Supporting the move to a Cloud General Ledger

The banking landscape continues to shift with new, technology-forward entrants coming into the market offering a tailored and completely digital platform offering for customers. In response, many established banks are finally ramping up investments in their back-office architectures to support an automated, efficient, data-enabled finance department.

For some banks, one aspect of this initiative is migrating their General Ledger solution to the cloud.

The benefits of moving to the cloud are widely acknowledged, and cloud native companies are leading the way in increased revenue and financial performance, improved business agility, and enhanced customer experiences. So, it is tempting to think of a cloud solution as a magic bullet that will eliminate all the challenges and headaches of maintaining an IT solution in-house. After all, it can free up organizations from having to stay on top of inevitable upgrade requirements and keep up with changes in technology and IT processes.

However, while they do provide many benefits, all technology solutions have challenges and shortfalls and cloud-based solutions are no different. This should not discourage companies from pursuing a portfolio of smart, strategic cloud offerings, but it should encourage them to enter buying discussions aware of the potential risks and how to mitigate them.

In the following sections we look at some of the risks inherent in a move to a Cloud General Ledger and profile two companies who have successfully mitigated these challenges.

RISKS

Standardization vs. customization in ERP SolutionsWhen an organization moves from an on-premises implementation to a cloud offering, it’s widely accepted that the ability to customize the solution will be, at minimum, reduced or simply not permitted. The efficiencies gained from the cloud depend on some level of accepted standardization and cloud-based ERP solutions are no different.

Migrating from an on-prem ERP solution that has been the victim of workarounds and manipulations for years, to a mostly standardized offering, has risks. Since nearly every on-premises ERP application environment today is likely customized to some degree, organizations need to be aware that they will likely have to abandon some of the custom business processes they currently utilize – or find another solution to execute those processes.

The SVP of Oracle Consulting recently stated, “What our consulting team will do is say, ‘How do we unwind that complexity and teach you to take advantage of the out-of-the-box industry best practices built into our cloud technology?” In other words, if the unique business processes supported by your customizations can’t be reduced to configuration settings within Oracle’s cloud software, you should expect that you likely must give them up. (source)

Likewise, Cloud ERP solutions will not fix bad data or inefficient, inconsistent processes. In fact, they will only amplify existing issues because the ability to manipulate the system to make it work is significantly reduced in cloud solutions.

The cost of dataDepending on the size of the organization and the amount of data storage and processing power required, Cloud ERP solutions can get quite expensive. Moving data in and out of the cloud can increase costs even more.

It also makes sense to consider exactly how much data you want or need to be storing in your general ledger. Historically, the ERP solution was the holder of significant amounts of detailed data, often requiring customization to store that data in a meaningful way. This leads to an overburdened GL which can create issues for an organization. Inefficient core processes with clunky workaround solutions can open a company up to operational risk and higher cost and resource requirements. And no linkage between balances and source system transactions can mean a lack of understanding about business drivers.

Today, most organizations are looking to maintain a ‘thin’ General Ledger which holds only the data required to generate statutory and GAAP reporting, with more granular detail held in an accounting subledger to maintain source to post linkages.

Surrounding servicesMoving to a cloud solution may also require additional investments in vendor infrastructure for test and development instances. For example, the purchase of a cloud GL solution may require the purchase of multiple supporting solutions in order to support a robust ERP cloud implementation. When considering the solution price and discount, make sure you understand the surrounding solutions that will be required to get the final capabilities you need.

Similarly, support costs could increase once you factor in the cost of supporting the primary solution in addition to the surrounding solutions required. In fact, the CEO of a global technology provider recently acknowledged during an earnings call, that when customers move from on-premises solutions to the cloud, support costs end up doubling or even tripling.

The rise of subledgersTo mitigate these three areas of risk, companies may look at an accounting subledger to hold the granular detailed data and provide a link from the GL to the source systems where the transactions originated. Gartner is recognizing this pattern as well. Gregory Leiter, Sr Director, Analyst for Finance and Operations at Gartner noted, “Gartner’s addition of Accounting Hubs to our view of Financial Technology demonstrates the increase interest we see in subledgers from our end users.”

A subledger can allow organizations a higher level of configuration and flexibility to accommodate specific business processes that may not be accepted in the standardized cloud general ledger. It can also help reduce the cost of data storage and hold and provide a link from a ‘thin GL’ to the source systems where the transactions originated.

In a similar vein, a subledger can serve as the landing and integration point for general ledgers at the subsidiary level, rationalizing these disparate GLs and summarizing data required at the group level while retaining subsidiary-specific data for local GAAPs and reporting purposes.

Finally, a subledger can also support the actual moment of transition, which can be a risky one. Given that an ERP solution often handles mission-critical data and processes, making sure that process goes smoothly is vital. Having an accounting hub and subledger in place to ensure business as usual during the migration can mitigate risk.

A subledger provides a solid foundation for using transaction, contract and reference data at the most granular level of detail – providing agility and robustness. It enables a clean separation of accounting and actuarial elements and helps to simplify processes, hand-offs and actuarial models.

— Leading Australian financial services provider

“

SUCCESS STORIESWhile there are plenty of risks to mitigate when implementing a cloud ERP solution, there are companies who are getting it right and de-risking their implementations.

Top UK bankRecognizing that the big, monolithic ERP solutions of the past would not support the organization’s current and future goals, one of the largest banks in the UK made implementing an Oracle Cloud Fusion GL a part of their larger finance transformation project. To reduce the risk and cost of this selection, they chose the Aptitude Accounting Hub to support the rationalization of multiple ledgers towards a thin Group GL structure.

Today they are live with their Oracle Cloud GL, supported by Aptitude’s robust accounting hub and subledger. They continue to expand the number of applications that feed into AAH and are planning for an additional 20 key applications to be incorporated into the primary subledger in the next two years. In addition to providing a single version of detailed data and an important mechanism in maintaining a thin, standardized GL, they are finding that the UK regulators like the fact that AAH stores key reporting data on-premise, in the event of a failure along the Cloud chain of data.

Additional benefits from AAH include:

• Storing discount rates applicable at the date each claim is incurred which is more complex for IBNR/IBENR claims

• Calculating the impact of changes in discount rates at each reporting date

• Recording the cumulative impact of discount rate changes for each claim over time

Aptitude’s ApproachA strategic approach to Cloud is critical for today’s digital finance departments. The benefits of moving to the cloud are widely acknowledged and can drive increased revenue, better financial performance, improved business agility, and enhanced customer experiences. However, tradeoffs and risks do exist and companies who find ways to mitigate these issues can protect the value of their cloud investments.

models.”

Top US health insurerTo support the growth of the business and to bring the finance department fully into the digital era, the organization set out to dramatically transform their finance department. The plan to redesign their finance architecture had three workflows - the creation of a data lake, the implementation of an Oracle Cloud GL and the Aptitude Accounting Hub (AAH) and subledger to centralize data, maintain accounting rules and provide finance-certified data lineage from the ERP solution to source detail transaction data. Together these three integrated projects would allow the business to support more efficient operations, drive better analytics and increase their agility in the face of business and regulatory change.

AAH will provide the flexibility to support required business processes and reporting, giving them a place outside the Cloud GL. Supported by existing IP in the form of data models, industry templates, and accelerators, the project implementation team integrated 17 unique source systems into AAH, with a roadmap to bring more in over time. The subledger component of the Accounting Hub is now available to retain the transaction level detail and send account balances to the new cloud GL, reducing the amount of storage and customization required.

Additional benefits delivered:

• $2 million/year saved from retiring two legacy systems

• Finance can update accounting rules within 2-5 business days

• Straight through processing enables finance to complete month end close within 4-6 days

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After implementing AAH a leading bank was able

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which included

AAH provides a central accounting rules, reporting and control environment for all

transactional systems feeding summarised balances to a Cloud GL. The implementation of

AAH was strategic and de-risked the GL migration to the cloud.

General ledgers

Aptitude Software provides software solutions that enable finance professionals to run their global businesses, forecast decision outcomes, and comply with complex regulations. Uniquely combining deep finance expertise and IP rich technology, Aptitude gives finance leaders the tools they need to transform their business and achieve their ambitions.

Aptitude is proud to have served the offices of finance for over 20 years, delivering financial control and insight to create a world of financial confidence for our global clients.

Aptitude Software supports businesses with combined revenues approaching $1 trillion and over 500 million end customers. Headquartered in London, Aptitude Software is an operating company of Aptitude Software Group plc.

For further information, email us at info@aptitudesoftware.com or contact us:

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