Business Intelligence for Finance Pros Resource Guide
Business intelligence tools provide the finance department with insight into the internal and the external factors that affect the bottom line. The study of historical data can offer key insights into future trends, and help a company anticipate and calculate risk. Easy-to-use, self-service BI reporting tools allow users to create dashboards that present a holistic view of the company’s financial details, identifying problem areas and previously overlooked trends in data. Insights from BI guide the CFO in keeping a business more efficient by swiftly addressing performance issues, and using data to make more informed financial decisions.
Predictive Financial Analytics
Predictive analytics tools provide CFO’s with valuable insight into customers, products, and even their own employees that can help them shape policy to better drive revenue. An example of such an insight is the identification of the characteristics of the most profitable customers. Predictive analytics can tell financial officers where they come from, what they buy, and other demographic information that can help the business better target the highest-revenue generating clients. Similarly, the same tools can be used to identify how much money it is worth investing to win more business from them. In this way business intelligence supports a CFO’s efforts to streamline the business through a smarter allocation of resources.
Using real-time predictive capabilities based on point-of-sale and similar metrics as they occur, predictive analytics can identify fluctuations in the popularity of products. For example, a company could use these insights to ensure that the right stores or warehouses are sufficiently stocked with the right products. This increases efficiency by preventing unnecessary shipments and expediting important ones.
Internally, the finance department can use business intelligence to address issues of staff retention. Since it can be costly for a company to train new employees when staff members leave unexpectedly, using a BI tool to retain employees can potentially save money. By analyzing behaviors of current employees and looking at past trends of individuals who left, companies can identify risks ahead of time and take preventative measures.
Most generally, these tools analyze trends to help CFO’s make better financial decisions. They anticipate areas of the business where there is likely to be a slow down and allow the finance department to respond appropriately.
Financial Dashboards & Visualizations
Dashboards can provide, in one quick glance, a holistic overview of the health of a company. By aggregating important visuals that reflect data insights together on the screen, dashboards can help financial professionals identify potentially hidden trends or missed opportunities.
The ability of many dashboards to “drill down” by clicking on a part of visualization and seeing detail is a very important function. For example, one major soda company using dashboards noted that their sales were down in one region. The drill down feature let analysts click on that region and see that the significant drop was due to a new local competitor in the area that had a fruit flavored drink. Because the major soda company discovered the drop in sales quickly, they were able to act swiftly in turn and produce a competing fruit flavored drink. Over time their sales boosted back up. The timely financial data helped the company discover a place where it was suffering and why it was happening, leading to an improved business with better revenue.
Key Financial Performance Indicators
Key performance indicators are a vital tool to help assess the financial health of a company. They provide metrics that help companies benchmark their progression toward goals. Such data can determine whether or not a company is going to hit its numbers, and can also identify important trends and connections between categories. For example, one candy company noted that over time, their revenue was directly correlated to a very specific customer satisfaction metric: the net promoter score, which judges the likelihood of customers to recommend the company or the product again in the future.
Financial KPI’s specifically important to monitoring the company’s health include metrics as basic as Net Profit, a measure of money made. They extend to more complex measurements like the Cash Conversion Cycle, which determines how long it takes for a company’s resources to create revenue. Other indicators like the Operating Profit Margin, which measures operating costs against operating income, provide insight into the efficiency of the business.
Assessing Financial Risk
Along with the increased speed and volume of financial transactions has come the increased speed and volume of developing risks. As these risks arise, the ability of a company to respond swiftly will rely on data management and the use of business intelligence tools. As new investment opportunities arise, risk assessments can make or break a decision to invest. Moreover, regulatory pressures are forcing companies to submit their information for review more frequently.
Business intelligence tools are important for the finance department to more swiftly track financial performance. Real-time business intelligence tools give the department an up to date, comprehensive picture of credit risk and market risk.
- Enhancing Financial Risk Management Practices with Business Intelligence Systems
- Business Intelligence for Financial Risk Management
- The BI Assessment Process
Standardizing Data Infrastructure
Companies that are working with many different data sources will see a significant drop in efficiency if data is not standardized before the implementation of a BI tool. The right tool should be able to unify different types of data from different places into a single warehouse. The standardization of data makes financial reporting significantly more efficient because reports are not being drawn from multiple databases that may include conflicting information, or may include conflicting, incompatible data structures which makes the information unviewable.
Financial professionals using a standardized infrastructure are not only working more efficiently, but they are also using more accurate data. Data standards can help eliminate incorrect and out-of-date information so that analysts are only working with exactly what they need.