Today’s episode discusses a major cost driver for finance departments, reconciliation, and how to eliminate it. Reconciliation is the process of agreeing that two sets of books or reports contain the same data. It is performed a great deal in our efforts to be accurate in finance.
When one reconciles a statement from a company to one’s personal records, both sets of data should contain the same level of detail, making any differences easier to identify. Often, though, the two reports or sources of data do not contain the same level of detail. One, the other or both may be aggregated. Yet both reports can be accumulated to some agreed level of detail for comparison.
If difference exists in these cases, the process of finding the common level of detail can extend any reconciliation processes substantially. This step is very difficult, if not impossible, to fully automate. And thus it is a major driver of finance activities to try to produce accurate, meaningful information.
It might not be possible to fully automate reconciliation, but it can be eliminated. Both “data supply chains” need to be lowered to the lowest common denominator, and aggregated at report time. This is the point of developing a new type of finance system, which I call a Metric Engine.
This is Episode 128 of Conversations with Kip, the best financial system vlog there is.