November 17, 2015 | Written by: Tom Fisher
In my previous posting, Cognitive Ready Finance: Practical Actions and Insights for CFOs, I talked briefly about the unprecedented increases in demand, volume, complexity and diversity of data that is beginning to impact CFOs in the advent of the Cognitive Era.
The impact on CFOs and the Finance function is significant. Many finance functions struggle under current demands for reporting and analytical insight, and the Cognitive Era will increase those demands as shown on the table below.
In my previous posting, I looked at the first two Finance imperatives (Transactional and Architecture) CFOs need to consider when preparing for the challenges presented by cognitive finance.
Let’s dive deeper into the final three imperatives: Analytical, Risk, and Opportunity:
3. Analytical Imperatives: Unlock the Value of FP&A: Rather than being a prisoner to data, Finance must use and curate data to help drive business innovation and growth. Many Finance organizations marginalize the value of FP&A by relegating it to data gathering, compiling, reconciling and formatting. These are not the highest and best use of high cost talent. Unlock this talent by investing in common certified data sources and predictive analytical tools that enable FP&A to anticipate events, not just report. For example, leading retailers organizations leverage non-traditional information such as social media sentiment and weather forecasts to optimize inventory stock levels at an SKU level.
Finally, align FP&A to the business so Finance develops the business relationships and acumen needed to understand the business model and key business drivers. This contextual understanding will help Finance sort through growing volumes of structured/unstructured data to discern what’s relevant…and what is simply noise.
Don’t approach analytical transformation from an overall enterprise level – rather, pick a well-defined, high-impact business challenge and solve it quickly. Communicate results widely to build demand for advanced analytics.
4. Risk Imperatives: Rethink Approaches to Security and Risk: Who would anticipate that a building’s HVAC control system could pose an enterprise-wide data security vulnerability? You will recall that is what happened to Target last year. Welcome to the new digital reality. A digital world means connection, and connection can create unforeseen risks from a variety of places, particularly with growth in mobile, social media and the Internet of Things. Not only does this pose security challenges, but enterprise level risk challenges.
Smart CFOs mitigate this risk through strategic investments in enabling risk technologies such as CCAR, Fraud/Waste Detection & Prevention, Commodity/Energy Trading & Risk Management, and Risk Data Aggregation. There is simply too much data for Finance to be successful with outmoded approaches to risk management. Investments must be made to model risk profiles and systemically analyze data to identify deviations for subsequent follow-up.
With growth in data sources and volumes, manual and detective forms of risk management and fraud prevention will fail. New strategies for systemic and preventative risk management and fraud prevention are needed.
5. Seize Opportunities for Transformation: Corporate investment in finance remains low, so recognize and take advantage of all transformative opportunities. For example, IFRS 15 is a regulatory mandate that by 2018 will fundamentally change the way contractual revenues are calculated and presented. Rather that treating these disruptive regulatory events as a pure compliance requirement, see them as opportunities to transform and to redefine financial reporting and managerial finance processes, technologies and organizations and elevate Finance effectiveness. The incremental investment needed to transform (versus comply) is not as large as you might think.
Global CFOs frequently ask for IBM’s perspective on Cognitive Finance. And truthfully, the pace of change means there’s “no app for that” – no single answer. Rather, CFOs should continue to invest in the foundational enablers and capabilities that will enable them to adapt to a fast paced digital and cognitive world…whatever it may bring.
If you’d like to learn more about how IBM is helping Finance functions around the globe better prepare for the challenges of a cognitive world, please contact me at firstname.lastname@example.org.