Financial Analytics: 5 Targeted Advantages for CFOs & Finance Teams

Financial Analytics is a specific class of business intelligence that empowers CFOs and finance professionals with the tools to gain the most possible value and insight from their financial data. In this article, we’ll discuss what is entailed in using data analytics in finance, explore its advantages, how it works, and its increasing role in financial management.

First, What is Financial Analytics?

Financial Analytics is the collection, optimization and visualization of financial data to answer business questions, track KPIs and variances, and gain insight from the data to help in decision-making.  CFOs use financial business intelligence to view historical as well as predictive reports, solve operations issues and make well-founded decisions for managing their companies.  Most companies use one or more software packages or web-based platforms to leverage data analytics in finance.

5 Advantages of Financial Analytics

Analytics offers a vast improvement over typical enterprise systems by using your data to improve visibility into the company’s financial position and operations.  Enterprise systems and even accounting-specific software typically have built-in reporting features but are not designed to be analytics systems that provide fast, actionable insight.  Financial analytics provides several advantages to CFOs and their teams:

1. Reporting and Planning – Customizable reports can provide highly specific metrics, calculated exactly how you decide.  Enterprise system reporting tools are generally limited in terms of scope, export format, ease of use and other restrictions like size.  A strong financial analytics platform can present precise information from your data using multiple visual graph options to provide more useful reporting.
2. Predictive Modeling – Financial analytics is not limited to historical reporting.  Predictive modeling of future events can help the CFO make decisions based on how sales, operations and other parts of the business are projected to perform.
3. Automation – A typical feature of analytics platforms is the benefit of automated reports.  Static historical reports quickly become outdated and require manual rework to update.  Analytics platforms typically provide simple dashboarding tools for data visualizations that can update automatically on a schedule.  This adds time and flexibility back to accounting and finance operations and allows CFOs to view KPIs, understand trends, and make decisions based on up-to-date data at any time.
4. Big Data – Analytics distills large data models into clean, concise visual charts.  This makes it possible to look at a summary of millions of transactions in a graph, or detail lines grouped by timeframe, department or product.  A CFO could also start with a trend report or pie chart, then drill down further into the data to see the detail driving the KPI or trend.
5. Controlled Access – Sharing reports from an enterprise system often involves downloading the file and finding your own method of sharing that is secure and confidential.  Analytics platforms can be set up to allow certain users or user groups access to the data they need.  Often the users view it directly by logging into the platform, but can only see the exact data they are given permissions for.

How Does it Work?

Financial analytics begins with the goal of using the data from your various systems and databases to build analytics tools that provide a holistic view of the health and progress of the business.  This process starts with connecting your existing systems and/or databases to one data warehouse.  The information from each source will look different and require a stage of normalization, cleaning and optimization to support the analytics tools.  Some of these steps may require the help of a professional IT or analyst to navigate efficiently.

Once the data is ready, the best place to start is with a list of business questions, KPIs and tools that would have the greatest impact on your operations and decision-making.  Some common questions are:

1. What KPIs do you need regularly available in order to monitor important facets of the business?
2. What information would be the most impactful to the CFO or finance department if they were available and updated at all times?
3. What reports do we regularly spend time recreating on a monthly or weekly basis which we could replace with an automated visual chart?

As you build the tools and visuals, they can be organized into dashboards and reports that display them neatly, with built-in interactivity like filtering, drill-downs and “what-if” analysis.  These visual tools provide an ongoing view of the health of the business, changes to its financial position, and important KPIs.

How Would a CFO Best Use Analytics?

CFOs need financial data visualized in a number of ways.  The use of data analytics in finance supports the following and more:

• Financial Statements – Balance Sheets, Income Statements, and Cash Flow Statements can all be created with financial analytics tools.  Many platforms will allow for intuitive drill-downs to view the detail as well, so you would not need to run a separate report to see what entries make up the figures in the statements.
• Supporting Reports – Other reports like Accounts Receivable Aging, Forecasted Cash Flow and Budgets can all be created, maintained and made interactive.  A strong analytics platform would automate the reporting process and keep it up to date based on a schedule you choose.
• Period Over Period – Financial statement totals, turnover by department, and costs by department are all examples of what a CFO needs access to on a period over period basis.  Customizable reports make it a simple task to create these once and reference the updated version from that point forward.
• Forecasting – Part of predictive analytics is forecasting important measurements like cash flow or costs.  Budgets or forecasts can be added to a dataset for visualization and comparison to actuals.
• KPI Tracking – Metrics on cash levels, staff, revenue, costs, collections, and many other facets of the business are crucial to track and maintain.  While tracking twenty metrics at once would be difficult directly from an enterprise system, analytics makes it simple to calculate them once and collect them in a single place for viewing at any time.
• What-If Analysis – Introducing variables into the calculations allows for live “what-if” analysis by adjusting parts of the data or calculation.  This allows the CFO to view the exact impact of theoretical changes like an increase to pricing, adding staff or purchasing materials from another supplier.
• Alerts – Some analytics platforms allow for automated alerts that notify you by phone, e-mail or text when a specific metric or KPI crosses a threshold that you define.  These are invaluable in ensuring you are made aware of issues before they can grow into costly ones.
• Accounting Analytics – Modern accounting analytics tools provide CFOs with real-time insights and streamlined processes.

How Important is Data Analytics in Finance?

The abundance of data being generated by businesses and the competitive advantage of those who leverage that data make analytics a crucial element of a finance professional’s strategic toolkit.  It allows for more specific insights, faster and with less ongoing work than traditional enterprise system or spreadsheet-based reporting.  With features like predictive modeling and dashboard interaction, the competitive difference between these two grows even further.

Choosing the Right Financial Analytics Tools

Before diving into the specifics of individual financial analytics tools, it’s crucial to understand the selection process.

Selecting the right tool depends on various factors, including the specific needs of your finance team, the size of your organization, the complexity of your financial data, and the level of analytics maturity within your company. A well-chosen tool should not only integrate seamlessly with your existing systems but also scale with your business as it grows. It should offer intuitive interfaces for users of all technical levels, ensuring that insights are accessible to decision-makers without a deep background in data analysis. Furthermore, considering the security and compliance requirements unique to financial data is essential.

With these considerations in mind, here are three financial analytics tools we recommend:

• Domo is a powerful cloud-based data analytics platform with an excellent easy-to-use interface that can still support advanced features like machine learning.  It has flexible data governance options and allows for easy access on mobile devices.
• Power BI is cost-effective and widely used, and integrates cleanly with a Microsoft ecosystem.
• Tableau is another cost-effective option with strong visual options and mobile-friendly interface.

At Graphable, we have a data analytics consulting team who can guide you through intricacies like comparison of Domo vs Power BI and gain much better insight from your reporting solutions.

See also our article on Organizational Analytics that discuses the importance of your companies underlying data infrastructure.