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Predictive Finance

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Predictive Finance

  1. 1. Predictive Finance Henner Schliebs, October 10, 2013
  2. 2. © 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
  3. 3. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 3 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
  4. 4. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 4 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”
  5. 5. SAP Predictive Analysis
  6. 6. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 6 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
  7. 7. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 7 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
  8. 8. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 8 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
  9. 9. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 9 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
  10. 10. Analyst View
  11. 11. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 11 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
  12. 12. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 12 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
  13. 13. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 13 Functions benefiting from Predictive Analysis UK USA Loud House research
  14. 14. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 14 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
  15. 15. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 15 … 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
  16. 16. Customer Success Story to be completed
  17. 17. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 17 Customer Use Case Predictive Analysis – Warranty Prediction: Cash Optimization
  18. 18. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 18 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
  19. 19. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 19 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
  20. 20. Conclusion Necessary exercise in the 21st century
  21. 21. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 21 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
  22. 22. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 22 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
  23. 23. © 2013 SAP AG or an SAP affiliate company. All rights reserved. Henner Schliebs Analytics Audience Marketing @hschliebs henner henner.schliebs@sap.com hschliebs
  24. 24. Predictive Finance DEMO
  25. 25. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 26 Predictive Finance
  26. 26. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 27 … select data set
  27. 27. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 28 Grid (view)
  28. 28. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 29 Facets (view)
  29. 29. Trend and Forecast
  30. 30. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 32 Visualize - Actual and planned profit
  31. 31. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 36 Predict - Exponential Smoothing
  32. 32. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 39 Predict - Results (Forecast / 2011)
  33. 33. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 40 Results - Chart
  34. 34. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 42 Visualize - Actual, forecasted and planned profit
  35. 35. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 43 Visualize - Planned and forecasted profit (shortfall)
  36. 36. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 44 Visualize - Baseline (2007), trend (2008-2010), and forecast (2011)
  37. 37. Correlation
  38. 38. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 46 File: external data
  39. 39. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 47 Mapping using calculated timestamp
  40. 40. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 48 Baseline file now contains additional (external) data
  41. 41. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 49 Predict - Filter, Calculate, CSV writer (for demo reporting)
  42. 42. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 52 Predict - Predicted Values
  43. 43. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 54 Correlation: external factors
  44. 44. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 55 Correlation: profit and gas price by month (bad correlation)
  45. 45. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 56 Correlation: profit and predicted value (pretty close)
  46. 46. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 57 Correlation: elasticity of profit based on changes in oil price
  47. 47. Clustering
  48. 48. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 59 Clustering
  49. 49. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 60
  50. 50. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 61 Results - Clusters (Grid)
  51. 51. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 62 Results - Overview (chart)
  52. 52. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 63 Results - Overview (chart)
  53. 53. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 64 Results - Overview (chart)
  54. 54. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 65 Results - Visualized (results are cross-country, customer)
  55. 55. Decision Tree
  56. 56. © 2013 SAP AG or an SAP affiliate company. All rights reserved. 68 Results- Decision Tree

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