What Is a Financial Management System (FMS)?

Here’s a guide to what you need to know about financial management systems, the new demands of the finance function, and how the right technologies can help companies adapt to a changing world.

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In this blog we’ll discuss:

Organizations need to assess their financial health regularly, which is why a financial management system (FMS) is so important. In short, a financial management system is a way to keep track of financial transactions. Organizations can then use that data for tasks such as: 

  • Analyzing performance
  • Preparing budgets
  • Creating reports
  • Forecasting trends
  • Ensuring compliance with regulatory requirements

With the correct FMS, an organization can better ensure its own long-term success. This is especially true in a constantly changing world that demands smarter, quicker, and more flexible approaches to maintaining financial health.

Today, AI, machine learning (ML), data management, and advanced analytics help finance leaders make better and more informed decisions. For companies to remain competitive, it’s critical that business leaders select the financial and accounting software that best matches their evolving needs. 

In this guide we'll establish: 

  • What a financial management system is
  • Why it matters
  • How it’s evolving
  • How roles are changing for CFOs and their teams
  • How an FMS can be a decisive factor in long-term success

How Do Legacy Financial Management Systems Work?

Financial management systems were created to make accounting tasks easier and support the creation of periodic financial reports. This process used to be strict and straightforward, starting with recording transactions and ending with updating the general ledger. As transactions go through accounting, some details are taken out, and summarized entries are used to update balances. These systems only support financial reports based on how the accounting segments were set up at the beginning.

To provide richer business insights and financial management reporting, organizations require data warehouses, business intelligence solutions, and reporting tools in addition to their FMS. This bolt-on approach means creating and maintaining costly integrations, requiring more effort for data reconciliation, and potentially exposing businesses to unnecessary errors. Often, this solution ultimately results in stagnant silos of disconnected data and inaccurate financial statements. 

With disparate systems for accounting, consolidation, reconciliation, purchasing, revenue, compliance, and other functions, an organization's FMS environment becomes even more complex. Fragmented systems hinder real-time insights, growth, and adaptability for organizational leaders. Scaling or modifying these systems for a business is slow, expensive, and sometimes nearly impossible.

How Are Cloud-Based Financial Management Systems Different?

Cloud-based financial management systems are designed to eliminate the rigid processes that summarize the transactions required to generate financial reports. 

A system like Workday Enterprise Management Cloud allows all transactions to retain their rich business information and are instantly reflected in financial, management, and operational reporting. It also benefits from built-in AI that provides automation, powers intelligent predictions, and protects privacy

By having a single cloud-based system that captures all transactions and supports core foundational processes, finance teams are empowered to access approved business information in real time. Having a single source of truth for business data enables companies to plan, execute, and analyze in one system.

Why Is a Cloud Financial Management System Important?

A company’s financial operations underpin its success—and finance teams are increasingly being asked to take charge when it comes to decision-making. A cloud-based FMS enables finance departments to make better decisions and deliver 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 new business processes.

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 operational systems—provides greater context to the numbers and deeper insight into reasons driving performance. Whether looking at inventory management or cash flow, understanding the why behind the data is essential for making effective decisions.

Cloud-based financial management systems are designed to eliminate the rigid processes that summarize the transactions required to generate financial reports.

How Does Technology Impact Financial Processes?

A future-ready financial system needs advanced back-end technology to handle key features such as transactions, reporting, and analytics in one place. This allows the finance team to plan, transact, analyze, and report on data without leaving the system. A cloud-based financial management system helps make all of this possible. 

Combining transactions and analytics in one system allows for instant processing, consolidation, and reporting of financial data that's stored in the FMS. This system enables the simultaneous processing of transactions and analytics, providing real-time access to financial data. Once a transaction occurs, the same system can immediately use it for reporting and analysis.

Finance teams can generate daily consolidated reports for multiple legal entities and currencies, saving time in calculating accounts receivable and closing the books. With automated workflows, organizations can easily create or change processes to fit industry changes or regulations.

In short, an FMS for a changing world should:

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

  • Equip leaders with relevant, contextual business insights

  • Enable CFOs and their teams to embrace organizational, process, and reporting changes without business disruption

How Does a Cloud-Based FMS Help Finance Teams Meet Evolving Challenges?

In recent years, the mandate of the CFO has evolved from an accounting or scorekeeper role into a strategic partner for the business, responsible for creating value. 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. 

The finance function is being asked to provide insights to a broader audience and in an increasingly dynamic business environment. So it’s imperative that finance step up and embrace technology to play a more strategic role within the organization.

To achieve this, finance teams need to deliver insight that goes beyond the general ledger information that legacy systems were designed to produce.

Yet many finance organizations 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 organizations truly need. 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. That means organizations can’t 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. 

Combining the various data streams of today’s modern business organization into an enterprise resource planning (ERP) system enables them to record, analyze, and report on both financial and nonfinancial data to create value for stakeholders. (An ERP system refers to the suite of software applications necessary to run a business—which could include finance, human resources, supply chain, customer relationship management, or inventory management—in a single system.)

A cloud-based FMS enables finance departments to make better decisions and deliver insights to stakeholders across the business to inform strategy and provide context on the bottom-line impact of new business processes.

Why Is Real-Time Data in Financial Management Important?

Huge volumes of data flow through organizations daily. Companies that can harness that data—and analyze it effectively—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 their FMS.

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. Yet the key differentiator here is the speed at which cloud-based financial management systems can help leaders generate insights and create value.

Advanced data analytics can improve revenue forecasting by making it more sophisticated and accurate. Combining financial data with non-financial information, such as consumer data or data from other operational systems, can create new insights. (It can even lead to new, modern, and more useful KPIs.) 

Stored in the cloud, rich business data can also be delivered via financial scorecards and dashboards, accessible from mobile devices. Executives can then get a real-time snapshot of the business, so they can track the most important metrics on the fly. That means no more surprises—and no more lag in reacting to market changes.

What Are the Key Features of a Cloud-Based Financial Management System?

Any modern financial management system should move CFOs and their teams from merely managing financial controls and transactions to actually providing true insight that can transform the business and create value. 

Workday reimagined the approach to financial management by delivering a single cloud-based system for all financial processes. A system that enables organizations 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, offering 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, organizations can access that information any time as they move toward a zero-day close.

  • 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.

With the right cloud-based FMS, a business will not just have a way to track financial transactions but also improve organizational agility, speed up planning and forecasting processes, and better prepare for future challenges in a changing world. 

This article was originally published in June 2020, and was last update in February 2024.

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