Art & Science of Revenue Automation: The importance of data under ASC 606 – Part 2
Previously, we discussed the critical data requirements for revenue automation under ASC 606. Today, we will talk about a “scientific” approach to understanding your data gaps.
Below are a few key steps to help you determine what your data needs are:
- Step 1: As we already discussed (in the second post of this series) start with defining your use- cases.
- Step 2: From the use-cases, determine the specific rules being applied for revenue recognition. This is often a large and complex portion of defining your revenue automation business requirements.
- Step 3: Define the exact master data and transactional data you need to support the accounting and rules you have defined.
- Step 4: Perform a gap analysis between the data you need and data that exists. The 3-tiered framework (in the third post of this series) can also help determine what you need to do to remediate the gaps.
- Step 5: Fix your data gaps!
The good news - the approach above is mostly "science" - clearly defined steps with a known and specific outcome. However, fixing the gaps is not always as straight forward. Some of the changes may require process changes outside of the direct control of Finance and Accounting; while others may require an investment in "upstream" systems, for which there is not budget or you are competing with other initiatives.
To support revenue automation some artful and creative thinking might be necessary to balance some near-term tactical solutions with longer term, large-scale changes. Some practical examples we have seen include:
- Using data proxies (i.e. other pieces of data that although not exactly matching what is needed, closely approximates the need). For example, existing financial systems may not capture the implementation go-live date (and in this example, this is deemed to be the trigger to start revenue recognition). However, business practice at the company is to invoice for professional services shortly after the go-live, therefore, the invoice date for the professional service could be used as a proxy for the go-live date.
- Adding new Finance and Accounting procedures to fix data quality issues or capture additional data.
Our experience has shown that in all revenue automation initiatives there are data gaps. Overlay this with a new revenue standard, and we expect data gaps will be prevalent. However, this presents companies with an opportunity to solve many common data challenges that hamper businesses (e.g. duplicate data, data inconsistencies, limited reporting) while supporting revenue automation - don't let this opportunity pass you by.
Next week, we will explore timelines and a few key drivers that impact the revenue automation timeframes.
Interested in reading the full Art & Science of Revenue Automation white paper? Down load here: Art & Science of Revenue Automation
Jason Pikoos
Partner, Financial Operations Practice Leader
Connor Group