Predicting the Future: What Finance Can Do About Analytics

Is analytics to finance what chisels are to artisan craftsmen? It seems like the finance profession is getting to that point. These days, few CFOs would be able to meet their KPIs without the help of analytics.

Finance chiefs are increasingly recognizing the important role analytics plays – and demanding more out of current analytics tools.

A May 2013 survey of 358 finance executives by KPMG found that the No. 1 priority for CFOs in the next two years is improving business planning and forecasting. There’s more –  the survey further revealed that over 70% of finance executives ranked financial planning & analysis as the top area for improvement.

And six out of ten of these same executives cited management reporting and analytics tools as being among the biggest near-term priorities.

“There’s been plenty of technology development. But the [analytics] scene is still evolving, and data still exists in fragments in different parts of the institution”

What’s behind this increased pressure for finance executives to enhance the finance department’s analytics capabilities? The answer rests in a dynamic business environment.

“What is going to separate the companies that thrive from the also-rans will be the ability to more accurately predict the future,” says Brian Kalish, a finance practice lead at the US-based Association of Finance Professionals.

“While no one knows what the future holds,” he continues, “the most successful entities will be those that develop the people, processes and procedures that are able to more accurately generate useful data, convert that data into information, process that information into knowledge, and then act upon that knowledge to execute informed business decisions.”

Deluge of data

Banking is among the industries that are seeing intensifying deluge of data. “Banking regulations have dictated that banks keep a lot of data, and this presents an opportunity for banks to create more data around customers,” explains Sanjeev Agrawal, Standard Chartered Bank’s CFO for Singapore and Southeast Asia.

Like other banking CFOs, Agrawal has come to regard analytics as an essential tool for remaining competitive amid the slew of regulatory changes in banking and financial services since 2009. It plays a huge role particularly with regard to risk management, he says.

Massive amounts of data and event analysis are required before the bank decides whether or not to embark on a project.

Standard Chartered Bank recently won the Asian Banker Technology Implementation Award for data analytics in partnership with Teradata Corporation. The project aims to further integrate and standardize management information system (MIS data) from 10 different instances across 53 countries to provide a faster analytical platform for more accurate forecasting for decision-making.

“Plenty of factors need to be considered when conducting scenario analysis, such as the effects of a rise in interest rate or a fall in property prices,” says Agrawal. “There’s also customer behavior to be considered – are we doing enough to get customers to buy our products?”

And such analysis cannot be conducted without data, which exists in abundance but whose potential has yet to be fully realized. While Agrawal acknowledges that data availability has improved over time, he, like his CFO peers, is of the opinion that analytics can serve the organization much more than it does currently.  

“There’s been plenty of technology development,” says Agrawal. “But the [analytics] scene is still evolving, and data still exists in fragments in different parts of the institution.”

Who’s in charge?

The issue of data existing in fragments – data silos, in management consulting speak – begets the question as to whether finance or IT should lead the analytics charge. Nina Tan, CFO at Singapore-based image recognition provider Trax Technology Solutions, is firmly in favor of finance.

CFOs have a very thin margin of error and enjoy little tolerance from the board and shareholders should wrong decisions be made, Tan said at a recent ACCA conference on analytics. “If a company doesn’t have a high level of investment in technology, the finance department should take the initiative and invest in it ourselves.”

Data can be efficiently utilized only if information is shared, and finance is in the best position to be the gatekeepers of this information, she argues.  

“CFOs need to know whether the tool they’re using is a user-friendly one, like Hadoop or Tableau versus, say, SAS”

Tan’s opinion is not quite the norm. Findings from The Analytics Advantage, Deloitte Touch Tohmatsu Limited’s first annual survey on the state of analytics readiness in the globe’s top companies in 2012, revealed wide variance in analytics oversight.

The most frequently named leader, cited by 23% of respondents, was the “business unit or division head,” who typically has significant budgetary responsibility. The CFO sat behind at 18%. Tellingly, however, 20% of respondents said there was no single overseer.

The survey, however, supports finance taking the position as core analytics leader. Finance was found to be the area most often found to invest in analytics for strategic aspects of managing the business.

Advice for finance

How then, should heads of finance approach analytics deployments?

“You’ll first need to understand what data you need, then get the data, then process it in a logical fashion to come out with the analysis,” says Agrawal.

Tan cautions against equating analytics with high levels of technology. “It’s more about understanding the data and using IT as a tool, and it doesn’t have to be a high-end technique,” she says. “CFOs need to know whether the tool they’re using is a user-friendly one, like Hadoop or Tableau versus, say, SAS.”

Tan also recommends the sharing of information within the organization, with finance as the gatekeeper. “Finance can have the visibility but will need to discern if all information can be shared,” she says. “This is crucial for project feasibility studies, as the CFO and finance team need to know everything from headcount to man hours that have been allocated in order to arrive at a decision.”

In a whitepaper titled Forecasting: Best Practices for Common Challenges, AFP recommends some best practices to deal with challenges that may arise from analytics deployments.

One thing is clear. The journey is just beginning. “Ask any true risk or finance professional, and they’ll tell you there’s massive room for improvement,” says Agrawal.

“We can always strive toward superior or better data and technology all the time. But this is a journey that will take another two to five years.”

About the Author

Melissa Chua is a Singapore-based Contributing Editor at CFO Innovation.

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