Finance & Decision Making
Building financial knowledge is among the best ways to maximize the result of any potential decision an organization makes. Before any critical business decision is made, the financial aspect of the respective subject must be taken into consideration, and thoroughly researched. In contemporary FP&A, technology has proved to be an effective bridge between an organization’s goal setting and achievement. Organizations must first understand finance’s role in decision making, and will hence understand why FP&A software is such a powerful asset to any company.
Finance’s Role in Decision Making
Finance plays a particularly important role in a few specific steps of a business’s decision making process. Analysis, and strategy formulation, implementation, and management are all stages of the decision making process which require key contributions from FP&A professionals. The specific metrics finance teams must use are as such:
Free Cash Flow: The measure of a firm’s financial soundness.
Economic Value Added: The bottom-line contribution on a risk-adjusted basis and helps management to make effective decisions.
Asset Management
Financing Decisions & Capital Structure: Determines the firm’s reserve borrowing capacity (short-term and long-term) and the risk of potential financial distress.
Profitability Ratios: The measure of the operational efficiency of a firm.
Growth Indices: Evaluate sales and market share growth and determine the acceptable trade-off of growth with respect to reductions in cash flows, profit margins, and returns on investment.
Risk Assessment & Management
Tax Optimization: In general, performance must, whenever possible, be measured on an after-tax basis.
Insights and Accuracy from FP&A Software
Quality FP&A software not only enables the collection of numerical information, but also supports sentiment collection, and attaches documents to start bringing the data to life. It uses self-service dashboards and analytics to give you actionable insights. They tell the story, and provide commentary, context, and sentiment. For this to happen, quantitative data needs to turn into qualitative insights.
For example, in a software company, one of the organization’s goals may be to prioritize cloud growth. This ambition is exactly that — an ambition, an idea. But the company can only measure measurable things, like data. Connecting the relevant data to measure the success of strategy is only possible if the technology can support and hold both data (numeric and text) and objectives or outcomes. Making this information visible helps to anchor everyone to the strategy. It becomes meaningful and tangible — and underpins the role people can play in achieving the company’s goals.
Organizations can take advantage of big advances in technology and the cloud delivery vehicle, in the form of artificial intelligence and forecasting. As a result, FP&A professionals don't need to wait until a problem arises. Instead, the system predicts and indicates that corrective action is required now, and shows specifically where to act.
Companies like CashWeb Community, Pureshare Activemetrics, and DataRails offer some of the best solutions to improve the financial foundation of good decision making; they offer organizations unique financial insights, and ensure the accuracy of all data collected.