FP&A Board Maturity Model: Best-in-class FP&A and how to get there
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By Antoine Chabert, Product Manager at SAP
In this article I will share the top five lessons I learned:
Predictive Planning is the use of time series forecasting techniques to project the evolution of financial Key Performance Indicators (KPIs) in the future, to forecast how sales or expenses are likely to evolve.
The FP&A Trends 2021 survey “Planning and forecasting in times of high uncertainty” has interesting insights on why predictive planning is important to FP&A organisations nowadays.
Here are three important findings:
Prioritisation of investment in FP&A
11% of the organisations are already using Artificial Intelligence techniques to improve their finance processes. Most finance organisations are still in the early days of the journey and face a unique opportunity to improve the way they conduct business.
Rome was not built in one day
The pharmaceutical company Roche is the perfect example of a finance organisation that successfully implemented predictive planning. It now takes Roche two hours to generate a US$4.2 billion financial forecast. This is an impressive achievement.
Getting there might feel like having to build Notre-Dame de Paris or the Star Wars Death Star in LEGOs from scratch, without any operating instructions.
Roche summarised their mindset during their predictive planning journey as “Dream big, be agile, don’t be afraid to fail”.
Dreaming big consists in finding a burning use case in your organisation that you want to tackle. Being agile is to start with what you have at hand. As an example, not all data is necessarily ready for use on the first day. Focus where you have ready to use data. This will help you evaluate the value that predictive planning brings to the table.
Don’t be afraid to fail. You will learn during the journey.
Rome was not built in one day. Your predictive planning implementation will need time to reach its full potential.
It’s about the data, stupid!
Although this might sound obvious, the prerequisite for a successful predictive planning implementation is quality data.
Challenges can arise here:
Incremental approaches work best here. Find the right areas of use of predictive forecasting. Prove the possible value through initial experimentation. Build on proof-of-concepts, do not build a cathedral.
After completing your initial milestones, you will need to move from experimentation to industrialisation. This will include setting up rock-solid data collection and data management processes.
Reimagine your processes
Ask people what predictive analytics is about – they might mention a crystal ball or sci-fi novels. In practice predictive analytics has nothing to do with black magic or rocket science.
It is a proven and robust technology, based on math, that can bring concrete benefits to finance organisations, when rightly used.
Think about predictive planning projects in two ways.
Think how you can industrialise predictive planning as part of your budgeting and forecasting processes. Think about the consequences that the introduction of this technology will have for your organisation.
Usefulness trumps accuracy
The famous quote “All models are wrong, but some are useful” attributed to the statistician George E. P. Box says it all. Predictive models approximate the reality of actuals with more or less accuracy.
The goal is not to be perfect; the goal is to be useful. Finance practitioners will typically value a predictive model more when they can use it, when it helps them and when they can understand it.
This is all about balancing the explain ability of the predictive models and their accuracy:
Work in the direction of end-users and select a predictive planning technology that they will trust. Keep in mind that usefulness trumps accuracy.
Power to the people!
Predictive Planning is like cooking – to make a beautiful recipe you need to assemble key ingredients including quality data, proven technology, and a relevant use case.
As the well-known quote says: “a journey of a thousand miles begins with a single step.” I wish success to your predictive planning initiatives.
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