How Will Technology Disrupt FP&A This Decade?
There’s no question that modern technology is disrupting industries across the board. We’ve been living in a digital revolution for the last few decades, and the recent pandemic served as a catalyst for enhanced technological innovation and disruption.
For instance, a recent survey from McKinsey found that companies have accelerated the digitization of interactions by four years, internally within organizations and between customers and vendors through their supply chains. On top of that, these companies revealed that their portfolio share of digital or digitally-enabled products sped up by seven years.
So, what do all these technological and digital disruptions mean for those of us in the finance services sectors or in finance functions, especially those in FP&A?
Let’s dig in to see how technology will reframe our industry over the next few years, primarily in the form of artificial intelligence (AI) and machine learning (ML).
The Rise of the Machines (Sort of)
When people hear “artificial intelligence” or “machine learning,” they often think of characters from sci-fi books and films. However, today’s AI is less threatening (and exciting) than the Terminator or Robocop.
That doesn’t mean AI isn’t disruptive, however. On the contrary, AI will alter how FP&A professionals do their jobs completely. The jobs won’t disappear – instead, they will be redefined and reshuffled.
AI in FP&A
The most significant use case for adopting AI in FP&A is routine data reporting and core analysis.
Today’s FP&A teams are moving further away from a traditional reliance on spreadsheets (i.e. Excel and Google Sheets) for planning and analytics. A recent survey from IBM found that 58 percent of companies still rely on spreadsheets for planning and budgeting purposes, yet 41 percent know that Excel is incapable of handling their large datasets. It’s just too manual for significant scale and too bottlenecked by data volume restrictions.
That’s because, when it was developed, Excel was never intended to serve as a data analysis tool. So, companies that need more data handling capabilities than what Excel can offer are becoming more interested in how AI and ML can help.
Because spreadsheets were never that great for achieving planning and analytics objectives, the move away from spreadsheets is creating many opportunities and much excitement for FP&A teams. It’s highly unlikely that Excel and Google Sheets will ever disappear, because they’re outstanding organizational tools and serve a vital role for ad-hoc analysis and dynamic modeling. However, it’s unlikely they’ll ever be fully capable of processing and analyzing large data sets the way that robotic process automation and AI can.
How AI and ML Tools Benefit FP&A Teams
Here are some exciting ways AI and ML tools enable FP&A to perform duties with increased accuracy and efficiency.
Create a more agile environment
Companies that could recalibrate quickly during the pandemic were more likely to survive and thrive than those that didn’t have systems in place to make fast changes. AI tools can give FP&A teams immediate access to data that can be used to drive organizational changes in a short period of time. Because AI synthesizes large amounts of data, historically aggregated, AI-enhanced decision-making can be leveraged quickly with a high degree of tangible support.
Get rid of siloes with centralized information
One challenge with using spreadsheets is they’re difficult to maintain while concurrently keeping track of different versions and disparate data. One team might be working from an older version of a spreadsheet, which means any modeling they do will soon be inaccurate and out-of-date. The challenge with version control is a common frustration among FP&A teams, as it can lead to a significant slowdown in productivity at best, and erroneous work product at worst.
AI tools often require the establishment of a centralized database warehouse that ensures everyone in an organization has access to the most updated information at all times. Working from a single database, or source-of-truth, allows teams to improve collaboration and significantly reduces the chances of redundant work occurring. Additionally, it increases transparency across the organization and enables all stakeholders to have instant access to the same company financial data. There are no questions about which datasets are correct and which are unreliable.
Improve data and reporting accuracy
Spreadsheet work encourages a heightened degree of human oversight and this can be seen as a positive or negative. Anything done manually is prone to human error – in other words, more touches likely mean more critical review is taking place, but it also means that more data updates, missed formulas, and version control issues need to be monitored. By transitioning to AI tools, FP&A teams increase the automation of updates and accuracy of their data, which can significantly improve their planning and analysis.
Enhance forecasting
A primary benefit of AI and ML tools is that they can process enormous amounts of data faster than humans can, literally as fast as the speed of light. This speed gives the human users quicker access to data that can be used for predictive analytics. FP&A teams, then, can use AI to evaluate trends and patterns with greater accuracy, leading to more informed forecasting that can directly impact the company’s top and bottom lines. To achieve this degree of capability, it’s imperative that companies take the first steps in collecting, harvesting, and organizing data so it can eventually be relied upon for this purpose.
More time for planning and analysis
Analyzing data is a primary responsibility of FP&A. Yet, how often do FP&A teams find themselves spending the better part of their day tracking down data and manually entering it into a spreadsheet? According to The Association for Financial Professionals (AFP), survey participants suggested this may be close to 50%.
