Finance AI

Finding the Right Focus - Finance Analytics to the Power of Ten

by Uri Kogan July 14, 2021

Charles and Ray Eames’ documentary, Powers of Ten, is one of the most famous short films ever made and illustrates beautifully the importance of identifying the correct scale when viewing something. The film starts by showing a lakeside picnic, then rises away to show the scale of the galaxy’s outer edges, and finally zooms back in, to the molecular level of a blood cell. Each view provides different lenses on the same, single scene and delivers unique perspectives on each layer of the environment. 

What can modern finance teams take away from thinking about the power of ten? Let’s apply this approach to explore the importance of the correct scale, specifically concerning data, reporting, and analytics. Should CFOs be focused at a molecular level on invoice processes, for example, or take a wide-angle “universe” perspective? Is there value in operators solely looking at their task lists, or should they be concerned with how these impact the broader business function? 

To answer these questions, we first need to choose our starting point, our first scale. And what better place to begin than at the center of the finance department — with the CFO.

The CFO View

In simpler times, the role of the CFO was relatively straightforward. Organizations expected their finance leader to provide regular and accurate management reports, own the overall financial control and compliance operations, and manage investor relations. But over recent years, the role of the CFO has grown substantially.   

Often called the mini-CEO, finance leaders now hold the key to analyzing financial data to challenge the business and contribute significantly to operational decision-making. They are seen as the catalyst for driving business transformation and a vital conduit linking strategic objectives and financial goals.

To deliver against this expanded remit, CFOs need accurate, real-time data and analytics. Gone are the days when we rolled out paper-based reports at the end of the month on reams of continuous-feed paper from dot-matrix printers. Today, digital dashboards containing key performance indicators and other relevant metrics are the essential tool needed by a CFO and are key to the role of analytics in finance. According to PwC, 72% of organizations track between 5 and 20 KPIs across areas such as general company performance, resource allocation, long- and short-term strategic goals, and managerial performance. This can only be done using digital systems. 

Scaling Out Financial Data

The CFO holds the pivotal perspective on corporate financial data and needs accurate, real-time, and accessible data to drive their decision-making process. But as we scale out from the CFO, the perspective changes. Moving outward, we encounter the C-Suite, the board of directors, corporate investors, customers and suppliers, and, finally, the overall market. 

At each of these levels, the information available needs to change — for example, corporate investors will have access to deeper financial insights than a customer, particularly in a private organization. The further we zoom out from the CFO, the more aggregated the data becomes. The table below shows examples of the data that each level requires, the frequency or speed at which they need the data, and the methods typically used to access that insight.

Scale

Data Required

Frequency

Access Methods

CFO

P&L, financial results, margins, receivables, payables, inventory, aged reporting, cash flow, etc.

Instant access

Real-time dashboards, trigger-based alerts, time-based aggregated reports

Board of Directors

Detailed reports for P&L, cash flow, growth, forecasts, etc.

Monthly

Board portals, monthly reports

Investors

Aggregated reports for P&L, cash flow, growth, forecasts, etc.

Quarterly

Quarterly investor update reports

Customers/Suppliers

Account statements and transactions, proof of financial stability during selection

As required

Online portals, periodic reports

Market

Overall financial growth, revenue, staffing, etc.

As required

Press releases, company announcements, regulatory filings

Scale

Data Required

Frequency

Access Methods

CFO

P&L, financial results, margins, receivables, payables, inventory, aged reporting, cash flow, etc.

Instant access

Real-time dashboards, trigger-based alerts, time-based aggregated reports

Board of Directors

Detailed reports for P&L, cash flow, growth, forecasts, etc.

Monthly

Board portals, monthly reports

Investors

Aggregated reports for P&L, cash flow, growth, forecasts, etc.

Quarterly

Quarterly investor update reports

Customers/Suppliers

Account statements and transactions, proof of financial stability during selection

As required

Online portals, periodic reports

Market

Overall financial growth, revenue, staffing, etc.

As required

Press releases, company announcements, regulatory filings

As we move from the CFO to a wider audience, there still remains a need for consistent analytics and reporting built on real-time, accurate, comparative data — albeit sharing less granular data than inside of the business. 

Zooming Into Finance Department Analytics

Most of the finance department – especially the operational part – is not interested in what happens outwards from the CFO. In finance operations, the focus is on their own operational activities, and on providing the CFO with the results and financial data they need to do their job. As we zoom back in, now moving from the CFO inward, we discover more granular viewpoints and perspectives rarely seen outside the finance team itself. 

Departmental and team leaders

Sitting directly adjacent are the finance operations departments, who focus on ensuring the smooth running of their systems, their team’s effectiveness and well-being, and providing the CFO with the results and data they need.

To achieve this, they need specific metrics related to the individual areas and teams that they control: 

  • For Accounts Payable (AP): metrics such as the days to process an invoice, early payment discounts received, and the amount of PO-backed invoices
  • In spend management: the amount of rejected spend, visibility into outstanding risk, and the ability to audit 100% of expense reports
  • Across multiple categories: the identification of duplicate entries (for example, duplicate spend in an invoice and an expense report) and fraudulent activity
  • For resource planning: individual employee productivity, workload, and skillsets

The leaders at this scale need instant access to the data that helps them ensure their team works to optimal levels. They rightly see themselves as a critical part of the finance operation. Yet, despite understanding how they fit into the overall financial strategy, their ability to influence beyond their specific function is often limited. 

Finance operators

Getting the job done is the priority for operators. That means processing invoices, auditing expenses, maintaining clean supplier data, dealing with customer and supplier inquiries, and, most important of all, getting home on time. At this level, people often cannot see why they are performing specific tasks and regularly question the logic delivered by their direct managers. Instead, they focus purely on getting their jobs done as quickly and efficiently as they can. 

Operators honestly don’t care which systems they use, whether a new system includes AI, RPA, or rocket fuel to help them process invoices. More often than not, they don’t want a new system because it changes their routine and will require increased time and effort to learn. This final element is one of the biggest ironies when exploring technology in finance departments. The operators are the ones closest to the systems themselves — they use them every day — yet are often not included in identifying and selecting the best technology to deploy in the department. 

Finance systems

Underpinning an effective finance team is a well-oiled, connected set of systems. From invoice and expense capture tools to supplier portals and ERP systems — applications, solutions, and software of all shapes and sizes exist at this scale. We are now under the skin of the finance department in some regards. These systems provide the channels for data to flow throughout the department and fuel the higher levels of our “power of ten” spectrum. 

Regarding metrics at this level, we need to focus on the operational aspects of the systems themselves. Audit trails, system workloads, and compliance against industry and geographic regulations are all vital measurements that need regular monitoring at the system level. Careful management can deliver the platform for those on the operator level and upwards to thrive. Failure to do so can lead to process bottlenecks, repetitive manual workarounds, and, ultimately, financial costs.  

Finance analytics data

At a microscopic scale within the finance department, we find data — lots of it. Some people in the finance team never get to this level, working at the system level, at best. But within the systems, raw rows and columns of data exist and need regular maintenance. It is challenging to visualize metrics relating to data itself — we get business value from aggregating data, combining it with documents and workflows to create business processes, and work in abstract terms such as profit and cash flow. But there are relevant metrics to be considered, such as the recency, frequency, and volume of data flows. And purely numerical data has implicit values associated with it.

Few people have the skills or need to focus on this level of raw data. Most utilize the systems at the higher level to aggregate, consolidate, transform, interrogate, and visualize data. The microscopic level is not of interest for most regular finance professionals — be aware that it exists, and then head straight back to an appropriate level.    

Financial Data = Powerful Insights

Data on its own can be overwhelming. To a CFO, data is incredibly useful, but only in the appropriate format and shape, and heavily segmented. However, as the lowest level element, much like atoms and cells in biology, without data, nothing can exist. 

Now zoom out to the market and the awareness of how a company is performing to the outside world. Perception at this scale is essential to an organization, as it will drive demand and brand awareness. Ultimately, it largely determines success against corporate goals. This viewpoint is light years above the raw data, yet there is a symbiotic relationship between these two and every other level. Market perception builds on everything underneath it but also directly drives all activity underpinning the levels above. The connection is intrinsic and cannot be broken.

At the epicenter of all of this is the CFO, the pivotal piece in the story. As the focal component in our spectrum, any decision made or action taken by the CFO directly impacts everything above and below. Having the most accurate, most up-to-date, and most accessible financial data, analytics, and insight into your finance team is critical. Even with this invaluable resource, there are no guarantees the CFO will make the right decisions and achieve success. Without the appropriate insight, though, the job gets even more complicated.

To discuss how to provide your organization with the tools to succeed, contact AppZen today.

Uri Kogan

Vice President of Product Marketing