Prd 012 The stages in developing a Cubic Business Model based Group Chart of Accounts Created by James on 6/23/2013 11:03:47 AM
The following are the stages in developing a Cubic Business Model based Group Chart of Accounts:
1. Components
A Cubic Business Model based Group Chart of Accounts comprises Divisions (legal or operational entities), Locations, Functions, the Master Chart of Accounts and the final enterprise Chart of Accounts – development each of these components takes time.
2. Divisions
Division definition may be trivial for a small uncomplicated enterprise but may require several iterations for a larger multi-divisional enterprise – the Divisional hierarchy must accurately model the logical structure of the entire organization.
3. Locations – WHERE we DO what we do
Location definition – where we do what we do – is frequently more complex than expected as different executives and managers may have different views of how best to model the enterprise. If well managed with all the right people in the room three iterations will generally suffice. For a large complex organization such as an enterprise with a number of large and complex mines or factories the Location model design with plenty of room for growth is critical.
4. Functions – WHAT we do
Function definition – what we do – can become significantly complex and challenging to develop as a single holistic model that accommodates the complexities of all divisions in a logical structure that will accommodate all foreseeable growth. Three to five iterations may be required. For a large and complex organization with different business units each of which has very different business functions the development of the overall Function model with plenty of room for growth is critical.
5. Size and complexity
The Master Chart of Accounts can easily run to 1,000 to 3,000 accounts including headings depending on the size and complexity of the enterprise. As many as 5 to 10 iterations and possibly 2 or 3 restarts / restructures will be required at the final Master Chart for a large enterprise in order to effectively model the full complexity of the organization. With large and complex enterprises the development of a comprehensive holistic Chart of Accounts that handles current complexities and provides sufficient space for foreseeable future growth is time consuming but critical.
6. Standard account blocks
Development of master personnel cost blocks, master asset cost blocks, master product cost and revenue blocks, master project blocks, master customer blocks, etc as applicable to any particular enterprise, are also significantly time consuming. These blocks must be harmonized and integrated with all other modules in the ERP and associated systems. This harmonization can take a significant number of iterations.
7. Cross ticking with existing Charts of Accounts
The above stages will be accompanied by one and possibly two cross ticking exercises against the existing Charts of accounts in order to ensure that the Master Chart caters for all foreseeable Locations, Functions and Accounts. The Master Chart is the heart of the solution, it is not finished till it is finished – the cross ticking should take place after about 3 or 4 iterations in the design of the Master Chart and this may trigger significant restructuring if elements have been overlooked – the quality of the early stage input has a huge impact on the extent to which this ticking exercise is a formality or a major painful restructuring.
8. The Location à Function Matrix
Developing the full matrix of the face of the Cubic Model will typically take at least 2 and possibly 3 iterations to fully model the real complexity of the business in terms of Locations and Functions and generally stimulates discussion in depth regarding the real world governance and logic of the business – executive involvement at this stage is vital as this model will determine the default management model going forward.
9. Sub-Charts
The creation of the individual sub-Charts of Accounts for each Location-Function cell on the matrix will require a minimum of two and possibly three iterations to ensure that exactly the right accounts are allocated to each cell from a perspective of the real world governance of which manager or supervisor can incur costs and generate revenue against that cell – the precision of this mapping has major implications for the effectiveness of overall corporate governance that is supported by the Cubic Business Model Chart of Accounts.
10. Mapping of old accounts to new accounts
The final mapping of old accounts onto new accounts will typically require a minimum of two and possibly three iterations to ensure that all old accounts are properly catered for – the more precise the ticking during the earlier stages of the design of the Chart of Accounts the quicker and easier the final mapping will be.
11. Deployment
Once all the above have been done the Final Chart is ready for deployment – typically in the first instance into a Data Warehouse rather than into the operational ERP.
12. Financial Statements
Associated with this a complete set of standard financial statements must be produced together with a comprehensive analytical model in the data warehouse and business intelligence environment together with specialist economic and other models – these components collectively represent further time and cost investment but are the elements that deliver the value to the business at the end of the day.
We are have recently commenced work on developing a suite of tools and models that we term “The JAR&A Analytical Financial Suite” – see separate information sheets.
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