Big data: Seeing the wood for the trees

THE VALUE of data is higher than ever, and this has opened up a raft of opportunities for finance professionals – and not just in terms of traditional finance functions. The ICAEW’s new document Finance business partnering: a guide suggests that the introduction of “more business-oriented finance tools and techniques” can “enhance finance’s position as business partners”.

Finance departments are in a unique position to make the most of big data, and demonstrate their own value to the business at the same time. The report states that financial analysis and reporting “became more sophisticated” because managers had to manage multiple locations from a distance.

As a result, “finance was well-placed to conduct and communicate the necessary financial analysis and combine it with operational data. Working with a financial representation of businesses facilitates consolidation, comparison, analysis and discussion using a common language – this is likely to remain important.”

But there is competition within organisations for business partnering opportunities, with other professionals looking to use big data for their own benefits.

Stephen Ibbotson, head of ICAEW’s finance and management faculty and former FD at Avon, who helped devise the report, says: “As marketing departments become more and more analytical, and they are using data, if finance doesn’t get on board with that, they can be left behind and become a bit redundant.”

One way finance departments could be left behind is by constantly using backward-looking data themselves – something that Oliver Colling, director and UK CFO services lead at North Highland, says they can be guilty of.

But this is easily rectifiable, he adds: “Some of the tools and some of the approaches that they could use now, which would greatly increase the value of the service that the finance function provides, are forward-looking views … By harnessing that, and making sense of all the data that is there, we can give a message that we always know we have a dip in sales in June, for example.”

However, one of the major problems with big data is that it is …well, big. As the ICAEW report puts it, “there is a risk of being swamped with information”.
The way to prevent this – and, in turn, prove finance’s worth when partnering – is to let the business guide the data, rather than the other way around.

Harvey Lewis, analytics research director at Deloitte, says the first step is to identify the strategic objectives and the goals of the business and then ask a set of questions and pose hypotheses that need to be answered for those goals.

He adds: “You want to make sure it is the dog wagging the tail. If you don’t have the right questions, you can waste a lot of time crunching numbers that are not going to add value to the business and that is where the partnering falls over.

But the right use of accurate data can enhance the finance function’s reputation within a business. This can be internal data or external data. The ICAEW report extols the virtues of activity-based costing, but there are other ways to prove worth, with sales data analysis an obvious example.

Ibbotson says: “When I was at Avon, we would look at representatives in different segments, attribute costs in those different segments, and find out which were the most profitable. We would then also look at suppliers, attribute costs to them, and find out which of those was most profitable.”

Look outside
They can also use external data to supplement this internal data – especially the wealth of data that is being produced by governments.

Lewis says that there are numerous data that can be used: “For example, weather data – how will forecasts affect trading? There is also demographics data. If you are benchmarking the performance of one store against another, are you taking into account that you have different sets of demographics?”

Finance professionals should consider how to collate these sources. Stephen Shelton, director of analytics transformation at PwC, says there is a “wide range of external data sources”, including media reports, sanctions lists, company reports and social media feeds, that can be used.

These can also help them with day-to-day work, he adds: “Internal audits can become more effective through joining up data to understand the whole context behind a series of transactions and building a better picture of compliance risks in real time.”

But there is another possibility for how data can be used, which can also help boost the finance department’s standing within the organisation – namely, as a commodity in itself.

Faye Chua, ACCA’s head of future research, says that this is another area in which finance functions can excel. She adds: “It could be as valuable as brand. As a finance person, you have so much access to data – can you potentially sell it? What value would it be? You will see this a lot with internet-based companies, but which companies are not now internet-based?” ?