Almost three-quarters of financial professionals say
they struggle to collect data from multiple sources and perform the
analyses required to answer questions about corporate financial
performance, according to a
survey by datawarehousing company Teradata.
This, they say, limits their visibility into the business dynamics
that affect financial results and delays actions that might improve
corporate performance.
It is no surprise, then, that the finance function has been
leading the adoption of
business intelligence software. Indeed, much of the recent
consolidation in the business intelligence tools market has been
driven by larger suppliers looking to expand their foothold in the
finance department, such as the
acquisition of Cognos by IBM and the purchase of
Hyperion by Oracle.
In 1997, a book from accountancy firm Pricewaterhouse Coopers -
CFO: Architect of the Corporation's Future - highlighted the
way that some chief financial officers and finance directors were
beginning to take a play a more central role in defining their
organisations' strategies, thanks to business intelligence
technology that made it easier to analyse the figures at the heart
of the business and take the guesswork out of decision making.
Since then, as business intelligence systems have evolved, the
suppliers' focus on the finance department has increased, says John
Hagerty, vice-president at analyst firm AMR Research.
In particular, he says, the finance director is a prime user of
corporate, business or enterprise performance management - umbrella
terms that the industry has variously applied to both business
intelligence's traditional query, analysis and reporting tools, and
its applications for planning budgeting and forecasting.
For suppliers, corporate performance management (CPM) equals
finance, says Hagerty. "Business intelligence tools sold under the
CPM banner comprise a well-established buyer category, with many
suppliers delivering products and services, focused largely on
financial data and tailored to meet the demands of the finance
function."
Hagerty defines the business intelligence tools of most use to
the finance department (all of which are sold as part of CPM
platforms) as:
● Planning, budgeting and forecasting - contribution,
aggregation, manipulation, and approval of the financial plan on a
periodic or continual basis.
● Financial consolidations and reporting - legal and statutory
consolidation systems, along with more generalised financial
statement generation capabilities.
● Financial analytics and dashboards - profitability
applications, role-specific dashboards, metrics, and specific
financial analytics for detailed financial processes.
● Financial governance, risk management, and compliance -
governance and control requirements that include national and
international regulations, such as Sarbanes-Oxley or the
International Financial Reporting Standards.
● Scorecards and strategy - methodology-based scorecards, such
as the Balanced Scorecard, and strategy management
applications.
"Selling these products directly to the office of the CFO flared
in prominence shortly after Sarbanes-Oxley captured the attention
of executives and boards of directors," says Hagerty, and
compliance continues to drive enormous business intelligence
spending by finance departments five years after the law was
passed.
Although the initial panic that drove big spending has
transitioned to "acceptance and good business practice", the office
of the CFO has grown as a consumer of business intelligence
products, he says.
Accountant's armoury
For a finance professional such as Gavin Leverett, consolidation
and reporting tools are key weapons in the accountant's armoury. In
fact, when Leverett joined building management services company
Work Inc as group finance and planning director in January 2007,
one of his first priorities was to get a robust set of reporting
and query tools in place as quickly as possible.
"As a company, we capture huge amounts of data, but if my team
and I cannot turn that data into the information that is used to
run the business, that is a serious problem," he says.
That is not easy in a highly distributed business, says
Leverett. Work Inc comprises two trading businesses - commercial
interiors and facilities management - and both have operations
scattered across the UK.
So a priority for Leverett was to put in place business
intelligence tools that would automate much of the work involved in
collecting the monthly profit and loss data from each business
unit, consolidate it, and compare it against the corporate
budget.
Building on this basic application of business intelligence,
Leverett now plans to extend his department's use of Sage's
business intelligence tools. During 2008, the company will work
with its systems integration partner Datel to give finance staff
the ability to report against data held in the company's customer
relationship management system, also from Sage, to get visibility
into Work Inc's sales pipeline.
"That will enable us to forecast our cash requirements and make
predictions as to what the profit and loss will look like three,
six, nine and 12 months ahead," he says.
Tile manufacturer CP Group has gone further still, using
business intelligence tools to analyse profitability right down to
the level of the individual product.
This involves the consolidation of data held in several back-end
systems, including product lists, customer databases and sales
reports, into a single "cube" of data, based on the Applix TM1
online analytical programming engine.
From there, the data is extracted to make pricing decisions for
CP Group's extensive product line.
"It is vital to the board that the finance department can
provide it with the ability to see exactly where it makes money,
and where it doesn't," says James Clarkson, finance director at CP
Group. "Before, we worked on best-estimate guesswork, and that
resulted in us selling some products at a loss. Now, we have been
able to adjust our pricing in a way that reflects our better
understanding of how much it costs us to make and deliver a product
to a customer - and the margins we want to make on doing so."
Like his counterpart at Work Inc, Clarkson is also hatching
plans to use his business intelligence system to provide the basis
for future financial plans. The next step of the project is to use
TM1 to produce annual budgets, he says. After that, it will be used
to analyse stock management data, so that CP Group can produce more
accurate demand forecasts, which will enable the company to decide
how much raw material to buy.
Further down the line, the company hopes to implement
intranet-based dashboards to let different departments benefit from
some of the insight mined by the finance department, alerting them
to where they need to focus their efforts in order to meet
financial targets.
Real-time business intelligence
In most finance departments, data is moved from transaction
systems to a "staging post" before it is analysed. But for some,
this can create some problems when it comes to month-end reporting.
Journal entries may take some time to be moved from operational to
analytical data stores, and that can make reconciling ledger
accounts challenging.
"Although this latency is generally acceptable for trend
analysis and forecasting, traditional datawarehouses cannot keep
pace with today's business intelligence requirements for fast and
accurate data," says Louella Fernandes, principal analyst at
research firm Quocirca. They were not designed to deliver complex
analytics on terabytes of data quickly, and as the volume of data
used in organisations grows, extracting information becomes more
time-consuming and complex.
To address such shortcomings, many business intelligence
suppliers are starting to offer "real-time" financial analytical
systems, which give finance directors instant access to data on
their production or transactions systems, without having to wait
for the data to load into the datawarehouse.
Implementing this type of system requires close collaboration
between the IT and finance departments, says Nigel Rayner, research
vice-president at analyst firm Gartner. "Balancing the priorities
across different performance management needs can only be
successful when there is close co-operation between users and the
IT organisation at all stages of the process," he says.
Users from functional areas, such as finance, must work with IT
to define the business processes and data flows between the various
analytical applications, Rayner says. "The IT department is crucial
in defining how data will be shared between these applications and
how they can successfully co-exist with the wider information
management infrastructure."
If a successful working partnership with the finance department
can be established, the benefits for the IT department that puts
insight in the hands of the people that hold the purse strings
could be considerable. But more than that, the benefits to the
business as a whole could be considerable, too.