Understanding the Basics: What Is a Financial Management System?

This blog is part of a series explaining the technologies that help companies manage their people and money.

A changing world requires new ways of working—ways that are smarter, faster, and more agile. Nowhere is this more important than in finance. Fueled by rich data and ever-more powerful artificial intelligence, machine learning, and analytics capabilities, finance organizations are being transformed and making more informed business decisions. 

In this blog post, we provide a quick guide to the changing demands of the finance function, what you need to know about financial management systems, and how the right system can help companies adapt to a changing world and identify new business opportunities.

Why is a modern financial management system important to an organization?

Finance underpins a company’s very success, and finance teams are increasingly being asked to lead the charge of enabling a company to make better decisions via data analysis that delivers insights to stakeholders across the business—from marketing and sales to product and operations—to inform strategy and provide context on the bottom-line impact of decisions.

To do this successfully, Workday believes two things are needed: easy access to current financial and worker data and the ability to bring different data sources together for multi-dimensional reporting and analytics. Non-financial data—especially information from your operational systems—provides greater context to the numbers and deeper insight into reasons driving performance. With these capabilities, organizations can more effectively make decisions and plans.

How does technology impact a financial system or process?

A great financial system starts with what you can’t see—underlying technology to handle transactions, reporting, and analytics, preferably in one place so your finance team can plan, transact, analyze, and report on data without leaving the system. A cloud-based financial management system helps make all of this possible. 

Consider this: With automated business process workflows built into the system, you can quickly create new or modify delivered processes to adapt to industry changes or regulations. Proper security needs to be in place for data, transactions, processing, and applications, thereby making it easy to monitor access and changes. 

Having transactions and analytics unified in a single system, where all data is stored in-memory, enables real-time transaction processing, consolidation, and reporting of financial data in one place. As soon as a transaction occurs with accounting impact, it is instantly available to report on and analyze within the same system. Finance can create consolidated reports on a daily basis if needed, across multiple legal entities and currencies, significantly reducing the amount of time it takes to close the books. For instance, with a unified system, City Year sped up its monthly and quarterly close by 40 percent, while AAA Northern California, Nevada & Utah decreased its quarterly close from 10 days to five days.

In short, a financial management system for today’s ever-changing world should:

• Provide a complete, accurate, and real-time picture of your business.

• Equip your leaders with relevant, contextual business insights.

• Enable you to embrace organizational, process, and reporting changes without business disruption.

What specific challenges do finance teams face today?

Finance needs to deliver insight that goes beyond the general ledger information that legacy systems were designed to produce. With a broader set of stakeholders and a business landscape that is continually evolving, finance is being asked to provide the enterprise with insight that can actively influence decision-making.

Many finance teams are struggling with that mission. They’re still occupied with traditional, transactional tasks and spend most of their time gathering data rather than analyzing it and becoming the strategic partner their organization truly needs. Fragmented or outdated finance systems make it difficult if not  impossible to get the data they need, when they need it. For many organizations, valuable data is trapped in legacy systems—or even spreadsheets—and organizational silos. Organizations cannot access that data and easily combine it with external data sources, to build the data models and make the predictions needed to take their organizations into the future.

Across the globe, finance leaders face heightened risks given the pace of technology change, the impact of digital disruption, growing regulatory scrutiny, data privacy and cybersecurity concerns, uncertain economic conditions, and financial market volatility. Finance teams need to be able to act faster with real-time information from across the organization to better manage risk in a changing world.

How do traditional financial management systems work?

Legacy solutions were designed to automate and simplify the accounting to support financial reporting. This process has traditionally been rigid and linear, starting with capturing subledger transactions and ending with posting to the general ledger. As transactions make their way through the accounting process, subledger details are stripped away, resulting in summarized journal entries that update ledger balances. Systems designed this way are only able to support financial reporting based on how the accounting segments were configured during the initial implementation.

To provide richer business insight and management reporting, organizations require data marts or warehouses, business intelligence solutions, and reporting tools in addition to these systems. This “bolt-on” approach means creating and maintaining costly integrations, requiring more effort for data reconciliation, and potentially exposing businesses to unnecessary errors. And, this solution ultimately results in stagnant silos of disconnected data. 

With disparate systems for accounting, consolidation, reconciliation, purchasing, revenue, compliance, and other functions, your financial management environment becomes even more complex. Fragmented systems make it hard to deliver real-time insights to the business and keep pace with growth and change. Scaling or changing these systems to meet the needs of a growing, changing business is slow, costly, and in some cases, virtually impossible.

How are cloud-based financial management systems different?

Workday Financial Management is a cloud solution designed to deliver complete business insight into your organization. Gone are the rigid processes that summarize the transactions required to generate financial reports. Instead, once entered, all transactions retain their rich business information and are immediately reflected in financial, management, and operational reporting. By having a single cloud-based system that captures all transactions and supports core foundational processes, your finance team is empowered to access approved business information in real time. This power of one, having one source for data, one security model, and one experience, enables companies to plan, execute, and analyze in one system.

Life Time Fitness in Minnesota, for instance, integrated its financials with HR software so that finance and payroll transactions and approvals could be handled systematically. With a cloud-based solution, the company became continuously up-to-date with regulatory mandates, and achieved shorter close periods so there’s more time to analyze data and business results.

Bill Gosling Outsourcing of Canada also deployed a cloud-based finance system. As a result, its time-to-close dropped by 30%, and the level of effort involved in preparing for the close process decreased significantly. In its old ERP system, the company needed three or four iterations of financial statements before they went final. With a cloud-based system, only two iterations are needed.

Why is real-time data in financial management important?

A huge volume of data flows through organizations daily. When a company can harness that data—and analyze it effectively—it can make better decisions more quickly. For example, companies can use analytics to understand which customers are most profitable in real-time—insight that typically requires a separate analytics solution outside your financial management system. Functions such as marketing use data to transform the customer experience and deliver increasing personalization. Business leaders create new revenue streams by offering data-driven services on top of products. Advanced data analytics can make revenue forecasting more sophisticated and accurate. Combining finance data with non-finance information (such as consumer data or data from other operational systems) can create new insights. 

Being able to drill into data by any business dimension in real time, you can interact with the data to understand what’s driving performance. You can understand such things as spend by supplier, campaign, or employee, as well as P&L by customer and product—all without the need for a separate data warehouse or additional reporting tools. This rich business information might be delivered through financial scorecards and dashboards, which could be available from mobile devices. Executives get a snapshot of business in real time, so you can always have an eye on the most important metrics. Imagine dashboards with current key indicators showing whether numbers are off or funds need to be shifted, or where the company might be gaining momentum in the market. Working with real-time data means that there are no surprises at the end of the period and makes it easier to stay on top of rapidly changing conditions. 

With a cloud-based financial management system, Redstone Credit Union achieved a 133% increase in time spent on analysis, as opposed to data gathering. As a result, it was able to:

• Shift the focus from manual and clerical work to strategic accounting activities.
• Simplify accounting investigations.
• Improve finance’s ability to serve the business.

How is the finance function in companies being redefined?

In today’s connected world, the demands on finance leaders are unrelenting. Financial news and market rumors spread instantly across the globe.CEOs expect rich, forward-looking insights from finance so they can manage risks, spot new opportunities, and weather economic shocks and volatility. The current and future value of the enterprise—and the quality of its insights— are now linked. 

Unfortunately, many finance functions are still unable to deliver these insights. Efforts to transform the function have not gone far enough. Technology adoption lags behind other corporate functions. So it’s imperative that  finance step up and embrace technology to play a more strategic role within the organization. 

What’s key to evaluating a cloud-based financial management system?

Any financial management system should move you from merely managing financial controls and transactions to actually providing true insight that can transform your business. Workday reimagined the approach to financial management by delivering a single cloud-based system for all financial processes. A system that enables you to:

• Guide business with true insight. A native cloud-based system with an in-memory object data model that captures transactions in real-time, supports core foundational processes, and empowers finance teams to make business decisions more quickly.
• Consolidate and close with confidence. Workday’s cloud-based architecture eliminates complex and time-consuming linear processes, moving you to a faster, more agile, and more accurate approach. Instead of having to wait each month, quarter, or year-end for a consolidated view of the business, you can access that information any time.
• Plan and prepare for what’s next. Workday combines finance and HR transactions with reporting and planning functions, eliminating data movement and reconciliation to  create  a more iterative and efficient planning process that uses actual transactional data.
• Proactively and effectively manage risk. Workday goes beyond simply monitoring transactions, it provides an “always-on” audit trail to capture all changes. Companies can manage, oversee, and configure approval limits, and also set thresholds and segregate duties. By doing so, Workday helps organizations reduce fraud and risk.
• Embrace change. Change is constant, and changes and configurations inside Workday can be made at any time. Also, once changes are configured they immediately apply to relevant organizations, transactions, and reports across finance, HR, and planning.

What is the outlook for cloud financial management?

Market researcher Gartner¹ predicts that “by 2024, 60% of all new midsize core financial management application projects, and 30% of large and global ones, will be public cloud implementations.” 

Also: “Through 2024, digital technologies will bring new capabilities and efficiencies, as well as integrated best-of-breed financial planning and analysis and financial close capabilities, into the core financial management suite,” Gartner says. It includes the following as major attractions of cloud solutions in financial management:

• “The ability to keep up to date with new releases (customers are generally forced to stay within one or two releases of the current one).
• A more consumer like interface that eases training and onboarding.
• Digital capabilities, including artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA); most of these capabilities will not be retrofitted to legacy on-premises platforms.
• Improved agility, gained through faster introduction of new functionality such as subscription billing, revenue recognition and financial accounting hubs.
• More emphasis on end users (in the office of finance) managing the applications, with less reliance on IT staff.”

Transforming for Success

To transform threats into opportunities, businesses need to be agile and armed with actionable data and insights to make fast, accurate decisions. They must simplify auditing and compliance, consolidate and close their books faster, and model to prepare for what’s next. A financial management system with the right technology foundation will support all of this and more. The best financial management software will enable you to manage change with ease, remain resilient during uncertainty and react proactively and strategically.

1 Gartner, "Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises," John Van Decker, Robert Anderson, Greg Leiter, 13 May 2019

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.