Accounting for the value of (big) data
While the value of data has become increasingly clear to businesses in the wake of the financial crisis and subsequent regulatory and compliance initiatives across Europe, they are not yet reflecting data as a valued asset on their balance sheets.
As they come to rely more and more on analytics and Big Data, this will need to be addressed, according to a new report, Data on the Balance Sheet, from the Centre for Economics and Business Research, a London-based economic and business consultancy, and business analytics specialist SAS. Current accounting methods “do not capture its importance, and the lack of awareness of data’s potential hampers policy decision-making”, it says.
The report discusses European companies’ ability to use the insight gained from big data analytics to improve customer relations, streamline production and develop new products. Because data provides potential future economic benefits, it should be regarded as a company asset, it concludes. “Businesses already account for the cost of collecting, storing and analysing data. Yet they do not adequately account for the value of data, nor for the potential from its development and use.”
Launching the research during SAS’s Premier Business Leadership 2013 event in Amsterdam, Graham Brough, chief executive at the CEBR, said there are three principle reasons why companies should value data, and they have particular implications for banks: regulation, competition and globalisation.
“Regulation since the crisis has been designed to get rid of asymmetric information between directors, customers, investors and shareholders,” he said. “The regulations pertaining to banks through Basel III, are essentially emphasising the quality of data and the management thereof – if you have unclear data, or untransparent data in terms of its reporting, then higher capital requirements will be placed on you. That increases the cost of doing business and that is clearly an incentive to get clarity in the management of your data.”
Brough said that what is required is a forward-looking – in the sense of predicting possible future states – integrated accounting framework that shows investors a comprehensive view of a company’s value, including how they value their data. “There are three ways to assess the value of data: on its market value, via the cost of collecting it and by the income derived from it where markets do not exist and value is sensitive to external competitive and regulatory factors,” he said. “These three ways have limitations when it comes to depreciation, so we need to find systems outside traditional accounting practices that not only take into account financial and physical capital but also human, social, relationship and knowledge capital. We need forward-looking reports that include a company’s future prospects and not just a review of its past performance.”
