Issue 6 | theinnovationenterprise.com
managing tsunamis of data in finance Big Data has reshaped almost every industry, we see how finance professionals can manage this influx effectively
15
Smart CFOs not risking mother nature’s wrath We look at the impact sustainability is having on the CFO role
9
Four free ways to improve your financial close The author discusses four ways accountants can make their end of year close smoother
letter from the editor
Welcome to the sixth edition of
process run that little bit
FP&A Innovation.
smoother.
The last edition of the magazine
As always, if you are interested in
was a great success, and we’re
contributing or have any feedback
really grateful for the feedback it
on the magazine, please contact
received across social media.
me at jovenden@theiegroup.com
Covering a wide array of different topics, including the impact of data science and the importance of sustainability, this month’s edition has a varied theme. P.J Simmons looks at the importance of sustainability to the CFO’s role and how recent events, including the California water crisis, can have a substantial impact on the balance sheet. In addition to this, I explore how finance departments can
James Ovenden Managing Editor Are you are looking to put your products in front of key decision makers? For Advertising contact Emily at
Managing Editor James Ovenden
Assistant Editor Simon Barton
Art Director Chelsea Carpenter
ekutchinsky@theiegroup.com
Contributors P.J Simmons Aaron Fraser Emma Taylor
incorporate data science into their processes, and how CFOs can use data to improve their teams.
General Enquiries
The skills gap present in the
jovenden@theiegroup.com
finance industry is much discussed and in this month’s edition Aaron Fraser examines the role that organizations should take in order to bridge this gap. The end of the financial year is the most stressful time for accountants and Emma Taylor looks at four ways finance departments can make the
2015
contents
9 MANAGING TSUNAMIS OF DATA IN FINANCE
Big Data has reshaped almost every Industry, we see how finance professionals can manage this change effectively
5
13
17
SMART CFOS NOT RISKING MOTHER NATURE’S WRATH
INTEGRATING DATA SCIENCE INTO THE FINANCE FUNCTION
FOUR FREE WAYS TO IMPROVE YOUR FINANCIAL CLOSE
We take a look at the importance of finance professionals respecting mother nature
Managing data is one thing, but turning it into effective insight is an entirely different task. This article explores how companies can act on Big Data
This article discusses four ways accountants can make their end of year close smoother
20 THE FINANCE SKILLS GAP Finance has become one of the most I can go out and find complex organizational functions and a good accountant, but I’m not the looking for that. skills gap we evaluateI’mwhy current looking for someone going toiffill manager must be who’s bridged it’s alsoroles to be one in three to five years, somebody who thinks the of the most effective right way.
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smart cfos not risking mother nature’s wrath by pj simmons chairman corporate eco forum
What would your CFO do if
Or worse, what would you do if
Mother Nature showed up with
Mother Nature sent lawyers to
a bill for everything she does for
sue your business for the harm
your business?
it’s causing her?
What would happen to your
Sound academic?
bottom line if she called in
Think again.
sick or went on strike, as she appears to be doing in California with water?
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6
SMART CFOS NOT RISKING MOTHER NATURE’S WRATH
“embedding sustainability
thinking into the finance function is also helping Kuehn and his CFO peers at global companies like Unilever, Walt Disney, and Ecolab to deal with shortterm pressures to cut costs
”
More and more analysts, investors
economic decision makers
and activists are crunching
can understand.
numbers around these questions. So too are some of the world’s biggest companies, including Dow Chemical and accounting firms like KPMG.
- water contamination, soil erosion, deforestation and overfishing - is already costing companies around $7 trillion every year, or about 10%
isn’t pretty.
of global gross domestic product
It turns out that Mother Nature’s natural systems produce about $33-$72 trillion worth of ‘free’ goods and services annually, which on to fuel the global economy. This includes purified drinking
today. Under business as usual, this could balloon to $28 trillion by 2050. Those numbers don’t even include the impacts of adapting to disruptive weather events and rising sea levels due to climate change.
water, breathable air, supply
In 2012, KPMG and Trucost
chain commodities, fertile soil,
estimated that if companies had to
food stocks and protection from
pay their true environmental bills,
extreme weather.
they would lose 41 cents for every
Because markets generally don’t
$1 in earnings.
price these goods and services,
The challenges are only escalating.
most companies don’t account for
The World Economic Forum’s
them in financial forecasts,
2015 list of Top 10 Risks to the
risk assessments, or on
global economy, in terms of
balance sheets.
impact, included three related to
This is starting to change, as a rising number of troublesome events, like California’s water crisis, have spurred a global movement to assess the financial value of
environmental damage. These included, water crises, failure of climate change adaptation and biodiversity loss and ecosystem collapse.
healthy natural ecosystems to
What does all this mean for
businesses and also to monetize
businesses and CFOs?
the damage these companies cause to those systems. In other words, translating the value of Mother Nature into a language that businesses and
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mismanagement of natural assets
The emerging financial picture
businesses and society depend
I N N OVAT I O N
The UN estimates that
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SMART CFOS NOT RISKING MOTHER NATURE’S WRATH
Quite simply, it means a rising tide
A new report from Corporate Eco-
Embedding sustainability thinking
of potential exposures threatening
Forum and World Environment
into the finance function is also
to increase on-balance sheet risks
Center, ‘Sustainability and the
helping Kuehn and his CFO peers
down the road, including;
CFO: Challenges, Opportunities
at global companies like Unilever,
and Next Practices’ highlights
Walt Disney, and Ecolab to deal
how several farsighted CFOs are
with short-term pressures to cut
Price volatility around energy
responding to these trends and
costs, unlock new opportunities
and commodity prices
changing the way they work as
for greater capital productivity,
a result.
and strengthen the foundations
Impact from more stringent
The report explores why and
regulations
how the CFO and other senior
for business innovation and growth.
corporate finance executives
Today’s farsighted CFOs see the
should care about ‘sustainability,’
potential for sustainability-related
a term with many definitions
challenges to fundamentally alter
but which is quite simply about
the economic, environmental and
Lack of access to key product
protecting and strengthening
social landscape within which
development inputs
foundations for long-term success.
business is being conducted. As
Supply chain disruptions
‘A sustainability lens presents a Damage to reputation,
new way of looking at forecasts
brand, stock value, or license
and risks’ says UPS CFO Kurt
to operate
Kuehn, who recently spoke on sustainability at CFO Rising East.
Unilever CEO Paul Polman recently put it, companies that can get out ahead of these trends will thrive, whereas those that don’t “will be dinosaurs — outdated, outmoded and out-of-business.”
Future exposures and losses related to stranded assets.
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managing tsunamis of data in finance by daniel miller
Big Data and analytics are now
head of finance channel
part of every finance function in the world, and in future they will have an impact on the implementation of every new system that is introduced.
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10
MANAGING TSUNAMIS OF DATA IN FINANCE
a system in “having place that allows
the department to make quick changes without affecting the stability and performance of the department is key.
�
This impact could be anything
allowing the finance department
from the thoroughness and
to be flexible.
speed with which audits can be undertaken, through to how investments and risk are assessed.
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allows the department to make quick changes without affecting
Over the coming years finance
the stability and performance of
departments are likely to become
itself is integral. This essentially
more directly involved with Big
changes the way the finance
Data as the merits of its use
division works, and acts as a
become more relevant to those
catalyst for the success of a data
working in the finance division.
programme.
So what do companies and finance
For this to work effectively there
divisions need to do in order
also needs to be an understanding
to prepare themselves for this
of data from those within the
transition?
department.
Firstly, and most importantly, it is
The finance team is generally
vital to remember that data itself
working in the area because
changes nothing. Data allows
they have an effective grasp on
people to see what has happened,
numbers, which many believe puts
what is happening, and what could
them in a strong position when
happen. The key to making sure
dealing with data.
that this has an impact is by
I N N OVAT I O N
Having a system in place that
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MANAGING TSUNAMIS OF DATA IN FINANCE
However, when dealing with
In order for the data to work
millions of data points and entries,
properly for you, in any discipline,
much of the analysis will be
the most important aspect is
through the use of visualizations,
asking it the right questions.
something that needs additional
To find out which questions
understanding and almost an
are the best is not a case of
entirely new mindset. This needs
knowing exactly what needs to
to be taught and understood by
be asked first time, but instead
each member of the finance team
to experiment until the correct
in order to make the most of the
question is being asked in the
data available.
correct way.
Finance tends to be a very
Ultimately, Big Data will herald
structured discipline. This is simply
a huge change in the way that
because the ultimate goal is
finance departments work and it
accuracy, meaning that processes
could become one of the most
and actions need to be established
important ways in which data is
and understood in order for them
used in the next few years. How
to work properly. Big Data requires
companies and divisions react to
the opposite, the idea of it being to
this is going to be vital to making
find out new processes and ideas.
sure that it is a success in the long run.
dealing “when with millions of
data points and entries, much of the analysis will be through the use of visualizations, something that needs additional understanding and almost an an entirely new mindset.
�
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integrating data science into the finance function by james ovenden managing editor
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INTEGRATING DATA SCIENCE INTO THE FINANCE FUNCTION
Big Data is now more than just hype. The companies who have fully implemented it and are making decisions based on their
Continuous Forecasting
data are now the ones making the biggest moves in the markets. There are opportunities for the use of Big Data and Analytics across the entire enterprise, but none more so than in the finance function.
Rolling forecasts are not a new idea, they are something that most will have heard of and the majority of progressive companies have already implemented. This allows
Yet many companies have not fully
them to change their forecasts
implemented this, meaning that it
within certain timeframes.
is yet to reach its full potential in the division.
With the use of Big Data, it becomes possible to create
One of the main reasons that
continuous forecasting. This
finance would benefit so much
means that rather than adapting
from Big Data is that the finance
a forecast for the next 6 months
function works across the entirety
based on data from the last 3
of the organization, so the data
months, the forecasts can be
that can be pulled to assist with
made with data as it is coming in.
the finance team can come from multiple areas.
The power that many Big Data forecasting technologies have
The question is, what kind of
allows this real time analysis to
benefits can Big Data give
take place. Where rolling forecasts
to finance?
could take weeks to create, these can be done in seconds using effective algorithms and powerful systems. The benefits of this are obvious. Rather than being hit by a sudden warning of what could be coming, it allows companies to see in real time what is happening, then adjust accordingly to either avoid problems or maximize opportunities.
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I N N OVAT I O N
INTEGRATING DATA SCIENCE INTO THE FINANCE FUNCTION
Better Investment Decisions
Well Rounded Skill Set
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In addition to creating opportunities for finance departments, it also means that those working within it are required to have a more rounded set of skills, rather than
Enriched Reports
the traditional finance centric requirements. If we have learnt one thing from the financial crash over the last 8 years, it is that investments need to be made on solid grounding.
At the moment many financial reports work purely with numbers. This could be ‘the sales team are selling well this quarter’ or ‘our outlay is similar to previous years‚‘ It does not take into account the ‘why’ behind these trends. With the deeper insight that having terabytes of data brings, it is possible to not only see what is happening, but why.
They need to be looked at in detail to make sure they are what they seem. Companies like Enron and schemes like Bernie Madoff’s have shown that in depth data is key to being able to make correct decisions on investments. Big Data has allowed companies to dig deeper and take a more holistic view of all aspects of an investment. From the way they are discussed on social media, to the
This means reports with far more
accuracy of their forecasts, it can
insight that give considerably
all be incorporated through the
more information to those who
use of data mining, allowing for
need it. It is far more useful for
better investments with less risk.
companies to see why something
Therefore, not only are they required to have the usual basic accountancy skills, but they also need to be able to analyze data and associate it with other areas of the company. This translates to knowing more about the company as a whole and having more flexible skills that can translate across various parts of the business. It is this element that will cause the biggest changes within finance departments, as those working within them will need to adapt their skills accordingly, and when looking for new recruits it will be important to look for these kinds of skills as much as the traditional ones.
is performing the way it is, then
Overall, we are likely to see big
either change it to improve or
changes when the adoption of Big
adopt a similar approach across
Data within finance departments
other departments.
hits its peak. These will allow finance departments to have a considerably larger impact on the rest of the company, as well as being able to perform better internally.
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four free ways to improve your financial close by emma taylor director, finance events
The end of the month can be hellish for accountants, the end of the year even worse. The reason for this is simply that closing is often one of the most painful and frustrating processes of the year.
Roadmap One of the main facets that people
One of the key elements to closing
become frustrated by is the speed
that people find most frustrating is
of closing, with one element
that it is essentially one long chain
holding up the entire process,
that needs to be followed in order
slowing every other person in the
to get to the end point. Through
team down. It breeds frustration
setting out clearly what should be
and employee discontent.
done and by when, it becomes
There are other ways of making this process quicker than those outlined below, although these
clear where the process is being clogged and could do with an improvement.
are the ones that will ultimately
Equally, speeding up the process
improve your closing process
comes down to improving
without impacting your
existing systems, which are often
bottom line.
deeply ingrained. The roadmap
We’ve outlined four key ways below in which companies can improve their financial close, without excessive spending.
can be created as a baseline to performance that should be built on every month until the time frame is more manageable and less frustrating for all those involved. It will allow for a combined effort to improve and continue improving.
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FOUR FREE WAYS TO IMPROVE YOUR FINANCIAL CLOSE
Make Everything Electronic
Accountability
Establishment Of Key Areas
It is depressing that in 2015 there
Accountability in the process is
are still people who claim that they
a key component to its success.
cannot get a certain document in
Simply put, people will be more
“
electronic form. There are people
inclined to do a better job on their
who are willing to wait for days
part of the close process if they
to receive something through
have responsibility for it.
the post in order to complete an element of the close.
This seems obvious, but with many companies the delegation is often
If anybody says this, it is simply
different each month with different
not true, I can’t think of anything
people sent to do different things
that could realistically not be done
on an as-and-when basis. Having
in electronic form. Unless your
one person responsible for
company deals exclusively with
specific items within the process
the Amish there is no excuse for
will mean that they will both
this to be the case and it will only
become better at it quickly and will
slow down the process, wasting
also do it quicker.
time that you should be using elsewhere.
It also means that with each person knowing the other’s place and role, a dynamic is created
in any process there will be pinch points where it does not work quite as well as it should do. if these can be established within the closing process then it becomes possible to reduce the pressure on these areas and allow others to move quicker.
”
This comes from investigating the timings of what is taking a long time and then establishing how this can be fixed.
where the individual does not
It is not simply a one-time exercise
want to let down the team, further
either, it is something that
increasing the chances of a fast
needs to be undertaken on an
and successful close.
ongoing basis. Once the roadmap discussed earlier is established it becomes easier to identify problem areas and then fix them. In time, this identification will shift from areas that were bad and now good, then to improving all other areas. Through this kind of work it is possible to streamline the closing process and improve the performance of the wider finance team too, without needing to spend thousands on new technologies or systems.
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the finance skills gap
I can go out and find a good accountant, but I’m not looking for that. I’m looking for someone who’s going to fill manager roles in three to five years, somebody who thinks the right way.
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THE FINANCE SKILLS GAP
by aaron fraser
director, finance events
In today’s finance function we
A recent survey from IMA
have some of the most complex
and APQC found the same
technology in the world. We
issues. Although candidates
have algorithms that can predict
who are hired are technically
our P&L 6 months in advance,
capable of the basics needed
identify anomalous transactions,
to be a top quality accountant,
and conduct full year analysis
many lack the leadership and
in seconds.
enterprise knowledge to become
There is little argument that
management.
this has helped the accounting
With the improvements in
profession and the capabilities
technical teaching and simpler
that we all have, but technology
interfaces across the board for
can only go so far in terms of
accounting software, the skills
running a department.
needed to stand out from the
According to multiple reports, we are seeing a considerable gap in the skills that are needed by entry level graduates and the skills present in many who are being hired. The Robert Half ‘2014 Financial Services Salary Guide’,
crowd are leadership and strategic thinking/execution. These are not aspects that are commonly taught in accountancy courses at university, so frequently they are not something that entry level candidates will be familiar with.
found that 99% of the firms they
According to Ben Mulling, the CFO
surveyed reported that hiring
of Tente Casters, ‘I can go out and
skilled financial professionals had
find a good accountant, but I’m
become more challenging.
not looking for that. I’m looking
So why is this?
for someone who’s going to fill manager roles in three to five years, somebody who thinks the
Sandra B. Richtermeyer, Chair of
right way. Nobody’s going to come
the Department of Accountancy in
in with all the skills you want, but
the Williams College of Business at
it can be difficult to find a person
Xavier University in Cincinnati, says,
who has the frame of mind to see
‘I get concerned that students do
things from a macro level and take
not receive as much preparation
charge’. These are the people that
for management accounting roles
are difficult to find in the current
inside organizations, where they
job market’.
will be working in functionally specific accounting and finance positions where they need an enterprise-wide lens’..
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THE FINANCE SKILLS GAP
the moment, a lack of information “at from companies is forcing educational
establishments to teach based on assumptions as to what companies want, rather than the realities of what companies actually need.
�
There are numerous consequences of these recruitment challenges, from higher spending - on both the hiring process and in job training - to lower productivity and a drop in the quality of work produced. The ramifications for the economy as a whole are also potentially severe, with the financial sector a major driving force behind many economies. There are a number of changes required to rectify this situation, the first of which being that educational institutions must know what to teach their students so that they enter full employment with the adequate preparation. For this to happen, companies have to share the skills and knowledge they require. At the moment, a lack of information from companies is forcing educational establishments to teach based on assumptions as to what companies want, rather than the realities of what companies actually need. So the best best way to bridge this gap? Transparency and a willingness from educators to adopt new teaching areas.
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