Accounting and Data Warehousing: Common misconception

There is a common misconception between the need to “update your accounting engine” and “create an holistic investment platform”.

10 years ago, the concept of a creating a holistic platform seemed to be too futuristic, and, therefore, upgrading your accounting engine was the de-facto choice.  Much of the decision centered around selecting i) an objected based or non-SQL system (i.e. a “closed architecture” system by nature: this means difficult/complex to develop custom reporting), or ii) a SQL-based system (SQL is an “open architecture” system: this means it is a common skill set and thus easier to customize the system and reports.)

Given the above, most firms choose the “open architecture” SQL based system, if available, given functionality and asset class coverage were the same.

However, today the focus driving a platform design/selection should not be on individual components, such as the accounting engine, but should instead focus on the larger and more important question what the holistic investment platform needs to achieve.
The question is: Do you go with an Accounting-Centric approach or an Information-Centric approach?

1) Accounting-Centric is a 1990’s approach:  The issues are i) accounting engines are not designed to store a wider set of information such as trading, risk, compliance, market fundamentals, or investor/client data; and ii) the data structures that are ideal accounting are the least ideal for reporting.  The historical reaction by accounting vendors has been to create what they wrongly call a data warehouse (technically this is a data mart) of the accounting data in a better format.  These data marts are very limited in the types of data they store and typically ONLY store accounting information. The technical point here is that a DATA MART is a cheap and poor alternative to a DATA WAREHOUSE.

2) The norm today is an Information-Centric architecture:  The benefits are i) all reporting is derived from a single data store (warehouse or repository) that stores all information from the entire trade life cycle above (Trading, Investors, Risk and Compliance…) and ii) the actual data structures within the data warehouse are designed for reporting, and hence provide high degrees of flexibility.

One of the key benefits (driving it to become the norm) of the Information-Centric approach is that the presence of a true data warehouse within the platform renders the underlying reporting capabilities within the accounting platform less significant.  Thus firms can focus on accounting engines that are best-in-class in accounting, and not focus on distracting add-ons, such as a data mart (a half-baked fix).

The final twist is the methods deployed in the data warehouse.  Today, data warehousing has evolved to become a data repository that combines the need for an online operational repository and the needs for flexible and consolidated enterprise reporting.  This remains a core component to an information centric architecture and platform.

Michael is a founding member and COO at InvestCloud.  In his role, Michael is focused on the product development of the world’s first investment management platform in cloud.

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