by Anand Rao
More than any recent shift in the finance function, the use of data analytics gives CFOs the power to stop facing backwards (at the income statement, balance sheet, and other standard reports) and instead, get a near real-time view of the company’s current performance and, even better, the ability to peer into the future. Now, we have the ability to amass the financial and operational information at our disposal, sift through the data, and discern patterns and trends that wouldn’t otherwise be visible. To learn more visit PwC’s Global Data & Analytics Survey 2014: Big Decisions™
Flying in any condition
For a CFO with a growth mandate, the combination of more time, information, and technological leverage is powerful. Now, an executive considering alternative growth options could run a complex analysis to model changes in product mix across multiple markets at different levels of marketing spend and factoring in economic variables. Better yet, he or she could assess which services could benefit from an investment in new marketing efforts or sales channels, and what type of returns to anticipate.
Another company might want to grow by expanding into emerging markets. The finance executive could assess the company’s current performance in similar markets, and the model economic conditions on the ground for the target markets. From there, finance can predict (with reasonable accuracy) which country represents the best option, and how the expansion would likely unfold. Finance could also take it a step further and model potential “what ifs”— What if interest rates in the country were to drop by two percent? What if demographics lead to an expansion of the middle class by 15 percent in five years?
Fly with your head, not your hands.
Using different variables and seeing what the models indicate, the CFO can then lay out a range of likely scenarios, and provide these alternative growth options to help the executive team determine the most promising strategic direction.
Finance shifts away from looking backwards, and even away from dashboards, and instead, sits in the cockpit with the ability to move levers, model scenarios, and predict—again, with reasonable accuracy—the likely outcome of a particular course of action.
A dangerous approach?
Not with the right information and the right tools. Different types of models can account for the increasing complexities of the business world and its evolution. The most basic version of analytics is the predictive model. This model looks at historical data, interprets it to determine specific relationships, and then projects forward. There are also sophisticated analytic models, in which a company alters the relationship between the variables—changing the formula to see how that change might affect the outcome—called “emergent models” or “agent-based” models (see What comes After Predictive Analytics). With sufficient information and a suitable algorithm in place, a CFO can manipulate a variable up or down and model a situation that has never occurred before—but that might in the future.
Without fuel, you’re grounded
The power of data analytics is changing the shape and role of the finance function itself. For instance, we see leading adopters organizing a central analytics group to oversee the function across business units and geographic markets.
Further, the ability of Big Data and analytics technology to harness the data flowing through the finance organization has had a profound impact on the core finance function, greatly reducing the manual labor (and error checking) associated with the standard control, compliance, and reporting functions, and providing more power for insight generation.
For the CFO, mastering the data analytics that can drive growth is now a core component of the role, together with ensuring the integrity of financial reporting. Today’s CFO has the necessary information and the levers to achieve lift-off and give their companies the edge in soaring to new heights.
Anand Rao is a PwC Advisory principal with a focus on Big Data and analytics