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June 28, 2002

The Finance Function Knocks at Your Door

Are you ready to take on the analytic needs of your finance people?

by Ken Jones
Edited by Ralph Kimball

If you're the resident data warehouse manager, expect a knock on the door from someone in finance any day now. Case in point: an Intelligent Enterprise poll asked, "Which of the following areas is the most likely target for an analytic solution deployment in 2002?" The top response was "Business performance/financial management." Although the poll was conducted a few months after the Enron story broke, I don't think the result reflected simply a knee-jerk reaction, soon to pass. There are strong internal and external drivers demanding better financial intelligence from the finance function.

What Is the Finance Function?

Generally speaking, the finance function encompasses everything involved in managing the enterprise's financial resources. It involves activities such as:

Budgeting and forecasting; planning how the enterprise wants things to happen
Cash and treasury management; ensuring the enterprise has money when it's needed
Accounts payable and receivable; ensuring the enterprise receives what it's owed and pay what it owes
Tax planning/filing and reporting; meeting obligations to the government
Risk management; ensuring the enterprise doesn't get surprised by something unfavorable
External and internal (management) reporting; providing visibility into the enterprise for those who need it.

I won't get into details here, but I hope that you can see the finance function is broad in scope. Through the CFO or controller's leadership, the finance function provides the information that the executive team requires to run the enterprise.

The Analytic Needs of the Finance Function

What analytic abilities does the finance function need? Given the broad scope of the finance function and the wide variety of business strategies enterprises use today, I will limit my discussion to some of the more common types of financial analysis. The two most common views of the enterprise in the financial world are the balance sheet and the income statement.

A balance sheet is a snapshot of an enterprise's financial condition at a specific moment in time, usually at the close of an accounting period. A balance sheet comprises assets, liabilities, and owners' or stockholders' equity. An income statement, otherwise known as a profit and loss (P&L) statement, is a summary of a company's profit or loss during any given period of time, such as a month, three months, or a single year. The income statement reflects all revenues and operating expenses during the period.

Most enterprises will want to examine how their balance sheets and P&Ls have changed over time. This is the most obvious type of analysis. This time-series analysis will typically have a monthly grain. For P&Ls, much analysis will be based around finding the origins of revenue and expenses: Which parts of the enterprise are producing and consuming financial resources? How do different subcomponent organizations within the enterprise compare with one another in the production and consumption of financial resources? How does reality stack up against what was planned (budgeted/forecasted)? As you can see, the analytic needs are wide and significant to the leadership of the enterprise.