Functional Classification: A Better Records Management Model

A records classification is the cornerstone of any successful Records Management program, providing the basis for compliance, risk management, retention periods, security safeguards and other related issues. TAB’s methodology for organizing business records is based on functional classification. Functional records classification is perhaps best defined in relation to other approaches that have been used in Records Management.

Subject-based classifications organize records according to what their content is “about,” much in the way that a library catalogue or encyclopedia index organizes reference information. An example of a subject-based category would be “safety equipment.” Fitting all records related to safety equipment, then, would mean grouping records of financial activities (purchasing, payment) with those of safety activities (monitoring, planning).

Other classifications are built around the organizational structure of a company, with a major records category for each department, team or business unit. Every time departments are reorganized or responsibility for an activity is transferred between departments, there is a need to restructure the entire classification.

Functional classification takes a different approach by focusing on the actual business function, activity or transaction which resulted in the record being created or received in the first place. Questions like “What is the record about? “or “Who created the record?” are of little use here. Functional classification asks the more pointed question, “What were you doing when you created the record?”

A records classification that is built exclusively around business functions, activities and transactions makes for a simpler, easier to apply structure. Depending on the size of your company, you may have several departments engaged in the same activity. A functional classification lists that activity as a single category, as opposed to repeating the category for every department which engages in it. Fewer categories means less time locating a given record. There is also less need for updating, as business activities usually remain unchanged even after a corporate reorganization.

ISO 15489 is the international standard for Records Management. This two-part policy and procedural framework includes a requirement to classify records “based on an analysis of the organization’s business activities.” This is the essence of functional records classification.

As with other standards published by the International Organization for Standardization, compliance with ISO 15489 goes a long way in demonstrating overall due diligence and supporting compliance with other requirements, such as those discussed below.

The functional approach to records classification better reflects the reason why companies keep records in the first place. Any record is legal evidence of a particular business function, activity or transaction. By better establishing the link between records and activities, functional classification makes it easier to maintain and locate the evidence needed to defend those activities in the event of litigation or other legal proceedings.

The functional approach also better supports compliance with legal and regulatory rules for retaining records. There is virtually no law or regulation which deals exclusively with the question of how long to keep records. Instead, retention rules appear either directly or implicitly as part of some broader-based law or regulation governing a given business function or activity. Even where a law or regulation names a specific record type, that record is defined in terms of the broader function or activity, just as they are in a functional records classification.

Returning to the example of purchasing records, we see yet again the advantage of functional classification over other approaches. Companies keep records of their purchasing activities in order to support compliance with tax laws, tendering rules, and so on. These requirements seldom if ever distinguish between the types of materials or services being purchased (i.e. the subject of the records), nor do the requirements change if responsibility for purchasing is transferred to another department. The functional approach is to focus on the purchasing activity itself, ensuring that evidence of that activity is kept for as long as needed.

Privacy laws like the Health Insurance Portability and Accountability Act (HIPAA) set specific requirements as to how companies handle and keep personal information. Many of the features unique to functional records classification respond directly to these rules. Companies must now identify the purposes for which personal information is collected, then ensure that information is only used, disclosed or retained as long as needed to meet those same purposes. By categorizing records according to authorized business activities which they support, a functional classification provides the essential categories for determining privacy-compliant access privileges, records retention periods and security levels.

The Sarbanes-Oxley Act increases the accountability of executives for their companies’ statements and reports, as well as setting harsh penalties for non-compliance.

A functional records classification reflects this renewed commitment on corporate accountability by first identifying the activities for which companies are accountable, then managing how activities are documented. Where appropriate, functional records categories can be mapped to accountable departments, as well as to levels of security that protect against threats to the integrity or accuracy of information. Even more importantly, by organizing and protecting corporate information according to an ISO-compliant methodology, a functional records classification demonstrates due diligence and support the reasonable assumption by executives that information is reliable and accurate.

Functional classification is not the only way to organize records, but in TAB’s view, it is the only Records Management model which fully supports corporate compliance and best manages risk. By focusing on the business context in which records are created or received, this versatile approach better reflects the role of records in general and the more detailed requirements facing today’s businesses.