Companies today invest significant resources and time in developing financial plans to communicate business strategy, measure performance, and form the basis of the “forward-looking” guidance provided to investors and the market in general.
Whether the company is developing top-down targets or building bottom-up budgets, the planning process is complex and fraught with inefficiencies and a lack of transparency. The business drivers and key performance indicators used as the foundation of financial forecasts generally lack a cohesive governance strategy and data is not integrated across all areas of the business. Lack of data is not an issue; rather, having the ability to discern which data is most relevant is key.
Risk of missed expectations
When forecasted targets are missed or financial results come in short of expectations, it can be a challenge to determine the root cause of the “miss.” Was it a change in the market? Was it poor company performance? Was it an unforeseen global factor? The accuracy and transparency of your financial forecasts are reliant on how complete and, more importantly, how well integrated your financial drivers are to your overall planning process. Forecasts built on aspirations rather than business insight, financial facts, market trends, and external indicators can lead to inaccuracies and result in decreased company valuation.
Insight to action
Predictive finance analytics enhances the typical planning process to create more extensive and responsive financial plans aligned with strategic and operational activities. Predictive analytic solutions enable organizations to better anticipate, analyze, and respond to changes in business performance and market conditions. Looking proactively, predictive insights and scenario analytics help expose and shape new opportunities ahead of the competition. Solutions leverage existing technology investments as well as financial, operational, and market data to feed powerful analytics, business intelligence, and enterprise performance management systems to achieve financial transformation that yields continuous, value-driven results. You can, for example:
- Modernize your financial planning process: Incorporate advanced predictive capabilities into the very fabric of how your company makes financial decisions and prepares for the future.
- Align financial and operational drivers: Create frequent and insightful forecasts based on dynamic models and continually tested business drivers that are aligned with your financial and business strategies.
- Assess the impact of market fluctuations: Enable scenario modeling that incorporates external data and perspectives (e.g. commodity prices, GDP estimates, consumer sentiment, climatological data, etc.) with internal performance history to navigate a dynamic and volatile market environment. Monitor changing market conditions and receive early warning of the impact to your business drivers and forecasted financial performance.
- Drive integration and transparency: Leverage leading-edge technologies to mine the vast world of structured and unstructured data, incorporate insights into your financial planning process, and construct a single source of financial truth.
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Contributing to this article from Deloitte Consulting LLP: Joe Mastro, managing director; Eric Merrill, senior manager; Mitch Morris, managing director; and Travis Tompkins, specialist leader. It is republished by permission.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.