Planning and Budgeting: Is Your Finance Operation Asleep at the Wheel?

Coffee-break with GameChangers

Newsflash: The Big Data revolution has already happened. Your CFO is done relying on gut feelings or antiquated Excel spreadsheets for planning and budgeting. Bring these to his or her office, and you’ll be dismissed as a data dinosaur.

Sometimes the leaders who’ve earned their post are the last and least likely to want to adopt new ways of thinking or, by extension, new technology. During a recent SAP Game-Changers radiocast, panelists Steve Player, program director of the North American region of Beyond Budgeting; Paul Davis, service line director for enterprise performance management (EPM) solutions at NTT Data America; and Pras Chatterjee, an SAP director of product marketing EPM, liken the finance operation to a ship navigating the high seas. The captain wants to forge ahead, but many of the deckhands are staring off the back of the ship instead of helping chart the course forward.

Don’t miss the boat on budgeting

According to Player, “We are spending most of our time looking at the past reporting, or we are yelling over our shoulder. It does not matter how much technology you have. If you are looking backward, you just cannot add a lot of value to the business.”

Davis offers up a possible reason for such resistance. “From a business analyst or a financial analyst perspective, they’re terrified that it means more work for them.”

He continues that Player is diligently working to evangelize the pioneering mindset, touting new planning and budgeting technology as more of an opportunity to shine than a risk fraught with peril. Player is confident that significant gains exist to be won – hidden value, new customers, and more profitable customers. Some (if not many) of the current C-level execs have grown up with the old Excel sheet system, and they need to clearly understand that there is a more proactive way to use innovative tools and technology for planning and budgeting.

Find the people and tools that can make an impact

The newest predictive forecasting tools can help you scientifically identify correlations and trends to define key business drivers. In a sea of data, you need to understand your customers and their behaviors through concrete evidence that correlates to sales. Big Data experiments are becoming less expensive, but they still take active, focused effort.

Chatterjee believes that adoption and acceptance of new technology really comes down to a savvy CFO. “The CFO is one that has to be the leader in the organization and really provide the tools and ammunition to all his subordinates. In order to develop this team, there is a lot of collaboration that needs to happen. We need to start looking at people who have a much rounder skillset – people that understand the accounting but also general business concepts.”

Davis, however, has a different take. He thinks that folks we have now just need to be unshackled from what he calls “dumb stuff,” such as data gathering, mining, and cleaning. Instead, we need to sell them on an entire vision for the future that empowers and excites them.

He envisions three main ways that organizations will employ predictive analytics:

  1. Move into niche markets and focus on their best products and most profitable customers.
  2. Rely on predictive analytics to improve operational metrics – maximizing spend and boosting the bottom line.
  3. Integrate top- and bottom-line processes, where procurement and contract organization meet, for optimum efficiency and win-win scenarios for both customers and sellers.

To explore even more ways that predictive analytics can impact your planning and budgeting processes, listen to the full radiocast.

SAP Announces New Cloud Planning App that Crushes Complexity

Originally posted on SAP Analytics. Reprinted with permission.

By David Williams, Senior Director, SAP

Today at the second annual SAP Conference for EPM in Chicago, we made a big announcement. Hints were dropped along the way, competitors speculated, but the cat is now finally out of the bag. I´m very happy to announce SAP Cloud for Planning, a brand new, built-for-SaaS planning and analysis application (heavy emphasis on “and analysis”).

Clouds, Dusseldorf, North Rhine-Westphalia, Germany

Our mission was simple; build a modern planning app in the cloud with the look and feel of a consumer app and bring collaboration and analytics where they belong – within the context of your planning process. Usability was a key design principle of the solution from the start – not an afterthought – and to make this happen, an entire design team was brought into the development process from day one to focus on user ergonomics.

The app is centered around the user, financial planning and analysis, and other business planners/analysts, so there’s a natural flow between analyzing, planning, collaborating, and consuming information through the Web and on mobile device. This is in contrast to a technology-first approach that determines how one does business modeling or drills into detailed information.

SAP Cloud for Planning introduces a new generation of enterprise performance management (EPM) in the cloud.  Just watch the SAP Cloud for Planning video, and you´ll immediately see we didn´t just try to recreate what was already out there and put it in the cloud. This is different.

But, it´s not just another pretty face. Any customer, whether they run SAP or not, can get up and running quickly with a future-oriented planning and analysis app that performs how and when you expect – no matter how many users or the level of detail. And SAP customers who are already running our widely deployed SAP Business Planning and Consolidation application, and are looking to complement it with a public cloud planning app in a business unit(s), can leverage bi-directional integration between the two solutions for a hybrid approach.

Stay tuned for our next blog which will go behind the scenes of SAP Cloud for Planning with solution owner Ivo Bauermann.

 

 

The CFO’s Expanding Role – Reality or Delusion?

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

Did my last blog on the topic of the annual budget resonate with anyone? I have a suspicion that it probably did. Here in my final blog for a few weeks I am going to turn my attention to the CFO.

Am I alone in wondering if the many references and articles concerning the CFO’s emerging role as a “trusted advisor” is more hype than reality? Increasingly, I read articles and research studies alleging this emerging CFO role to be actually happening. In an article written by Gianni Giacomelli, senior vice-president at Genpact, titled “Can a CFO Innovate?” he states:

“Modern financial executives are moving toward a more central and expanded role as stewards of the company’s longevity, using the finance function to enable growth, especially in new markets and in response to market changes. For those who are ready for change, the new finance is an exciting and rewarding way to help shape a more intelligent enterprise that is better connected to the market and its customers.”

Really? Just to devil’s advocate for a moment, what proof do we have that Gianni’s observation is true? When we cut to the chase, what are CFOs more concerned about – regulatory compliance or organizational performance improvement? Certainly many CFOs monitor and report on performance using scorecards and dashboards. But do they actively participate in assisting line managers to move those dials. For example, do they:

  • Assist sales and marketing managers with identifying which types of customers to retain, grow, win back, and acquire?
  • Assist operations managers to determine which productivity actions and projects will realize gains in efficiency, effectiveness, quality, and cost reduction?

Or do they simply serve as gatekeepers and keep score?

Bean counter or bean grower?

In an article by Myles Corson, a consultant with the Financial Accounting Advisory Services of Ernst & Young LLP, titled “The Evolving Role of Today’s CFO”, he writes:

“In addition to overseeing the company’s financial health, CFOs are increasingly involved in setting operational and commercial strategy, navigating their companies safely through tighter credit markets, more complex regulation and unstable trading conditions. … As organizations continue to adjust to market volatility and economic uncertainty, CFOs must increasingly provide expert advice to support boardroom decisions. In fact, many CFOs feel that they are in an exceptional position to offer this level of strategic counsel because of their ability to gather information from disparate parts of the company.”

But is this evolving role one of just better reporting or one creating a greater impact on analysis and decisions?

In a survey conducted by my fellow Big Fat Blogger Mary Driscoll of the America Productivity and Quality Center, titled, “A New CFO Priority,” she writes:

“Surprisingly, only five percent of survey respondents believe that finance is currently delivering game-changing value to their enterprises. Is this cause for concern? … Finance organizations that are seen as a partner to the business generate thoughtful, clear, and authoritative analyses. However, the biggest barrier preventing business partnership is the lack of time to perform this same work.”

My intent is not to be a naysayer and deny there is truly an evolving and expanding role of the CFO. In fact, my intent is just the opposite. I am a believer that, particularly given the opportunity provided by the nexus of technological forces ( advanced analytics, cloud, in-memory computing, mobile and social computing) the CFO’s finance and accounting function is uniquely positioned at this moment in time to accelerate the adoption rate of enterprise performance management (EPM) methods along with emerging business analytics to gain crucial insights that were previously inaccessible and truly facilitate business innovation in new and novel ways. Finance and accounting professionals were born with a quantitative aptitude – which technology will only further fuel.

Boeing 747 Jetliner Taking Off, Sunset Silhouette

Delusion or reality?

But do we know or just think we know? Which is it – delusion or reality? I along with my colleagues, for example, bemoan the slow progress in performance improvement methods such as the adoption of activity-based costing (ABC) principles. If ABC is done at all it is typically only taken as far as product and service-line gross profit margin line reporting and does not look beneath that line to report and analyze channel and costs-to-serve for arguably more critical customer profitability reporting and analysis. And what about marginal / incremental expense analysis for that matter? This involves classifying available / used resources as sunk, fixed, step-fixed, semi-variable, or variable. This involves an understanding managerial economics, not just managerial accounting. How many finance organizations have built core competencies in these functions?   My suspicion is that many finance organizations are for the most part dealing with more fundamental problems and have yet to build core competencies in many of the practices espoused by analysts, consultants and business pundits.

For now though, my opinion is the CFO function is about to enter a golden age of business analytics and managerial accounting. But we need more evidence. Are CFOs taxiing on the runway, or have they begun lift-off?

I hope that you have enjoyed reading my series of blogs over the last few weeks. I’m taking a break now as I prepare to head to Chicago for the SAP Conference for EPM on 13/14 October, where I’ll be talking more about the subject of performance management and analytics and looking at best practice approaches, as well as taking a look to what we might expect to see in the future. If you’re in Chicago why not pop along and take in the show – but if not then please watch out for my next article as I shall look forward to resuming my blog series soon. Thanks for reading!

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

Linkedin.com contact: http://www.linkedin.com/pub/gary-cokins/0/15a/949.

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

The best part of the annual budget is when it is over!

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

Jeremy Hope (1948 – 2011) was a special type of management consultant and colleague who I highly respected. He started a revolutionary movement when he co-authored with Robin Fraser the book, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Boston: Harvard Business School Publishing, 2003). Their basic message was that the annual budgeting process is so broken and dysfunctional that the best solution is not to reform it but rather to abandon the process altogether.

Their solution was to understand the underlying purposes of a budget and apply methods, like driver-based rolling financial forecasts, to fulfill the purposes of the budget.

The best part of the annual budget is when it is over!

During a breakout session at a finance and accounting conference that I attended last year, a CFO remarked that the best part of the annual budget is when it is over! The laughter was thunderous. Sadly there is truth in the humor. Many are questioning if the value of budgeting is worth the effort. An annual budget process can take six months or more to develop and finalize (following multiple executive tweaks and revisions), and it can be obsolete almost from the moment it is finished.

Jeremy Hope and Robin Fraser suggested a better way. They co-founded with Peter Bunce an organization called the Beyond Budgeting Round Table (www.BBRT.org ). These BBRT founders explain that the annual budget is a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted volume, product and customer mix. Typically the budget simply increments or decrement’s each department’s line-item expense (e.g., 3% for inflation) without considering the interdependencies of cross-departmental process flows.

The BBRT solution acknowledges that budgeting line-item expense limits are more like shackling handcuffs on managers who may need to justifiably spend more than was planned and approved many months ago in the past in order to capture benefits from newly emerged opportunities. BBRT replaces budget controls by giving managers the freedom to make their own decisions regarding the use of resources. BBRT does invoke controls, but it does so by monitoring non-financial key performance indicators (KPIs) against targets. As a result managers do not avoid being held accountable.

Nor does BBRT leave the accountants empty-handed. Treasury cash flow management, periodic interval-based rolling financial forecasts, and probabilistic what-if marginal/incremental expense scenarios (e.g., make versus buy decisions) are modeled using activity-based costing methods that calibrate cost consumption rates with substantial accuracy.

Risks from being blunt and radical

Jeremy Hope was radical in his thinking. To accounting and finance traditionalists, the thought of operating without an annual budget may be beyond their comprehension.

Perhaps, they could reflect that the electric light bulb replaced oil lamps that replaced wax candles for producing light – while reading Hope’s book in a candle lit room.

I admire radical thinkers like Jeremy. He will be missed. So many organizations are wed to tradition and insulated from change. It is a bit like keeping employees in an echo chamber to ensure they reinforce the same rigid ways of running the business. Jeremy’s observation was that the closer one is to a customer, the faster things speed up and the more dynamic they become. Therefore a static budget is like a fixed contract with managers accountable for meeting or exceeding the planned fiscal year-end results. Locking up resources in an annual plan is too long a horizon. It severely limits an organizations need for agility and flexibility in the face of continuously changing conditions for which constant adjustment and fine-tuning are needed.

Management movements for progressive methodologies need more activists like Jeremy Hope.

In my next blog, to be published just a few days before I am due to speak at the SAP Conference for EPM in Chicago, October 13-14, I’m going to turn my attention to consider the expanding role of the CFO, and ask if this is in fact a reality, or whether it is just hype.

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

Linkedin.com contact: http://www.linkedin.com/pub/gary-cokins/0/15a/949.

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

The Soft Stuff is the Hard Stuff

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

I hope that you enjoyed my last blog on the topic of modeling. Perhaps it gave you some cause for thought about the type of business models you use in your own performance management systems. In this blog I am turning my attention to decision management.

I like to think of myself as a technical person. We techie-types are fact-driven. We embrace technologies of all flavors including computer hardware, software, mobile devices, the Internet, and social media. We prefer tangible and hard evidence to support a position or argument. We like research studies and the use of analytics to gain insights and foresights as well as to solve problems and pursue opportunities. But darn it there are all those other types of personalities to that sometimes just seem to be in the way of us fact-oriented types.

Decision agreement – possibility or delusion?

Just consider the USA campaigns for President. Both candidates refer to studies by think tanks that contradict different studies or surveys. Imagine if these think tank research teams were forced to be in a room and not emerge until they reconcile their data and assumptions and instead were forced to reconcile their results and conclusions. My imagination would lead me to believe that they could never emerge with a common agreement. Why? Because they are people with emotions, pre-conceived notions and positions about what is right or wrong.

So how do we resolve this? How do we use information that is unbiased to draw unarguable conclusions? Maybe it is not possible and is just a pipe dream. Maybe we might not want agreement because we always want open forums for debate regardless of the conflict and tension it creates. Argument can be good. It reveals ideas not previously considered.

There is hope

Inevitably, however, decisions must be made in order for any organization to advance and improve. One area of information management that has caught my eye is as the concept of “decision management systems” advocated by James Taylor, CEO of Decision Management Solutions. Taylor’s belief is that traditional systems are too inflexible, fail to learn and adapt, and cannot apply analytics to take advantage of “Big Data.” This is because traditional systems ignore decision-making and keep analytic systems separate from operational systems. He advocates decision management systems that are agile, analytic and adaptive.

Decision management systems make assessments based on an evaluation the interdependencies of variables such as time, quality, service level, capabilities, capacity, and cost. Cost is particularly relevant because money stated in financial terms, like the return on investment and spending is usually an overriding determinant of decisions.

Taylor defines decision management systems as being:

  • Agile – so they can cope with rapidly changing business conditions and new regulations.
  • Analytic – so they can leverage an organization’s data to improve the quality and effectiveness of decisions.
  • Adaptive – so they can learn from what works and what does not work to continuously improve over time.

In Taylor’s mind the role of analysts, now popularly referred to as “data scientists,” is to use business rules, data mining, analytics workbenches and optimization suites (that all leverage in-memory database technologies and high performance analytics) to build systems that manage decisions rather than making individual decisions themselves.

Technology is no longer the barrier

The challenges in implementing a decision management system are daunting. The least obstacle is technology which currently exists and is proven. Instead, the major obstacles are social and cultural barriers. We return to people. Leadership, so often mentioned as essential to drive change, will need to demonstrate more vision and inspiration. Exponentially increasing data mean C-suite executives can no longer make as many decisions alone as before. They still need to make the big strategic decisions, but need to let the other multitude of daily decisions be made by their workforce and partners.

The title of this blog is “The Soft Stuff is the Hard Stuff.” Few of any of us were trained in the field of behavioral change management. We’ll need to get better at it. Most likely this will come in the form of on-the-job training, but gaining competencies in it will be essential for any organization’s performance improvement.

Look out for my next blog, in which I turn my attention to the annual budget.

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

Linkedin.com contact: http://www.linkedin.com/pub/gary-cokins/0/15a/949.

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

 

What’s Broken About Budgeting? – Part 2

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

If you missed part 1 of this blog then you can find that here. In it I talk about why the traditional budgeting process, for right or wrong, is an ingrained part of business. Or is it? Are there options available for budgeting to be reformed, and if so what will propel organizations toward such change? 

A Sea Change in Accounting and Finance

How can budgeting be reformed? To answer this let’s first step back and ask some other broader questions. What are the impacts of the changing role of the chief financial officer (CFO)? How many times have you seen the obligatory diagram with the organization shown in a central circle and a dozen inward-pointing arrows representing the menacing forces and pressures the organization faces – such as outsourcing, globalization, governance, brand preservation and so on?

Well, it’s all true and real. But if the CFO’s function is evolving from a bean-counter and reporter of history into a strategic business adviser and an enterprise risk and regulatory compliance manager, then importantly, what are they doing about reforming the archaic budget process to be more reflective of forecasted demand and projects?

Progressive CFOs now view budgeting as consisting of three streams of spending converging into a river:

  • Recurring expenses –ongoing resource capacity planning similar to 1970s factory managers projecting the operation’s manpower planning and material purchasing requirements.
  • Non-recurring expenses –the one-time investments or project cash outlays necessary to implement strategic initiatives and risk mitigation spending.
  • Discretionary expenses –optional non-strategic spending.

Within the broad portfolio of interdependent methodologies that make up today’s enterprise performance management (EPM) framework, two methods offer the capability to accurately project recurring and non-recurring spending streams:

  • Activity-based planning – In the 1990s, activity-based costing (ABC) solved the structural deficiencies of myopic general-ledger cost-center reporting for calculating accurate costs of outputs (such as products, channels and customers). The general ledger does not recognize cross-functional business processes that deliver the results, and its broad-brush cost allocations of the now-substantial indirect expenses introduce grotesque cost distortions. ABC corrects those deficiencies. Advances to ABC’s historical snapshot view transformed it into activity-based management (ABM). These advances project forecasts of customer demand item volume and mix and forecast the elusive customer cost-to-serve requirements. In effect, ABC is calculated backward, and named activity-based planning, based on ABC’s calibrated consumption rates to determine the needed capacity and thus the needed recurring expenses. Without that spending, service levels will deteriorate.
  • The balanced scorecard and strategy maps – By communicating the executive strategy and involving managers and employee teams to identify the projects and initiatives required to assure that the strategy map’s objectives, non-recurring expenses, are funded. Without that spending, managers will be unjustly flagged red as failing to achieve the key performance indicators (KPIs) they are responsible for in their balanced scorecards.      

The Financial Management Integrated Information Delivery Portal

Today’s solution to solve the budgeting conundrum and the organization’s backward-looking focus is to attempt to create a single integrated business intelligence platform – together with its Web-based reporting and analysis capabilities. Speed to knowledge is now a competitive differentiator.

The emphasis for improving an organization and driving higher value must shift from hand-slap controlling toward automated forward-looking planning. With a common platform replacing disparate data sources, enhanced with improved data integrity, cleansing and data mining capabilities, an organization can create a flexible and collaborative planning environment. It can also provide on-demand information access to all who need to perform what-if scenario and trade-off analysis. For the bold CFO not wary of radical change, continuous and valid rolling financial forecasts can replace the rigid annual budget. Today, organizations need to be able to answer more questions than “Are we going to hit our numbers in December?” That’s not planning but rather performance evaluation. For the more traditional CFO, the integrated data platform offers a sorely needed upgrade toward a more high-speed budgeting process.

Additionally, statistical forecasting can be combined with the integrated information on the platform. This results in customer demand forecasting that seamlessly links to operational systems, activity-based planning and balanced scorecard initiatives. It provides the ultimate financial view for CFOs with valuable and needed real-time or right-time feedback to managers as part of this package.

All of this – traffic signaling dashboards, dynamic drill-down, customizable exception alert messaging to minimize surprises, profitability analysis and reporting, consolidation reporting, Excel linkages, multiple versioning and more – is available for decision making from a single shared solution.. Enterprise performance management resolves major problems: lack of visibility to causality, lack of timely and reliable information, poor understanding of the executive team’s strategy and wasted resources due to misaligned work processes.

Enterprise performance management provides confidence in the numbers, which improves trust among managers. What today will accelerate the adoption of reforms to the budgeting process and an enterprise performance management culture – senior management’s attitude and willpower or the information technology that can realize the vision described here? I’d choose both.

Look out for my next blog in which I consider how to get started in implementing an EPM system.

 

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

Linkedin.com contact: http://www.linkedin.com/pub/gary-cokins/0/15a/949.

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

 

Predictive Isn’t Just for IT Anymore

Coffee-break with GameChangers

“No excuses, play like a champion.” How does this quote from the 2005 Vince Vaughn comedy Wedding Crashers relate to the financial world? Well, the key players in your Finance organization – your controller, accountant, treasurer, etc. – have no excuses left for ignoring modern technology. The reality is that understanding, employing, and advancing the innovative options in the industry is de rigueur if you want to meet and exceed your CFO’s performance goals while staying ahead of competitors.

During a recent SAP Game-Changers radiocast, panelists Anders Reinhardt, head of global business intelligence at VELUX; Nancy Jones, an accounting professor at San Diego State University; Robert Kugel, SVP and research director at Ventana Research; and Henner Schliebs, senior director in strategic product marketing at SAP analytics, weighed in on the role of predictive analytics in finance.

Seek data quality over quantity

According to Reinhardt, a solid analytical strategy must be in place before you can reap the benefits of predictive analytics or Big Data. Jones agrees, adding, “The problem is that people think that the more data they have, the more they can make good decisions, when in fact it’s not necessarily quantity. It’s more [about] quality.”

When you run predictive analytics on high-quality data, you can, for example:

  • Create more nuanced and accurate forecasts
  • Set realistic goals and measuring performance to such goals
  • Spot deviations from expected results

Kugel argues, “How well predictive analytics is going to work for any company is going to depend a great deal on the data quality and its availability.” Research shows that companies’ data issues are proportionate to their size. Larger corporations with more resources shoulder a bigger burden when dealing with data quality – and Big Data only aggravates the issue, as it requires new methods to make systems adaptable.

IT departments have to manage data stewardship before realizing the full value of predictive analytics. Reinhardt sees the fundamental challenge: “Big Data currently contains a lot of noise. And, do we have the analytical skills to see past that noise and get [to] the real gold in the data?”

Promote the marriage of IT and accounting

Business and IT must work in tandem in order for the Finance department to serve as a strategic partner to the rest of the business. Schliebs explains, “This is what the younger and more proactive CFOs are really requesting from their Finance departments: How do I apply analytics to a business problem that we’re having here – right now – that we are trying to solve?”

Problem solving must happen across the whole organization, not just in finance – and technology aids the process. The rising complexity of operations has frustrated many of the financial players. To encourage the adoption of predictive analytics, something needs to be simplified. Finding talent with both accounting and IT acumen is a promising start.

“You want to instill the notion of elegance as opposed to complexity. And elegance requires a high degree of sophistication to be made real,” adds Kugel. That sophistication can be gained by adopting cutting-edge innovations. The panelists hope that in the next five years, we’ll be talking about results instead of the technology that breeds them.

Have you already taken the leap to adopt predictive analytics? To find out how far you can go, listen to the full radiocast.