage with business users to challenge each problem expense code or cost centre. For each problem account resolution typically involves the creation of a new account or cost centre for the unique use of one part of the business. If that is not practical we can split the account into two - this is done by creating a secondary account with an ‘a’ suffix for example, with the data split between entities. Lastly, if the dollar value is low and the item is not material, we’ll simply change the classification of the account.

Following that we need to ensure that the accounts and cost centres are sorted into logical groupings or subtotals to enable effective slice and dice of the data. For example, expense codes (or accounts) that define operating costs can also be split by cost centres to reveal the HR department operating costs. It is also important that the naming conventions for the groupings or subtotals are consistent. Continuing our example, we often see the term “Operating Costs” referred to as direct costs, production costs, cost of sales etc in different reports. It’s a simple concept; call the same thing the same thing everywhere within your organisation.

The benefits we’ve seen from resolving this issue are considerable. Customers that previously described a maze of mappings and all the difficulties that come with that now describe consistency, a clear audit trail and easy explanation of variances.

Thanks for that Sue, if you’d like to find out more about this subject or have any questions you can contact Sue or any of our team at info@mpowersolutions.com.au