The CGMA report, ''Improving decision making in organisations: unlocking business intelligence'' delivers key insights into current developments in BI and practical information to transform finance functions.
Whenever there has been gloomy news of the world''s economic recovery being slower than expected or renewed concern about the euro, many accountants will have been asked for reforecasts as a matter of urgency. The budgeting cycle can take several iterations over a period of months. How can we ensure the accuracy of forecasts we prepare in a hurry?
Clearly, a budget or forecast would be pointless unless there was a congruent plan to take actions and deploy resources so as to achieve it. Likewise, a budget or forecast that is derived by flexing the lines in the accounts is unlikely to be realistic.
A keen understanding of the drivers of revenue and costs is required to ensure the accuracy of a forecast. And accurate forecasts are necessary to maintain the confidence of investors and bankers.
Too often, the budgeting or reforecasting process rests on business managers completing and returning a financial template, usually an Excel spreadsheet, within a tight timeframe. This leaves little time for those conversations about the assumptions or drivers that are so necessary to give confidence in the resulting financial figures.
Hopefully, nobody will have overwritten calculations or data sources in their spreadsheet. However, caution, optimism, gamesmanship and the organisation’s situation and culture will have influenced their entries.
Second guessing and scaling back have sometimes been the only solutions to set a budget that can be delivered with some certainty, although the range of possible outcomes with their varying degrees of probability is unlikely to have been considered.
Better information is needed to survive a recession and thrive afterwards. Research over many cycles has shown that the organisations with the best prospects of emerging successfully from any recession are those which can balance cutting costs to improve operating efficiency with continuing to invest to develop their competitive position.
Using financial measures alone to budget, forecast or manage performance would only be ''painting by numbers''. Long term value creation is a greater challenge than meeting budgets. Achieving both at the same time is an art that requires the management accountant’s combination of financial expertise, business understanding and strategic reasoning. It also requires better information – BI.
There is already a danger in the current economic climate that organisations will harm their long term prospects by cutting investment in developing the competencies they will need in the future. Planning and forecasting are closely connected competencies which can enable a business to respond promptly to threats or opportunities so as to ensure its survival. Failure to invest in better information systems could be a false economy.
The software industry’s response
A few years ago, the major vendors of operating systems and databases, SAP, Oracle and IBM, recognised that planning, forecasting and performance management requires an integration of financial information with the operational and customer information captured by their systems – and external information. These vendors acquired the leading financial software companies, Business Objects, Hyperion and Cognos in order to be able to offer integrated business intelligence suites.
Now, lots of other software companies offer good BI tools which work with these vendors’ software, including Microsoft’s. And the mighty Microsoft has developed a BI offering too.
Opportunity knocks for management accountants
Better information is not always about business intelligence. Strategic thinking with a notepaper and pencil or using spreadsheets for innovative analysis may suffice.
However, when producing reports and analysis on a regular basis, using systems can be more efficient and carry less risk of error than spreadsheets. In large scale businesses or in sectors where lots of data is captured, then BI tools are needed.
Aviation, banking, insurance, retail and online businesses have been the pioneers of BI. Other sectors will follow as BI becomes less expensive and ‘software as a service’ or ‘cloud computing’ could make BI tools available to smaller organisations.
Our IT colleagues have the expertise to deliver the technological solutions but they are not well placed to help realise their benefits. Management accountants have important roles to play if the potential in BI is to be unlocked:
- Developing the business case and a plan to realise the benefits with firm commitments from those who are expected to deliver the results.
- Implementing successfully with buy in from those who will be using the system.
- Ensuring data quality, particularly the integrity of the ‘master data’ considered necessary to inform business decisions.
- Tracking the right metrics and providing analysis to manage performance.
- Conducting in depth analysis to support evidence based decision making.
In today’s global economy, unexpected events, whether domestic or international, could affect customers, suppliers, competitors or regulation so greatly that tactical planning and reforecasts may be required.
The imperative to cut costs must not be allowed to preclude investing in developing the competencies necessary to develop and sustain an organisation’s competitive position.
Investing in BI to improve the ability to budget and reforecast accurately could be important if an organisation is to be able to respond swiftly to developments in its market.