Is ERP And Consolidation A Con Trick?

ERP

For some time now, ERP companies have been promoting their systems as multi-company, multi-currency offerings. Not surprisingly, this concept has a lot of appeal to groups who are operating in more than one country. Up until recently, the experience that most companies have had when it comes to reporting across multiple companies is that they have either to:

  • Extract trial balances from each reporting company at period end to a specialised consolidation product, which is then used to perform the currency translation, aggregation, and processing of consolidation journals.
  • Or more usually, dump all of the reporting company trial balances to a series of spreadsheets, where highly qualified accountants perform the same tasks manually.

In either case the resultant information is somewhat limited and really only serves to fulfil the needs of group finance to report on the overall performance of the group. When it comes to actionable information for operational management this method of consolidation and reporting has little to offer and most companies will have to engage in parallel exercises to deliver meaningful analyses of sales, inventory, procurement etc.

In today’s world, it is the norm for even quite small companies to go multi-national, offering their products and services across multiple jurisdictions in a variety of local currencies. It is not surprising therefore that there is a real appetite for immediate performance information where ideally operational information is delivered on a daily basis. So for example, it is quite reasonable to expect to see yesterday’s sales performance analysed by channel and product across all markets, presented in a common currency so that operational management can see what is actually happening.

The bigger surprise is that very few of these systems actually address the need that has been outlined above. Guess what – these new ERP systems offer their users consolidation at summary trial balance level only at month end. So, whilst many companies are now committing to ERP systems on a group wide basis, it often comes as a bit of a shock when they discover that from a reporting perspective they are no better off than they were when each operating company within the group selected its own ERP or accounting system.

The only good news is that all of the relevant data is now held in one system, but it is not in a form that is useable by management and it remains the case that to get accurate operational performance information from the ERP, companies will need to rely on an additional BI or reporting system. One word of warning; caution needs to be exercised in the selection of the BI system, as some very particular functionality needs to be present within the BI if it is to be capable of fulfilling this complex reporting requirement.

Plugging The Gap

So, if you have invested in a brand new ERP and have fallen into the Consolidation and Reporting elephant trap, how do you go about plugging the gap? I would contend that there are two ways forward here:

  • Employ highly paid accountants to build and run manually a necessarily massively complex spreadsheet system.
  • Deploy a BI tool that has been developed specifically to handle this task.

I will not dwell on the first option, except to say that any CFO who sanctions this approach as a way forward should really think twice. This is an approach rooted in the past and any forward thinking company deserves better. Deploying a BI is the way forward, but not any BI will do. Beware the glib sales and marketing claims of the potential suppliers. Look carefully at their offerings to see that the following functionality is offered ‘Out of the box’ so that configuration and development will be kept to a minimum:

  • Sub-ledger integration: It is not sufficient to consolidate the Trial Balance only as by definition, the performance data is contained in the sub-ledgers (Sales, item, Purchasing, Project etc.), so the detail in these ledgers must be available in the consolidation system.
  • Chart of account mapping: Many companies aim to impose a standard chart of accounts across all operating companies and whilst this is a great objective, very few actually achieve this, particularly when the sub-ledgers are brought into play. It is therefore vital that the BI system can offer a simple to operate mapping tool so that you can compare like with like.
  • GAAP compliant currency translation: Every company will have a policy for the translation of foreign currency results and it is vital that the BI can replicate this at a detail level, including the ability to generate adjustment journals. The BI system must then allow the users to review results at even the most detail level in one or more base currencies.
  • Import of external data: Whilst it is the objective of many companies to get everything into one ERP systems, it is usually the case that some data and even some companies will stand outside of this framework, so facilities to import data at the appropriate level of detail must exist.
  • Complete audit trail: Consolidation systems are subject to audit and the ability to prove any number is important. The BI system must be able to break any number down to its most detail constituent numbers.
  • Hierachy management: Not just for organising companies, but all dimensions – market segments, products, channels, cost centres. This has to be presented as end-user functionality.
  • Report writing: The BI must offer an end user report writing capability so that the users can produce not only high level financial statements, but also cross company performance reports in both local and common currency.
  • Daily reporting: Does the BI system provide a multi-company view from any chosen angle to any analytical depth at any point in time in any single currency? Or does each ad hoc request for information require an ad hoc project?

A successful implementation will require the BI supplier to offer a lot of accounting intelligence embedded in their solution. If it is not there, you still might succeed, but expect a lot of development and maintenance work if you are going to make the system truly useful.

Michael Evans

Michael Evans started his career as a chartered accountant with Ernst & Young, but made the switch to software just as the PC boom was starting. Michael has specialised in business intelligence and reporting software and was drawn to PrecisionPoint, which he joined in 2009, by the completely innovative approach – “It is rare to be offered the chance to lead a company that can so easily be differentiated from the competition”. Mike is a family man living in West London.