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The Future is Here

August 8, 2019
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In 1994 a science fiction novel named ‘Paris in the Twentieth Century’, authored by Jules Verne more than 130 years earlier, was published. This novel presents the city of Paris, France in the summer of 1960, about 100 years after the novel was first written. Without going into much detail, this book had remarkable predictions of what the world would look like in the year 1960, with prophesied technology surprisingly close to what it actually was around that time.

One popular explanation why this book, written by one of the greatest authors of his time, was not originally published, is that the original publisher believed that the predictions made in this book were too outlandish and unbelievable to be seriously considered by readers of that time.

This is one good example that no matter how incredibly we predict the future and the way technology is going to advance to make it possible, many of these predictions actually materialize, and often, technology advancements surpass expectations

.In our area of finance and accounting, technology always played an important role in shaping the way processes were defined and carried out. One of the first main advancements was the mainframe computer, then the minicomputer, enabling the world’s largest organizations to automate their accounting transactions, data processing and analysis functions.This was followed in the late Seventies and early Eighties by the introduction of the personal computer (microcomputer) which quickly found its way into the workplace once it was clear that it could perform real business tasks beyond its original use by mainly hobbyists.

Computer networks made it possible to link almost every function in the organization and enabled users to capture data, process business transactions, and create documents and reports which they forwarded to customers, vendors, management and other interested parties.

The rise of the Internet to global presence enabled many of the business software applications to be either hosted on the web or natively run in the Cloud, reducing the local computers to mere appliances.

At the same time software development continued to bring in new functionality, speed and features to existing applications while introducing new software categories never available before. A good example is ERP (Enterprise Resource Planning) software which combines stand-alone applications such as accounting software, MRP I (Material Requirement Planning), MRP II (Manufacturing Resource Planning), CRM (Customer Relationship Management) and other, industry-specific applications into one enterprise-wide solution.

As ERP was distributed across the enterprise, it was in theory the only software an organization needed in order to operate efficiently.

A new category of software, CPM (Corporate Performance Management), also known as EPM (Enterprise Performance Management) or FP&A (Financial Planning and Analysis) also emerged and was eventually interfaced to the ERP software in such a way that actual accounting and other data could be periodically transferred into the CPM/FP&A software where analytics and reporting were performed, management was informed and decisions were made based on available information.

Initially, the CPM/EPM/FP&A solution vendors were primarily concerned with migrating users from spreadsheets, where corporate planning and budgets were traditionally prepared, tracked and analyzed. The inherent flaws of these spreadsheets in performing these functions are now apparent to most finance professionals, which is why we see several purpose built software solutions targeted at even the smallest companies in every industry and market sector.

Spreadsheets and legacy CPM or FP&A solutions lack intelligent planning and their users cannot easily make changes, add multiple what-if scenarios or scale the model without major programming or IT assistance.

However, there is one major flaw in the vast majority of even next-generation CPM/FP&A applications. It is the inability to completely and accurately forecast an organization’s Balance Sheet from its budget, using built-in business logic and accounting rules assisted by actual data and beginning balances. This, of course, leads to the inability to capture a true forecasted Statement of Cash Flows.

The few applications that have this capability are going to establish themselves as the leaders in this business software segment for a very simple reason:Managers of companies of all sizes, in all industries and market segments need to be able to make timely decisions based on reliable information. Since these decisions are going to affect the future financial health of the organization they must be dependent on information presented by the FP&A software, information that incorporates data belonging to past and present performance and using an intelligent forecast of that same data covering all future budget periods.

Such software solutions are just emerging, and my prediction is that in the not so far future they will be entirely intelligent and constantly evolving, using the plan and financial model to create a complete and accurate presentation of the future financial health of the organization, automatically creating suggested scenarios that will deliver results aligned with company management’s goals.

The first such applications are already here and promise to continue evolving in that direction. Company managers (CEOs, CFOs) are highly encouraged to investigate these innovative solutions.

Unlike ‘Paris in the Twentieth Century’, there is no need to wait more than 100 years to publish these ideas. Progressive FP&A software solutions are available now even to smaller organizations. Every finance department deserves to have one.

Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.

Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.

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