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Should Finance Become an Analytics Powerhouse?

See why Finance finally has the right tools to excel in this function

Recently there was a discussion on the Proformative.com site whether finance should take over analytics and own the process, the advantages to the company and the steps required to do so. The following is the link to the discussion:  http://www.proformative.com/blogs/anders-liu-lindberg/2015/06/20/how-finance-can-become-analytics-powerhouse and I encourage all readers of this blog to become Proformative.com members as the site includes free membership and great resources and insight in all areas of accounting, finance, HR, corporate governance and more.

This is a great topic for discussion with many opinions and points of view, depending on which functional area of the company you visit. The general opinion in this particular Proformative discussion was that finance should own analytics and be tasked with providing management with the essential data that is necessary to run the company and steer it on its charted course.

Unfortunately, in many organizations today there is no central area where analytics is performed, along with reports, alerts and other research into variances anomalies. Many functional units (e.g., sales) do their own analysis of only the data produced by their business units or which are directly related to their area. With analytics being fragmented, and often incomplete and inaccurate, management cannot benefit from the real meaning of the data generated in their companies, validating the notion that there are many versions of the truth.  Centralized analytics is designed to change that.

What is analytics?

Analytics is the process of:

1)    Retrieving stored data from various company departments, divisions or business units, with historical as well as recent actual results of operations and financial data, plus the organization’s plan and budget data.

2)    Understanding the meaning of all relevant actual data collected and comparing to plan and budget data.

3)    Preparing reports using text and other visual aids to convey these data and their interpretations to individuals within management and other functional areas, supporting the decision making process.

When there is a plan and budget in place while monitoring the actual results and comparing with the anticipated results (as expressed by the budget and derived from the plan), meaningful information can be obtained when performing analytics.

The data used to perform analytics originates in several or many functional areas of the company. For example: Sales data, marketing data, accounting data of actual closed periods, etc.  It makes perfect sense to centralize the analytics process and have one owner over the process: The finance organization, reporting to the company CFO.

Information technology enables all data used in analytics to be retrieved by the analytics process owner and processed by the analytics software. The output, in turn, is a pre-defined set of reports and other visual aids (e.g., graphs, dashboards) designed to allow the user of these reports to quickly understand what these reports and visual displays are trying to communicate.

The CEO of a leading Planning, budgeting and Analytics software publisher defines this system as:

“A single source of accurate financial information- backward and forward looking- with the ability to integrate with Operations data- and that can be served up to end users for them to analyze themselves, and thus, allows them to contribute to the strategic and operational decisions and direction of the company in a timely (and informed) manner.”

The purpose of analytics is to give management the tools to be able to make timely and informed decisions with confidence. Having the right data reduces the risk of bad decisions, or decisions made long after the symptoms of trouble have actually appeared, when there is little that can be done to turn things around.

In a blog entry I recently made, titled “Why CFOs Should Adopt Financial Analytics”, I emphasize the need to have accurate, complete and timely information  that upper management can reasonably act on it, making decisions backed up by solid facts and not just intuition. It is the CFO’s responsibility (as the CEO’s second in command) to ensure that such data exists, is accurate and reliable, is available on a consistent basis and is presented in a manner that is simple to understand.

Since finance reports (or should report) to the CFO, it is finance that must develop the analytics process, acquire the right tools, implement them and use them on a regular basis, while communicating with the various business entities that generate the data.  Duplicating this effort in other departments, or having a fragmented system with incomplete or erroneous data is completely counterproductive, thus rightfully giving finance its status as an analytics powerhouse.