The Paradox of Sophistication

The more data you have, the less use you make of it

 

By François Masquelier, Head of Corporate Finance and Treasury, RTL Group and Honorary Chairman of the European Association of Corporate Treasurers

The sophistication of IT systems paradoxically results in a profusion of data and makes it impossible to process or compile it properly. We have to cobble dashboards together in a Heath Robinson manner because the data does not match standard formats and is compartmentalised in its own systems, which are all independent from each other and all different. Since too much is often worse than too little, we may end up submerged in data, or we may just under-use it. The Business Intelligence (BI) challenge is to extract the data, make the formats compatible and process the data to condense it into an appropriate dashboard. In treasury management, we also experience Big Unused Financial Data. This article aims to address that problem.

Drowning in a flood of data

The world of modern finance has become so complex with such a wide range of data that we may end up drowning in the flood of data available. Picking your way through such a flood of data is well nigh impossible. It is like driving an Aston Martin while sticking to first gear. All too often, we under-use available information through having no means of extracting it, condensing it into one single format, and compiling it into a summary. 

In my view, today the greatest difficulty lies not in accessing information, but in sorting it and condensing it into a coherent, complete and comprehensible summary. It is important to really understand what you have to hand and to be able to use what you have available to process the data as easily as possible. We are overloaded with information and cannot absorb it in a digestible, palatable and comprehensible way. It is an immense funnel into which we have to compact the substance to extract its very essence. Why access more data if we cannot use it? We should avoid arbitrarily collating data here and there if we cannot do anything with it. Reconciliations, checks and key performance indicators are ‘the’ true goals of treasurers today. To avoid all this being a never-ending story or a bottomless pit, whereby we access ever more data without being able to process what we have already collected, we have to act and put an appropriate solution in place to compile it. That is an enormous project in itself. 

Toolbox theory

Treasury is a world in which there is a profusion of powerful tools. When you buy an IKEA flat- pack cupboard, you get a plan and the tools to enable you to put it together without being a DIY expert. In treasury we are provided with the tools and a box to create reports and dashboards, a sort of consolidator of disparate data in a variety of languages. But a toolbox that comes without the tradesman to help you shape the summary reports is completely useless. Unfortunately, dashboarding is no IKEA cupboard. But nevertheless compliance requirements have done nothing but increase. The number of reports required is sharply on the rise. Reporting systems themselves have kept on growing. The profusion of formats and systems only complicates the treasurers' work, or even makes it Herculean. The real art lies in consolidating it all and producing a summary comprehensible to a CFO or an audit committee. 

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The paradoxical equation

The paradoxical equation of treasury is this surge in data, the labyrinthine complexity of systems, and the many sources. It is like trying to summarise a number of books written in various foreign languages into Esperanto. Information inflation is destroying information. Too much of something is always harmful, and in particular the excess pollutes the financial report. People who try to do too much produce less – another paradox that we should face up to and tackle. We may be given ever more numerous tools, but what is the good of them if we cannot make them work together? We need an IT tool that is the quintessence of all the others, an extractor, translator and summariser of data. Or is that a pipe dream rather than reality? No, it exists. But in addition to the tool, would it be possible to have advice and a setup service? To produce a control panel worthy of the name, we should not rely on a TMS, however sophisticated it may be. We build our IT architecture as we go along, with no overall plan. As a result, we use different sources alongside each other as best we can, without always being able to consolidate them. That is where the problem lies. But solutions nevertheless exist, even though sometimes some of them are only Lego sets with no-one to put them together or what is called an Extract-Transform-Load (ETL) programme. Examples include INTIX, FinBoard, Qlickview, Jaspersoft, Apache crunch, SAP data services, OpenText, etc. The list of these emerging products is too long, and their category is too broad for them all to be listed.

Why would you look for another tool when you have powerful tools in place?

That is the natural question that everyone rightly asks. Why on earth would you look elsewhere for the solution and add yet another tool that has to be connected and interfaced? On the face of it, that would seem to be a pretty bad idea. However, the reality of current treasury IT tools is that they are standard, sophisticated yes, but somewhat generic and in the final analysis not very flexible. They are made to satisfy the greatest number and therefore they are off-the-peg products, when perhaps tailor-made would be better (except for the price). The requirements are becoming ever more specific in terms of reporting, and everyone addresses them in their own way. A generic solution is often not possible. 

Furthermore, the growth of regulations and new IFRS standards is such that software producers are a bit behind the curve and wait to find out what they have to develop before getting down to work. The principle of the ‘very last minute’ (to put it kindly) therefore applies and very often leaves treasurers helpless in the face of compliance requirements. The solution of flexibility then starts to make complete sense and comes into its own. We have to extract the data, reconcile it, do the calculations or valuations, the checks, calculate the ratios or key performance indicators and issue bespoke reports for various reasons. The demands of supervisors, market regulators and their watchdogs, of ESMA and its equivalents and finally of external auditors have made the report production requirement considerably more burdensome. We need to extract the data, convert it, process it and put it together to distil the substance or the essence from it, working on the funnel principle described above. 

The starting point

The recommendation is to start from your requirements and describe the specifications or prepare a business blueprint in Excel or similar. You should decide on the report production priorities to suit their intended use and in particular having regard to the time that would be taken if they were to be produced manually or by DIY methods in comparison with being automated. You have to find a tool, and many exist. But we always recommend a tool or more specifically a tool-kit that comes with the technician or consultant to help you, and who can teach you how to develop the report and produce it. The idea of automating is (1) to achieve greater reliability and security, (2) to increase productivity and consequently (3) to decrease cost. Time and resources are too precious for them to be squandered. Integrator, extractor and consolidator tools of this type (ETL type tools) are the common denominator of modern financial reporting. 

We do not think that any standard state-of-the-art solution or solutions exist that are able to provide you with everything you want in the form of a comprehensible financial statement usable for management purposes. If the data extracted or converted is processed and stored in compartments or tiles of a dashboard you can open them to see the summarised data. You can even scroll down to refine the information or drill down to go back to the source or the detail if necessary. The key thing is to use an adaptable tool that will compile all the types of data flexibly. But the good news for treasurers is that these solutions exist. 

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For the last thirty years, Excel has been the piece of software in widest use amongst treasurers, but unfortunately it is not the surest. It is not as robust as it needs to be, which is the other side of the coin from extreme flexibility. However, when planning to build a dashboard, Excel is at the top of the list, the one you think of first. It is capable of complex calculations and routines, and it can communicate with other databases of various different dimensions. Unlike the treasury management system (TMS), Excel starts from a blank page and is not really process-orientated. It is useful, but in measured, homeopathic doses. That is the real problem: we always abuse good things, and as with drugs we become hyper-dependent. If CIOs are wary of new and untried applications, the temptation to use Excel is enormous. Here again, DIY can help us, but it will never be as sure as a factory finish. With greater taxonomy of financial information and by structuring using digital tags, even with IFRS standards we will be able to extract financial data in XBRL type formats more easily. In this way data will be customised to produce tailored reports and will cut costs. It is, and always will be, all about standards. We will get there – but in the meanwhile we have to extract and keep on doing a bit of DIY. We may dream of a world in which a robot can extract everything and compile it easily. Happily or sadly, that will not happen any time soon. The lack of standardisation forces us to innovate and to sculpt a solution using an appropriate tool of the Business Intelligence or Information Builders type. The Meccano sets of finance exist. It is up to you to use them appropriately.

Big data or unused data

Rather than big data, it might be better to talk about unused or under-used data of which treasurers should make better use. If it were processed and converted it could produce valuable dashboard figures. In the absence of a properly organised and structured IT architecture, with many different solutions, and failing a standard extraction format, we need make the best of things and devise the best strategy we can for producing financial information. We need to automate as much as possible and strengthen internal controls while delivering the dashboards needed for decision-making. This will be a big challenge for all treasurers over the next few years: some people have yet to find out just how big it will be.