WHITE PAPER. ERP and Enterprise Performance Management Best Practices

Transcription

1 WHITE PAPER ERP and Enterprise Performance Management Best Practices

2 Table of Contents 3 Using ERP for All Your Consolidations and Reporting Needs Costs Customization Value Add Activities Solving the ERP Problem Providing Financial Information to the Entire Organization Single System for Financial Close and Reporting Pre-built, Complex Adjustments Managed by Finance Flexibility New Opportunities Mergers, Acquisitions and Restructures Operational Data and Integration 7 Key Attributes of an Integrated Consolidation and Reporting System Business Rules Organization Rules Currency Conversion Rules Allocation Rules Consolidation Rules Intercompany Elimination Functionality 8 Conclusion 2

3 In today s economy the ability to make fact-based decisions faster and with a higher degree of confidence can be the difference between success as a growing business or a company becoming part of a statistic. The tools that are at business disposal aren t always equal in their ability to provide this confidence or the numbers to support these decisions. In other words, not all systems are created equal. In the world of financial consolidations and reporting there are three main options that companies can leverage to drive this process enterprise resource planning (ERP) and enterprise performance management (EPM) systems, or a spreadsheet tool like MS Excel. While each of these tools has the capability to consolidate, close, and make financial information available to limited parts of the organization, there is one that stands out. Enterprise performance management is the clear leader to provide all those capabilities along with the flexibility, advanced analytics, and better decision making that financial leaders need to provide all decision makers today more than ever. The following discussion will demonstrate the clear advantages that these applications have over ERPs and spreadsheets with the primary focus centered on the difference between ERP and EPM. Spreadsheet tools are ripe with audit, scalability, latency and accuracy concerns that they can t be considered as a solution for financial consolidation and close reporting in today s ever changing regulatory environment. USING ERP FOR ALL YOUR CONSOLIDATIONS AND REPORTING NEEDS Enterprise Resource Planning systems were created to provide corporations with a single system that could handle all of the reporting and analysis for the operations of a business from their billings to their book of record and everything in between. Unfortunately, ERP vendors have never been able to deliver on that promise. Below, we highlight several of the most significant: cost, flexibility, and a lack of analytics. Costs ERPs by their very nature (large number of modules, complex technical architecture, and focused on transactions not analytics) are complex and require a large amount of expertise to not only implement but maintain on an annual basis. To handle the complexity of ERP systems, companies need to involve their IT organization or outsource the function which creates a layer of overhead that can become costly. The additional headcount to manage the implementation, monitor the servers, and maintain the healthy operation of the system creates a significant salary burden for companies. In addition, the cost of the servers required to run the application need to be considered when you have such a complex environment to maintain. These additional resources people and technology become a significant addition to costs. 3

4 Customization The customization options for ERPs can vary by vendor but in general their level of customization is not what a typical company would require to run their business the most effective way. Just as one size doesn t fit all, not one ERP design fits all either. With today s constantly changing domestic and global landscape, companies need to have the opportunity to simulate and test various scenarios for their financial results. The effects of adopting or delaying new policies, merger and acquisition initiatives, or regulatory requirements (IFRS, Basel II, XBRL) are important factors in the financial and legal health of a company. Without having the flexibility to model, consolidate results, and report on these occurrences companies are at a significant disadvantage to their competitors. ERPs don t have the level of customization required to allow companies to perform these activities and one could argue they shouldn t. ERPs are the book of record for companies and, as such, need a level of rigidity that is required for audit ability. ERP vendors didn t design their applications for customization, but rather configuration. As such, companies will need to work within the given framework without the ability to extend their applications to accommodate their growing or changing needs. Value Add Activities Lastly, ERPs have not been able to deliver on the promise of less time aggregating data, and more time analyzing. Analytics is at the heart of better, faster decisions. ERP systems are not architected to support the level of analysis that companies in the global environment require. An ERP system was designed to focus on transactional modules accounts payable, accounts receivable, fixed assets, purchasing, and inventory control. Each module is purpose built to accommodate the operation of that function specifically, not how that module contributes to the overall health of the organization. As such there isn t a robust analytical engine that is supporting the users of ERP systems to help them take the next step of analyzing the results of their company for more effective decision making. Solving the ERP Problem Enterprise performance management software applications have been purpose built to satisfy the needs of Finance departments and beyond within an organization. Realizing that ERPs were not able to deliver on all of their promises to support the enterprise these solutions have been architected to provide solutions for key areas such as budgeting and planning, financial consolidation, and reporting and analytics. Financial consolidation and reporting software specifically addresses many of the key areas where ERPs have fallen down. The following sections will describe the unique features of financial consolidation and reporting applications and how they meet the needs of customers while delivering additional value to grow the organization. 4

5 Providing Financial Information to the Entire Organization Access to financial information can be the difference between a world class organization and one that is still looking to break free. The dissemination, update, and consolidation of financial information should not be restricted by an application. Instead the system should encourage the participation of all users across a company that are data providers, data manipulators, or reviewers. In these applications all decision makers should participate in the process and contribute their information, review related information for making more informed decisions, or analyze the final results. It doesn t matter if you are a sales representative, operations manager, or financial analyst, the availability of data and access to the tools for managing and reviewing the data are provided. This is markedly different than ERPs for example, where you wouldn t want users such as sales representatives in your book of record making modifications. However, within enterprise performance management software all user types are enabled to contribute and participate in the processes. Single System for Financial Close and Reporting Just as you wouldn t take your clothes to one store to have them dry cleaned and another store to have them pressed, you wouldn t want to consolidate your financial operations in one system and then take those results and put them in another for reporting purposes. Organizations need a single solution for integrated financial close and reporting activities. This is important as the financial close process is very iterative. Therefore, the reporting of information doesn t occur only once the data is consolidated, but rather it requires reporting throughout the process. With integrated reporting capabilities these applications help companies achieve efficiencies in reducing the close cycle to world class standards. In addition, once the consolidation is complete then all of the information for reporting purposes is in a single repository and is available for internal management and external regulatory reporting. EPM systems provide enhanced reporting through financial intelligence of underlying metadata, integrated financial statements, creation and management of key performance indicators (KPIs), and presentation style report outputs (PDF, HTML). The reporting can also be extended to meet recent external reporting requirements such as XBRL filings and Edgarization of SEC filed financial statements. These systems more readily support these reporting requirements as they contain the financial statements that need to be filed and tagged. As the market consolidates you will see vendors adding this functionality through partnerships or direct builds within their applications. Pre-built, Complex Adjustments A consolidation performed in an ERP is only able to accomplish a portion of the requirements to satisfy internal controls and regulatory compliance. Enterprise performance management software completes the consolidation process through the availability of functionality such as: intercompany eliminations; minority interest eliminations; post-erp close journal adjustments; top-side journal adjustments; dynamic journal calculations for 5

6 management ratios like Days Sales Outstanding (DSO); and additional foreign exchange adjustments, reconciliation and risk assessments. This is provided in pre-built, customizable formats that allow companies to tailor their functionality to their specific needs or leveraging best practices in consolidations. To extend the effectiveness of these modules, standardized reporting functionality is provided to enable companies to see the combined impact of adjustments across the entire organization. The reporting provides an audit trail of financial information through a consolidation process that can be analyzed for efficiencies and opportunities. Opportunities are exposed through analysis of the data and modeling of scenarios such as hedging strategies to mitigate foreign exchange risk or analyzing a minority interest venture to determine if a larger stake could reap additional benefits from an operational and financial perspective. Managed by Finance The Finance organization is responsible for the management and reporting of the financial consolidation process. Therefore, the Finance organization should be responsible for the administration of the system that supports the financial consolidation process. Reporting applications need to be architected for finance people by finance people and don t require significant, if any, involvement by the IT organization. In short, this allows for a less costly, more intuitive system that is purpose built for the finance users. Flexibility As was discussed at the beginning of this whitepaper, ERPs just aren t flexible enough to accommodate the changing needs of an organization. New Opportunities Enterprise performance management software is designed to be adaptable to ensure that all decision makers can model scenarios, analyze data, and make modifications quickly when plans change. Companies are constantly looking for opportunities to expand their business and this may require analyzing different options in the market such as mergers and acquisitions, introduction of a new product line, building of a new plant or relocating. You need to not only handle the scenario and initiative modeling but also grow as the business expands. Mergers, Acquisitions and Restructures With the addition of new subsidiaries or acquired companies these systems enable the seamless transition through the support of multiple charts of accounts (COA), a consolidated COA for reporting purposes, as well as drill back to source systems for detailed analysis. In addition, EPM software also supports what if modeling that allows for full consolidation processes to be run to determine best case/worst case outcomes for cases such as restructures, divestures, and acquisitions. All of this flexibility including currency management and scenario modeling, provides the final version of the truth and also the detail to support those decisions through adjustments and purpose built modules. 6

7 Operational Data and Integration The prior sections have focused on the importance of having a system that consolidates financial data and allows for modeling around financial decisions to report both internally and externally. Let s focus now on the flexible architecture that allows for the combination of financial and non-financial data within a single model to make more effective decisions. EPM software can be utilized to plan, monitor and report on non-financial data which in a typical ERP wouldn t even exist. This type of information doesn t even typically get recorded on the general ledger; however it can have tremendous value to an organization and their business decisions. Decisions based upon headcount, square footage under use or employee turnover can enable companies to make better decisions that will affect company performance. In addition, the integration between a consolidation application and a budgeting and forecasting application allows companies to more accurately predict their future needs and opportunities. Many companies employ the best practice of consolidating their budget information with the same rigor that is used for statutory consolidations. Processes such as intercompany eliminations, foreign currency exchange impact, and minority interest calculations are all relevant processes which can be applied to budget and forecast scenarios to drive more accurate plans. EPM software solutions deliver on this functionality through integrated modules that leverage a consistent data model for consolidating and reporting budget, forecast and actual data. KEY ATTRIBUTES OF AN INTEGRATED CONSOLIDATION AND REPORTING SYSTEM The following rules are provided in an EPM solution to ensure the proper and effective consolidation and reporting of financial and operational information. Business Rules Offer a simple way to manage the complexity of the consolidation process without needing a cryptic scripting language. Organization Rules Manage the complexities of minority interest calculations, subsidiaries on multiple fiscal years, complex equity ownership, multi-level elimination journal entries and multiple accounting methods. Currency Conversion Rules Manage currency conversion based on FASB 8, 52, and 95, including the temporal method of currency conversion as required for re-measurement or hyperinflationary environments. Allocation Rules Allow for the configuration of multi-level allocations across divisions and departments. 7

8 Consolidation Rules Manage the sequence and processing of subsidiaries in the financial consolidation process. Intercompany Elimination Functionality Perform automated matching and elimination of intercompany balances. Integrated budgeting and planning Companies can implement the same rigor in the consolidation of the budget as they do to their actual statutory consolidation. CONCLUSION The consolidation and reporting requirements are only going to continue to increase in complexity and users involved. A system that can support the ever changing needs of internal and external pressures, either self-imposed for performance improvements or regulatory measures meant to standardize and protect, will become more and more important. Systems that are designed specifically to handle the consolidation and reporting needs with Best Practice design and easy to implement modules can position companies to focus on their core competency running their business. Performance Management systems are the only systems available that provide this level of sophistication and flexibility to meet the needs of today s global economy. HOST ANALYTICS U.S. HEADQUARTERS 555 Twin Dolphin Drive, Suite 400 Redwood City, CA USA T Toll Free: sales@hostanalytics.com Copyright 2016, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. Rev: a