How well do companies use analytics in planning and budgeting?

Not well. Our research shows that most get the basics right and are able to perform standard financial analysis but make limited use of advanced analytics. For example, predictive analytics is valuable for multiple purposes across multiple roles. Using statistical models, analysts can derive new insights into business drivers directly from data or create more reliable baseline forecasts. It can help identify strong correlations that can improve forecast accuracy or understanding of where there is a lack of predictability in the business and therefore greater risk in planning successful outcomes. Some of these models may involve internal operating relationships, but others can determine the impact of weather, the timing of movable holidays such as Easter or Thanksgiving in North America and published leading indicators (such as purchasing managers’ indices). Still, our research finds that fewer than half of companies use predictive analytics or leading indicators regularly; only 36 percent said it’s very important to apply predictive analytics.

Companies aren’t able to make full use of analytics in their planning and budgeting because of their heavy use of desktop spreadsheets. Spreadsheets are great for the basics but not for advanced analytics. One reason is that they don’t do well in enabling manipulation of more than a couple of business dimensions at once – dimensions such as sales territories, business units, products, customers, currency and time. Pivot tables can take you only so far. Using spreadsheets also consumes time that could be better spent in expanding the range of analyses and reports available to everyone. Increasing the scope and sophistication of the analytics produced by the finance organization can have a positive impact on a company’s performance. Analytics is an important tool whose ultimate purpose is to enable executives and managers to make better-informed decisions.

© Ventana Research 2015 Ventana Research: Q&A: Strategic Financial Planning and Management