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AI for Business - Finance Office

Exploring the case for AI in the Finance Office; budgeting, planning, forecasting and continuous accounting.

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AI for Business - Finance Office

  1. 1. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 1 May 2018 Maximizing Human Potential ~ Transformation ~ ~ Centers of Excellence ~ ~ Artificial Intelligence ~ Exploring the case for AI in the Finance Office; budgeting, planning, forecasting and continuous accounting. Artificial Intelligence for Business
  2. 2. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 2 What is a Finance Office? “A finance office is department that oversees the management of the organization’s money. This includes budgeting, accounting, planning and forecasting, alongside reporting financial statements.” Influence of AI: ❖ reduces the expensive and time intensive annual budgeting process; ❖ uses machines to carry out financial tasks in an intelligent way; ❖ improves accuracy and predictability of Budgeting, Planning & Forecasting (BP&F); and ❖ creates a blueprint for “Continuous Accounting” allowing focus to be strategic.
  3. 3. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 3 What is BP&F? A three-step process for determining financial goals, managed by Finance Department under the Chief Financial Officer (CFO). ❖ Planning: outlines future direction and expectations; by one to five years ❖ Budgeting: documents expenditure and plan execution; by month, quarter or year ❖ Forecasting: uses historical data to predict future outcomes; by month, quarter or year
  4. 4. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 4 State & Need. BP&F observations: ❖ key business driver data often lies outside the “usual suspect” systems; ❖ collection, monitoring and reaction needs to be in near real-time; ❖ innovation is changing methods, with AI adoption increasing accuracy; and ❖ manual solutions can’t timely capture operational and financial complexities. Outcomes: ❖ a shift towards perpetual, scenario based BP&F models; and ❖ the elimination of ceaseless manual processes; thus increasing efficiency.
  5. 5. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 5 Why Artificial Intelligence? The objective of using Artificial intelligence (AI) is: ❖ to better streamline financial managerial tasks; ❖ to increase the accuracy of forecasting with quantitative predictions; ❖ to create self-improving systems that reduce errors; and ❖ to more effectively automate the process; targeting speed, flexibility and agility. As AI becomes adopted more into the mainstream, financial forecasting and modeling will become near real-time and more accurately predictive.
  6. 6. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 6 We Explore. 1. The possibilities for AI in rethinking “Enterprise Finance” 2. Intelligent applications to identify and mitigate impacts 3. AI-powered business intelligence and analytics 4. Continuous Accounting and its strategic application 5. How AI can improve accuracy and outcomes 6. Case studies on budget planning and forecasting
  7. 7. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 7 Understanding the Process. What is budgeting, planning and forecasting? Understanding BP&F and AI
  8. 8. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 8 BP&F Processes. BP&F is: ❖ a process set for determining an organization's financial goals; and ❖ managed by the Finance Department under the Chief Financial Officer (CFO). AI can impact BP&F in the following ways: ❖ analyze data to reveal patterns, suggesting actions based on trends; ❖ generate indicators for monitoring scenarios that improve accuracy; ❖ enable near-time understanding of objectives, directional changes; and ❖ enable risk assessment algorithms to accurately predict market movement.
  9. 9. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 9 Understanding BP&F and AI. ❖ Today’s business world is driven by customer demand ❖ As patterns vary it becomes a challenge to develop accurate forecasts ❖ Goals aim to reduce uncertainty and provide performance benchmarks ❖ Finance as a business unit that sees these impacts day-to-day [2] ▪ AI is used to improve accuracy, thereby enhancing the bottom line [1] ▪ AI is leveraged to deliver real-time insights, and inform decision making
  10. 10. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 10 Forecasting. Is an estimation of future outcomes using data; ❖ can be problematic due to compilation time and historic nature; and ❖ often prevents data in “real time” when “speed critical” decisions are required. Forecasting methods utilize the following: ❖ sales information, market information, and competitor intelligence; ❖ financial budgets and actuals - current and historical; ❖ production assumptions - L/OH, new lines, vendors, etc; and ❖ operational costs such as payroll, pensions, insurance, infrastructure, facilities, etc.
  11. 11. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 11 Lifecycle. 1. Year end and upcoming year ❖ Towards the later part of each year leaders begin setting business objectives ❖ A high-level focus on margin, revenue, profit, volume, etc. while considering market conditions 2. Algorithms established ❖ In doing so, a top-level algorithm (ex: 4% +$.05) can be established ❖ Applied organizationally or to lines of business 3. Process and Timelines aligned ❖ Alongside business rules to achieve the upcoming year’s cycle
  12. 12. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 12 Continuous Accounting/ BP&F Lifecycle Matrix Q1 Q2 Q3 Artificial Intelligence Q2 Data Import Forecasting Model OPEX Calculation Rules P & L Rules Close-to-Disclose Processes Q4 Q1 Auto-Adjusting Rolling Profit & Loss Model OPEX Model Budgeting Model Planning Model Break Back Model Annual Budgets Q4Adjustment Q1 Data Import Q3 Data Import Q4 Data Import Daily, Weekly, Monthly Data Imports Picture of the BP&F models running “Continuous Accounting” ▪ Delivers real time reporting ▪ Enables faster analysis ▪ Anytime processing and reconciliation ▪ Analysis of data can be continuous ▪ Business cycle driven ▪ Clearer, more incisive decision making
  13. 13. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 13 Continuous Accounting. “An approach to managing cycles, that is key to achieving a more strategic function. It is designed to be practical and address the tactical issues that prevent a strategic outlook.” Continuous Accounting embraces three main principles:[1] 1. Automation of repetitive processes in a continuous, end-to-end fashion 2. Optimizing the accounting calendar by; ▪ distributing workloads continuously and evenly over the accounting period ▪ eliminating bottlenecks and establishing task order 3. Creating a culture of continuous improvement in managing the accounting cycle Source: http://blog.ventanaresearch.com/2015/10/30/continuous-accounting-enables-a-strategic-finance-department
  14. 14. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 14 Reconciliation Consolidated Reconciliation Job Scheduling Cash Matching Intercompany Processing Transaction Analysis Journal Entry Exception Research Account Detail Analysis Variance Analysis Rules & Business Logic Analysis & Reports WorkflowTemplatesINTEROGATIONLAYER Smart Agents Web Services Connectors SFTP ETL TOOLS Close Ledgers Management Reporting Intercompany Settlement Variance Explanation Disclosure Management XBRL Tagging SOFT CLOSE HARD CLOSE if necessary Idea of Continuous Accounting.
  15. 15. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 15 Continuous Accounting Blueprint. How  Technology  Process  People and Organization  Maturity ◦ Legacy Processes ◦ Modernization ◦ Continuous Processing ◦ Strategic Accounting ◦ Continuous Improvement Steps 1. Analyze current state 2. Design future state 3. Automate and optimize processes 4. Monitor metrics and results 5. Review outcomes and controls 6. Improve continuously
  16. 16. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 16 Approaches. Teams are established and tasked with; ❖ gathering data, compiling assumptions, and notification of commencement; ❖ loading data into systems, review and adjustment before plan publication; and ❖ adding quantitative and/ or qualitative analysis, particularly through AI. AI quantitative forecasting uses the following techniques [4]: ❖ Time series: the future tends to reflect the past; and ❖ Relational: the future is dependent on the direction of a variety of factors.
  17. 17. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 17 Financial Modelling. Key Phases & Approach! Financial models uses rules BP&F models Calculation rules and parameters
  18. 18. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 18 Uses & Rules. Tend to use information from one or more data sources: ❖ incorporated into applications, that serve the needs of departments and lines of business; and ❖ a Chart of Accounts (COA) ▪ listing all of the classes or categorizations ▪ relevant to payables and receivables o money or the equivalent
  19. 19. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 19 Forecasting Process. COA is used to organize finances, thus segregating classes in order to give a better understanding of financial health. Each account in the COA has a unique identifier and is: ❖ associated with real financial data; ❖ loaded daily, weekly or monthly; and ❖ snapshots of the same loaded into the AI platform.
  20. 20. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 20 BP&F Models. Functionally designed, presenting information from multiple sources. Examples models are: ❖ Sales Planning: alignment of planning and budgeting functions ❖ Profit and Loss: estimates over specific time periods ❖ Auto-Adjusting-Rolling-Forecast: used to continuously re-forecast change ❖ Break Back: top-down automation allows bottom up “Break-Back” re-adjustments ❖ OPEX: handles operational expenditure to categorize costs
  21. 21. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 21 Calculation Rules. Calculations and rules used by each model during budgeting and planning. Example formula groups are: ❖ OPEX: rules for operating expenses for ongoing running costs ❖ P&L: formulas and rules used in profit and loss models ❖ Dimension: formulas and rules that link items into a cube or dimension ❖ Disclose: regulatory reporting calculations for general accounting – cycle time
  22. 22. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 22 Why AI for Finance? No-one can see the future with absolute clarity. ❖ Cycles require significant resources through two-phases of activity [3]: ▪ setting a vision for the future; and ▪ allocating resources. Flaws in this ideal include: ❖ a misconception that BP&F aims to predict the future ❖ scope at times sets targets ▪ AI can analyze business factors and indicate risk signals in near-time ▪ AI can optimize decision making and increase rates of return
  23. 23. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 23 Organizational BP&F Maturity & AI. Target Organization BP&F Maturity Department Annual Annual + Q Annual + M Annual + W Rolling Continuous Low High Line of Business Enterprise $$ Threshold & Support Spreadsheets Budgeting Software Enterprise Planning Software Artificial Intelligence BP&F Software Complexity / Depth Frequency Culture Hurdles Target High
  24. 24. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 24 AI Systems for BP&F. Commonly used AI systems in BP&F are: [4] ❖ Automating Routine Decisions and Reports ▪ Just 17% of time is spent on strategic activities ▪ AI provides an edge allowing a focus on what matters ❖ Supplementing Process with AI Machine Support ▪ AI pattern recognition highlights abnormal activities ▪ Devolves to humans when not fully trusted ❖ Risk Management and Fraud Detection ▪ AI can churn through large data sets ▪ Identifies abnormal patterns, and risks through adaptive learning
  25. 25. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 25 AI Systems for BP&F. Continued: ❖ Enhanced Dashboards – risks and recommendations ▪ AI is able to better to evaluate the past, and anticipate the future ❖ Improved Forecasting and Reporting ▪ AI improves accuracy, allowing more tactical and strategic thinking time ❖ Advanced Scenario Analysis ▪ AI enables calculation of financial scenario probability, making it easier to test ▪ This reduces time spent analyzing data, and improves broad range availability
  26. 26. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 26 Use Cases. Budgeting & Planning Forecasting
  27. 27. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 27 Budgeting & Planning. Challenge: Each September BP&F cycles were costing a manufacturing company millions, while taking 3 - 4 months and significant resources. The process began by loading 9 months of current year actuals alongside the ending 3 months for the previous year. Plan final reviews and publishing were mid December. After the new year the management team would still have to adjust for the last 3 months of actuals from the prior year, realign and re-publish the plan. Q4 was highly dependent on seasonal volume impacting profit and loss. Demand forecasting was difficult because of consumer discretionary spending. The aim was to reduce time while increasing accuracy. Solution: An AI based platform with “Break Backs” for scenario planning. Possible outcomes were reported, by integrating “Auto Adjusting Rolling Forecasts”. It showed key financial indicators by “developing probability”, allowing pro-action using pre-defined plans. ValueofInformation Data ➔ Information ➔ Knowledge ➔ Insight ➔ Action Raw Data Standard Reports Ad-hoc Reports Decision Modeling Predictive Modeling Descriptive Modeling What happened? Why did it happen? What’s likely to happen? How to make it happen? +4 High Accuracy/ Trust -3 Low Accuracy/ Trust -1 Lacking Budget Preference+2 Budgeting & Forecasting Accuracy
  28. 28. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 28 Forecasting. Challenge: A consumer based company predicted product price and profits margins using traditional financial data and negotiations with Sales Channels. They wanted to increase price, however historic sales and Sales Channels advice, did not align to proposals. This limited outlook to past trend-based predictions, creating challenges in forecasting “price change”, affecting sales planning and price setting. Solution: The process integration of AI forecasting to predict best pricing scenarios. This incorporated market data, competitor intelligence and Machine Learning Algorithms to showcase market willingness to go against market conditions. AI analyzed historic time series data, estimating the impact of a variety of factors, providing confidence in price adjustments. Accurate forecasts of sales and profit margins when increasing pricing, were possible even contrary to Sales Channels’ advice. W Cat Feast Y Dry Cat Food X Cat Chow X Wet Cat Food Movement M Cat Price Perception High Low 5 4 3 2 1 0 -1 -2 -3 -4 -5 High Low WillingtoPurchase
  29. 29. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 29 Impact of AI. AI better captures dynamic complexities in a timely fashion, effectively automating planning processes, increasing speed, flexibility and agility. AI is better able to streamline managerial tasks. AI increases prediction accuracy and reduces errors. AI using ML algorithms self-improve over time.
  30. 30. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 30 1. Streamline reconciliation 2. Centralize intracompany and LOBs 3. Controls and close orchestration 4. Continuous accounting 5. Continuous planning and forecasting 6. Robotic process automation 7. Retain, retrain and re-allocate talent 8. Institute process benchmarking 9. Improved Shared Service Center (SSC) efficiency 10. Cloud computing Areas of Benefit from AI. 10 areas Finance can benefit from AI
  31. 31. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 31 Observations & Conclusions. Adopting AI BP&F solutions increases accuracy by improving methods and market intelligence. AI forecast modeling will be near real-time and predicatively accurate. This facilitates perpetual, scenario based planning and monitoring.
  32. 32. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 32 For more information, please visit www.firstalign.com to discover ways we can help. Download our full white paper at http://www.firstalign.com/press/index-publications.html
  33. 33. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 33 Notes & References. [1] 7 Ways Artificial Intelligence and Machine Learning Will Impact the Finance Office. https://www.accountingtoday.com/list/7-ways-artificial-intelligence-and-machine-learning-will-impact-the-finance-office#slide-2 [2] Artificial Intelligence has a Rising Impact on Financial Markets. https://www.thestreet.com/story/13744043/1/artificial-intelligence-has-rising-impact-on-financial-markets.html [3] Artificial Intelligence Applied to Business Planning. http://www.31december2099.com/2014/12/24/artificial-intelligence-applied-to-business-planning [4] Artificial Intelligence Techniques Enhance Business Forecasts. http://gbr.pepperdine.edu/2010/08/artificial-intelligence-techniques-enhance-business-forecasts [5] Five ways Artificial Intelligence is Changing Tax. http://usblogs.pwc.com/emerging-technology/5-ways-ai-changes-tax
  34. 34. Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 34 FirstAlign Solutions o. 227 W 4th Street, Charlotte, NC 28202 p. 646-233-2488 e. contact@firstalign.com www.firstalign.com NOT JUST KNOWLEDGE, KNOW HOW “Maximizing Human Potential”

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  • raidbader

    Jun. 2, 2019

Exploring the case for AI in the Finance Office; budgeting, planning, forecasting and continuous accounting.

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