MICHAEL LENGENFELDER
Accelerating change is a major headache for finance teams. It means values in financial systems are never constant and how they influence business performance requires real-time analysis.
At the same time, business demands are growing, with the need to translate the vast amounts of revenue-related information scattered across organisations into indicators of business opportunities or potholes to be avoided.
This requires both a comprehensive picture of all financial data and the ability to go granular to dig into specific information affecting business units and teams.
But how granular does this analysis need to be? What information is valuable to the business and what isn't?
Identify your mission
In the finance team, everyone recognises the opportunity to embrace the digital future of finance, to address the growing demands of the business. It has the potential to dramatically shift the finance role to that of business storyteller, showing how financial data analytics influences business performance.
Financial planning, forecasting and ultimately storytelling starts with strategic financial planning and analysis (FP&A). It all begins with the simple question - who are we and what do we want to achieve? What is our mission?
These very high-level ambitions are then broken down as part of the strategic process into objectives and key performance indicators (KPIs).
These goals then need to be put into operation as part of the planning process; they will always be the "north star" for all following planning and forecasting activities. All budgeting and forecasting activities should have a clear reference to these KPIs.
As a next step, the organisation needs to define on what level the planning and forecasting should be executed.
A typical granularity for the profit and loss (P&L) could be business units or regions and products. Sales targets are planned and forecast on this granularity with a value-driver logic that is specific to the organisation.
When planning revenues at this level of granularity, certain assumptions need to be made. To achieve X million of revenues with a certain product in a region, what investments in sales staff and marketing will need to be made?
This all becomes part of the plan/budget (BUD) and forecast (FC). In an integrated financial planning system, these areas are fully interlinked and finally lead to a P&L per region/business unit and product.
These plan/forecast figures will then be compared to the actuals (ACT) figures that are automatically loaded from the enterprise resource planning (ERP) system.
Steering by numbers
Now the storytelling starts. Obviously, some assumptions that were made during the BUD/FC process will have been correct; others will be wrong. The storytellers need to comment on the classic finance reports that consist of ACT/BUD/FC columns with deviations.
There will always be a big learning curve. Positive deviations will surface ideas that could be replicated in other regions or pro
