RESEARCH BULLETIN | October 13, 2014

The Financial Management System:

A Pivotal Tool for Fiscal Viability CDS Spotlight

2014 EDUCAUSE and Leah Lang and Judith A. Pirani.

CC by-nc-nd.

Leah Lang, Manager, Core Data Service

Judith A. Pirani, EDUCAUSE Consultant and President, Sheep Pond Associates

This special ECAR research bulletin series highlights findings from the EDUCAUSE Core Data Service,

focusing on a small but meaningful slice of data collected in the CDS. These selected highlights are

intended to provide context and meaning for CDS benchmarks that may be of especially broad interest,

be especially timely, or draw connections between research from ECAR and CDS. The series is featured

along with other CDS publications on the CDS website and is now available to eligible ECAR subscribers

as part of their subscription.

This spotlight focuses on data from the 2013 CDS to better understand how higher education institutions

approach financial management systems. Information provided for this spotlight was derived from Module

8 of CDS, which asked several questions regarding information systems and applications. Responses

from 525 institutions were analyzed. Only U.S. institutions with a designated Carnegie Classification

(AA, BA, MA, or DR) were analyzed for this report. In addition, we interviewed four subject-matter experts

to gain insights about the current and future state of financial management systems in higher education.

CDS Spotlight Definitions

administrative/enterprise information systems: Administrative systems or enterprise resource

planning (ERP) systems such as student administration (admissions, financial aid, registration, etc.),

financial information systems, procurement systems, human resource systems, payroll, research

administration (grants and contracts), and library systems (if supported by the IT organization).

chart of accounts: System of accounting records developed by every organization to be compatible with

its particular financial structure and in agreement with the amount of detail required in its financial

statements. It consists of a list of ledger account names and numbers showing classifications and

subclassifications, and it serves as an index to locate a given account with the ledger.

enterprise resource planning (ERP) system: An integrated suite of administrative information systems

designed to support and automate business processes through a centralized database system. In higher

education, these systems usually include student systems, financial systems, and human resources

(payroll/personnel) systems, as well as data warehouse and planning tools.

financial management systems: Software supporting the financial operations of the institution, including

general ledger, purchasing, accounts payable, accounts receivable, budgeting, and so forth.

ledger: Collection of an entire group of similar accounts. The ledger records classify and summarize

financial information from journals as debits and credits and show their current balances.

workflow: The automation of a business process, in whole or part, during which documents, information,

or tasks are passed from one participant to another for action according to a set of procedural rules.

Sources: Business Dictionary.com, Collaborative Planning & Social Business, and Core Data Service.

http://www.educause.edu/coredatahttp://www.businessdictionary.com/http://social-biz.org/

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Financial Management Systems: Now and Beyond Higher education institutions rely evermore on fast, accurate, and efficient financial management systems

to sustain their economic well-being. Educational and operating costs continue to rise, even as many

traditional revenue sources remain under some duress, requiring precise monitoring of institutional

finances. Expansion into new academic programs and online education may necessitate more robust

financial management capabilities to handle new and more complicated administrative demands. And the

speed of business continues to accelerate; 95 and at your convenience no longer prevail in todays

24/7, ASAP world. These issues place more pressure on a system area that institutions are not rapidly

changing (see figure 1).

Figure 1. Characteristics of core information systems

Change is hard, but our research uncovered several factors to consider in deciding whether an

institutions financial management system can meet todays new demands:

From paper to online: Examples of the predicted true paperless office have yet to emerge, and

institutional operations may still rely on paper-driven processes and transactions, which can be slow

to administer, cumbersome to manage, and hard to track. For example, one interview participants

institution found it difficult to track requisitions, sometimes learning about purchases after the fact,

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when vendors submitted invoices for payment. Another interviewee described the journey of a paper

travel-approval form, which circulated about 30 miles between multiple campuses to collect 13

signatures, 10 of which were unnecessary. Paper forms are increasingly out of sync with todays

evolving online environment, where business is conducted via a few clicks on a website from a

laptop, tablet, or smartphone.

From siloed to enterprise: Particularly at decentralized institutions, departments, schools, and

colleges might create local business-related processes, procedures, and shadow systems to support

their specific needs. Reconciling these individual business silos into an enterprise perspective can be

problematic in meeting todays increasing need for real-time, integrated financial budgeting, reporting,

and planning.

From out of date to current: A financial management system plays such a key role in an institutions

regulatory and financial compliance that failing to keep the system up to date may result in audit risks,

or worse. Significant customization may hinder system upgrades, or an older system could face

vendor obsolescence; both of these problems impede the financial management systems ability to

meet ongoing institutional demands in an accurate, trusted, and timely manner.

From legacy to robust: Institutions with an older, homegrown financial management system may

confront long-term maintenance issues. It may become harder to program required or desired new

features into the system. As developers and system administrators retire, it can be problematic to find

replacements proficient in older programming languages or expensive to train new ones. Over time,

investing in a new solution may become a more viable option.

Current Snapshot

According to CDS 2013 data, nearly all U.S. institutions (99%) have a financial management system. At

an average age of 13 years old and with 81% of institutions maintaining at least some customization,

these systems rank among the oldest and most customized of institutional enterprise systems. Older

financial management systems and those at large institutions are more likely to be substantially

customized (see figure 2). On average, each additional year of age is associated with a 3.4% increase in

the likelihood of substantial customization of these systems. Institutions may be moving away from

customization for financial management systems, however. Of the 8% of institutions that plan to replace

their financial management system in the next three years, 57% plan minimal customization and only

12% plan substantial customization.

Figure 2. Extent of financial system customization, by student FTE

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In terms of market share, the financial management system space is relatively homogeneous (see figure

3). Almost 9 in 10 institutions (85%) use solutions from one of the top 5 financial management system

vendors. Interestingly, over two-thirds of institutions (69%) are using the same vendor for both their

financial management system and their student information system. This factor may contribute to the slow

rate of change for both systems. Replacing multiple enterprise systems at once is a large undertaking that

requires serious consideration.

Figure 3. Financial management system market share

Future Trends

A financial management system impacts an institutions ability to navigate todays complicated financial

environment. Consequently, the trends identified by research, CDS data, and interview participants

pertain to maximizing the performance and value of such a system to the institution.

Efficient Financial Operations

Features like electronic forms and workflow, transaction categorization, and audit trails will continue to

streamline and optimize financial business processes and transactions, increasing productivity and

efficiency. Electronic entry encourages consistent and accurate processing and information gathering;

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categorization and audit trails enable better tracking and information analysis. For example, the

aforementioned travel approval form can now be processed electronically in minutes, saving time, gas,

and money.

Easier Mobile Access

Todays 24/7 lifestyle means that business is likely to be conducted in and out of the office, and financial

management systems have to provide anytime, anywhere transaction review and approval as well as

report access. The need is apparent. The number two spot on the EDUCAUSE list of top 10 strategic

technologies for higher education in 2014 is mobile apps for enterprise applications to access enterprise-

wide resources and to conduct enterprise transactions from the mobile device.1 Potential solutions include

mobile and tablet access with intuitive interfaces that incorporate icons and clicking/dragging functionality,

as well as better information display on smaller screens. For example, a manager can approve a staff

members electronic travel authorization form on her smartphone while waiting for a flight at the airport. In

the past, a paper version may have languished days or weeks on her desk awaiting her signature until

her return to the office. Scanned or photographed travel receipts on a smartphone enable accurate and

fast processing of expense reports instead of maintaining an unwieldy collection of paper receipts for

processing after a trip.

Robust Analysis and Reporting

Centrally produced canned reports and financial statements provide static snapshots of information, but

the need for real-time financial information requires more dynamic reporting capabilities. Indeed, the top-

rated 2014 strategic technology according to EDUCAUSE research is business intelligence (BI) reporting

dashboards. Institutions can use dashboards to display data visualizations with metrics that monitor

business processes and activities, from enrollment and graduate rates to expenditures and strategic

project status indicators.2 Financial management systems will have to enhance ways for users to

personally select and pull top-level summary information, as well as drill down to actual transactions.

Robust transaction categorization and integration with other systems (e.g., the student information

system) adds analytical capability. The result is more powerful tools at an administrators fingertips. For

example, a manager may identify opportunities for vendor discount or incentive programs more easily,

allowing the institution to save money or analyze the financial implications of changing student

demographics, which might prompt an institutional review of student recruitment strategies.

Emerging Hosting Alternatives

Historically, many central IT organizations have hosted financial management systems on campus (85%

of U.S. institutions), but new alternatives such as software as a service (SaaS) continue to garner

interest. CDS 2013 data show that 3% of U.S. institutions have financial management systems in the

cloud. SaaS alternatives can offer better service level agreements, security, and offsite backup than some

local IT organization can provide. SaaS implementations force institutions to adapt to the next upgrade,

which in turn ensures up-to-date financial management system functionality and promotes regulatory and

audit compliance. One consideration: institutions can configure a SaaS solution to their environment (e.g.,

user roles, workflows), but the lack of customization in a SaaS environment requires institutions to

conform their business processes to the solution. This may involve significant business process redesign,

though an interview participant felt it was worth the effort. The investment in redesigning business

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process served as a disincentive for the institution from returning to the inefficiencies of its previous,

highly customized financial management system.

Tailor-Made Systems

Rather than relying on one monolithic system, institutions may decide to integrate specific best-of-breed

solutions modularly into an extensible core system via standard interfaces. Financial management system

providers can promote this trend by developing a third-party partner network, creating truly plug-and-play

solution integration with the base system. The result is a financial management system that is designed to

meet an institutions specific needs.

More System Integration

Financial management system integration will continue to gain importance in a number of ways.

Deploying a financial management system at the university system levelas do 18% of U.S. institutions

(ranging from 0% at private masters and private doctoral institutions to 49% at public masters

institutions)will save administrative costs overall and offer up-to-date functionality and regulatory/audit

compliance to smaller institutions that may lack the local financial or staffing resources to do so

effectively. In addition, closer integration with the student information system and the grants management

system enhances analytics and enables more efficient fiscal management of these institutional areas.

Tips for Successful Implementations

Given the critical nature of the financial management system, institutions need to plan carefully to ensure

that the system performs optimally. Interview participants offered the following advice on how to

determine whether to replace a current financial management system and how to prepare for a system

replacement.

Replacement Assessment

Given higher educations ongoing financial pressures, administrators need to continually assess whether

the institutions financial management system meets its needs.

Create an institutional needs consensus from the technology and functional areas, as well as from the

perspectives of administrators and actual users (e.g., an office clerk). Then delineate how the

financial management system fulfills these needs. One measure is the prevalence of shadow systems

to meet individual staff or organizational needsthe more shadow systems, the less likely the

financial management system meets institutional needs.

Understand the current financial management systems true ownership costs. This includes the top-

level budget items as well as underlying day-to-day costs (e.g., daily backup, offsite mirror data

storage, and on-site server backups). Better understanding of total costs helps determine the benefits

of keeping or replacing the current system.

Business Process Redesign

A new financial management system implementation is an ideal time to map out current business

processes to determine more efficient alternatives and streamline processes that may have tweaked and

morphed over the years, especially to support system customization. This is a difficult task, especially at

decentralized institutions where colleges, schools, and even departments may have different processes,

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but having common institutional business processes eliminates or minimizes the need for system

customization, an imperative consideration for SaaS solutions.

Chart of Accounts Review

A financial management system implementation could include another preparatory step: a chart of

accounts review. This system of accounting records lies at the core of an institutions financial operation.

A review builds common understanding of account names, numbers, and classifications and presents an

opportunity to create new entries that reflect the current institutional environment. A review could also

help institutional leaders begin to assess the cost of distributed IT, which has been elusive but is

necessary in determining the total cost of IT.3 The result is data consistency that helps present an

institution-wide picture of revenue, expenses, and budgets, which in turn creates a more accurate picture

of an institutions current financial situation and facilitates longer-term planning.

Where to Learn More Administrative and Enterprise IT Systems. EDUCAUSE research snapshot. Louisville, CO: ECAR,

July 14, 2014.

Dodds, Thomas, Steve Fleagle, Laura Patterson, and Eric L. Denna. We Built, We Bought, We

Shared: The Costs of Administrative Systems vs. the Academic Mission. EDUCAUSE Review 49,

no. 4 (July/August 2014).

EDUCAUSE Administrative IT Program.

The Future of Administrative IT: Expert Panel and Findings and Recommendations. Executive

briefing. Louisville, CO: EDUCAUSE, December 2013.

Lang, Leah. 2013 CDS Executive Summary Report. Research report. Louisville, CO: ECAR, February

2014.

The NACUBO/EDUCAUSE Working Group on Administrative Services and Systems: Final Report.

White paper. Louisville, CO: EDUCAUSE, February 2014.

Trevvett, David. Enterprise Application Projects in Higher Education. Research report. Louisville, CO:

ECAR, August 2013.

Acknowledgments The authors thank Patrick T. Burns, Dean of Libraries and Vice President for IT, Colorado State

University; Julie Curtis, Vice President for Strategy and Communications, Lumen Learning; Thomas Olliff,

Senior Vice President for Administration, Broward College; and Pim Thukral, Vice President, Financial

Accounting and Systems and Interim Controller, Georgetown University, for sharing their professional

experiences and insights about financial management systems in higher education.

About the Authors

Leah Lang (llang@educause.edu) is Manager of the Core Data Service at EDUCAUSE.

Judith A. Pirani (judith.pirani@gmail.com) is an EDUCAUSE Consultant and President of Sheep Pond

Associates.

http://www.educause.edu/ero/article/administrative-and-enterprise-it-systemshttp://www.educause.edu/ero/article/we-built-we-bought-we-shared-costs-administrative-service-systems-vs-academic-missionhttp://www.educause.edu/ero/article/we-built-we-bought-we-shared-costs-administrative-service-systems-vs-academic-missionhttp://www.educause.edu/focus-areas-and-initiatives/enterprise-and-infrastructure/administrative-it-programhttp://net.educause.edu/ir/library/pdf/PUB4006.pdfhttp://net.educause.edu/ir/library/pdf/PUB8010.pdfhttp://net.educause.edu/ir/library/pdf/PUB9016.pdfhttp://net.educause.edu/ir/library/pdf/ers1306/ERS1306.pdffile:///C:/Users/gdobbin/Documents/ECAR/Research%20Bulletins/2014/ERB1412%20CDS%20M8%20Financial%20Systems/llang@educause.edumailto:judith.pirani@gmail.com

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Citation for This Work Lang, Leah, and Judith A. Pirani. The Financial Management System: A Pivotal Tool for Fiscal Viability

Research bulletin. Louisville, CO: ECAR, October 13, 2014. Available from http://www.educause.edu/ecar.

Notes

1. Susan Grajek, Higher Educations Top-Ten Strategic Technologies for 2014, research report (Louisville, CO: ECAR, February

2014), available from http://www.educause.edu/ecar.

2. Ibid.

3. Leah Lang, 2013 CDS Executive Summary Report, research report (Louisville, CO: ECAR, February 2014).

http://www.educause.edu/ecarhttp://www.educause.edu/ecarhttp://net.educause.edu/ir/library/pdf/PUB8010.pdf