IT Heroics for Finance Part 2: Reconciliation

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By deploying Simple Finance, IT can bring transformation to finance. In the introduction to this series, we learned the need for simplification and the role HANA plays.

Simple Finance is our industry-leading financial solution re-built to take advantage of SAP HANA. Perhaps the most significant change from this re-build is with reconciliation. If we understand reconciliation and how Simple Finance eliminates it, we can communicate Simple Finance benefits with our colleagues in finance using an example that make sense to them.

There are two general areas of accounting:

1. Financial (FI). For external entities. Main reports are balance sheet and P&L statements.
2. Controlling (CO). For internal reports to management, mainly focused on cost.

In software today, FI and CO are separate components or systems, historically thought to be independent areas. Certainly they have different structures and key figures. Executives, though, wanted a holistic view, and this meant a huge reconciliation challenge to understand the differences between systems, and bring them together in a single ledger. Reconciliation is a massive, time-consuming effort that has to occur often:

• Within components. Ensuring totals match up with underlying line-items.
• Between components. Comparing figures between functions, like results in the P&L module to the cost-based profitability analysis module (CO-PA).

There have been improvements to make reconciliation easier, notably the New G/L (General Ledger) in ERP 2004. Ultimately, though, none of the improvements solved the underlying issue: detail is stored separately by all components (such as General Ledger, Controlling, Asset Accounting, Material Ledger, Profitability Analysis).

HANA’s most important capability is aggregating within seconds hundreds of millions of items in one table in memory. Thus, it is the ideal architecture to solve reconciliation. In Simple Finance, we combine all the data structures of the different components into one table: the Universal Journal. HANA’s columnar store with superior compression make this possible.

We can’t adequately describe the structure of the Universal Journal in a short article. The important thing for now is that HANA and the Universal Journal solve both reconciliation problems. Recall that with HANA, we no longer need redundant data (aggregates and indices) to do analysis, so the first issue of reconciliation within components is solved. All totals are derived on-the-fly from the line-items directly.

The more difficult reconciliation between components is solved as well. We merge the components in the Universal Journal to guarantee real-time integration. For example, with FI and CO combined logically in the Universal Journal, users drill down to the same line items from the key figures and reports of either component.

Since HANA provides unprecedented speed for multidimensional analysis, it is no longer necessary to replicate data to OLAP. Even should OLAP be needed, ETL is much simpler from the Universal Journal instead of multiple components.

All of this means dramatic simplification. In one case, a Fortune 500 early adopter cut 120 person-days per month from reconciliation efforts. This is time that can be spent on more strategic planning and analysis tasks.