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.
- 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.
- 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.
- 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.
- 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.
- 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.