I recently talked to Steve Williams, president of DecisionPath Consulting, about the risks and rewards business executives face when trying to understand and use analytics, big data, and business intelligence.
What’s the basic argument you would make to a CFO who doesn’t yet know how business intelligence (BI) and analytics can help to boost shareholder value?
For nearly 20 years, BI and analytics have been all about providing highly relevant business information and analyses to management teams so they can drive improved profitability and business performance. The key to using BI to boost shareholder value is maintaining a sharp focus on leveraging information and analyses to improve the core business processes through which customers are served, revenue is generated, and company business performance is managed.
What’s the essence of your claim that a sound BI environment can help business unit managers and FP&A leaders spot performance erosion before the negative trend gets out of hand?
BI delivers information and analyses for cost analysis and control, budgeting, performance evaluation, and decision support. With a proper business design, companies can readily deploy a closed-loop enterprise performance management system based around simple-to-use scorecards, dashboards, and user-selected analyses. Performance updates can be delivered as often as daily or weekly, and the power of BI can be leveraged to automatically highlight the most impactful performance shortfalls and alert the appropriate FP&A and business unit leaders.
Isn’t the key to all this that everybody—business managers, C-suite leaders, and finance people—will be looking and the same information? Or is it that everybody will have a more comprehensive view of, say, operating KPIs and product profitability? Or is it the speed with which data becomes commonly used information?
BI and analytics enable what we like to call a “common view of business reality” that is based on common business facts, relevant and commonly understood KPIs and performance measures, and common frameworks for analyzing and improving the business. Achieving that common view enables more impactful management. Done well, BI also enables a markedly faster operating tempo, or speed of execution if you prefer.
What does BI promise when it comes to improving the reliability of financial forecasts?
The reliability of financial forecasts depends to a very meaningful degree on a solid understanding of past financial and operational performance and the quality of forward-looking assumptions about the relationships between business activity levels, the P&L, and the balance sheet. BI is a key enabler of fact-based financial planning and forecasting when it is used to stage all manner of trend information and performance metrics—information that can be used to “stress test” key assumptions and test forecasting models/methods for accuracy. BI is also used to track and improve forecast reliability over time.
What are the first steps that FP&A leaders take to figure out what BI can do for them?
FP&A leaders can benefit from proven business-driven approaches that systematically identify specific opportunities where BI and analytics in their various forms can be used for cost analysis and control, budgeting, performance evaluation, and decision support. It also helps to benchmark current FP&A practices and assess their maturity. More broadly, FP&A leaders need to know what business unit leaders need from BI in order to drive performance and achieve their financial and operational goals and objectives. Partnering with business units to help them drive results is a key opportunity for FP&A leaders who leverage BI because it allows them to move beyond being problem reporters to being trusted business advisors.
Does it appear to you that a lot of finance professionals are not paying sufficient attention? And what are the risks of ignoring this trend?
I’ve been writing about BI and its value for management accounting and enterprise performance management since 2004. And I’ve interviewed numerous finance professionals about their needs for and potential uses of better BI and analytics. What I’ve observed is that there is a strong desire for better FP&A tools, but somehow that desire does not translate into action. One cause I’ve seen is that enterprise BI initiatives tend to prioritize marketing and operations uses of BI, leaving explicit FP&A uses till later. The risk of ignoring FP&A uses of BI and analytics is that companies are sub-optimizing when it comes to planning, budgeting, measuring, managing, evaluating, improving, and controlling economic performance. They spend more than they need to perform these FP&A activities, and they lack short-interval control of the drivers of economic performance. One could argue that ignoring FP&A uses of BI is actually a breach of management’s fiduciary responsibilities.
Steve Williams will be speaking on our free webinar on November 12 at 11 AM CST: Getting Involved with Business Intelligence, Analytics, and Big Data.
Steve is president of Decision Path Consulting, is co-author of The Profit of Business Intelligence, and has written cover stories for Strategic Finance Magazine on the topics of BI, management accounting, and business performance management.
You can follow DecisionPath Consulting on Twitter @DecisionPath.