In the most uncertain of times, CFOs must turn to analytics and AI to shine a light on the way forward

CFOs and the finance organization as a whole have always struggled with fully embracing data, analytics, and AI technologies. Despite being the funnel through which enterprises interact with customers and suppliers, our research still shows a lack of preparedness around data. COVID-19 now provides a burning platform to take the bull by the horns and invest in boosting preparedness around uncertain business environments.

Living with uncertainty is the new normal

The unprecedented spread of COVID-19 has disrupted life as we know it globally, with an untold impact on the lives and livelihoods of entire communities. It also continues to impact businesses in direct and indirect ways, and it is particularly challenging for global enterprises that operate across geographical boundaries.

With almost 180,000 active cases as of today, world health authorities are as yet unclear the path that COVID-19 will take. As we recently noted on our blog, last week provided a clear example of how emotions were guiding the stock market, as panic about manufacturing slowdown, fears of a global recession, and the unknown path COVID-19 will take set in. World leaders are trying to straddle the line between the strict safety measures that would halt spread and not bringing entire economies to a halt. Without clear guidelines, companies are trying to find a balance between keeping their employees safe and not bringing their businesses to a standstill. The World Economic Forum has urged all stakeholders, especially global businesses, to urgently come together to minimize COVID-19’s impact on public health and limit its potential for further disruption to lives and economies around the world.

A worldwide economic slowdown is undoubtedly one of CFOs’ biggest concerns about the impact of COVID-19. As a part of that, a shrinkage in consumer confidence, shareholder value, employee productivity, and overall financial performance are looming possibilities for companies that now need to figure out how to operate in unprecedented ways. Many are already taking drastic but much needed measures including world-wide store closures while covering employee wages. In this scenario, finance leaders need to prepare for multiple scenarios and timelines, and to do justice to that, they need the right data and analytical tools.

Analytics and AI will be a godsend for CFOs trying to build preparedness

Historically, finance organizations have undertaken far more historical analyses. But with the world amidst COVID-19 containment, all things don’t necessarily hold true anymore, which means we need to do new and deeper kinds of analyses and create more forward-looking predictions. The number of variables that impact your business will continue to grow as we find out just how interdependent our economies, borders, supply chains, partners, and customer communities are. AI and analytics can start to help you plan and predict with a foundational base in data, and a feedback loop can layer in iterations based on how things change over the next few months. Augment your traditional financial modeling and strategic planning with different kinds of analytics and AI models to help prepare for critical initiatives, including

• Scenario modeling and what-if analyses to manage risk: These risk-management and prediction tasks need to be at the top of your agenda as you start to assess the risk to the business. The current breed of analytics and AI tools can ingest a vast variety of data signals, including both enterprise data and valuable external data such as macro-economic indicators. We need to go beyond our traditional spreadsheet analyses and model the different levels of ever-changing risk parameters. COVID-19 is imposing unforeseen changes, and you need to be as informed as possible when undertaking scenario modeling.
• Financial planning and analysis: You need to revisit all your budgetary considerations since the pandemic-stricken world no longer operates in the same way as yesterday. Financial planning analysts need to reconsolidate and validate budget and forecast inputs based on the new scenarios, where AI-based tools can be leveraged. New measures of cost analysis will need to be comprehensive to account for changes directly and indirectly associated with coronavirus.
• Decision making to manage liquidity and working capital: Recommendation engines can provide data-backed suggestions for the next best actions. As an extension to the previous points around financial modeling, the CFO’s office needs on-the-ground insights to make decisions that can impact the smooth running of the company.

The need for better data has always been a challenge for CFOs

Thinking of ways to keep businesses running more efficiently, we find that enterprises have been on a long journey of realizing that data is the backbone of the business. Our research has shown that the ability of a company to harness data and analytics is starting to correlate with its overall financial performance. Finance and accounting is one of the most data-rich functions. Everything flows through F&A, and yet we find CFOs still struggling to get insights and visibility. Forget about harnessing insights from unstructured data, even structured data analysis and visibility is a challenge. Thinking of transactional F&A processes, the lack of data integrity is at the heart of why we spend so much time manually fixing and reconciling items to balance and close our books.

Exhibit 1: Continuous planning in finance needs better data and analytics

Q: Why is data management and analytics an important investment for F&A in your organization?

Source: HFS Research, 2020, n=250 enterprise F&A leaders

Finance needs better data and analytics capabilities to make decisions and improve outcomes such as improved working capital, DSO reduction, and smarter receivables management. Our latest study of 250 F&A leaders, conducted in collaboration with Infosys, found that data and analytics is most crucially needed to better undertake continuous planning efforts through quantitative performance dashboards and scorecards (see Exhibit 1).

Comparing the persistent challenges with data against the reality of operating in and post-COVID-19, we can see how this situation might “force the issue.” Finance leaders must address this gap in capabilities and invest to be able to successfully plan around uncertainty.

The Bottom Line: COVID-19 will have a massive impact on business. It has created a burning platform for finance leaders to embrace analytics and AI for the best chance of success in navigating through uncertain business environments.

Having talked about the potential of technology, we also want to stress that ultimately this comes down to people making the right decisions. Finance, now more than ever, needs more creative thinkers to be able to solve some of the new problems we’re facing today. Your “war room” should be staffed with finance leaders that can make informed decisions based on the best available data and analysis, not knee-jerk, short-term measures. What the last few months have shown us is that leadership’s response can make all the difference, and the sooner we adapt to our changing business environment, the better chance we have of success in the long term.