How big data is expanding FP&A capabilities

Steve Player explains how collecting and analyzing big data can make the financial planning and analysis (FP&A) function more agile.

Steve PlayerSteve Player

The first time I was asked a big data question was over 20 years ago. I had been invited to meet with some managers of a prominent national pizza chain. They had built an information system that tracked every sale made in each of their store locations by date, time of day, type of pizza and customer. It was comprised of terabytes of data stored on tape. Their questions were straightforward: How could they best use that information? What questions should they ask?

Answering them was difficult because the queries you posed to these systems 20 years ago had to be extremely precise. Any complex question would require loading lots of tape for interim processing. It could take a week or more to get your answer. At that time, it was very difficult to use big data.

Twenty years later, some still find it difficult to see how big data can be useful. But with the competitive advantage that effective big data analysis can provide, it is extremely important that today's chief financial officers, controllers and leaders of the financial planning and analysis (FP&A) function learn how big data is expanding FP&A capabilities.

Tapping the Data Streams

Technology has ways of changing what we can see, hear and understand. I often use the following story to illustrate.

Our FP&A project team was working late one night, preparing for a status meeting the next day. This particular evening was causing extra anxiety because our local baseball team was trying to secure a playoff spot and had a game that night. We were able to relieve some stress and uncertainty by finding a radio and tuning to the broadcast of the game (a task made easier by the Internet's ability to bring you radio stations from around the world).

As I was trying to find the right station, I tuned through numerous other stations broadcasting various types of music, news, talk radio and other sporting events. We quickly realized that instead of sitting in a quiet, isolated room, we were instead being bombarded by waves of music and information that could be easily heard and understood if we had the equipment tuned to pick up the frequency.

The advent of big data is much the same. As technology has shifted to digital mediums, the waves of digital information rushing past us have accelerated. We just need to tap into this virtually free information by attaching monitors and collection devices.

Those who are concerned about the cost of big data need to realize the major costs of data creation are already past us, thanks to the digital information revolution. Organizations just need to tune in to collect the data.

Big data analysis can help FP&A tailor products, spot opportunity

Below are several examples of how FP&A teams at a variety of organizations are "tuning in" by harnessing big data to improve planning and analysis.

Plans to better track the movements of goods: In 2009, UPS Inc. began installing sensors in its delivery vehicles that capture the truck's speed, location, movement and other details. When combined with global positioning information and data from fuel efficiency sensors, they were able to dramatically reduce fuel costs and cut 85 million miles from their routes.

Pricing plans based on customer behavior. Progressive Insurance provides potential customers with Snapshot, a small sensor that tracks the movement of personal automobiles, which can be used to generate a personalized auto insurance quote. The device stays in the car to monitor driving habits over the next five months to help calculate future rates.

More accurate prediction of targeted responses to customer behavior. Credit card issuers have long based their business models on the knowledge that once customers start using a credit card, the greater the likelihood they will continue to use it. So card issuers participate in a range of promotional activities, from the proliferation of offers mailed to consumers' homes each year to in-store promotions. For example, Target will immediately extend a 5% discount to any customer opening a new card account.

But instead of relying on simple averages, the use of big data enables retailers to pinpoint specific buying behaviors for more selected targeting of offers. For example, customers buying diapers and baby toys can be targeted for cash-back cards that feed into a scholarship fund.

Better understanding of customer preferences using unstructured data to provide new insights. New planning possibilities are exploding around the use of unstructured data such as emails, social media data such as Facebook posts and Twitter activity, YouTube videos, and new tools recently developed such as Pinterest and Fusings.

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Planners can test market new products in limited settings and get immediate feedback by analyzing comments on these unstructured data channels. Companies can also run limited tests featuring multiple options to determine which are preferred by specific customer segments. These insights can then be used to adjust product offerings to better match customer desires, which makes the organization much more agile.

Deeper analysis of sales pipelines: For the FP&A function, the Holy Grail of planning is to obtain an accurate understanding and prediction of sales volumes. Most operations managers can easily plan for a given sales profile, but just as many will complain that sales forecasts are always wrong.

These concerns are being addressed by sales automation tools like Salesforce.com that provide greater insights into selling activities. In addition, organizations are increasingly adding marketing automation tools to the sales automation arsenal. When these systems operate in conjunction, organizations get a much deeper look at the behavior of their targeted customer base and more lead-time to understand the length of the sales cycle and identify the signs that indicate orders are coming. These longer lead times enable greater management flexibility.  

Back to the pizza question

As opposed to 20 years ago, big data today is much easier to harvest into profitable insights. We can track individual customer buying patterns and send them targeted email coupons to maintain their buying frequency. We can use delivery data to better understand their neighborhood, family size and what type of offers yield the best response from them. The FP&A team could overlay weather data to see how weather conditions impact buying behavior. We could test hundreds of other options with the intention of converting the insights gained into higher revenues or more efficient operations.

Big data is streaming by you. Will you turn your radio on and tune in?

Steve Player is the founder and managing partner of The Player Group in Dallas, Texas, and the North America program director for the Beyond Budgeting Round Table (BBRT).

This was first published in October 2013

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