Tag Archives: predictive analytics
The Institute of Management Accountants released a report that “is designed to serve as a guide for organizations trying to forecast what’s ahead in their markets”. It poses and expands on these 9 ways to improve forecasting in the future:
- Expand the data available
- Tools: Start small and add on
- Use scenario planning
- Address the knowing-doing gap
- Model Building: Think causality
- Establish data collection systems
- Improve assumptions and estimates
- Monitor results and quickly identify the business reasons behind variance
- Improve analytical skills
““COVID-19 changed the future direction for most companies and so FP&A — and especially forecasting the future — became much more important””.
There are better ways to plan your business finance strategy than on a spreadsheet with old data!
““I’m afraid a lot of firms today do their forecasting on the back of an envelope,” Keating said. “The use of predictive analytics is a very important way to compete.””
“The almost instinctive reaction to such crises is to batten down the hatches and tough it out until better times return. Although economic downturns can be severe for both business and individuals such a knee-jerk reaction is seldom the best strategy.”
“Here are two thoughts that are useful for calibrating analysis: (1) An analytics system is only as good as the analysts and the sophistication of the toolsets they employ. (2) A truly next-gen analytics program must encourage analysts to take advantage of the technology tools they now have at their disposal.”
Similar to martial arts, business success is all about perspective. Instead of focusing on the capabilities their organization lacks, business leaders should understand what they can do with what they have. First, they must find the tools that best-fit their business. Smart leaders arm their company with analytics and machine learning that provide critical insights that protect their margins and business. Martial arts and an analytics platform share the common thread of awareness. This allows business leaders to not only report on what is happening, but also predict what is likely to happen and plan accordingly. This prevents rash decisions that will negatively impact the business. Modern analytics platforms enable businesses to respond rather than react to anything that comes their way.
Business leaders aim to make decisions faster and more accurately through automation and predictive modeling. Tools, technological innovation, and increasingly powerful business insights are readily available everywhere. However, a business only gets out of their technologies what the tool is actually capable of giving them. Decision makers must choose a platform that best fits their business specifically, and often times it is not a “one-stop-shop” solution. Moreover, it takes collaboration between finance and IT because there is no substitute for finance’s knowledge and experience to ensure that an accounting system meets their organization’s needs. As financial eyes and ears of their business, finance professionals can provide critical insight into business processes and requirements that can help decision makers get a true picture of the organization
“CFOs can play a prominent role in building and managing their organization’s analytics capabilities, especially given new tools that allow organizations to use analytics for predictive or prescriptive purposes and improve decisions around planning, capital allocation, investments, M&A and other areas.”
It is important for businesses to look beyond typical reporting and descriptive analytics for decision making. These outdated practices merely summarize what has already occurred. Business leaders are rapidly adopting predictive analytics, which can guide decision makers toward a profitable course of action through optimization and scenario analysis. Predictive analytics’ basic principle is that once an organization establishes an efficient statistical model based on past data, it can begin to extrapolate that data to look at the future. There are four areas where CFOs should be focusing their predictive analytics efforts to keep up with the competition.