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Why data-driven financial forecasting is crucial to the modern CFO

How software is driving financial planning and analysis and creating greater value in organizations.

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Financial planning and analysis (FP&A) teams play a crucial role in modern companies. With functions such as budgeting, forecasting, and financial analysis falling under their purview, C-suite executives rely on FP&A to illuminate the way forward.

Traditionally, FP&A has been a manually-intensive task. Teams rely on spreadsheets to make sense of their financial data and maintain these data manually. In these cases, collaboration is a chore, because it’s hard to establish audit trails when a file is modified by multiple users via shared drive access. As a result, data integrity is always at risk of being compromised.

The rise of big data solutions and analytics has impacted the way CFOs and their FP&A teams conduct financial analyses. Here are three ways in which data is driving financial forecasting.

Increased efficiency

As the amount of data companies collect grows exponentially, companies have begun to leverage sophisticated software. The primary reason for this reliance is greater efficiency. Software has the power to automate tedious clerical tasks and introduce greater value to a business process.

For instance, FP&A teams spend a lot of time monitoring data quality and enforcing shared access rules. It isn’t uncommon for a team member to manually track changes to every cell in a spreadsheet with a row count in the thousands and comparably large column counts.

The result is a slow-moving process that struggles to communicate results to the CFO and other senior leadership. Software simplifies the data integrity challenge. Data that arrives from various sources within an organization is automatically aggregated and presented in preset templates.

Data sources such as general ledgers, trial balances, sales invoice logs, and budget forecasts can be automatically fed into the software platform or even a spreadsheet chosen by the FP&A team. Thanks to automated data collection, teams don’t have to choose between conducting essential manual processes and equally essential value-added work.

They can focus on analyzing data and present conclusions to senior management. With shorter work cycles and timely insights, FP&A teams can deliver greater value that enhances their organization’s bottom line.

Granular audit trails

CFOs and FP&A teams that rely on manual processes face considerable challenges when monitoring the state of their data. Typically, files are housed on shared drives, and teams from across the organization update them with data from their respective business units.

Whenever you have multiple users working on a single file, however, you’re inevitably compromising on data integrity. Some teams mitigate this risk by specifying data entry procedures through templates. However, these separate data still need manual aggregation, and errors creep in. Tracing the source of error is a tedious task since teams have to manually examine how data was entered.

Advanced technology makes error tracking and compliance a breeze. The right FP&A solution integrates dynamic server-side data with Excel (or any spreadsheet program) and automatically records cell-level data history. The result is that establishing a single point of truth is simple. Software can even track changes in formulas over time. 

In a manual process, tracking changes across multiple rows and columns is tedious. However, the right software enables teams to compare entire spreadsheets to one another and highlights changes automatically. Compliance is also simplified thanks to technology. Teams can easily create audit reports by exporting data to desired templates as demanded by Sarbanes-Oxley and other compliance protocols.

The result is greater trust in numbers and more accurate reports. For instance, comparing budgets with actuals or actuals with latest forecasts becomes more powerful. Teams know they’re looking at trustworthy data and can report these numbers confidently.

Better analysis

Thanks to the reduction of manual processes, FP&A teams can focus on running better analytics on their data. To unlock true insight, though, it’s best to expose data to different eyes. Democratizing data and analytics helps prevent groupthink and reduces biases in projections.

With analytics integrating into Excel, individuals in a business can quickly filter and drill down into data to uncover insights. An FP&A team member will view data from a different standpoint compared to the CFO. Thanks to sophisticated software, not only can the CFO receive dynamic reports, but they can also customize their reports themselves.

As a result, there’s less back and forth on the report format that the CFO desires and more time spent diving into the trends that the data exposes. By integrating with Excel, the disruption that teams face is minimal. They don’t need to export data to another application or fire up special software, because analytics fits seamlessly into their existing workflows. 

Thanks to web-based dashboards, management can view real-time data and insights without having to constantly check in with their FP&A teams.

While ad-hoc reporting isn’t an automatic cure for biases in analytics reports, it does increase the chances of unlocking greater insight. Data can be sliced and diced on the fly, and this gives organizations greater control over their financial futures.

Streamlining FP&A 

Data analysis has streamlined FP&A processes immensely. Teams can now focus on adding value to organizations instead of spending their time collecting and aggregating data. Automation and analytics are driving change and companies have a greater understanding of their financial standing thanks to them.

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