With the massive challenges and hurdles brought on by 2020, finance professionals have responded by adapting their FP&A framework to meet new business demands. In 2021 FP&A trends lean more towards deeper automation, more predictive analytics, and is moving towards a more integrated business intelligence framework.
Shifting Cost Through Automation
One of the major shifts in corporate finance right now is the changing dynamic of the finance department from a cost center to a revenue optimizer. The change has been in action for several years as organizations began utilizing their finance departments in more integrated ways. Once considered a pure cost center that produced and enforced budgets and managed treasury, the finance department is blossoming into a robust functional area of its own.
In 2021, finance departments are going to shift cost by automating historically manual functions and consolidating roles to focus more heavily on analytics rather than data aggregation. In the same way that the abacus was replaced by the calculator, and the ledger by Excel, automation will pave the way for finance departments to focus on business strategy over everything else.
Trends Behind Finance Automation
The historical limiting factor of all finance departments was resource management, at the heart of which was employee time spent on data aggregation and management. More and more, other functional areas like marketing, HR, and operations leaned on the finance departments to provide data and complex analytics to decipher what the data was communicating. Arrived at this junction, finance departments took on a critical role in shaping the strategy of businesses.
As businesses became more integrated, ERP and CRM systems were developed, and as a byproduct began structuring and producing data autonomously. The result was that finance departments became inundated with data and were forced to manage this data with spreadsheets. This shifted the focus of departments from data analysis to data management and validation.
Automation has taken the burden off of finance departments to aggregate and manage data and has redistributed it to more appropriate functional areas. For example, functions that were previously siloed have moved onto cloud-based platforms, which has paved the way for more dynamic and efficient reporting, planning and analytics.
Artificial intelligence (AI) is being used to identify patterns and trends across large data sets to develop a deeper understanding of what data is trying to communicate. Finally, cloud-based applications are being used to develop robust self-service dashboards that allow departments to access and utilize their own data without placing a burden on finance departments.
Accounting automation will shift the focus of finance departments from accounting and backward-looking record-keeping to higher value-add functions and forward-looking analytics and planning.
Predictive Analytics in Finance
Data management continues to be a key focus of organizations as ERP and CRM systems have granted access to data previously hidden. Predictive analytics is a term used to describe the process of converting large quantities of data to identify patterns and insights. The insights are intended to identify what will occur next.
As businesses search to maximize their competitive advantages over one another, predictive analytics has become a key topic of focus. The process utilizes everything from basic data to advanced statistics to attempt to predict what might occur after an event is triggered.
The insights produced by predictive analytics range from creating more accurate revenue projections to creating efficiencies in supply-chains. For example, predictive analytics helps online retailers identify the paths that are more likely to end in a sale.
These paths are used to design sites that increase the likelihood of generating sales. Amazon deploys a strategy that uses predictive analytics to adjust real-time pricing for customers on paths that are most likely to produce a sale.
Finance departments are using predictive analytics to assist in lowering costs associated with unexpected events. They do this by focusing on detecting patterns that reveal events that might lead to financial underperformance. Emphasis is also placed on predicting patterns in inventory fluctuations, which can have significant impacts on both cost and revenue.
2021 will see further development and use of predictive analytics to maximize supply chain and production efficiency, reduce labor costs, and produce real-team forecasts and scenarios. This access to real-time predictions will help finance departments respond with far more agility than
The Dawn of xP&A
In 2020, Gartner was able to identify an emerging trend of what they described as “Extended Planning and Analysis.” Gartner coined the term “xP&A” and released a white paper with its views on the new dynamic of financial planning and analysis. The area has been a topic of hot discussion amongst finance professionals since the term was developed.
The premise of xP&A is that over time FP&A will shift and traditional silos will be reduced between enterprise and operations planning processes. This reduction in silos will lead to more integrated business intelligence that will have the ability to transform how businesses use data to produce more extensive business plans that have a much further reach than traditional financial plans.
xP&A allows for business leaders to take forecast and performance measurements from across various functional roles in a business and consolidate them into one cohesive forecast with integrated business metrics. These metrics are intertwined with other functional areas to reveal how one functional area impacts another.
Historical financial planning and analysis was limited in that it is somewhat difficult to identify how one functional area of a business can impact another. For example, sales projections might be developed and implemented that contradict limitations placed on staffing or marketing.
This is because it is somewhat difficult to develop performance metrics that encompass how functional areas are intertwined. xP&A allows for a more sophisticated integration of metrics specific to each functional area in order to generate plans that maximize profitability.
Using DataRails to Propel Your Finance Department Into 2021
Adopting a CPM solution is incredibly important for your organization. You need a system that can manage and make use of big data to ensure accuracy, timely execution, and of course, monitoring. DataRails is an enhanced data management tool that can help your team create and monitor budgets, plans, and other KPIs faster and more accurately than ever before.
Big data must be useful, and DataRails helps you use it to the maximum without having to learn a new proprietary user interface. Using Excel as a backdrop provides a familiar dynamic framework that makes adopting DataRails easy for any finance professional.
By replacing spreadsheets with real-time data and integrating fragmented workbooks and data sources into one centralized location, you can work in the comfort of excel with the support of a much more sophisticated data management system behind you. Build beautiful budgets, track and monitor business performance, and give users stunning and easy-to-use dashboards with DataRails.
Learn more about the benefits of DataRails financial solution