Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation XBRL in Federal Financial Management — Part I
Written by Bob Schneider Posted April 20, 2007
Any writer who puts “white paper” in his opening sentence has to worry that readers are already suppressing yawns. Tell them that the paper he wants to discuss is exciting and intriguing, and the yawns may turn to smirks.
Admittedly, members of the Paris Hilton Admiration Society are unlikely to be enthralled by the recently published “Transforming Financial Information – Use of XBRL in Federal Financial Management” (freely available at the site of the Industry Advisory Council, under whose auspices it was written). But for those interested in how XBRL can revolutionize information collection, processing, and analysis by Federal agencies, this paper indeed provides stimulating reading.
In this first of two posts, I’ll discuss two salient points the authors make, namely, (a) why the information supply chain is so important, and (b) the tradeoff between richness and reach in information. In the second post, I’ll look at why XBRL holds such promise for Federal financial management. These brief capsules won’t do justice to the authors’ argument, but I hope they will encourage you to read the entire paper.
On page 17 of the report, the authors describe a general model for reporting, which can be viewed simply as “a pattern of pairing requests and responses between organizations.” The authors say that it is often assumed financial information requests are completely and accurately understood.
What actually happens is that (a) responders (ie, suppliers of information) can’t decide what’s needed and requesters (ie, collectors of information) have to help them figure it out; or (b) responders wrongly assume they know what’s needed and respond incorrectly. Either way, there’s more expense for both requester and responder..
In traditional, paper-based reporting, these costs rapidly multiply because each report has a single, narrow audience with a single narrow purpose. Each time you add a new audience or purpose, you add a new report producing more back-and-forth that generates more cost.
In contrast, consider the information supply chain in a digital environment, where information is passed along a chain of interested parties so many organizations can share the same information amongst themselves. The authors use the diagram below, taken from page 22 of the report, as an example (click the thumbnail to see the image):
” Information that is requested of one body (#1) may in turn become a request to another party (#2) with the response (#3) being passed, in part or in whole, back along to the original requestor (#4).Ultimately, the information may be shared out, in part or in whole, with other interested parties (#5). When the pairs of requests/responses are chained together they can be viewed as an information supply chain. The concept of an information supply chain emphasizes the notion that information can be reused, which is to say, it is not just gathered and provided once, but is passed along a chain of interested parties.”
With the information supply chain, many related requests can be combined into one, and the responses can be shared among many parties. The numerous audiences for this one body of information can receive all or just part of it. And this one body of information can have many purposes. Thus costs are reduced both by eliminating redundancy and sharing expense across the supply chain.
XBRL underpins these efforts, because at each step of the chain data can be viewed, analyzed, and manipulated without compromising data integrity. XBRL automates the processing of business information so that manual processes of validation, re-entry, and comparison are eliminated. And XBRL allows data to be provided once and reused again and again, so it can be shared across a broad base of users and for many purposes.
Another powerful concept the authors introduce is the trade-off between information richness and information reach. Richness is the quality of information, while reach is the number of users that can share it. Richness includes the amount of information; the ability to customize it; interactivity; reliability; security; and timeliness. The diagram below, taken from 28 of the report, shows the tradeoff between richness and reach (click the thumbnail to see the image).
Traditionally, rich information required people to be physically close to one another, but the Internet allows much greater reach for much richer information. As a semantic technology, XBRL helps associate different types of information to enable much broader and richer information discovery and exchange, and pushes out the ceiling at which the tradeoff must be made still further. The ultimate result is much richer information for a much wider audience at reasonable cost.
In my next post, I’ll discuss specifically the authors main focus of how, by adopting the model of an information supply chain that can supply richer information to a wider audience at relatively low cost, XBRL can substantially improve Federal financial management.