Given the significant role of financial analytics in modern business operations, it’s important for companies to have the right tools, skills, and strategies in place to enable their workforce to leverage 100% of their financial data sources and drive better outcomes. With that said, let’s dive into financial analytics and its importance.
What is financial analytics?
Financial Analytics is the smarter use of data and AI to transform the people, processes, and technology used in finance departments, enabling organizations to process and analyze large volumes of financial data in real-time and providing more accurate and actionable insights.
Well-known analytical techniques including descriptive analytics, predictive analytics, and even prescriptive analytics can be deployed to help inform and guide finance team members (from analysts to accountants, controllers to the CFO themselves) to make data-informed business decisions that can directly affect a company’s bottom line.
With financial analytics solutions, teams can streamline and improve the consolidation process by standardizing their data, improving accuracy and consistency between data sources and aiming for real-time access to data from across their corporate structure.
Therefore, consolidation becomes a continuous process rather than a time-intensive effort at the end of a financial period.
Financial analytics vs financial analysis
Financial analysis has been the cornerstone of the finance department’s strategic outlook for decades, ensuring that financial data such as statements and reports are reviewed and interpreted using commonly-defined ratios, accounting principles and metrics to assess a company’s financial health and performance.
On the other hand, financial analytics is the process of using technology and advanced statistical methods to analyze and model financial data sources to describe what’s happening in a business, to identify patterns, relationships and insights that can drive decision-making.
Financial analytics employs modern tools and techniques to analyze large volumes of complex business data and create reports, visualizations and dashboards that provide insights into performance, key risks and potential opportunities for the business.
The importance of financial analytics
With the increasing availability and growing volume of financial data, the use of advanced analytics techniques and technology has become more important than ever before.
Financial analytics is a cross-industry discipline that spans finance departments in banking, insurance, healthcare, retail, manufacturing and many more, providing a quantitative means to improve financial planning and forecasting, risk management and operational efficiency.
Financial Planning & Analysis (FP&A) teams are leading the adoption of analytics tools in their department in order to develop more accurate financial models for budgeting, forecasting and scenario planning.
By analyzing prior financial performance, FP&A teams can create models that take into account changing market conditions, business growth and other factors to generate reliable financial forecasts to guide the business.
Financial analytics can help controllers and accountants manage costs and improve operational efficiency. Often buried deep in the records of general ledgers, analytics technology can identify cost drivers, monitor spending patterns and optimize resource allocation to help reduce costs and improve profitability.
Analytics can be used to significantly improve many of the common, repetitive tasks associated with accounting procedures, especially around the steps needed to close the books every period.
Whether it’s creating automated journal entries for recurring transactions to speed up the close process and reduce errors, providing accurate account reconciliations to highlight any discrepancies or providing real-time access to fresh transactional data to reduce the time and effort needed to identify issues, financial analytics can help finance teams to close the books faster, and free up resources to focus on other strategic initiatives.
In addition to forecasting and closing the books, financial analytics plays a critical role in the process of consolidation, which involves combining the financial results of multiple business units, entities or subsidiaries into a single set of financial statements for reporting and audit purposes.
With data firmly at the heart of every finance process and a core competency in every finance role, the importance of financial analytics has reached an all-time high. A study by Deloitte showed that 49% of those surveyed asserted that the greatest benefit of using analytics is that it’s the key factor in better business decision-making.
Financial analytics tools
Financial analytics platforms have become an essential part of any modern finance department. Augmenting rather than replacing the use of the humble spreadsheet, these tools help finance professionals to analyze data in real-time, track key performance indicators and collaborate with colleagues to make better data-informed decisions.
Some of the most popular tools are those that are often bundled with corporate financial platforms, so that financial analytics is available directly alongside accounting or operational activities such as payables, receivables or ledger management.
Oracle Financials Cloud
Oracle’s financial analytics platform ties together their Enterprise Resource Planning (ERP) solution with financial analytics, reporting and compliance management. Behind the scenes, data pipelines extract data from the transactional system and transform it into analytics-ready formats for consumption in Oracle’s Analytics Cloud (OAC) for reporting and analysis.
Similarly, for the popular SAP platform comes another unified financial analytics solution that offers real-time data and reporting tools that gives finance teams a complete view of an organization’s financial performance, sourced directly from the SAP system.
Workday Financial Management & Adaptive Planning
Workday Financial Management aims to streamline financial processes and improve financial performance. Working in tandem with Workday’s Adaptive Planning cloud-based Enterprise Performance Management (EPM) suite, it offers finance teams powerful budgeting, forecasting and scenario planning capabilities alongside more traditional reporting and dashboarding to cover a wider range of use-cases in the office of finance.
Another platform with a wide range of financial analytics capabilities is OneStream, offering analytics functionality for financial close, consolidation, planning, reporting and analysis. Designed as a modern EPM suite that aims to streamline the processing of finance data from multiple sources into a unified application and shift the workload from data administration to value-added analysis.
Power BI & Tableau
As the power of the spreadsheet slowly diminishes due to limitations in scalability, auditability and the growing need for better financial process controls, finance teams have embraced the power of leading BI & Analytics tools to deliver financial analytics through dynamic dashboards and reports that can provide insights into key financial metrics.
Both Tableau and PowerBI allow finance teams to connect to a wide range of data sources, including spreadsheets, databases and cloud-based platforms and aim to make it easier to analyze, report and share findings with stakeholders across the organization.
BlackLine positions itself as a modern accounting platform, with strong investment in financial analytics around the close management process, the accounts receivable process and managing the complex relationships between the financial books in larger, multi-entity organizations.
Incorta delivers AI-driven financial analytics solutions that work in real-time with 100% of enterprise data sources and is used by organizations to migrate legacy finance systems to the cloud with strong integration to leading cloud platforms, line-of-business applications and BI platforms (including all the vendors mentioned above).
With high-performance, extensible solutions including Order to Cash, Procure to Pay and General Ledger analytics embedded in the platform, Incorta offers finance analysts the ability to drill confidently through to their most detailed insights without the costs and runtime overhead associated with traditional data management projects.
Interested in learning more about financial analytics with Incorta? Watch this video on how to use Blackline with Incorta.
Financial analytics has become an essential capability for modern finance teams across a wide range of industries. With the growing volume and complexity of financial data now within reach of analysis, organizations need to invest in modern tools and techniques to gain a complete view of their financial performance without compromising on data access or availability.
The choice of financial analytics platforms is broad, with many vendors offering solutions designed to integrate with existing financial systems and enterprise applications.
Organizations must balance their needs for general purpose reporting and dashboarding alongside real-time access to 100% of their data sources, powerful self-service capabilities that don’t overburden IT teams with requests and a depth of pre-built financial analytics solutions that streamline key processes such as financial close, planning and budgeting or consolidation.
With a strong financial analytics strategy in place, finance teams can gain the insights they need to make better decisions that improve the bottom line, streamline operational efficiency and drive better business outcomes.