Predictive Finance

Predictive Finance Henner Schliebs, Carsten Hilker May 2013

Past Performance

©  2012 SAP AG. All rights reserved. 2

Finance Excellence: Guidance on, Guiding for the future

Core functions of effective finance organizations include:

§  Reporting of historic financial information AND

§  Guidance on and guiding expected (future) results

source: Association of Accountants and Financial Professionals in Business (IMA): Conceptual Framework for Managerial Costing


The Finance Conundrum: What is the future ?

Plans tell us where we want to go (vision), not where we are heading (direction) Based on the past, what is likely going to happen ? Which factors are correlated with or impact the future ?

Vision (Plan)

Direction (Reality)

Indicators (Trends)

Past Performance


Predictive Analytics: Examine the past. Extrapolate the future

v  Examine current and historical data to make representations about the future

v  Representations close enough to be useful; risk and uncertainty are inherent

v  Encompasses (formal statistical) methods

v  Exploits patterns, trends, variances, and correlations

Terms similar to “prediction “include but are not limited to “estimation”, “approximation”, “projection”, “forecasting”, and “extrapolation”

SAP Predictive Analysis


SAP Predictive Analysis - Analysis and Optimization

Predictive Finance

Analysis

Optimization

What happened ?

Why did it happen ?

What will happen ?

What should happen ?

Com

petit

ive

Adv

anta

ge

Analytics Maturity

Record-to-Report


SAP Predictive Analysis - Finance Use Cases (examples)

Cost, margin and other financial trends §  Time series (Forecasting)

Profitability analysis (A also bought XYZ) §  Associations (Identification)

Optimized performance management §  Classification (Decision Trees)

Proactive detection of financial risks §  Outliers (Anomaly detection)

Late payers - attributes (Receivables) §  Clustering (Segmentation)

Company performance (external factors)

§  Classification (Correlations)

An

al

yz

e

Op

ti

mi

ze


SAP Predictive Analysis - Key Finance process component

SAP Predictive Analysis allows end-to-end SAP coverage for the record-to-act management process. Results of the analysis process step are used to take action (plan, re-plan, or management action outside SAP system)

Record Report Analyze Act

§  SAP Predictive Analysis

§  SAP Net Margin Analysis

§  SAP Business Planning

§  SAP ERP

§  SAP EPM

§  BOBJ BI platform

§  SAP Accelerators

§  SAP ERP foundation

§  SAP Accelerators

Record-to-act management process


Manage Financial Risk

SAP Predictive Analysis - Finance Value Proposition

Optimize business opportunities

Outperform Financial Objectives

�  Reach your business goals faster by turning dormant data into new opportunities

�  Stay agile and gain a competitive edge with efficient forecasting and planning

�  Solve problems before they happen by exposing hidden risks and hazards

Analyst View


Ventana Research: Predictive Analysis

Predictive Analytics Support Human Judgment

Powerful as an assessment tool �  Assess results sooner and with greater certainty

�  Respond faster to actual outcomes

�  Can be applied broadly across the company or to a specific customer, especially effective when businesses are dealing with well-established cyclical patterns

Valuable tools for performance management. �  Automate planning or forecasting and enhance accuracy

�  Set benchmarks to assess performance

�  Generate alerts to accelerate action

http://robertkugel.ventanaresearch.com/2011/06/10/predictive-analytics-support-human-judgment


Ventana Research Focus on potential problems rather than fighting fires

�  … receivables aging process to collect overdue amounts from customers. Why not take this a step further? If analysis shows that a specific customer reliably pays within, say, 28 days, why not set an alert if payment is not received by day 32 that would trigger an automated process for contacting the customer?

�  … accuracy of cash forecasting by providing a finer-grain approach to projecting receipts. Rather than consigning financial analytics to a rear-view-mirror view, companies should be analyzing accounts proactively to identify slow and fast payers to see if there are systemic issues that should be addressed or actions that could be taken to manage receivables

�  … optimize payables as well. In today’s low-interest-rate environment there is limited value to holding onto excess cash, especially since incentives for early payment can provide a high return. Does your company manage payables? Can it?

�  … managing profitability strategically. Individual departments and business units typically focus on their own profit or cost objectives. Product organizations try to maximize product profitability, sales organizations may try to maximize revenue, call centers may try to minimize costs. Individually, each of these moves may be rational, but collectively they can work at cross-purposes, and few companies focus on managing the sometimes-conflicting objectives of individual parts of the business

http://robertkugel.ventanaresearch.com/2011/07/21/finance-analytics-innovation

Conclusion to be completed


Summary

1 Guiding an on organization into a financially positive future is a core function of Finance

2 Plans tell us where we want to go (vision), not where we are heading (direction) or how to best get there (optimizations)

3

SAP Predictive Analysis creates extrapolations of the future (as analysis and for optimizations) that enable high value business scenarios with superior business return

Thank you

Contact information: Carsten Hilker [email protected] Henner Schliebs [email protected]

Predictive Finance

Technology

Transcript of Predictive Finance