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Five Key Benefits Big Data Can Deliver For Finance: Part 2

Nilly Essaides

Part 2 in a series. Read Part 1 here.

Finance professionals and experts interviewed by the Association for Financial Professionals (AFP) for its upcoming FP&A Guide, How Finance Can Get Ready for Big Data, releasing April 12, pointed out five key benefits finance can achieve from adopting Big Data strategies.

  1. Improved forecasting. The key benefits for incorporating Big Data strategies into FP&A is improving predictability. Big Data validates the assumptions that go into the business forecast, and therefore allows FP&A to come up with a more accurate view of how events in the market and internally will impact the company’s performance, and thus its competitive position. A data-driven finance department can better look forward and identify leading indicators. With that information, the CFO can make more educated decisions.
  1. Better KPIs. FP&A can take also take advantage of Big Data when identifying and understanding value drivers, and then managing and monitoring financial and non-financial KPIs against these value drivers. By nature of its job and role, FP&A is in the right position to examine that and assess whether core planning and reporting models represent the right driver relationships and related KPIs.
  1. More predictable working capital. An existing example for an area where Big Data can play a role is in analyzing and predicting working capital. Traditionally, finance would look up 15 factors that drive working capital and monitor them to come up with a forecast. Now, instead, an analyst can seek statistical correlations between working capital and any number of data points to arrive at a forecast for the organization.
  1. Identification of growth opportunities. One of the areas that CEOs identified as the best thing CFOs can do, according to KPMG’s The View from the Top 2015 survey, is in best leveraging financial data and analytics to identify growth opportunities. While marketing is clearly involved, finance is actually in a much better position – and has better access to data – to analyze the cost to serve across multiple dimensions (products, customers, services, channels) and then analyze pricing strategies and where to optimize profitability and growth.
  1. A stronger strategic role for FP&A. Finally, FP&A already has the basic multidisciplinary thinking and analytical approach. Using Big Data and getting comfortable with some ambiguity allows FP&A professionals to more quickly adjust their thinking, and recommendations, in reaction to changes in the business environment, today and looking forward. Many FP&A groups are already moving their focus from what happened to what’s going to happen and why. In this role, they are becoming a strategic partner to the business and senior management.

According to Allan Frank, chief IT strategist and co-founder of The Hackett Group, Big Data and related new tools present a tremendous opportunity for finance to take the lead, given its core fiduciary responsibilities. “The challenge for finance is how to develop an enterprise view of analytics,” he said. “The first thing is to realize you can find out more. You can ask questions you couldn’t ask before and frame them in the form of business outcomes.”

Over time there will likely be an evolution of the FP&A business analyst into the business data scientist, according to Philip Peck, vice president of finance transformation at Peloton. “FP&A practitioners will review and analyze all of the forward-looking KPIs and data available, dynamically adjust forecasts, make tactical recommendations, and effectively drive that information into operations,” he said.

Peck added that as finance and FP&A continue to extend and expand their business partnering activities across the organization, they have a unique opportunity to spearhead or at least guide Big Data and analytics efforts and become the go-to experts in this area. “Similar to the evolution we experienced when business intelligence became more prevalent, we are starting to see the emergence of analytic centers of excellence or competency centers,” he said.

To benchmark your organization’s forecasting methods and other FP&A processes, take the AFP FP&A Benchmarking Survey, in partnership with IBM. You can also connect with me on LinkedIn or follow me on Twitter.

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Nilly Essaides

About Nilly Essaides

Nilly Essaides is the director of the FP&A Practice at the Association for Financial Professionals. She has over 25 years of experience in the finance field. Nilly has written multiple in-depth research reports on FP&A and Treasury topics, as well as countless articles. She also speaks at conferences and moderates financial executives' roundtables across the country. Nilly has published a book on best-practice transfer and process excellence with the APQC, "If We Only Knew What We Know."

Real-Time Analysis Tools Critical To Improving Finance Performance [INFOGRAPHIC]

Viki Ghavalas

The majority of finance executives agree that real-time analysis tools are key to making better business decisions, according to a report by CFO Research and SAP titled “The Future of Financial Planning and Analysis.” However, executives polled also believe that their current systems still need more improvement to be able to make a positive impact on the business. Executives surveyed point to four main priorities for their FP&A tools.

Finance executives surveyed expect the demand for real-time analysis tools to grow in the coming years. However, the survey also shows that having these tools is not enough and that stakeholders also expect analysis and insights from finance that are simple and actionable.

Data in financial planning and analysis

Learn more about what finance executives are projecting for FP&A by downloading the “The Future of Financial Planning and Analysis” report.

Are you monitoring business performance in real time? If not, read Boosting Efficiency For CFOs And The Finance Function.

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Viki Ghavalas

About Viki Ghavalas

Viki Ghavalas is worldwide program manager for the finance line of business at SAP.

Why Banks Should Be Bullish On Integrating Finance And Risk Data

Mike Russo

Welcome to the regulatory world of banking, where finance and risk must join forces to banking executiveensure compliance and control. Today it’s no longer sufficient to manage your bank’s performance using finance-only metrics such as net income. What you need is a risk-adjusted view of performance that identifies how much revenue you earn relative to the amount of risk you take on. That requires metrics that combine finance and risk components, such as risk-adjusted return on capital, shareholder value added, or economic value added.

While the smart money is on a unified approach to finance and risk, most banking institutions have isolated each function in a discrete technology “silo” complete with its own data set, models, applications, and reporting components. What’s more, banks continually reuse and replicate their finance and risk-related data – resulting in the creation of additional data stores filled with redundant data that grows exponentially over time. Integrating all this data on a single platform that supports both finance and risk scenarios can provide the data integrity and insight needed to meet regulations. Such an initiative may involve some heavy lifting, but the advantages extend far beyond compliance.

Cashing in on bottom-line benefits

Consider the potential cost savings of taking a more holistic approach to data management. In our work with large global banks, we estimate that data management – including validation, reconciliation, and copying data from one data mart to another – accounts for 50% to 70% of total IT costs. Now factor in the benefits of reining in redundancy. One bank we’re currently working with is storing the same finance and risk-related data 20 times. This represents a huge opportunity to save costs by eliminating data redundancy and all the associated processes that unfold once you start replicating data across multiple sources.

With the convergence of finance and risk, we’re seeing more banks reviewing their data architecture, thinking about new models, and considering how to handle data in a smarter way. Thanks to modern methodologies, building a unified platform that aligns finance and risk no longer requires a rip-and-replace process that can disrupt operations. As with any enterprise initiative, it’s best to take a phased approach.

Best practices in creating a unified data platform

Start by identifying a chief data officer (CDO) who has strategic responsibility for the unified platform, including data governance, quality, architecture, and analytics. The CDO oversees the initiative, represents all constituencies, and ensures that the new data architecture serves the interests of all stakeholders.

Next, define a unified set of terms that satisfies both your finance and risk constituencies while addressing regulatory requirements. This creates a common language across the enterprise so all stakeholders clearly understand what the data means. Make sure all stakeholders have an opportunity to weigh in and explain their perspective of the data early on because certain terms can mean different things to finance and risk folks.

In designing your platform, take advantage of new technologies that make previous IT models predicated on compute-intensive risk modeling a thing of the past. For example, in-memory computing now enables you to integrate all information and analytic processes in memory, so you can perform calculations on-the-fly and deliver results in real time. Advanced event stream processing lets you run analytics against transaction data as it’s posting, so you can analyze and act on events as they happen.

Such technologies bring integration, speed, flexibility, and access to finance and risk data. They eliminate the need to move data to data marts and reconcile data to meet user requirements. Now a single finance and risk data warehouse can be flexible and comprehensive enough to serve many masters.

Join our webinar with Risk.net on 7 October, 2015 to learn best practices and benefits of deploying an integrated finance and risk platform.

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Mike Russo

About Mike Russo

Mike Russo, Senior Industry Principal – Financial Services Mike has 30 years experience in the Financial Services/ Financial Software industries. His experience includes stints as Senior Auditor for the Irving Trust Co., NY; Manager of the International Department at Barclays Bank of New York; and 14 years as CFO for Nordea Bank’s, New York City branch –a full service retail/commercial bank. Mike also served on Nordea’s Credit, IT, and Risk Committees. Mike’s financial software experience includes roles as a Senior Banking Consultant with Sanchez Computer Associates and Manager of Global Business Solutions (focused on sale of financial/risk management solutions) with Thomson Financial. Prior to joining SAP, Mike was a regulator with the Federal Reserve Bank in Charlotte, where he was responsible for the supervision of large commercial banking organizations in the Southeast with a focus on market/credit/operational risk management. Joined SAP 8years ago.

Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

Christopher Koch

Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

To learn more about how humans and robots will co-evolve, read the in-depth report Bring Your Robot to Work.

Download the PDF (91KB)

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Christopher Koch

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing. Share your thoughts with Chris on Twitter @Ckochster.

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Building A Business Case For Financial Transformation

Nilly Essaides

There’s constant pressure on the CFO from the CEO to do better—to innovate, and to transform the finance organization into both a leaner and a more forward-looking analytics hub that provides insight and foresight to the enterprise. CFOs today must:

  • Interpret numbers instead of reporting them
  • Deploy enabling technology to automate low-value work
  • Scout for business and growth opportunities
  • Work effectively with Big Data to turn their teams into the brains of the organization
  • Act as true partners to the CEO, business leaders, and board of directors

Defining the ROI for transformation

Transformation sounds great in theory, but to get finance to literally go beyond its form—not an easy feat—executives need to see a strong business case and a tangible payback. After all, finance is all about the ROI.

Here are some solutions CFOs can wrap their heads around to help drive change:

  • Manage competitive disruption. Today’s business environment is rife with competitive threats. My last post listed five ways financial planning and analysis (FP&A) in its future form can help companies battle these threats. The cost of not transforming the finance function into the fast-thinking, forward-looking brains of the enterprise is the opportunity cost of falling behind. It’s the risk of becoming irrelevant through the inability to foresee competitive threats, or of lacking an action plan for dealing with the potential impact of such pressures on the financial health of the corporation.
  • Streamline processes. Obviously, there’s the dollars-and-cents savings that come from streamlining processes, using new technologies, and breaking down internal silos. For example, in many organizations, forecasting processes occur in different departments. Merging these disparate processes into one and using a single technology platform can save enormous resources in terms of systems and time. It eliminates duplicate entries of data and the need to reconcile discordant information, or the need to later argue about which number is right. It creates a single version of the truth.

Even within finance, things can be improved. Often the processes of budgeting, forecasting, and planning happen in isolation in different time frames. And operational and financial planning occur in different cycles and levels. By syncing up these processes, companies can get rid of redundancies. What’s more important, they can discover efficiencies and improve the quality of the end product.

  • Eliminate waste and free up strategic time. New technologies are enabling the finance function to automate low-value work and free up executives’ time to focus on strategic thinking, developing partnerships with the business, and advising management on how to drive growth. The payback is smarter decisions (faster growth, higher investment returns) while lowering operating expenses.
  • Look forward. Finance and FP&A today are shifting their focus from yesterday to tomorrow, from what happened to what’s going to happen. Transforming their mindset is key to helping the business move forward. Using techniques and technologies like driver-based modeling and predictive analytics, finance is remaking itself and producing faster, more frequent and—most importantly—more accurate forecasts. It’s giving management the one thing that matters most: time to pull business levers to affect future financial results. The payback is higher sales, wider margins, and lower cost of operations.
  • Change the mindset. There’s no transformation of the financial organization without a transformation of the financial skill set of executives. The first-quarter Deloitte CFO Signal Survey indicated that CFOs expect to embark on a wide range of efforts to improve the performance of their teams before the end of 2016. While foundational finance skills remain a must, to transform finance into the “A-team” of the future, executives must possess business acumen, diplomacy skills, intellectual curiosity, technology savvy, and a degree of comfort with ambivalence. They have to be okay with making decisions without 100% of the information. One can argue that the return on soft skills is soft. But it also means being able to move fast and grab windows of opportunity. Not all business cases are based on cost savings.
  • Build an analytics hub. The biggest challenge for CFOs today is to transform finance into the analytical hub of the organization and leverage Big Data to drive smarter business decisions—both in terms of cost cutting and in giving the business units advice on how to market, sell, develop, and grow their operations. That’s how finance fits within the digital enterprise. Finance needs to funnel Big Data from all corners of the organization—and outside it—to leverage its unique central viewpoint. It must bring the information together and run it through advanced analytics models to come up with causal relationships that explain what business initiatives are really moving the needle, what steps the company can take to improve results, and what its customers are doing and are likely to do. Digitizing finance has a huge payback: It allows companies to stay competitive in a digital economy.

Is finance transformation worth the effort? That may be the wrong question. The question is, can companies afford not to transform their finance function and remain relevant now and going forward?

Learn how the FP&A team at CF Industries Holdings Inc. prioritized business partnering options and transformed the organization to optimally support strategic goals by establishing an integrated business planning process at the AFP Annual Conference session, Driving Finance Transformation Through Integrated Business Planning.

For more of my insights on FP&A, subscribe to the monthly FP&A e-newsletter from my company, the Association for Financial Professionals. You can also connect with me on LinkedIn or follow me on Twitter.

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Nilly Essaides

About Nilly Essaides

Nilly Essaides is the director of the FP&A Practice at the Association for Financial Professionals. She has over 25 years of experience in the finance field. Nilly has written multiple in-depth research reports on FP&A and Treasury topics, as well as countless articles. She also speaks at conferences and moderates financial executives' roundtables across the country. Nilly has published a book on best-practice transfer and process excellence with the APQC, "If We Only Knew What We Know."