TxM 048 Section 5.3 Key Components of the JAR&A SEPT Cubic Business Model and Group-Wide Chart of Accounts Created by James on 7/4/2013 11:10:30 AM
Further to the previous section the following elements are key to the Cubic Business Model and Group-Wide Chart of Accounts developed and implemented to JAR&A Standards:
1. Logical concept
The most essential element of the Cubic Business Model is the logical concept – the realization that each of the dimensions of the model are as hard as concrete and must be precisely and consistently defined and maintained.
It is a highly modular concept and therefore scalable and portable to any enterprise. I have applied the model conceptually in a wide diversity of enterprises including National Government Departments and large multi-business commercial groups.
2. Divisions – the real commercial elements
This is where the commercial reality is modelled, certain principles apply to take account of foreseeable growth, restructuring, etc. Operating divisions / business units / legal entities – as big and as complex as the biggest organization.
Highly modular and hierarchical – SEPT taxonomies apply.
3. Locations – walk to and kick it – WHERE we do what we do
The physical dimension of the business – actual places where things happen – you can always associate a person or an asset with a location. Ships and aircraft are movable locations.
Highly modular and hierarchical – SEPT taxonomies apply.
4. Functions – people (and machines) doing things – WHAT we do
A function is about what we do – it is a collection of activities performed by a person or group of persons, frequently utilizing one or more assets in order to perform a function that is necessary for the operation of the organization.
Highly modular and hierarchical – SEPT taxonomies apply.
5. Accounts – Revenue, Assets, Liabilities, Capital and Reserves
The accounting dimension determined by the CFO in conjunction with Executive Management – exact logic varies from organization to organization:
- Revenue structured from core revenue to ancillary revenue and "Other".
- Assets structured from least liquid Assets to most liquid. High level categorization of fixed Assets carried through all areas of asset related accounts.
- Liabilities structured from long term to short term and "Other".
- Capital and Reserves to standard accounting conventions.
Highly modular and hierarchical – SEPT taxonomies apply.
6. Accounts – Expenses – critical element of the model
Expenses are listed here separately because, in practice, in most enterprises there are far more units in the Cubic Model that have expenses than have the other categories of account.
Generally there are far more personnel who are managed in terms of expenses than in terms of the other elements.
The expense chart needs to be very carefully thought out from a strategic (essence of the business) perspective and takes by far the most time to define and refine. It is really important that all lists, but particularly expenses, are as comprehensive and finely granular as practical.
Highly modular and hierarchical – SEPT taxonomies apply.
7. Logical sub-modules
As mentioned under Assets, there are logical sub-modules, for example the main headings under which Fixed Assets are reported in the General Ledger ranging across Asset Cost, Accumulated Depreciation, Insurance, Repairs and Maintenance, Spares, Leases, etc, etc.
Similar categorizations may apply to Personnel costs, products, related parties, etc.
There are important rules relating to how these are all defined in order to ensure that the categorization across all modules of your systems is harmonized and exactly consistent so that reports in one module integrate seamlessly with those in others thereby allowing you to use software in your Data Warehouse to quickly and easily drill down and drill up between modules in order to get answers to your questions – including those questions you have never previously thought to ask.
Highly modular and hierarchical – SEPT taxonomies apply.
8. Assembly of sub-charts per location and function
The GL Builder Software enables the rapid selection of the accounts for every sub-chart of accounts across the entire model and the assembly of these sub-chart blocks to build the entire Chart of Accounts so that the account codes are 100% uniform and consistent across the entire enterprise.
9. Reporting and modelling layer
In understanding this approach it is vital to understand that a whole lot of management accounting "things" and reports are removed from the General Ledger and instituted in the Data Warehouse.
- The modelling and reporting of current governance should NOT be in the Chart of Accounts or in the General Ledger at all.
- The distribution of overheads should NOT be in the General Ledger.
- These are best accommodated by sophisticated query and reporting and modelling capability within the Data Warehouse and Business Intelligence environment.
This enables a high level of stability in the General Ledger and a high level of confidence in the figures which in turn results in all personnel managing from the General Ledger and the reports and models in both the GL and DW / BI components.
10. Way of working
Ultimately, the most important element of the JAR&A SEPT Cubic Business Model is that it is a WAY OF WORKING, it is a culture, it is a set of rules and protocols and practices that take the management of financial information to a new level of precision and value add for the enterprise.
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