| Many companies today rely on the general ledger as | | | | and the general ledger, in theory, returned to its roots |
| key part of their management reporting, well beyond | | | | as a repository for financial transactions. |
| the obvious financial information. | | | | The problem is, in some organisations, the data |
| The current practices in many organisations, and the | | | | warehouse didn't come. The general ledger kept its |
| architecture of their systems, and even the very | | | | place as the central repository for not just financial, but |
| structure of the software they buy have often been | | | | also management reporting. |
| shaped by the history of the adoption of information | | | | Huge amounts of non-financial information is still stored |
| technology in the firm. | | | | in many general ledgers. Here are just three important |
| In many firms, their management reporting systems | | | | reasons why your general ledger should NOT be your |
| reflect the fact that as information technology began | | | | data warehouse. |
| to be used extensively by business, often the very | | | | 1) It forces you to compromise on level of detail and |
| first functional area to be automated was accounting. | | | | drill down, and history |
| Because finance and accounting are of course at the | | | | No general ledger can hold the level of detail available |
| heart of any enterprise often the first automated | | | | in many source systems. As a result, any interface |
| reports and the first database within an enterprise was | | | | from the sales system, manufacturing system etc. |
| the general ledger. | | | | feeding into the GL will have to create journal entries |
| In many companies, the general ledger became the | | | | that summarize a great deal of information. |
| clearing house for all information- not just financial, and | | | | While the detail of course will still exist in the source |
| in effect became a data warehouse before the | | | | system, if your management reporting is all from a |
| concept of data warehousing had even evolved. | | | | general ledger based system, upper management will |
| Lets look at the example of a manufacturing | | | | tend to use this single source- and as a result |
| enterprise. | | | | important granularity may be lost to the decision |
| The company invested in a mainframe computer at | | | | making process. |
| some time in the seventies. Management was thrilled | | | | This summarization also makes it very difficult (or |
| with the new capability they had in financial reporting. It | | | | impossible) to have drill down into the details, giving up |
| didn't take long for them to ask to have manufacturing | | | | some of the greatest benefits of modern business |
| data in the reports as well. | | | | intelligence systems. |
| Eager to please, the accounting department added lots | | | | Finally, general ledger based data storage does not |
| of additional accounts into the Chart of accounts | | | | usually allow for the tracking of reference data |
| (COA), adding entries that were "non-financial" storing | | | | changes over time. As sales regions are modified, and |
| sales quantities, volumes consumed, things like energy | | | | territories shift, comparing one period to another |
| consumption, raw material quantities, wastage and | | | | becomes increasingly difficult. Data warehouses, |
| defect counts. | | | | designed from the beginning to store this type of |
| This made sense at the time, because otherwise the | | | | slowly changing reference information, can provide a |
| information would not have been stored digitally. The | | | | much more insight and historical analysis. |
| manufacturing plants used hard wired relay logic to | | | | 2) It results in an overly complex chart of accounts |
| control their equipment, and recorded instrumentation | | | | and may even affect month end close |
| readings on chart recorders. | | | | As the source systems become more and more |
| A chart recorder is a device that uses a physical pen | | | | capable of collecting data, the tendency is to want to |
| to record temperatures, pressures, position, speed, etc. | | | | increase the amount of management reporting. If this is |
| of equipment on paper which is physically pulled past | | | | being done in the general ledger, it means that further |
| the pen at a predefined rate. As these rolls of paper | | | | charts of account must be added, and an increased |
| were used up, the operator would change them. The | | | | number of journal entries need to be done. Depending |
| rolls of paper with the information on them then got | | | | how the overall process is setup, its even possible that |
| stored in filing cabinets. | | | | the increased complexity might affect the speed at |
| The shift workers wrote information into formated | | | | which month end closing can be completed, if for no |
| pages in a shift book, and then at the end of the | | | | other reason that the same finance resources must |
| month, administrative staff added journal entries to | | | | both tend to the financial and the management |
| capture the information. Many factories didn't have a | | | | reporting needs. |
| computer, or if they did, it was a mini-computer that | | | | 3) It discourages cross functional definitions and |
| was specified by and operated by the information | | | | collaboration on analysis |
| technology department- which was part of the finance | | | | By making one of the functional areas (finance) the |
| organisation. Companies didn't have CIOs, only CFOs. | | | | center and owner of management reporting, a general |
| The final result was, it was possible to generate | | | | ledger based reporting architecture can actually |
| management reports with both financial and | | | | increase the severity of the information silos it is most |
| manufacturing information. How many liters of paint did | | | | likely trying to eliminate. |
| we buy? How many kilowatt hours of electricity, for | | | | Because the general ledger reporting does not require |
| how many units produced. In some ways, this might | | | | all the detail available, each department only needs to |
| have been the brief golden age of management | | | | provide the summarized information required by |
| reporting. (Or is it just that time makes memory blur?) | | | | finance. While every department has to coordinate |
| Then, as computers started to arrive everywhere, no | | | | with finance, there is no requirement for sales and |
| longer just the domain of the finance and accounting | | | | manufacturing, for example to compare or coordinate |
| department, the trouble started. | | | | their information definitions. While at a high level data is |
| The manufacturing plants installed automation systems. | | | | integrated, any benefit from more tightly integrating |
| Chart recorders gave way to distributed control | | | | information across silos that a data warehouse can |
| systems, and SCADA (supervisory control and data | | | | bring is lost. |
| acquisition) systems, and pretty soon they had their | | | | In a very real way, a successful general ledger based |
| own databases. They kept having to supply numbers | | | | management reporting system is in fact an impediment |
| for the bean counters to enter into the now aging | | | | to progress for an enterprises business intelligence and |
| mainframe, but they used their own reports and | | | | data analysis evolution. |
| eventually spreadsheets to actually manage their | | | | Because management reporting is available, the |
| process. | | | | justification or need for a data warehouse is not felt |
| Manufacturing organisations began to include | | | | as strongly. However, as needs continue to evolve, the |
| "automation engineers" which, in fact, were information | | | | effort expended in the constantly growing general |
| technology professionals, and multiple IT departments | | | | ledger, and its impact on the financial processes, and |
| began to form in all but name. Standards for data | | | | the companies overall information management culture |
| format, coding and methods for calculating key | | | | will become increasingly damaging. |
| performance indicators evolved slowly, or not at all. | | | | Ironically, companies who failed to ever establish a |
| Finances definition of how to calculate things tended to | | | | general ledger based management reporting system |
| win because they held the keys to the general ledger, | | | | could leapfrog their more financially focused |
| where the report that went to the CEO came from. | | | | competitors, as they embrace the modern data |
| Then came the ERP. The ERP may or may not have | | | | warehouse, the the tools available for data analysis. |
| included the manufacturing operations, but it almost | | | | A true data warehouse is not an easy road, and is |
| always included the general ledger. Regardless of if | | | | only one component of a broader data analysis |
| the manufacturing modules of the ERP were used or | | | | strategy. In the short term, using the general ledger for |
| not, the trouble with getting management reports just | | | | management reporting can seem easier, and could put |
| got worse. Manufacturing had all sorts of detailed | | | | off the challenges of additional hardware and |
| information they needed, and keeping the central, | | | | software, as well as the need to coordinate between |
| general ledger reports up to date meant creating more | | | | departments. |
| and more accounts, more and more cost centers. The | | | | However, despite its historical place as the center of all |
| concept of a separate data warehouse where | | | | data storage, in a modern architecture the general |
| information from multiple systems (finance, | | | | ledger should be used only for accounting as it was |
| manufacturing, sales) could be combined was born, | | | | originally intended. |