In today’s complex world, one of the most challenging functions in corporate world is that of a Finance Manager. He operates on a global scale, is faced with challenges both from within the company & outside and he handles a plethora of functions involving critical decision making, which can be very broadly classified as follows:
Any decision making involves identifying different alternatives, obtaining relevant information about each alternative, assessing the alternatives in the light of this information and arriving at the Best possible choice.
This is easily said than done, as the information involves structured information available readily in-house and unstructured information including from external sources.
With the advances in technology, better tools are now available that can ease the life of a Finance Manager to a significant extent. These tools – Business Intelligence Tools as they are called, can pick up data from a structured source like a database, unstructured source like a text file or a spreadsheet. It can be made to organize, arrange & filter data on some specified criteria and present the information in a context relevant to the subject.
Thus the data can be transformed in a manner by which it can be subjected to financial analysis. For example,
- To see Month wise or month wise cumulated trends of :
- A variable like say, Sales
- Budgeted v/s Actual Expenses, Targeted v/s actual sales, Standard v/s Actual Raw Material Consumption
- Growth in the Current year over last year
- Division A v/s Division B or Product Line A v/s Product Line B
- Cost of Sales v/s Sales Turnover, Outstanding Debtors v/s Credit Sales
- & so on.
Such data can be made available from an ERP Product also but BI can be programmed to offer the additional features as mentioned below:
- The information is made available in the form of charts to enable a quick grasp, besides a tabular form
- BI Tools provide for a “Drill Down” facility by which you can go to the details of underlying transactions
- With such tools, simulation is also possible. The most frequently used “What-If” Analysis is made available through simulation, wherein you can change the values of a variable and assess its impact on the trends / results.
- Even “Data Mining” features are now being offered to understand and discover Patterns and Behaviors across the data for a much longer period, which is impossible to observe in a normal course.
- Much higher levels of complex queries can be built up that offer setting up rule based query agents that automatically scan the data periodically and present the results.
- This can also be designed to present only exceptional information. In this way, intelligence is built into the software.
For example, in a pharmaceutical company, if a sudden surge is noticed in the consumption of a critical raw material, the system can catch and highlight it so that you can further investigate – whether it is due to any equipment malfunctioning, operator’s error, bad quality of raw material or some other reason ?
Such tools can be immensely useful for short and long term decision making like:
- Operational Planning : Cash Forecasting
- Performance Planning and Monitoring
- Pricing, Contribution Analysis & Profitability forecasting
- Retain v/s distribute profit
- Make or outsource a product
- Repair or replace an equipment based upon maintenance history
- Capital Financing Decisions – Buy or lease, Finance from internal sources or borrow from external sources
- Sourcing and slicing of borrowings
Besides Performance Monitoring, it also enables pinpointing deficiency in performance and initiating timely remedial action. Thus as there are a wide variety of problems confronting a Finance Manager, a good BI Tool can offer an equally wide variety of solutions that work comprehensively and effectively.