Data on the balance sheet? 1

Measure and manage - data on the balance sheet? DQ Global October 2008

Should you put data on the balance sheet? What are the most valuable assets? The data quality gap

Data on the balance sheet? 2

Summary

Overview

In times of economic downturn like we are seeing at present, more and more companies are looking at ways to reduce costs. Many industries are now making do with what they have rather than splashing out on new technologies and accounts departments are trying to find ways to cut costs and to find the true value of everything. Does this include your data too? Is your database or CRM system an asset that should be detailed on the balance sheet?

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Should you put data on the balance sheet?

If your biggest competitor went into receivership, which of their assets would you most value? Perhaps your answer would be the IP in the customer database, then perhaps the IP in technology and processes, then probably things on the balance sheet – buildings, cars, computers, etc. Equally, if you sold your business, a potential purchaser would want to know the value of your assets and liabilities, including the ‘goodwill’ (the gap between the book value and purchase price), which can be included on the purchaser’s balance sheet. Surely, a substantial amount of the ‘goodwill’ is the information and data on your customers - your database content. The Financial Reporting Standard (FRS) 10 Goodwill and Intangible Assets proposes that ‘purchased goodwill and intangible assets should be capitalised as assets’. Assets can be intangibles such as patents or copyrights that provide financial advantages for their holder. Doesn’t the database content also provide a significant financial advantage? Unfortunately, because it is intangible, the database content is not treated with the respect it deserves. However, to some companies, an intangible asset can be the most valuable asset it possesses. Capital expenditure (CAPEX) is measured as a matter of course, but who bothers to measure expenditure on data? If they did, the chances are they would find it's around 10 times bigger than CAPEX. Companies measure return on investment (ROI) or return on capital employed (ROCE), but what about return on capital invested in data (ROCID)? If it’s not measured, it will remain unmanaged.

Organisations collect, buy and store data, they manage and maintain it, so it is constantly being invested in. The balance sheet includes hardware and software and their depreciation, so why treat the database content differently? After all, surveys show that business and consumer data decay (or depreciate) at a rate of up to 32% each per year!

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The main problem seems to be that there is confusion about ownership. In most organisations, IT owns the database container, and other areas – marketing, finance, sales, etc. – take ownership (or perhaps not) of the database content. The result is that data quality easily falls through the gaps created. The irony is that the database and its content are really a board level responsibility and should be treated as such. Hence the database content should be valued by everyone in the business as an intangible asset and perhaps added to the balance sheet, in the same way as physical assets are cherished.

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The data quality gap

It’s the classic ‘Everybody, Somebody, Anybody, Nobody’ no ownership story: Data quality management is an important job and Everybody is sure that Somebody will do it. Anybody can do it, but Nobody does. Somebody got angry about that because it was Everybody’s job. Everybody thinks that Anybody can do it, but Nobody realises that Everybody won’t do it. In the end, Everybody blames Somebody when Nobody does what Anybody could do.

Marketing

Management

IT

Data quality gaps

EVERYBODY

SOMEBODY

ANYBODY

Defences

NOBODY

DQ Hazards

EVERYBODY

SOMEBODY

ANYBODY

Defences

NOBODY

DQ Hazards

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