Automation and cloud technology have handed many CFOs a secret weapon. This tool has enabled them to shift their focus from past performance and toward future trends. It has allowed CFOs and budget managers to embrace up-to-the-minute data and create in-depth predictive models. This ‘secret weapon’ I’m talking about? Financial Forecasting.
The budget has historically been CFOs’ and budget managers’ focus. However, new technology means an incredible amount of data is ripe for the picking and has enabled many organizations to embrace advanced financial forecasting methods with great success.
Now the question remains: is this data being used effectively to create better forecasts?
In this post I want to cover why I think understanding this data is so crucial to CFOs and the rest of company leadership. And why more organizations need to utilize data to improve forecasts.
CFOs Embrace Data
To many CFOs and budget managers, data is a big deal—especially to those who are looking to adopt automation, cloud-based systems, and other ‘smart’ budgeting tools for financial intelligence. All can help provide a competitive advantage.
A recent study from Ernst & Young found that CFOs have become more invested in finding ways to leverage data analytics for better forecasting.
Of those surveyed, 23% cited “Improve big data and analytics capabilities to transform forecasting, risk management and understanding of value drivers” as their greatest priority. Additionally, 56% responded that “Sophisticated planning and forecasting” was critical to meeting future organizational demands.
These CFOs are looking at how they can tap into the data sets at their fingertips and combine it with higher-level analysis to innovate financial forecasting and improve their decision-making abilities.
Using Data to ‘See’ the Future with Financial Forecasting
It’s clear there are significant benefits associated with having accurate forecasts. But these benefits depend on how well your organization handles data quality and data management.
The amount of data available today to every company—from the biggest Fortune 500 company to the local mom-and-pop shop—provides potential like never before. However, too many organizations leave much of their data untouched, in part because they may not have the capabilities or understanding of how to harness its business value and use data effectively.
Unfortunately, leaving the potential of data untapped can place your business at risk.
One of the key features of good financial forecasting is the ability to help predict future outcomes, allowing for a much better system of financial planning and risk management.
Today’s business environment is fast-paced and unpredictable. Any number of external factors can shape an industry, or as we saw in 2008, the economy as a whole. These factors can trickle down to sales, human resources, and even non-financial indicators such as trust, customer satisfaction, or perception.
It’s when things get shaky that excellent forecasting can have a lasting positive impact. Rather than scrambling when the market takes a turn, a business that’s been using advanced forecasting and leveraging predictive analytics to run ‘what if’ and other types of scenarios has defenses against risk—they’re able to extract insights from data and form better, more forward-looking decisions.
Leveraging machine learning and artificial intelligence, finance teams can deep dive into the picture painted by a wide swath of data and not just what is presented in balance sheets and actuals. Instead, understanding those external factors of the business in the context of financial performance can point to opportunities to pivot.
This could lead to offering new products, for instance, or suggest a change in current business practices like supply chain management, at the exact moment it’s needed. In the end, the data analysis and advanced forecasting it offers can create the chance to develop procedures, products and practices that meet customer demand and provide a competitive advantage.
The key is using advanced data to enhance forecasting. Systems that pull in real-time data from data sources across the organization and re-forecast automatically include things like market changes or missed assumptions. This helps focus the finance team on analysis and enabling appropriate business decisions instead of data collection.
While it’s not possible to completely prevent economic downturns, data can help organizations better prepare. And those businesses that embrace and analyze data to improve their forecasts see results. A stronger forecasting ability will pay dividends over the long term.
If you’d like to take a deeper dive into financial forecasting and how it can help your organization, register for our on-demand webinar The CFO Playbook on Strategy: The Latest Developments in Forecasting That CFOs Need to Know About.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.