In this day and age, a company has to know—and not guess at—the ways in which non-financial factors impact financial results. And business leaders need finance teams, with their vast and natural analytical skills, to help them compete on facts and develop highly educated views on cause-and-effect scenarios.
For example: “If we bundle products and services in various ways and model various pricing options, what can we reasonably expect in terms of (a) customer retention, (b) increased revenue, and (c) impact on margin targets?”
Feeling a sense of urgency, a lot of people are now throwing around terms such as Big Data and predictive business analytics (PBA). It’s a good bet, though, that there will Big Disasters as companies start to wield the tools and techniques now available to process large and complex data sets. Big Data is one thing, but using PBA to make faster, smarter decisions is a different kettle of fish.
There is a fabulous new book out that I recommend to anyone interested in these developments. Predictive Business Analytics: Forward Looking Capabilities to Improve Business Performance (John Wiley & Sons Inc.) is co-authored by Lawrence S. Maisel and Gary Cokins, both long-time thought leaders in the realm of corporate planning and financial management. In my opinion, it’s mandatory reading for financial planning and analyses professionals, cost accountants, and anyone else involved in resource allocation, business decision-support, and performance management.
Maisel and Cokins point out that many organizations have developed specific applications or practices such as forecasting, modelling, and contingent planning to answer their analytical needs. They warn, however, that these tools can vary in terms of their usefulness, relevance, and responsiveness. The authors argue that what’s truly needed is “PBA that is rooted in a structured, continuous, and data-driven process that enables an organization to select actions.” PBA’s purpose is to identify how the future might look and what subsequent actions are needed. “PBA is forward-looking by nature,” they explain, “oriented to an organization’s enterprise level and based on analysis of relevant business data and drivers that have strong and traceable links to financial results and operational performance.” They also note that drivers can be both external and internal.
If one of your New Year’s resolutions is to be able to hold your own in discussions of predictive business analytics and the role finance can play, this is an authoritative knowledge booster.