Robert Kugel's Analyst Perspectives

The starting point of an era is never precise and rarely conforms to neat calendar delineations. For example, the start of the 20th century is associated with the outbreak of war in 1914. So I expect that decades from now, the consensus will hold that what became known as the 21st century began in the year 2020, with the pandemic serving as a catalyst that accelerated already existing trends and forced changes to prevailing norms and practices. This and other disruptive events that have followed are reverberating through economic and social networks and will ultimately result in some new equilibrium, but the ructions on the way there will be sharp and ever-present. Large-scale disruptions in most aspects of doing business have forced change on organizations. In this climate, the financial planning and analysis group can play a far more important role by using technology to enhance organizational agility and improve performance.

From an organizational perspective, I have commented in the past that financial planning and analysis groups need to evaluate their mission and potentially redefine it to take advantage of what’s now possible with practical and affordable technology. In many organizations, the analysis portion of the FP&A mandate gets less attention than it should, usually because the mechanical process of pulling together and collating data takes up so much time that very little remains for using data to spot trends, find opportunities and isolate issues to create better informed forecasts, plans and decisions. Our Analytics and Data Benchmark Research found that two-thirds of analysts spend a considerable amount of time on data preparation and reviewing data for quality and consistency issues, leaving less time to do what they’re paid to do: analyze.

Fortunately, technology lets organizations put the “A” back in FP&A. One way that business software vendors are addressing this issue is by incorporating what Ventana Research calls a “data pantry” in applications or platforms. This is a type of data store that’s created for a specific set of users and use cases. It’s a data pantry because, unlike a general-purpose data store such as a data warehouse, everything the user needs is readily available and easily accessible, with labels that are immediately recognized and understood. By substantially eliminating the time required for data preparation and data quality control, financial and business analysts have more time to concentrate on analytical work. By automating the collection of data, reports and dashboards can be timelier. By broadening the set and scope of data readily available with more information on which to base analyses, including external data, the FP&A group can provide more incisive perspectives and insights, enabling executives and managers to make better informed decisions sooner.

A data pantry is also an essential component to support artificial intelligence using machine learning, as I noted recently. Because of the transformational potential, business software vendors – generally those offering planning platforms – are giving a significant amount of investment to AI, and I expect that its use will be pervasive in finance departments within five years. Ventana Research asserts that by 2025, almost all vendors of software designed for finance organizations will have incorporated some AI capabilities to reduce workloads and improve performance.

The expanding capabilities and substantially reduced data issues brought by FP&A tools are the foundation for building a more predictive finance department. Instead of playing a relatively narrow role in orchestrating the company-wide budget and periodic analyses and reforecasts, FP&A should recast itself in an advisory role designed to support the rest of the organization. To facilitate the planning process, support high participation and shorten planning and budgeting cycles, FP&A must design and implement streamlined processes that reduce the time required to create and update plans and budgets, and enable a structured dialog about them.

Since I coined the phrase in 2007, I’ve written frequently and at length about the need for integrated business planning, which combines operational and financial planning (that is, budgeting) in a more streamlined process. The objective is twofold: One is to have a process that creates more accurate financial budgets in less time. The other is to create a more effective, ongoing operational planning process that enables executives to better understand their options before the fact as well as what just happened and why after the fact. This combination will enable them to make consistently better choices about next steps that produce the greatest strategic payoff. Because of this, Ventana Research asserts that by 2025, one-fourth of FP&A organizations will have implemented IBP.

Ideally, the emphasis in the FP&A function should be on the “A.” It should provide executives with the ability for contingency planning to consider alternatives and anticipate the impact of specific positive and negative events (not just a set of simplistic upsides, downsides and base cases). It should enable them to spot opportunities to enhance efficiency or redirect spending to more productive areas. It should aid people in using predictive analytics to make better informed plans and forecasts that are, hopefully, more accurate. This would be consistent with one of the important findings of our Finance Analytics Benchmark Research: Making analytics more accessible is a priority for finance departments. Almost nine in 10 say that making it simpler to provide analytics and metrics to those who need them is either very important or important.

The pace of innovation in applications designed for the finance department is accelerating. The department doesn’t have to be at the bleeding edge of technology, but it must be a fast-follower. Software designed for finance and accounting departments will evolve rapidly over this decade, reducing the significant time spent on repetitive tasks and mechanical processes, allowing staff to focus on more valuable work that requires expertise, experience and judgement. I recommend that finance department executives periodically evaluate the mission and role of the financial planning and analysis group, especially now that technology has made it possible to throw off the constraints that once limited the scope and value of the work it performs.

Regards,

Robert Kugel