We expected to find a new strategic approach to budgeting in “Better Budgets” ( JofA, Feb.00, page 37). Instead, we found an article that might have been an advertisement for enterprise resource planning (ERP) software and systems consultants.
The article contains some useful information for management accountants but also material that may be misunderstood. We believe the following clarifications are needed to achieve better budgets.
ERP systems are massive, complex beasts designed to integrate information and processes that span many organizational units. They are usually expected to replace multiple systems, each of which was designed and managed for support of a much more discrete grouping of business functions. They are not simply big versions of an earlier system.
Theoretically, there is no reason why providing decision-makers with more efficient and effective access to better information would not result in significant improvements to the budgeting process. However, while the potential advantages of the ERP approach are obvious, in reality many issues arise that threaten their realization.
That more data can be made available to more people faster sounds good, but conversion from legacy systems to an ERP system requires managers and information-systems support staff to assume responsibilities for insuring data integrity and appropriateness of business processes. It is hard enough for business managers to understand the information systems and technology on which their units rely, but it is even harder for technologists to understand the entire corporate entity from a business perspective.
Effective project management is absolutely necessary for the success of any large systems-integration project, and changes in business processes resulting from reengineering and ERP system implementation make this a daunting challenge. Even ERP software manufacturers readily admit that few, if any, of their employees understand the entire system. In this context, the potential for trouble goes beyond the right hand’s not knowing what the left hand is doing. Most managers have had the experience of asking information technology people to modify a program and subsequently finding errors appearing in other modules. In a legacy system environment, the results of these errors are more likely to be confined to one area, identified and addressed before they spread throughout the entire organization.
This is not to say that ERP software should be avoided, but the responsibilities, knowledge, skill sets and diligence needed for maintaining the integrity of corporate information and computer-supported processes must be reevaluated.
ERP systems and “bolt-on” products for forecasting and analysis must be configured, programmed, fed (from data sources) and tested. They may contain sophisticated built-in models and features, but anyone who thinks of them as magical black boxes that just spit out great budgets will be disappointed. No matter how much you spend, the garbage-in, garbage-out rule still applies.
The strength of these new systems lies in their ability to access and process more information more quickly. The quality of the information and processing methods is a different question. This technology, when combined with poor information quality and inappropriate processes, guarantees more wrong answers faster and “prettier.” Giving a talented 12-year-old a new set of tools may enable him to build a better birdhouse, but getting even better and bigger tools won’t result in a skyscraper.
Marc Lynn, PhD
Associate Professor, Information Systems
Roland Madison, CPA
KPMG LLP Professor of Accountancy
John Carroll University