Logistics Business - Manage your Data NOW or Dig your Graves #3

#3?- Have you created your Data Balance Sheet

Every business religiously produces their financial balance sheet. It provides us critical information about the value of the firm’s assets, liabilities and the owner’s equity. The balance sheet of a company shows the assets on one side and the liabilities and owner’s equity on the other side in such a way that both sides balance in accordance with the accounting equation.

Assets ( cash, accounts receivable, merchandise to be sold, supplies, equipment, and land plus intangible items such as patents, franchises, and copyrights.) = Liabilities ( what the business owes to others like payments to be made to suppliers, salaries to employees, taxes to government agencies, rent to landlords, mortgage, and loans and interest payments to financial institutions.) + Owner’s Equity ( money that the owners of the business have put into the business.)

In respect of Data the questions asked are “Is data a business asset?” & " Can it be a liability" & "Can it have equity" Why is it that an intangible asset like data is not in the company’s balance sheet - a statement of the assets, liabilities, and capital of a business at a particular point in time.

Technically, data is an intangible asset - a non-physical asset that has a multi-period useful life.

While data in the recent years has provided competitive advantage to many companies, the key reasons that make it challenging for data to find a place in the balance sheet are :-

1. Costing. Any asset listed on a company’s balance sheet should have an identifiable fair market value (FMV). It is a struggle to put a $ figure to the value data brings to the organization. They are no defined standards.
2. Depreciation.?When tangible assets age, they lose their value i.e. depreciate. But when data assets age, they can lose or gain value. If the data is incorrect then it will surely depreciate. Data requires specific appreciation / depreciation methods and regulations which we lack today.
3. Context.?Assets listed on a company’s balance sheet are usually utilized in a similar manner across the industry. For example, equipment would be used by two different companies in almost the same manner. The same cannot be said of data as data is largely contextual. This makes creation of standard different.
4. Capture. As per current accounting principles, any asset listed on a company’s balance sheet should be an acquired or captured asset. For example, even though an intangible asset such as a logo could carry a huge recognition value, it does not appear on the balance sheet because the logo was developed internally and was not acquired.
5. Compliance.?Data can very quickly transform itself from an asset to a huge liability if it has poor quality and security . While tangible assets like machinery or buildings can also become a liability for a company, the rate of change of an intangible asset like data is significantly higher compared to a tangible asset.

Basically, an intangible asset like data brings subjectively into asset valuation; and businesses loathe unpredictability and vagueness.

However, data should find a place in the balance sheet and we need make start by assigning $ value to the data assets. Cant customer data be an intangible asset, in a balance sheet based on the likely revenue increase that it can help garner. The key is assigning the $ value to the data asset which is the first step in data’s journey towards finding a place in the balance sheet. Does one wait for regulatory agencies to define it or should forward looking Logistics companies start creating data balance sheets and learn and evolve and hone it and over time carve out acceptable standards. A start needs to be made.

Is your data an asset?

Does data really fit the bill as an asset, It can be if we assign three key characteristics to it. They are:

1. It can be exchanged for cash. Can Data help enhance your costs by improving productivity ? This is measurable
2. It can be owned by a particular entity. Logistics companies normally have major part of their data generated from their customers and vendors and generate some amount of the data themselves. Can Logistics companies neutralise the external data and own it. This is in vogue wherein visibility platform providers neutralise customer and vendor data and share trends for value to be generated
3. It generates probable future benefits. Can Data help enhance your revenues with better customer insights ? This is measurable too.

Barriers that need to be removed for the valuation of data

• Lack of executive support
• Lack of responsibility and accountability
• Data owners have operational / technical focus
• Resistance to change
• Compliance are not defined
• Other priorities prevail
• Cost, value and benefits of information assets are not measured
• Technology implementation shortcomings
• Accounting practices incapable of handling information assets

What need to be the Data valuation principles

• Information is an actual asset (if not a recognized asset class).
• Information has both potential and realized value.
• Information's value can be quantified.
• Information should be accounted for as an asset (internally).
• Information's realized value should be maximized.
• Information's value should be used to help IT investments.
• Information should be managed as an asset.

Let us look at some options to make start

1. Intrinsic value of information.?

Start without taking into account the business value at all, Initially focus on the data's intrinsic value. Create a model that quantifies data quality by breaking it into characteristics such as accuracy, accessibility and completeness. Each characteristic is rated and then tallied for a final score. Call this the Data non financial balance sheet.

This can be tailored to the company, which could, for example, "assign weightage factors" to each characteristic unique for their business. For example Data that's more unique to your organization and not available to your competitors or the larger marketplace can be given higher weightage.

2. Business value of information.?One can measure the data in relation to one or more business processes. Accuracy and completeness, for example, are evaluated, as is timeliness because even if data is relevant to a business process, if it's not timely, it is not valuable. The model too can be tailored to fit the organization's needs. Call this the Process Strength Data balance sheet.

3. Performance value of information.?This option can be much more empirical in nature. One measures the data's impact on one or more?(KPIs) over time. If your team had access to a data point, how much better would they have performed. Or in simple terms whats the opportunity loss that you are incurring due to lack of data. Call this the Opportunity Loss Data balance sheet.

4. Cost value of information.?A value can be assigned to the data by measuring lost revenue and how much it would have costed to acquire the data. One can value most intangible assets that don't have a discernible market value through this option. Call this the Revenue Loss Data balance sheet.

5. Market value of information.?This option measures revenue if the data generated by you can be sold, rented or bartered. The problem is, at what the price of the data can sell in the open market. A way around this is to figure out what similar data from syndicated data providers is going for. When we sell data, we're not really selling it but we are licensing it. This market value will have to be discounted based on the number of times a company can sell the information. It is not the one time value that's important - it's about generating this over time. Call this the Market Value Data balance sheet.

Can logistics companies not make a start and initiate creation of these five balance sheet starting with one parameter in each balance sheet only and evolve it over time to add more parameters.

Is this not a better way of learning and evolving rather than being forced by an external agency in the future to force fit something impractical.

Most importantly the measurement helps you increase revenue reduce cost and improve services

Its a WIN-WIN situation so why not start now.

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