Hi, my name is Rachel Profitt. Some know me as the lady on all those Microsoft videos. Welcome to my blog where I will share all the latest and greatest information about Microsoft Dynamics 365.
Rachel Profitt is a FastTrack Solution Architect at Microsoft. The views expressed in this blog are personal views, and not those of Microsoft.
In the first segment of this series we looked at traditional segmented general ledgers vs. dimensional general ledgers. Now that we’ve established that dimensional GL’s offer a lot of advantages, let’s look at the decision criteria for choosing which dimensions to implement. I have been nearly laughed out of the training room on more than one occasion when I tell people that Dynamics AX/365 for Operations allows you to create an unlimited amount of financial dimensions. I still stand by my opinion that this is really a benefit; however, I think it is important to note that just because you can, doesn’t mean you should.
So, I have created a simple list of 5 questions you can ask yourself to determine if a new financial dimension is a good idea.
1. What will you do with the information?
Okay, full disclosure here…I’m am really into details. So now that you have the back story, here is my official position on this topic. Unless the information is either used for internal/statutory reporting OR is directly utilized in the setting of policy, you should probably not capture it in your financial system. I’ll discuss the reporting aspect in point #2 below, but first, let’s look at decision-making.
I’ll use an example here. Once upon a time I had a group controller that wanted to capture postage expense by class of mail in the general ledger. Actually, it was worse than that. We were required to set up GL accounts for the combination of carrier / class of service. Now, since we didn’t have dimensions that meant a dozen new natural accounts for every cost center. Now really, would we change anything about how we did business by having this level of detail in the general ledger? Of course not. In our case necessity dictated the class of service we used and we were already aggressive in implementing cost-cutting measures.
2. Will it be used in monthly reporting or in allocations in the GL?
Obviously, there is certain detail you need for statutory, bank or tax reporting. For example, most people will capture sales tax by state or travel expenses by purpose in the GL. Likewise, anything that needs to be in your standard monthly reporting package, whether it’s for the senior leadership team or for managerial analysis, should be included in your general ledger / financial reporting system.
For example, I’ve worked with a number of companies that detail revenue by major product line or region in their standard P & L. On the other hand, I’ve worked with an equal number of companies that have post-close reports that detail profitability. In the latter, the GL would not necessarily be required to be the system of record. By the way, that is a little bit of a teaser for the next segment of this series.
You should also consider whether the data is used in general ledger allocations or ratios in your financial reports. This specifically applies to statistical accounts, for which dimensions work very well. But it truly applies to financial accounts as well.
3. Is this a budget line item?
If it is important enough to detail out in the ledger then you should be budgeting for it as well. On the other hand, if it is a budget line item it does not necessarily have to be captured in the GL. That is highly dependent upon the budgeting system you use. Some systems will allow you budget at the account level but capture supporting details within the budgeting system. In Dynamics AX 2012 to enter budgets by an attribute, you would need to make a financial dimension to get actual versus budgeting. In AX 2012 R3, Microsoft introduced the concept of using an extra financial dimension for budgeting that is not included in your account structure and does not need to be included in your chart of accounts for ledger postings. The same feature exists in Dynamics 365 for Operations.
4. What is the cost of acquiring the information?
There is absolutely a cost to acquiring and storing financial information in the ledger. For standard dimensions it’s obviously lower because the system will automatically populate the dimensions for you in many transactions. For custom dimensions the user will need to enter the information in every transaction. Keying in a couple of values is not really the issue. The buyer or A/P clerk needs to know which code to enter on a vendor invoice, as an example, so there is a workflow/communication process that needs to take place.
Is the source information even available? In the silly example I cited above, the Warehouse Manager had to come in for 2-3 hours every Saturday to read the USPS equipment just to give me the data from which I made the reclass journal entry. You will also want to consider the affect capturing the information has on your business process. For example, does the level of detail require the buyer to make multiple lines on the PO where they would normally only create one? Although new versions of Dynamics AX and Dynamics 365 for Operations include a distribution framework that allow you to easily spread the amounts from one PO line to many different financial dimension combinations; it is still a lot of work and may require research to get the values entered.
Finally, you’ll have to write reports on the account/dimensional data; analyze the data; and potentially create budgets for the account/dimension combinations. So there is an implicit cost at having the information.
5. Is there another internal system for capturing the information?
If you have another system that naturally captures the data, then you do not have to use the general ledger as the system of record. And by other internal system I do not mean Excel. We all know that Microsoft Office Excel is the number one ERP system in the world, but let's face it, there is no control point in that system. For example, AX 2012 and Dynamics 365 for Operations have a nice project management component with great reporting. This could be utilized in lieu of using the ledger for capturing project costs. Another point to make is that with Power BI (which can be embedded into workspaces in Dynamics 365 for Operations) you can easily join multiple data sources together to develop new reports.
In part 3 of this series, I will discuss profitability statements and the use of GL versus alternative systems.