Finance is at the center of increasing technological disruption and innovation.
Emerging financial models powered by technology are putting pressure on Chief Financial Officers to proactively automate processes, adopt advanced analytics, and offer more value-adding financial information to the business.
According to a KPMG report, Finance of the Future, “Technology has been the single biggest change agent in finance. It is creating strategic advantage for those who make the required investment and maximize the opportunities it can bring.
The adoption of technology in finance is becoming a major initiative for forward-looking CFOs. A study by Deloitte in 2018 found that 52.8% of the finance and accounting professionals polled planned to implement digital controllership improvements that leverage on process automation, analytics, and other technologies.Innovations in technology have shifted finance models from manual, time-consuming activities to finance models that enable more value addition. Technology-driven financial models need less effort, consume less time, and are able to quickly respond to business needs.
Organizations that are able to adopt technology to redesign their financial model have a significant competitive advantage. This is because technology enables a financial model with advanced levels of efficiency, accuracy, speed, and agility.
As the leaders of one of the core pillars of business, CFOs must leverage technology to re-engineer their finance models and bring better value and more meaningful insights to their executive teams.
Different technologies will add different values. This article will examine some of the way’s technology is having an impact on finance and how progressive CFO can take advantage of the opportunities they present.
Automation of Financial Processes
Automation involves using technology to improve work by redesigning time-consuming tasks.
Many end-to-end financial processes, such as order-to-cash, record-to-report, and procurement-to-pay, can be automated through capture and workflow automated solutions.
Such automation enables a CFO to fuel the strategic output of the finance function by optimizing the value generated by financial models.
Take, for example, the automation of financial data analysis. Every financial model is based on data sets. Data analysis allows the finance team to work with huge data sets, as well as multiple sets of data.
Automation of financial data analysis gives the CFO the ability to link financial outcomes to business strategy seamlessly. It provides intelligent insights on drivers of financial performance, which assists in making decisions for growth initiatives.
In the section below, we will examine three avenues of automation that are shifting the financial models of progressive organizations.
Robotic Process Automation
In the financial field, automation is usually linked to robotic process automation (RPA).RPA is a software that is programmed to perform high-volume, repeatable, and rules-based tasks. The software can mimic human action and is effective in processes that involve a vast amount of data entry and data manipulation.
The Institute for Robotic Process Automation and Artificial Intelligence defines RPA as “the application of technology that allows employees in a company to configure computer software or a ‘robot’ to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses, and communicating with other digital systems.”
Adoption of RPA improves financial operational efficiency since it performs work faster than the average human. In addition, RPA software can also work non-stop, making it possible for a company to have 24-hour financial processing. RPAs also ensure financial data is accurate by minimizing human error in the financial processes. Not only do RPAs reduce overhead costs, but they can be easily scaled up to accommodate growing business at minimal additional cost.
Cognitive computing refers to systems which are trained to understand, learn, and adapt. They understand natural language and build on the knowledge that is gathered as they execute various processes.
Adoption of cognitive computing can help CFOs to apply machine learning on large volumes of data to gain insights at a much higher speed and efficiency than normal computer-based analysis systems.
Cognitive computing assists predictive insights by enabling finance functions to run forecast scenarios. Such forecasts can assist in determining future revenues, market changes, and risk models. These help to direct efforts to set more realistic, achievable business targets.
Cybersecurity and fraud prevention are two additional areas where cognitive computing has had an impact on finance departments. Through machine learning capabilities, it is possible to detect irregularities and unusual transactions to allow corrective action in good time.
Intelligent Process Automation
One of the key trends in automation has been the use of intelligent process automation (IPA).
According to an article published by Forbes, intelligent process automation is an advanced version of robotic process automation. It is a technology that analyses prior decisions and actions, learns over time, and gets smarter and more intelligent in making decisions.
Mckinsey defines it as a technology that combines fundamental process redesign with robotic process automation and machine learning. IPA removes repetitive, replicable, routine tasks.
A good place where intelligent process automation can be used is period end accounting. Usually, period end close can be a tedious and time-consuming process, especially where it involves different systems. Through IPA, period end accounting processes are automatically included in day-to-day financial work. The result is a much easier and less time-consuming close of financial books.
Financial Modeling Software
A key function of finance is to create financial models that help the business understand the state of financial performance, determine profits, conduct sales planning, and analyze business value.
Financial models use financial data to test scenarios and derive logical conclusions.
It is one of the most value-adding roles in finance.
Traditionally, financial models were done using Excel spreadsheets. Although Excel has the advantage of enabling finance analysts to build a model from scratch, it is very time consuming and prone to errors.
Advanced technology has introduced financial modeling software that provides a quicker and more accurate approach. Financial modeling software is able to handle multiple and extensive data simultaneously. It can create qualitative algorithms and generate predictive simulations that can be used for decision making within the organization.
Laying the Foundation
A technology-driven financial model can seem like a silver bullet that will address several financial challenges. However, with the rapid expansion of innovations, how does one sort through the hype?
Without a proper, well-thought-out approach, a technological investment can be an expensive and time-consuming affair. If not done properly, the business might end up with fragmented financial systems that result in a digital headache.
Below are some powerful approaches that every CFO can use to lay a solid foundation for the successful adoption of technology-driven financial models.
Examine Your Strategy
To develop a value-adding financial model, it is important to make sure it mirrors the overall business strategy. It is important to take into consideration where the business is going in the next ten years and what kind of financial model would best work in tandem with the business strategy.
This helps to align technology, financial model, and business growth strategy. Without this consideration, there is a risk that the technology selected to support the financial model will be a short-term reflection of events as opposed to a long-term reflection of the company strategy.
Gain an Overview
This means looking at the current financial structure and model, the current I.T. infrastructure, and key financial processes, resources and capabilities.
At this point, there is also a need to examine past digital marketing efforts: what worked and what did not work.
The overview will also determine what gaps exist and what needs to be done to fill in those gaps.
The I.T. architecture, together with the business model, will greatly influence the technology selected. Company culture is also a factor in the success of any new model a business plans to establish. Therefore it is important to gain an overview of how people are able to adapt to new practices.
Create a Roadmap
Never implement a technology-enabled model without a clear roadmap.
Adopting a technology-driven financial model should not be based on simply buying the newest, shiniest software. There is a need to have a plan and a roadmap.
A detailed roadmap helps to identify all automation opportunities. It is rooted in looking at any process redesign that needs to be done. This includes the redesign of workflows and organization structure.
It creates a blueprint which guides the necessary actions that will align the desired financial model with the intended technology initiatives. It focuses on where, how, when, and who. A good roadmap should also have the flexibility to allow for any changes based on unpredictable events.
A strong roadmap can easily mean the difference between a successful technology-driven financial model and a failed, disjointed initiative.
Start with Low-Hanging Fruits
Identify which processes would be fast and easy to automate. Where will the business spend the least amount but feel the most impact?
While reviewing this, examine opportunities to integrate and enhance current systems—as opposed to replacing with completely new technologies.
With the constantly changing compliance requirements, any technology adopted must support a compliance-oriented financial model. While thinking of the best digital strategy to adopt, it is critical to keep in mind compliance risks.
Navigating through the I.T. landscape can be confusing. Often, most businesses seek external support to supplement internal resources. Critical decisions, such as whether to buy a custom-built solution or have a specially automated ERP can be easier to make with the advice of a trusted external partner.
The role of the external expert will help take the guesswork out of selecting the best technology for your needs. They will conduct external benchmarks, provide product options, assist in laying out the roadmap, and conduct competitor surveys.
It is a great idea to seek experienced experts to guide you on the journey.
Reinventing Your Financial Model
Automation is here to stay, and it is rapidly transforming the finance world. It is reshaping financial models and creating value-addition opportunities that are fueling performance.
As a CFO, it is important to remember that despite its advantages, adopting a technology-driven financial model does not automatically guarantee success. To maximize ROI, several things must come into play, including reexamining your business strategy, current I.T. infrastructure, people, culture, processes, and regulations.
Forward-looking CFOs need to embrace the I.T. journey as part of reinventing their financial models. There is a need not only to examine the bigger picture but to also go into the finer details.
Working with the right business partner can go a long way in easing the process. At JMARK Business Solutions, we work with clients to assist them in identifying I.T. opportunities that can help drive immediate and future success. With thirty years of industry experience, we deliver I.T. solutions that work.
Contact us or give us a call at 844-44-JMARK.