TechTalk Blog: Internet of Things and Accounting of Things

By Brad Monterio posted 04-27-2015 01:24 PM

  

The Internet of Things (IoT) is becoming mainstream in our nomenclature today.  What is the IoT? IoT is about enabling all types of products with information technology. Unlike what is a common misconception about IoT, technologies embedded in these products go beyond wireless or Internet connectivity to include various types of processors, sensors, networking and security.

If we already thought the piles of data were big enough, just wait.  We ‘ain't seen nothin’ yet! In a sense, these product become self-aware. They create information, track information, and even analyze information. Companies use the information to better manage their production and distribution networks, predict when items will need service or repair (using advance analytics techniques), bring greater efficiency to the supply chain, and much more. Many of these capabilities translate to a positive impact on the bottom line.

But IoT is not without its challenges as well. Particularly when we think about the role of management accountants and finance professionals. Whether data comes through more traditional legacy systems or from a smart refrigerator or vending machine, the data challenges are the same or similar, including those that impact accounting.

Some of my prior TechTalk blogs have tackled issues like effective data governance strategies and reliability of data to drive decision-making. Financial information in traditional ERP systems is trusted, structured, accessible, usable and linked to original sources (in most cases). A strong data governance strategy helps ensure this through effective internal controls, continuous monitoring and risk management. This enables the internal accounting and finance functions to produce and share information and reports with greater comfort in the numbers.

The IoT has these same challenges to meet (e.g., having effective internal controls and monitoring, accessibility, utility, context, lineage to source data) but also introduces others. Two of these challenges have to do with the speed of information and the automation of decision making.

As more information from IoT gets quickly heaped onto the big data stockpiles – typically in real-time – it must be dealt with equally as rapidly, efficiently and cost effectively if companies are to garner any market advantage (their competitors are certainly trying to do the same thing). As data latency rates approach zero between when created/generated by the products and when received by the company, the time in which decisions need to be made using that information also need to be short – shorter than humans can typically work within, especially given the volume and breadth of information generated by the IoT for any given collection of products.

This puts tremendous pressure on the data governance plan, as the company needs to know that the data is reliable before it makes decisions from this data. Accounting and finance functions have to account for transactions, validate information, analyze the data, report the data and ultimately drive decisions made by many functional areas within the organization (e.g., marketing, operations, sales, production, executive). Layering in the evolution to automated decision making (by software and hardware) and what used to be a reasonable length of time in which decisions were made, and it's a whole new paradigm.

Does this raise the risk of bad or wrong automated decisions? Probably. Is this a risk companies are willing to make? For some, yes, if they weigh the opportunities and competitive advantages from so doing more highly than the potential risks.

How does the management accounting and finance function need to evolve to take advantage of the opportunities IoT can bring without undermining the data governance strategy and the risk management plan? Your thoughts?



#ERP #ERM #IoT #supplychain #datagovernance #technology #IT #riskmanagement #internalcontrols #InternetofThingstechtalk
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04-27-2015 01:47 PM

Thanks Brad,
I find IoT a fascinating subject for management accountants because of high potential benefits and risks. I think one of the first questions we need answered by the tech industry is how the hardware and software developers are incorporating cybersecurity concerns into their development. I think the risk of giving inadvertent access to other cyber assets and the devices themselves being hacked has to be addressed strongly before we can open up to widespread adoption, but I'm open to being instructed on this (in my mind) deal-breaker, since the possible uses of IoT are so plentiful and exciting for our firms and our accounting or more likely, analysis.