Predictive Finance

Predictive Finance
Henner Schliebs, October 10, 2013

© 2013 SAP AG or an SAP affiliate company. All rights reserved. 2
Finance Excellence: Guidance on,
Guiding for the future
Core functions of
effective organizations :
 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 ?
Based on the past
 what is likely going to
happen ?
 Which factors are correlated
with others or impact the
future ?
 Plans tell us where we want
to go (vision), not where we
are heading (direction)
Vision (Plan)
Direction (Reality)
Indicators (Trends)
Past Performance

Predictive Finance
Examine the past.
Extrapolate the future
 Examine current and
historical data to make
representations about the
future
 Representations close
enough to be useful; risk
and uncertainty are inherent
 Encompasses (formal
statistical) methods
 Exploits patterns, trends,
variances, and correlations
Terms similar to “prediction “include but are not limited to “estimation”, “approximation”,
“projection”, “forecasting”, and “extrapolation”

What if you could…
Address your future finance needs by anticipating them today
Sense & Respond Predict & Act
Raw
Data
Cleaned
Data
Standard
Reports
Ad Hoc
Reports &
OLAP
Generic
Predictive
Analytics
Predictive
Modeling
Optimization
What happened?
Why did it happen?
What will happen?
What is the best that could
happen?
CompetitiveAdvantage
Maturity of Analytics Capabilities
Finance Analytics influenced decision making process
DECIPHERING DATA > SENSING & RESPONSE > PREDICTION & ACTION

Predictive Finance
Analyses and Optimization scenarios for Profitability and Performance
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)
AnalyzeOptimize

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

Importance of the CFO and the Finance
Organization
Changing role of the
CFO
 CFO are the most influential
personas in the corporation,
trend: replace the CEO
 (advanced) Analytics is a
top topic for CFOs (cfo.com
study, Deloitte, BBRS article
and many more)
Gartner
BBRS

Cfo.com research (published soon)
42% spend more than half their
time on low-value manual
activities
Cross-departmental analysis:
finance as a service functionAdvanced Analytics – Enterprise
BI - Visualization
TOP: Margin Management

Functions benefiting from Predictive Analysis
UK USA
Loud House research

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
Ventana Research
Predictive Analysis - Predictive Analytics Support Human Judgment
http://robertkugel.ventanaresearch.com/2011/06/10/predictive-analytics-support-human-judgment

… 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
Ventana Research
Predictive Analysis - Focus on potential problems rather than fighting fires
http://robertkugel.ventanaresearch.com/2011/07/21/finance-analytics-innovation

Customer Success Story
to be completed

Customer Use Case
Predictive Analysis – Warranty Prediction: Cash Optimization

Industry / Use Case Challenges
• Raw materials have very high price volatility
• Tens of thousand of finished products with complex BOMs
• The price scenarios depend on the production plants and distribution countries
• Huge volume of calculations
Solution Details
SAP PIO has provided an high performance algorithm that calculates the costs of each finished product
• Computes all the production costs (raw materials costs, packaging costs, manufacturing costs, distribution costs) using the sales forecast
• Adjusts costs using price scenarios defined for material groups per month and country
• Calculates the costs and quantities at the lowest granularity
• Users may analyze data at arbitrary levels of granularity using drill-down.
Benefit Details
• The customer is able to forecast the production costs and quantities
• SKU-based sales planning can be seen in a P&L view
• Empower the customer to act preemptively
Customer Use Case
Predictive Analysis –production cost modeling using price scenarios and demand forecasts

Industry / Use Case Challenges
• Difficulty understanding impact to cash flow of highly seasonal business, made more complex by the delays between bookings and billings
• Accurately forecasting revenues and margin to identify underperforming parts of the business
• Taking advantage of each supplier’s / buyer’s unique seasonal behavior
• Recognizing growth rates and performance differences by region
• Understanding demand for parts vs. products vs. bundled solutions, and any cannibalization effects
Solution Details
The use case addressed predictive scenarios of:
• Seasonality factors for sales levels based on booking time series (trend analysis)
• Clustering of sales nodes based on bookings, planning, and assignments (performance analysis)
• Clustering of products based on seasonality of bookings
Benefit Details
• Better respond to customers and deliver tangible business value
• Reduce time to transform information into insights and improvement in the quality of decision-making on those insights
• Ultimately drive higher profitability and growth
Customer Use Case
Predictive Analysis – cash flow optimization

Conclusion
Necessary exercise in the 21st century

Summary
1
Guiding an 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

Advanced Analytics & Agile Visualization – check it out
SAP Lumira – Personal Edition (free) SAP Predictive Analysis (30 day trial)
http://bit.ly/personallumira http://bit.ly/PA-test

© 2013 SAP AG or an SAP affiliate company. All rights reserved.
Henner Schliebs
Analytics Audience Marketing
@hschliebs
henner
henner.schliebs@sap.com
hschliebs

Predictive Finance

… select data set

Grid (view)

Facets (view)

Visualize - Actual and planned profit

Predict - Exponential Smoothing

Predict - Results (Forecast / 2011)

Results - Chart

Visualize - Actual, forecasted and planned profit

Visualize - Planned and forecasted profit (shortfall)

Visualize - Baseline (2007), trend (2008-2010), and forecast (2011)

File: external data

Mapping using calculated timestamp

Baseline file now contains additional (external) data

Predict - Filter, Calculate, CSV writer (for demo reporting)

Predict - Predicted Values

Correlation: external factors

Correlation: profit and gas price by month (bad correlation)

Correlation: profit and predicted value (pretty close)

Correlation: elasticity of profit based on changes in oil price

Clustering

Results - Clusters (Grid)

Results - Overview (chart)

Results - Visualized (results are cross-country, customer)

Results- Decision Tree

Predictive Finance

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Notes de l'éditeur