Introduction to EuroSmart

Chapter 2: The Euro as an IT Challenge

This chapter briefly considers the general challenges of moving to the euro.

2.1 Challenges of Moving to the Euro

MERANT acknowledges the Directorate General of the European Commission for their document Preparing Financial Information Systems for the euro, which is reproduced and supplied in full with EuroSmart. We strongly recommend that you read this document to help you understand the challenges surrounding the changeover to the European single currency and the introduction of the euro.

During the euro transition phase, the challenges primarily concern the difficulties of storing and manipulating the euro and the national currency simultaneously. This will affect:

• Data input and output.

• Interfaces between systems (some of which may not have been converted to the euro yet).

After transition, historical information still needs to be accessible and might need to be converted to the euro.

More generally, the need to convert between the euro and your national currency, and indeed to and from other currencies as well, calls for strictly defined conversion procedures. For example, conversion rates must always be expressed as one euro to the national currency, to six figures of decimal that must not be truncated or rounded during conversions; and inverse rates must not be used. Additionally, amounts to be converted from one national currency to another must first be converted to the euro and then to the second currency (this is triangulation). The same situation applies where a participating national currency unit such as the German mark or French franc is being converted to or from an external currency such as the dollar.

Currency conversions afford particular scope for the sort of rounding and truncation errors that subsequently lead to difficulties in balancing the ledgers. Reconciling unequal balances results in a small difference that the user might need to allocate to a special account for rounding differences and subsequently monitor. Furthermore, conversion errors could also cause problems in systems that match transactions on the basis of their amounts.

You need to evolve a method for dealing consistently with currencies so as to minimize the risk of incurring accounting errors and consequently the cost of correcting them.

To overcome potential problems with moving to the euro, you need to consider and complete these three key stages:

1. Initial strategic assessment

2. Analysis and preparation of an application

3. Verification of an enabled application

To get the best overview of the euro problem, it's essential to complete stage 1 before proceeding to stage 2. Similarly, you should complete stage 2 before starting to modify application code.

2.2 Strategic Assessment

You might already have some rough ideas of how your business will respond to the challenge of EMU, and therefore how this will affect the requirements on your financial systems. If not, you need to consider the following approaches to transformation:

• Big bang - all information systems change to processing the euro at the same time

• Gradual - systems change to processing the euro on an as-necessary or when-ready basis

If you are still establishing the scope of the problem and getting a feel for priorities, the areas you need to consider involve:

• Which applications process money in some way? Is it just the financial systems or are there knock-on effects into management information systems?

• What about historical archives and backwards-compatibility?

• Which systems are most complex? Modification could take longer.

• Which systems are most important? They need a higher priority.

• Can some systems be deferred? Employees may not want to be paid in euros.

• Is it wise to phase part of the changeover with that of other enterprises. For example, banks, major customers?

See the section Assessing Strategies for Enabling Applications for an explanation of how EuroSmart can help you establish the right changeover strategy for your applications.

2.3 Analyzing an Application

The next stage is to analyze the applications in detail to establish what impact the euro has on existing:

• Business processes such as order processing, invoicing, pricing strategy, and depreciation

• Constant monetary values representing thresholds, limits and so on

• Arithmetic processes such as summaries and averages

• Multi-currency transactions

• Monetary data definitions such as size and decimal places

• Data input and verification such as size, decimal places, and batch totals

2.3.1 Application Gremlins to Look Out For

EuroSmart helps you gauge the impact of the changeover to the euro on your applications and helps you to bring a consistent approach to your code modifications and testing process. Among other things, you need to watch out for potential problems caused by:

• Rounding, especially where:
  • Financial information may be stored in 'description' fields
  • Converted currencies are subject to further arithmetical processes. For example, hash totals
  • Small amounts per unit are multiplied, as in asset registers
  • Amounts might be reconverted
  • Depreciation occurs, as in asset registers
  • Systems store the same information more than once, as in period-end summaries
• Interfaces between systems.

• Converting historical data - use current conversion rates or historical rates?

• Decimals - systems that were designed to work with amounts such as pesetas usually cannot handle decimals.

• Thresholds and ranges - where systems use breakpoints to determine an activity, conversion frequently causes the generation of strange breakpoints and can lead to range overlaps or gaps. Also, scanning for transaction abnormalities can be affected.

• Monetary displays.

The above list is a summary of information from the document Preparing Financial Information Systems for the euro, produced by the Directorate General of the European Commission, and reproduced in full and supplied with EuroSmart.

2.3.2 Triangulation

You need to use triangulation whenever you convert between two currencies, where neither currency is the euro and at least one is the national currency unit of a participating EU member state. You might need to use triangulation in order to convert any existing currency data files or databases that include currency data. In addition, if you intend your application to run in mixed currency mode during the transition period, you need to include a triangulation function in your application.

You may decide that a common triangulation subroutine is an appropriate way to handle these requirements. For this reason, EuroSmart includes sample triangulation code by way of illustration. The sample COBOL code includes a triangulation subroutine together with a simple PC demonstration program that enables you to enter an amount in one national currency unit and select another currency unit. It then uses the subroutine to calculate and display the amount in the requested national currency unit. The sample code can be found in the directory, EuroSmart\Revolve\Sample\Euro\Triangul.

2.4 Assessing Potential Strategies

You can use EuroSmart at a high level to help you decide whether your approach to dealing with the euro is optimal. It can help you to understand the consequences of your potential strategy before you commit to implementing it.

For example, assume that the proposal is to have two copies of your order entry system with one copy using local currency units and the other copy using euro units. First, you need to identify the areas that need change. You can then determine the additional effort in changing the system, and assess the long term benefit of maintaining a single source stream rather than two. Finally, you gauge whether changing to a single dynamic system handling both currencies is feasible in the desired time scales and is beneficial in the long term.

2.4.1 Scoping and Estimating Strategies

This section suggests how you can use EuroSmart to estimate rough costings for any strategy you are contemplating. Broadly, you make an estimate of representative samples and then extrapolate this across your complete application inventory. To do this:

1. Select representative samples of applications that require work. Depending on your inventory you might select just one representative sample or several, categorizing them as high, medium and low complexity. The more representative samples you select the more effort you incur, but the more accurate your estimates will be.

2. Develop a best practice analysis using the EuroSmart analysis tools, preferably with the help of MERANT Consulting staff. Produce relevant reports documenting your best practice and recording your results along with all your assumptions.

3. Extrapolate the results from the previous step across all the appropriate applications in your inventory based on the assumptions about possible strategies.

2.5 Other Sources of Information

There is at present plenty of debate about currency conversion: inverse rates, accuracy, triangulation and so on. Apart from the information provided, there are some web sites that provide interesting discussion, see the section External Web Links in the Preface.

Introduction to EuroSmart