As the amount of available data grows exponentially, companies increasingly recognize data and analytics (D&A) as valuable assets. In tandem, institutional investors and equity analysts are now weighing companies’ D&A strategies as part of their valuations, according to a 2015 report by KPMG.
Against this backdrop, the use of advanced analytics has the potential to transform the CFO role.
Advanced analytics (machine learning, natural language processing, optimization, predictive and prescriptive analytics) can extract hidden patterns behind big and unstructured data, model hundreds of possible scenarios, and optimize the best action plans among all alternatives.
The result? Improved human decision-making capabilities to drive enhanced customer experiences, higher growth and efficiency, and a culture of innovation within their respective companies.
There is a range of ways CFOs can implement advanced analytics to optimize their business decisions:
Early detection of business change. Most CFOs use historical metrics and ratios in financial analysis to understand and forecast the financial position of their organizations. In today’s disruptive business environment, it is critical for CFOs to detect and understand early signals of change and position their organizations to adapt.
Advanced analytics can help mine internal and external data to get a holistic view of customers, competitors, suppliers, partners, and employees, ultimately helping to manage business performance at granular levels. Multiple models with hundreds or thousands of variables can be considered, and those with the best outcomes can be selected to drive optimized results.
Consider a traditional company with a proven rival. For years, the company has had a laser-like focus on its competitor. To this company, news of a startup with a similar product that just received a significant source of funding would be a novel story. In today’s environment, learning of that news too late can spell trouble.
Predictive analytic tools that can detect and interpret such marketplace signals globally and constantly provide CFOs valuable information that will allow them not only to successfully adapt but also to thrive in today’s market.
Capital asset management. An organization’s capital assets (for example, facilities, infrastructure, equipment, and networks) often represent its most significant investment of resources.
Data collected from sensors, performance reports, maintenance history, inspections, and a range of other sources can be leveraged to predict and even make decisions on when to repair or replace aged assets. With those insights, CFOs can better manage the value of assets, customer satisfaction, and overall performance.
Budget planning optimization. In preparing a budget, complicated business rules and constraints are typically involved. The planning process can become very complex as a result of a large number of decision points that need to be evaluated simultaneously, including demand and funding availability.
D&A optimization techniques effectively translate business rules into mathematical formulas that can be used to create dynamic budgeting and forecasting scenarios. Algorithms solve those equations and provide the best budget allocation options among all possible alternatives and sets of criteria, such as managing cash flow and ROI, maximizing reliability, and minimizing risk.
Predicting internal disruption. Internal risks and uncertainties can cause disruption to businesses. Managing supply chain risk, for example, is an essential strategic responsibility for the office of finance. The finance organization has access to data such as accounts payable, accounts receivable, manufacturing, and shipments. Using advanced analytics, finance has an excellent opportunity to turn the data into insights to help manage the risk proactively.
Predictive analytics — the periscope for CFOs. Every industry is facing stiff competition, from traditional rivals to unidentified new market entrants. Traditionally, CFOs could envision only a few scenarios to manage the changes facing their businesses. But amid today’s disruptive environment, CFOs need the help of “extended intelligence” — tools that will help them see around the corner to emerging trends and potential threats.
With advanced analytics, including predictive analytics and machine learning, CFOs have at their disposal tools that broaden their view and present a wider range of scenarios that could potentially disrupt their businesses.
It is up to CFOs to embrace predictive technologies and use the insights derived from them so that they can help keep their businesses relevant and prosperous.
Viral Chawda is managing director of data and analytics at KPMG.