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Business and Technology Insights

Taking the Pain out of Fixed Asset Management

October 4, 2016

Fixed asset management is a complex business. Migraine-inducing even for the most seasoned finance executive, it becomes ever more complicated as companies extend their footprints into international markets.

For large, capital intensive enterprises, fixed assets, including those that they lease, have an important place on the balance sheet and therefore the business' value in the eyes of investors and analysts. Multinational corporations with operations in many countries may purchase fixed assets in multiple currencies and then move the assets between countries. Keeping a record of the purchase, transfer, depreciating value, or ultimate sale of every asset owned and leased at home and abroad is a vital, but rather thankless and time-consuming task.

Traditional business intelligence (BI) systems haven't been great at capturing and managing data related to fixed assets. A large organization, that's grown organically or acquired businesses along the way, is very likely to have a batch of legacy systems that aren't speaking the same language. And because these systems lack well-defined methods to extract, transform, and load (ETL) data, they struggle to calculate and produce the type of reports that finance managers or business heads demand. Without an easy-to-use system, managers may end up adding new layers of complexity to an already intricate area of reporting as they seek to reconcile disparate data sources.

Oracle EBS is a well-defined and comprehensive system that helps you record the lifecycle of each of your fixed assets and their respective depreciation methods. But even here, the BI system cannot help you make sense of the data unless it is mapped and labeled correctly. The key is to thoroughly customize the solution to suit your company's needs. To do so, you need to ensure that costs are allocated to the cost centers to evaluate their financial position, fixed assets are classified and tracked, their deprecating value is recorded, and a report-to-source dashboard is created to map the flow of data from the EBS to the BI systems.

Dealing with Fixed Assets in the Real World

IT systems are designed to be logical, intuitive, and make decisions based on a flowchart. They can only compute values if they have access to the right data. In the case of fixed assets, the method of calculating depreciation, whether its the straight line method or the reducing balance method needs to be decided on. The lack of a standard ETL method means this information doesnt move from the Oracle EBS to the BI system naturally.

The dual existence of fixed assets, in the books of accounts and in the real world, also poses a challenge. Fixed assets might be fully depreciated in the books but continue to see active service, as is common with industrial machinery, vehicles, and computer equipment. However, if their net book value is nil, they dont reflect in the reports and dashboards that help managers make budgeting, valuation, and other strategic decisions.

An intelligent solution is required to resolve these challenges. Of course, if budgets permit, you could upgrade your systems, but intelligent solutions that provide permanent and effective fixes are also available within the Oracle environment. To remedy the issue with missing depreciation methods, for example, you could either extend the out of the box data warehouse model and ETL code, or implement category 1 customizations to bring the new columns from EBS to the DW for the BI system to import.

Ultimately, you need to make sure youre mapping and extracting the right data to feed into the BI system. This can be done through a data lineage project that maps the source data in the Oracle EBS to every dashboard and report in the Oracle BI system, and determines what needs to be reconciled. Like every software, the BI system too needs to be customized and upgraded to avoid missing out on important data points that are available, but not used because theyre not mapped correctly.

Fixed asset management will remain complex; but, with the right investments to ensure you have reliable information, it need not be a headache. Gain more insights about this topic in this TCS paper:Seamless Management of Fixed Assets through Oracle’s Integrated Business Solutions.

Subodh Agrawal is a Director in the Finance Transformation practice at Tata Consultancy Services (TCS). He assists CFOs and Controllers of Fortune 500 companies improve efficiency and effectiveness of the finance function. He has authored articles on close cycle optimization, revenue recognition, financial reconciliation, data integration, and application rationalization, including one on the 'Changing Role of the CFO' published in Future in Finance by the Association of Financial Professionals. Subodh holds CPA, PMP, CTP, and ACA certifications. He also has an IFRS certificate from the Institute of Chartered Accountants in England and Wales (ICAEW).