Finance directors see value of business intelligence

Finance departments are driving the adoption of business intelligence software, using it to increase the accuracy of their forecasting and develop business strategy

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 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.

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