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Big data, analytics, AI, and the finance professional

Data gathering and accounting’s role in it continues to change. A thought leader explores the opportunities.

By Aubrey Joachim, FCMA, CGMA

Artificial intelligence (AI) and robotisation will affect many elements of the human endeavour. That includes the way humans interact, how work is done, and what work need not be done by humans.

These advancements present an opportunity for finance professionals, provided they embrace these tools. Businesses will still have roles in which insight, transparency, stewardship, and ethical corporate conduct are valued, and strategic finance professionals can fill these roles. Risks remain, but mainly for those who fail to appreciate the new tools and get left behind.

Finance professionals must live with this changing, disruptive, but opportune environment and explore opportunities whereby the finance function itself can harness the power of big data and analytics to significantly transform itself and the organisation.

Transformation can manifest itself in a number of ways across the entire finance spectrum, from the transactional space of the finance pyramid to the top end of knowledge and value generation. The two figures below contrast the traditional finance function and the emerging future.

In today’s age of digitisation there is a major shift in the way transactional data are captured, recorded, verified, and converted into information. All of this is about to change even further with the advent of technologies such as blockchain and distributed ledgers.

Inventories and inventory transactions are another case in point. Inventory receipts, issues, stock-takes, and valuations are today automated and digitally tracked using radio frequency identification (RFID), which can be reflected directly as transactions in ledgers and financial statements. Human accountants may not be required at all in this once major role that they played in organisations.

Add to this mix all the other data – customer, supplier, human resource, as well as myriad external data. The end game is that massive volumes of organisational data can be accurately captured more quickly and much more efficiently. The challenge now is deriving value from all these data.

The era of preparing periodic accounts – month-end, quarter-end, etc. – will be over. An organisation’s financial position will be quite accurately ascertained instantaneously and at any point in time. The human accounting involved in the process will also decline.

Reporting will take an entirely different meaning in organisations. A report by definition is a backward look. Self-service reporting, where organisational managers will be taught by their finance business partners how to extract the information they need, will replace the need for defined periodic reports. Instead, smart finance professionals will be required to provide insights into the future.

This is the challenge for next-generation finance professionals. Already in world-class companies, not only has the volume of standard reports produced been significantly reduced, but also, more importantly, a greater proportion of the remaining reports are forward-looking insights.

It must also be said that reports will need to be automated and dynamic, and take the form of intelligent dashboards based on data visualisation techniques that engage the audience. Once again the human element of processing reports will decline, but a different human element will be called for. Finance professionals will be called on to play a major role in this reporting shift if they are to retain their influence in organisations.

Finance has traditionally played a significant and sometimes preferred role in respect of organisational controls from simplistic reconciliations to audits, forensics, and even governance. This is perhaps the space that has been impacted the most due to digitisation and automation. Processes involving data sharing and distribution from one point to another are digitally verified, and thereby dynamic controls have been embedded. Therefore, the significant involvement of finance professionals in the traditional controls space is disappearing.

Instead, there is a need for finance to shift its focus to dynamic and perhaps preventive controls, as well as risk management, using significantly more sources of data. With this shift the transformed finance function should be able to play an even more important role in stewardship and governance within organisations.

The top of the pyramid is the space where big data and analytics must play the most significant role in the transformation of the finance function and the shift of the finance professional to the role of a trusted and valued business partner.

The pre-digitisation era restricted finance to a narrow window of organisational data – mostly financial – and therefore prevented the finance professional from using the significant management accounting tools and techniques that he or she is taught.

The current era of big data and analytical platforms has opened up an entirely new opportunity in which finance can get involved: strategic decision support. This is perhaps where the future of finance and the finance profession is. Let’s explore this role further.

The CFO function has the important prerogative of being able to cut across the entire organisation. This opens to the finance professional access to all of the organisation’s data, not just the financial data. Thus the opportunities for providing decision support are significant and can lead to more engaging business partnering.

Increasingly finance professionals are called upon to play an expanding role in organisational strategy as well as integrated reporting. It is in this context that big data and analytics have the most influence. Finance must broaden its perspective to harness all organisational data as well as external data to construct the bigger picture of the organisation in its operating environment and, more importantly, to add value.

Thus, budgeting will no longer be a simplistic spreadsheet exercise of transposing a set of sales figures provided by the sales and marketing manager to a financial spreadsheet, but rather will involve working closely with the business managers to add significantly more robustness to operational projections based on multiple sources of internal and external data that have been analysed and related to drivers that influence the bottom-line outcomes.

Finance professionals should be able to combine their powerful management accounting skills and exploit management accounting tools to convert data into predictive insights. In this way finance can definitively claim that it is influencing the organisation’s strategic direction.

Further, the traditional simplistic budget-to-actual variance reporting must give way to a much more insightful understanding of organisational performance. Combining the analytics and the AI perspective, such performance management will not only be dynamic but also be customisable in order to influence different parts of the organisation.

A number of analytic and data visualisation software platforms allow finance professionals to provide the strategic decision support demanded of them. Many other value-adding opportunities can open to finance professionals in this space. The limit is beyond imagination.

The challenges for finance professionals in the fast-shifting era of big data, analytics, and AI are many, the most important being a willingness to keep an open and changing mindset. The other factors are improving and enhancing technical skills in analytical sciences such as statistics as well as in the use of analytic software platforms.

Aubrey Joachim is the founder of Leading Edge Change, a business-partnering firm in Australia. He is a past global president of the Chartered Institute of Management Accountants.

This article was originally published in CGMA Magazine.