Profitability analytics should not only tell a story on financial performance, but provide users credible information to write the next chapter.
With the release of my new book Actionable Profitability Analytics, I have had many conversations with thought leaders and professionals discussing the use of analytics to generate more profitable business behaviors. In each of these conversations a common question is asked; “What are actionable analytics?”. My first response is usually to read the first chapter of the book. But to simplify, I did this whiteboard Wednesday video to illustrate the different types of analytics, their purpose, information value, and intended action.
A recent Gartner report found that only 18% of business decision makers believe their company’s performance data is decision ready, worse yet is only 22% of finance leaders believed it either.
Finance functions are facing a credibility problem with business leaders in their organizations. Large complex companies are composed of many departments and divisions that deal with a dizzying array of products and services sold across multiple channels to a variety of customer segments. Precisely calculating the profitability across all of these data dimensions is a challenge, and deploying these analytics in a manner that drives more profitable behaviors can be overwhelming. But, the effort is top of mind for CFO’s wanting to provide more expansive performance reporting than just the corporate income statement, and their stakeholders have an insatiable appetite for insights that help them improve the profitability of their businesses.
Aggregated financial reporting, such as the income statement at the company level, only tells the story of what happened. Those reports only provide an evaluation of performance of the current business model. The mysteries of why it happened are buried deep within that data. Business leaders want the answers to vexing questions such as: Who are our most and least profitable customers? What lines of business should we focus onto remain competitive? What business lines should we exit? What products and services require re-pricing to account for increased costs? How do we better manage the primary levers of profitable growth?. The rear view mirror of past performance reporting is failing to provide them with insights into the economics of their business in order to improve the future business model.
The arduousness of undertaking these types of finance analytics initiatives is not easily evident. Slick presentations of ‘silver bullet’ analytics applications, ‘eye candy’ charts and visualizations, are usually a company’s first introduction to the field. But the hard challenging work goes far deeper than the implementation of any technology application. Success requires a collaboration from across all stakeholders in defining how methodology, data, and technology will come together to provide Actionable Profitability Analytics throughout the organization. Failure is a likely outcome for the under-prepared and under-informed. But with only 1 in 5 business leaders believing their current performance reporting is decision ready, the biggest failure would be a ‘failure to launch’, because the strategic demand for better analytics from finance is undeniable.
Armada’s 2020 release of Acumen Cost Analytics has several new features for visualizing Cost Fact data from the modeling application. With the cost decomposition tree visualization, users can now navigate and analyze the source of costs from anywhere in the model with complete transparency and traceability back to the source center and GL expense account.
See the new feature in action here – Cost Decomposition Tree video