CFOs now care about master data and data quality because all accurate knowledge about their organization's assets and liabilities stem from it. Little cash actually changes hands in most organizations; transactions often are nothing more than master data flying back and forth.
Distinctions between line and staff jobs aside, operations and front-line managers care about data quality for the same reason – it provides what they need to know about what they manage.
It is no secret that master data is valued as a strategic asset. Thought leaders and practitioners find communicating the value of master data and quality less challenging than it used to be. Rich content providing a bird’s eye view and multiple technologies are available, but many such initiatives start with a bang and fizzle out. The real struggle is properly allocating money and resources to support master data and data quality initiatives - and ensuring that these efforts are sustained. This article is an experience-driven perspective of the master data challenge, considering “billing” both as a specific instance of data and an information chain that most organizations should improve, and as an example to illustrate the more general points for similar data and information chains.
Illustrating Impact
Obviously, most organizations are both creators and recipients of invoices, although different departments are involved. Business units or divisions are “billers” (i.e., they invoice their customers for products and services provided), and accounts payable receives invoices from suppliers and pays them. These departments have different perspectives on billing based on their respective roles.
Essentially, there are only two important billing issues: overbilling and underbilling. Obviously, the overbilling issue receives the most attention from customers who will review the invoices they receive. The biller, in most cases, has a large customer service department to address billing questions and complaints, make adjustments and so forth.
Some organizations keep reasonable track of how much revenue they rebate in this way (about 1 percent of revenue is typical). They may also know the cost of this error detection and correction. In large organizations, accounts payable may also track how much time and expense it incurs to find errors and seek corrections. Both the organization supplying the bill and the organization receiving it bear added costs. Neither can close the books promptly, and contention over billing does nothing to advance their relationship. The quality system is as depicted in Figure 1. The data quality enthusiast is usually put off by inspection and rework that involves the customer.
Few customers report underbilling, and most organizations have no way of knowing the extent of this issue. But, if an organization overbills, it must:
- Underbill by about the same amount (or more), or
- Systematically overbill, a potential fraudulent act.
A billing system is unbiased if the total amounts of overbilling and underbilling are approximately equal. A billing system is biased toward overbilling if it systematically overbills by more than it underbills and biased toward underbilling if it systematically underbills. Assume that the billing system was unbiased sometime in the past. Because many overbilling issues have been reported, it is possible that the root causes of some issues have been eliminated. If so, there is currently more underbilling than overbilling (and the billing system is now biased toward underbilling). In other words, any correction puts the system at risk of an overcorrection, thus creating another issue on the opposite end of the billing spectrum.
In terms of the customer-supplier model, while the feedback channel for overbilling is usually effective, it is nonexistent for underbilling.
To illustrate the overall impact, assume the following:
Thus, it is evident that the cost of poor master data and quality is at least 2 percent of revenue for a simple information chain whose value-added costs are only 1 percent of revenue. A similar calculation can be constructed by accounts payable. Billers should apply information chain management, and accounts payable should apply supplier management to recover much of this cost. Experience confirms that roughly 70 percent of the total costs of poor data quality can be recovered.
From the customer's perspective, the quality system shown in Figure 1 is simply untenable. Supplier management can replace it with the system shown in Figure 2.
Handoffs Need More Focus
From the biller's perspective, the billing chain is not as simple as it may appear. It involves numerous handoffs of data, the result of normal business activity, including value-added activities (see Figure 3) such as the following:
- Marketing, which yields new customers and pricing schemes;
- Sales, which yield customer purchases;
- New product developments, which yield new products; and
- Customer payments.
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