Predictive analytics, artificial intelligence (AI), machine learning (ML) – oh my. By now, you’ve heard all the buzz. You know, how technologies like these will forever change the office of the CFO. Or so “they” say.
I know. Big claims. And with such claims about finance transformation, it’s easy to feel left out. I did. Why? Because as a former head of planning, I knew I had opportunities to improve my budgeting, planning & forecasting processes. The problem? I knew nothing about predictive analytics, machine learning or artificial intelligence. And if technologies like these are the future of finance, I needed to learn more.
With all the industry buzz, I figured most finance teams are already leveraging advanced modeling. Surprisingly, they’re not, though – not yet at least.
In fact, according to Dresner Advisory, only half of finance teams leverage data-driven processes to make decisions. Consider the additional data-points noted below:
- 50% of finance leaders don’t understand the business value of machine learning
- 29% [of finance leaders] believe advanced analytics will have a positive impact on forecast accuracy and automating time-consuming processes
- 14% of organizations are currently leveraging predictive analytics or ML in their finance processes
It turns out most finance teams felt the same way I did.
They 1) understand the promise of advanced analytics, but 2) many finance leaders don’t yet understand what advanced analytics actually means for them.
To address this lack of understanding and more, we’ve recommended Leveraging Advanced Analytics as Step 5 in our Blog Series: 5 Steps to Unleashing the True Value of Finance (see figure 1). Today, we’ll introduce a few definitions and provide examples for how advanced analytics can play a role within budgeting, planning & forecasting processes.
Figure 1: 5 Steps to Unleashing Finance
CPM 2.0 Platforms Ignite Advanced Analytics
As we’ve shared throughout this blog series, every organization is unique, so you should assess which of the 5 steps is right for your organization and when.
Regardless of where your organization starts, it’s critical to consider a modern corporate performance management (CPM 2.0) platform as the foundation for finance transformation. Unlike fragmented legacy CPM tools or Excel spreadsheets, CPM 2.0 platforms unify financial consolidation and reporting with budgeting, planning & forecasting and analytics – all within a single application.
Essentially, a CPM 2.0 platform streamlines critical processes to unleash finance teams to spend more time on value-added activities. To leverage their data. To deliver insights. To help support decisions to manage the business. And all of this brings us full circle back to the power of advanced analytics.
Let’s get started with the definitions below.
Predictive Analytics, Artificial Intelligence and Machine Learning Defined
- Predictive analytics: The practice of extracting information from existing, historical data sets to determine patterns and predict future outcomes and trends. Predictive analytics forecasts what might happen in the future with an acceptable level of reliability and includes what-if scenarios and risk assessments.
- Artificial intelligence (AI): The theory and development of computer systems able to perform tasks that typically require human intelligence – such as visual perception, speech recognition, decision-making and translation between languages.
- Machine learning (ML): A branch of AI that focuses on software that has capabilities based on recent experiences and past trends. ML leverages statistical algorithms to learn and get smarter over time (e.g., training), retraining itself the more it “experiences.”
Make Sure Cloud Vendors Are for Real
So the next time you hear software vendors touting ML or AI, ask them the hard questions. For instance, are they providing AI or ML capabilities? Many vendors talk a big game. But if they cannot answer your questions or share customer references, they’re likely selling something they cannot deliver.
Now that you know what to look for in a vendor, let’s dig into how your finance team can leverage what vendors are selling: advanced analytics for budgeting, planning & forecasting.
Putting Advanced Analytics to Work
With a CPM 2.0 platform, it’s easier to integrate advanced analytics directly into key processes. Here are a few examples to consider:
- Strategic Planning: Setting targets is critical for effective strategic planning. This includes making assumptions about compounded annual growth rates (CAGRs) for critical lines of business, products or customers. Some organizations focus on 3- to 5-year planning horizons. Others require a longer-term view. In either case, advanced analytics offers a statistically significant point of view without bias. Here’s how a predictive analytics model could work in strategic planning:
- Predictive analytics models can analyze historical sales dollars or volumes across several model types, such as a linear regression. With the right CPM 2.0 platform, users can quickly calculate the optimal predictive forecast for each target CAGR and integrate it directly into the business process as a baseline forecast or forecast scenario.
- Demand Planning: Within integrated business planning (IBP) (see figure 2), demand plans include a monthly, rolling 12- to 24-month forecast for product or service volumes to help organizations get the right product to the right place at the right time. A machine learning model can help boost forecast accuracy. Here’s how:
- Machine Learning models, with the help of data scientists and a tool like Azure ML or Python, can merge variables like weather, seasonality and/or numerous other factors with historical data. With the right amount of data and time to train, an ML model can dynamically update the contributions of each variable to produce the highest performing demand planning forecast.
- Scenario Planning: Scenario planning helps business leaders set and manage expectations. For example, what happens to Q1 EPS if revenues decrease 10% vs. the prior year? What is the sales plan to mitigate the risk? Similarly, what happens to EPS if revenue increases 10%? Questions like these help CFOs and business leaders get a “feel” for upside and downside risk and create risk-adjusted plans. To do this well requires analytics that flows back to detailed business plans. From there, scenario planning also impacts the P&L, balance sheet and cash flow
I bet this all sounds great, right? It is – if you can actually do it. Unfortunately, most finance leaders cannot. Why? If you’re like me and a ton of other finance leaders out there, the thought of adding more fragmented systems or processes to our plates makes our heads explode!
It’s time to think bigger with CPM 2.0 platforms.
CPM 2.0 Platforms Unleash Finance
Will machine learning and predictive analytics change the office of finance? I think that’s a stretch. But once they cut through the hype, finance leaders will see the light and the value. What do finance leaders have to lose by having another point of view on the numbers? Nothing. Especially if finance leaders want to have a more insightful dialogue with their CFOs and business partners. After all, modern finance is about more than just the numbers. It’s about the business. It’s about communication. It’s about the convergence of people and technology.
Well, what if I told you leveraging advanced analytics was possible to achieve? And that over 350 organizations around the world are leveraging OneStream’s CPM 2.0 platform to move finance transformation forward. To find new and innovative ways to ask why and take their business partnerships to new levels – levels previously impossible to achieve.
Now that’s finance unleashed.
To learn more about how to unleash your finance team or OneStream Software, download our whitepaper titled Finance Unleashed: Enabling Modern Finance with CPM 2.0 Platforms.
 2019 Wisdom of Crowds® EPM Market Study; BARC The Planning Survey 19