The future of financial planning and analysis (FP&A) lies in predictive analytics. Specifically, predictive analytics is reshaping how businesses assess, forecast and plan finances.
The Role of Predictive Analytics in FP&A
Predictive analytics makes it possible to forecast future expectations, based on historical data. Predictive software uses artificial intelligence to identify trends and patterns, and then makes informed predictions about future events.
The goal of financial planning and analysis is to make future financial plans based on analysis of historical data. In the past, people have had to assess the data, identify trends and patterns and make predictions — only then could they plan and take action.
Predictive analytics assists with these middle steps, specifically analyzing historical data, identifying trends, and making predictions based on those trends. Users can then assess the predictions, drill down into them for more detailed information, and ultimately plan based on the predictions.
The Benefits of Predictive Analytics for FP&A
The benefits of using predictive analytics in your business’s financial planning and analysis are multifold.
Most importantly, the software can improve analysis and forecasting. Software is much better at analyzing complex data to find trends and patterns, and it doesn’t contain the inherent biases people naturally have. It’s more likely to assess data from multiple perspectives, it can analyze data at much deeper levels, and ultimately it’s significantly more accurate than even a knowledgeable individual. Whether looking at revenue, expenses, cash flow or some other financial metric, incorporating predictive analytics improves the outcome.
That accuracy ultimately results in better forecasting. Better forecasting improves decision maker’s planning, because they have more complete and correct information.
While accuracy is probably the foremost benefit, the others shouldn’t be overlooked:
- Reduced Labor Costs: Using predictive analytics software can save decision makers hours of pouring over tables and charts.
- Resource Allocation: With more accurate forecasts, businesses can allocate resources more efficiently, reducing wastage and optimizing investment.
- Strategic Decision Making: Reliable financial forecasts enable decision-makers to plan strategically, ensuring long-term growth and stability.
- Market Adaptability: In a rapidly changing market, predictive analytics provides insights that help businesses adapt quickly to emerging trends and consumer demands.
Key Features of Predictive Analytics in FP&A
Of course, getting the most out of predictive analytics requires having FP&A software with the right features. Some of the most important features to look for include:
- Data Mining: Robust analytics requires being able to extract valuable information from large sets of historical data.
- Statistical Analysis: Statistics are the foundation of many financial analytics methods, being used to identify trends, averages, outliers and much more.
- Risk Analysis: Predictive analytics helps in identifying potential financial risks, and enables businesses to formulate strategies to mitigate them.
- Machine Learning: Machine learning (ML) algorithms improve as they analyze historical historical data. Forecasting process becomes accurate and reliable the more ML programs are used.
- Artificial Intelligence: AI is at the forefront of FP&A, helping businesses use advanced software to gain the deepest insights.
Applications of Predictive Analytics in FP&A
Exactly how your business utilizes predictive analytics to improve FP&A depends on the specifics of your business. Here are just a few ideas of how the analytics might be leveraged:
- Revenue Forecasting: Estimate future sales and revenue streams, while accounting for factors like market trends, consumer behavior, pricing strategy and economic conditions.
- Expense Management: Estimate future costs and expenses, for more reliable budgeting and management.
- Cash Flow Analysis: Forecast future cash flows based on revenues and expenses, which may be used to determine when major costs can be paid, whether an investment is worthwhile, or in other ways.
- Scenarios: Input specific parameters to simulate different scenarios, in order to understand their potential financial impact and plan accordingly.
The Future of Predictive Analytics
Predictive analytics is essential for efficient and effective FP&A today, and it’ll be more so tomorrow. As the capabilities of programs continue to improve through artificial intelligence and data analysis, the uses for FP&A software will grow in at least two major ways.
First, the insights gleaned from predictive analytics will only get better. The amount of data that software programs can manage is still increasing, and AI holds great promise for mining data in ways that previously have been inaccessible.
Second, businesses are steadily integrating FP&A software with a wider range of other programs. Predictive analytics in F&A programs is powerful. When those analytics are integrated with ERM, CPM and similar programs, the results are insights that can apan all aspects of running a business.
Begin Using Predictive Analytics to Improve Your Business’s FP&A
If your business isn’t already using robust predictive analytics in its financial planning and analysis, you should be. Such software is essential to the efficient management of a business, and in order to compete in today’s competitive marketplace. Contact us to learn more about what predictive analytics could do for your business’s FP&A.