Robert Kugel's Analyst Perspectives

Finance and accounting departments are staffed with numbers-oriented, naturally analytical people. Strong analytic skills are essential if a finance department is to deliver deep insights into performance and visibility into emerging opportunities and challenges. The conclusions of analyses enable fast, fully informed business decisions by executives and managers. Conversely, flawed analyses undermine the performance of a company. So it was good news that in our Office of Finance benchmark research 62 percent of participants rated the analytical skills of their finance organization as above average or excellent.

The research finds that having strong analytical skills is associated with good analytic practices. It’s important to have an effective process for creating analyses that enable effective management of a corporation. Having strong analytical skills is a key ingredient of being able to manage that process. Having skills and having an effective process are linked. Almost all (89%) companies with excellent analytic skills have a process for creating finance analytics that works well or very well, compared to half of organizations in which skills are average and none in those where they are below average. Furthermore, almost all (92%) companies with excellent or above-average finance analytic skills have been able to use analytics and performance indicators to improve individual or business performance. By comparison, fewer than one-third (30%) of those with average or below average skills were able to do so.

Having these skills is good, but the research suggests that most finance departments don’t use them to full potential. When we dug into some of the underlying data, a less rosy picture of the state of analytics in finance departments emerged, including somewhat pedestrian use of analytics. Most companies are good at handling the basics, such as financial statement analyses, and in creating and assessing models used in forecasting and planning. However, very few (just 12%) of those that have above-average or excellent skills use predictive analytics; only one-fifth of them apply relevant economic and market indicators or price optimization techniques; and just one-third apply profitability analysis to products and customers on a regular basis. Staying above average or better in applying analytics in today’s environment means going beyond well-established financial analyses. Corporations today have vast amounts of business data that demand the application of advanced techniques. Predictive analytics is a valuable tool that can harness this big data to create more nuanced and more accurate forecasts as well as alert executives and managers to threats and opportunities earlier than ever. In addition greater availability and accessibility of external information enables organizations to produce better insights into how economic, market and financial markets affect their performance.

Another issue that can hinder a finance department’s efforts in delivering valuable analytics is the timeliness with which they provide it. Only one-third (31%) are able to provide information on a timely basis. Just over half (56%) said that the information they provide is somewhat timely, which in practice can mean a day late and a dollar short when key decisions have to be made immediately. Two related reasons why information may not be timely are a lack of automation and overreliance on desktop spreadsheets for reporting. Spreadsheets are indispensable for personal productivity and ad hoc analysis and reporting. However, they are almost always the wrong choice for routine business analysis and periodic reporting because using them can be very time-consuming. Because it takes so long to prepare the analysis and generate a report distributed through email, information is less timely and often less valuable.

Senior finance executives need better understanding of advanced analytics and how these techniques can be employed to improve the performance of the finance organization and serve the needs of the rest of the company. Desktop spreadsheets are an overused technology that wastes time when applied to collaborative or repetitive enterprise-wide analytics. In practice, they are incapable of delivering the forward-looking analytics listed above. They are not difficult to replace if there is a will to do so. Advanced analytic software is becoming increasingly more affordable and more accessible to business analysts. Often they use a Microsoft Excel interface because of its familiarity and therefore require less training to get users to a reasonable level of proficiency.

What constitutes excellent and above-average analytical skills is evolving daily as new tools and techniques become mainstream. Senior finance department executives must remain current on what’s possible and push their department to keep up. To make this possible, as I have written, they must set their sights higher and find ways to eliminate time-wasting manual processes so there’s time for their analysts to extend their highly valued skills.

Regards,

Robert Kugel – SVP Research