Role of Finance Function in the Digital World

OPERATIONAL LEVEL E1 Managing Finance in a Digital World Chapter 3: Role of Finance Function Part 2 (C) Personal Use only. Any un-authorized use, copying or reproducing full or partial content is contravention of intellectual property act and unlawful. Failure to comply will be subjected to legal recourse.

Contents 3-4 5-7 Finance Function Basic Finance Functions 4 I s and 5 A s 8 Time spent Now and Desired by Finance Function 9-10 Finance Function Value Matrix & Value of Finance to an organization 11 Data and its source 12-15 Information and Good information Function 16 New competencies of Finance function 17- 18 Module Questions & Keys

Finance Function Today whole of industry is in traversing in the digital pathway and finance function cannot be left lagging behind. Finance must focus on helping the organization create and preserve value in the face of disruptive and unprecedented changes in the digital world. ROLE OF FINANCE FUNCTION Plays three-pronged role Enabler,Shaperand Narrator. ENABLER Today whole of industry is in traversing in the digital pathway and finance function cannot be left lagging behind. Finance hprted changes in the digital world. create and preserve value. SHAPER Shapes how the organization creates and preserves value. Enables an organization to NARRATOR Narrates how to create and preserve value.

Role of Finance Function Finance function is the nerve center for the organization. Finance function adorns the roles of an enabler, shaper and narrator within the organization. Enabler Planning: Key function in the organization to setup budget,monitor and control which helps in achieving overall objective. Enabler PerformanceManagement: Another important role by finance function.Monitor and control performance of the organization Enabler Forecasting: Preparing for performance within the organization.Sales, cash, purchase can all beforecasted. Shaper Enabler Control: Actual vs budgeted performance is compared, variance analysis done and where rectification has to be done is advised. This is another key role for finance function. Resource Allocation: Vital role performed by finance function. They identify the resource and allocate according to the objective. Shaper Performance Management: Finance function s most critical role is to manage performance in accordance to plans and budgets. FINANCE FUNCTION Narrator Reporting: Preparing a detailed financial information about the organization and samewith stakeholders about the performance is the key task. Shaper Control: To identify variance in performance from plan and advise management of such variations for taking corrective actions. sharingthe

Basic Finance Activities Four Is Basic finance activities starts from Information and ends at Impact (process flow diagram in the next slide). They are: INFORMATION Assembling the information iscollecting, cleaning and connecting data into information 1.Information 2.Insight 3.Influence, and INSIGHT Analyzes both financial and non-financial information to draw out patterns and relevant insights . 4.Impact. The associated functions of the above basic functions are as follows: Impact INFLUENCE Advises / communicates these insights to influence any decision making. a)Assembling information b)Analyzing for insights IMPACT Uses Control mechanism such as strategic planning, performance measure and reviews c)Advising to influence d)Applying for impact To conduct the entire process the finance function would require the necessary Acumen .

Basic Finance Activities Four Is Finance functions are in the process of refocusing their value add to the organization. They are moving from left hand side to the right-hand side i.e., from working in isolation (accounting) to working in partnership with others. From mere accounting and governance function to guiding the organization to achieve its growth objective. Assemble Impact Information Apply Analyze Influence Insight FINANCE WORKS WITH OTHERS FINANCE WORKS IN LOCATION Advice

Sub Functions of Finance Five As ASSEMBLING ANALYSING ADVICING APPLYING ACUMEN Finance function entails analyzing both financial and nonfinancial information. This could be in the form of financial statement, comparative statements. More inquiry is done here. Data is raw form are collected from both internal and external sources. Then they are assembled as per requirement. Such assembled data are processed into useful and meaningful information. Finance function advises those decision makers with processed information. The information so shared must relevant, useful and meaningful for taking effective decisions. The information so received is applied to their budgeting exercise, performance appraisals, setting up performance measures. This is a key activity of the finance function which coordinates all the above sub activities with one another.

Time Spent Now versus Desired by Finance Function Information Insight Influence Impact Entry Level Analysts Business Partners Managers Senior Management C-Suite Current Desired

The Finance Function Value Matrix Communication and use of information Value enabling Stewardship Through partnership enables solution to create value and addresses performance issues. As a subject matter experts, the finance function contributes to strategic decisions. 01 04 02 Preserve Value Create Value Data Integrity Value Analysis 03 As trusted source of management information, finance function ensures data Provides insight acts as drivers of organization value through its thorough analysis integrity. Sourcing & Analyzing information

Value of Finance to an organization The top 5 values a finance function contributes to an organization is detailed across this slide. The topmost of the five values is the accuracy in reporting. If the numbers are suspicious, then the focus of the organization will get diverted to challenging the information provided. So, the accuracy of numbers is the key. COST MANAGEMENT ACCURACY IN INFORMATION Provides a balance between effort, relevance and accuracy Provides robust cost management andopportunities to control cost Finance function entails analyzing both financial and nonfinancial information. This could be in the form of financial statement, PARTNERSHIP With other business to make better business decisions. ANALYSIS comparative statements. More inquiry is done here. That provides increased level of quality in data that are shared RISK CONTROL Assurance over the integrity of information by creating robust control over processes

Data and its sources Data are collected or soured from range of internal and external sources. Internal sources of data comes from Production, Sales, Marketing, HR and from accounting records itself. External source of data are suppliers, marketplace, customers, Press releases and the regulators. From HR, Sales & Marketing EXTERNAL INTERNAL Attendance records,Staff records,Overtime sheets, Taxrecords, Payroll registers.Advertisement spend,Product promotionexpenses. Sales targets,market research reports,customer segment Regulatorsand Press Economy trajectory,fiscal budgets, taxregime, concessions and rebates for industry. Competitor news,market survey reports,technology updates,share prices. 1 3 2 4 INTERNAL EXTERNAL From Production,Finance Departments Customers and Market information Inventory records,Product requisition slips, Purchase orders, Delivery notes, Supplier Records .Fixed Assets records, Sales ledger in volumes, Sales ledger, Debtors and Creditors records. Customer choice,Change in trend and style, convenient like e- marketplace, price sensitivity. Market information like latest trend,competitor price,product position

Information & Qualities of Good Information A data collected from internal and external sources are spruced up as information for further use within the organization, these information should be good so that it can be used in planning and decision making on one hand control and manage on the other. Acronym for good information is A C C U R A T E. Accurate information is key for decision taking, accuracy makes data reliable. Complete in all aspects covering all details which add up to the report and thereby for Discussion. Cost to benefit must be reckoned. Is the benefit is more than the cost incurred for the information. Adaptable information is important as they can be adjusted according to the Requirement. Understandable information must be easy and straight forward with the information. Timely information is vital. Information should neither be too late nor too early. Delayed information is a stale information useless for decision making. Ease to use. Not lengthy in information. Presented in the format used as per template followed by the industry. Relevant for the purpose for which the information is sought. To avoid information overload.

Types of Information FINANCIAL Information Quantitative NON FINANCIAL Qualitative

Quantitative and Qualitative Information Quantitative information is quantifiable, i.e., they are backed by financial data or confirmed information collected from external sources, Qualitative information may be partly quantitative and may not be expressed by numbers. Quantitative Presenting the Information's Presentation should be easy to understand for the users. Complex graphs and chart should not be used unnecessarily Quantitative Collection of Information Qualitative Industry Information Marketplace, industry association, meetings with industry people including competitors. Collection of data can come from surveys, sampling or interviews. These data should be cleansed from any misinformation gathered because of sheer sample size. Qualitative Regulators /Government Tax journals, authentic information from IT, Industry regulators. Change in policy from Government. Qualitative Customer Information Feedback from customers plays avital role in this aspect. Their keenness for new product, new features added to old product s, price, packaging and promotion are based on this information. Quantitative Suitable Information No point giving an information without suitable comparison that are relevant.

Uses of Qualitative Information Qualitative information are mostly gathered information through hearsay or grapevine and cannot fully relied upon unless it is backed by some tell tale signs or indications. However, it is very useful in certain other cases for the organization. Some of the key benefits of qualitative information which contributes to effective decision making are explained here. Environment Product Launch Qualitative information gives valuable feedback on the expectations from the organization.Its reputation in the society.Decision on compliance on green initiative istaken based onthis information. Very useful when a new project is planned for launch. Timing is essential and qualitative information helps here. Government s policy Regulatory matters Latest changes in the regulations, legal matters that are in practice, relevant compliance requirements and latest standards offinancial reporting emanates from qualitative information. Information regarding change in the trade policy, tax structure, licensing, Export Import policy, economic stability by the Government are all valuable qualitative information for decision making

New Competencies of Finance Function The present-day finance professional must have the following competencies apart from the finance knowledge. Future of Job report released by World Economic Forum in 2018 has identified ten competencies as below. Problem Solving based on complexity 1. Innovation and Analytical thinking Leadership 2. Learning Strategy Emotional Intelligence 3. Initiative, Creative and Originality Problem Solving, Ideation 4. Technological skills System Evaluation 5. Critical thinking and analysis

Module Test Questions (Multiple Choice Questions) Q. No 1: When will an information move to influence from insight stage? a) Assemble b) Apply c) Advise d) Analyze Q. No 2: As a finance professional, you ________ and __________ value as a shaper to an organization? Q. No 3: What does the R in ACCURATE acronym for good information stand for? Q. No 4: At which level is the finance professional expected to partner with business and provide or suggest information that can be used for decision making? a) Information b) Insight c) Influence d) Impact Q. No 5: In the diamond shaped structure, technical specialist add their interpretation of the data collected and given to them. What are they doing? a) Applying b) Analyzing c) Assembling d) Advising 17

Module Questions - Keys Q. No 1: c) Advise. Q. No 2: As a finance professional, you createand preservevalue as a shaper to an organization Q. No 3: R stands for Relevant for the purpose for which the information sought and without overloading too many information. Q. No 4: c) Influence Level 3 Q. No 5: b) Analyzing Level 2 18

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