Think of a company like a ship sailing the high seas of business. Traditionally, the finance team has a seat at the back of the ship – looking out from the stern, analyzing historical data, and making forecasts based on what happened in the past.
This model calls for budgets that are set at the beginning of the fiscal year and followed throughout the year despite what comes. But if the current pandemic has shown us anything, this model is outdated. Businesses need far more flexibility to change course as circumstances dictate.
Finance, in other words, needs to lead – and to do this, it needs a seat at the front of the ship so that it can see what’s coming before the ship hits that iceberg just ahead. What’s needed is the ability to predict.
Financial planning and analysis
Enter the field of financial planning and analysis (FP&A). FP&A puts finance at the front of the ship of business and entrust them as leaders. Rather than telling the business where it has been, finance can now predict what’s ahead and how the business should position itself to serve customers better and ensure profitability.
But FP&A doesn’t work without data, technology, and integration. Here are some quick thoughts on what’s needed to move forward.
Every company seeks to be data driven. But when you work with spreadsheets and manual processes, you’re already at a disadvantage when it comes to making strategic, forward-looking decisions in a timely manner.
What finance teams need are simulation capabilities with data visualizations that facilitate intuitive understanding. According to a recent paper by Ventana Research, sponsored by SAP, “73% of organizations that can explore every relevant scenario have plans that are accurate or very accurate compared to 36% that can evaluate few or none.”
Accuracy – based on relevant, trusted data – is key. In a world where you can expect the unexpected, your finance team wants the ability to ask pertinent “what-if” questions based on a range of scenarios – and then present relevant options to the executive board and guide them on the best course of action. To do this, the finance team needs to sit at the front of the ship, helping the business navigate often troubled waters successfully.
Collaboration based on integration and a single version of the truth
Financial planning is business planning – and when a business operates in silos, steering the ship of the business is a challenge. If sales are down or a critical supply chain partner is suddenly unable to deliver, finance should know about it immediately as well as everyone dependent on the data beyond their silos. The alerts and technology should be in place to predict such events before they happen.
One prerequisite for effective FP&A, thus, is to break down silos with systems that are integrated across business departments. All teams should operate on common, trusted data that forms a single version of the truth.
Now, decisions made at the corporate level are accepted by all. Instead of planning meetings where teams argue over what data represents reality, you can get down to business and make decisions faster.
Machine learning for predictive analytics
Finally, your finance teams need to get comfortable with machine learning technology. With machine learning, finance can crunch incredibly large volumes of data, gain insights, and identify patterns and trends that would be impossible for humans to do on their own.
But the human element is not to be discounted. Humans are required to set the parameters of the algorithms used. Humans are also needed to evaluate the results – taking pains to weed out implicit biases that may skew the results.
Fortunately, machine learning isn’t as intimidating as it may have seemed even a few years ago. Today, the technology has been standardized enough so that it is often embedded in common finance applications and made accessible to finance professionals in a self-service manner – not just data scientists. The finance team that can get comfortable with machine learning is the team that can predict outcomes more effectively and see further into the future.
Turning a ship around is notoriously difficult. But increasingly, businesses need the ability to change direction in what may seem like an instant. FP&A gives you the agility to meet this challenge. With FP&A, finance has the flexibility to change and take the position of an organizational leader. It can predict what’s coming with machine learning and predictive analytics. It can run simulations to plan out the best way forward. And it helps put the entire organization on the same page to make informed decisions and steer the ship of the business in the direction it needs to go.
To learn more, have a look at the Ventana Research paper, sponsored by SAP, Achieve Agility in Planning and Execution: Contingency Planning Built with Predictive Analytics Delivers Better Results.
 Ventana Research Next Generation Business Planning Benchmark Research. © Ventana Research 2020. All Rights Reserved.