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The Evolving Role of Financial Planning-and How IT Can Help

By Ken Levey, Vice President of Financial Institutions, Kaufman Hall

Ken Levey, Vice President of Financial Institutions, Kaufman Hall

In recent years, finance teams in banks and credit unions have become instrumental in driving their institutions’ financial planning and profitability analysis. As their responsibilities continue to expand beyond reporting, they require more effective and reliable data and analysis to keep pace with the complexities of increased competition, evolving regulatory requirements, and growing consumer and technology demands. The data must be accurate and have sufficient detail to provide insights that promote a true 360-degree view of the institution, not only in terms of profitability, but also in support of key operational and transactional processes.

Technological advancements are allowing many finance teams to leverage enterprise performance management solutions to aggregate data and produce the desired results in much less time. Often, they look to IT to help drive or validate technology decisions that both meet their business needs and protect the interests of the institution and its customers or members.

In Kaufman Hall’s recent survey, 2017 CFO Outlook: Performance Management Survey, 97 percent of respondents believe their institution should be doing more to leverage financial and operational data to inform strategic decisions. The top areas identified for improvement include: profitability measurement across various dimensions; providing more insightful reporting and analysis to support decision making; operational budgeting and forecasting; and cost containment and efficiency.

Finance teams and IT professionals can address needed improvements by working together to build the appropriate capabilities within their institutions. Three key areas of focus might include enhancing understanding around financial drivers and planning, strengthening reporting, and ensuring data security.

"As financial institutions gain insights into their financial drivers and improve planning methods, they continue to be hampered by inefficient reporting processes and inaccuracies within their data"

Understand Financial Drivers and Planning Needs

One critical capability area to address is profitability. While many financial institutions have some level of insight regarding their top-level profitability, they struggle to understand the profitability impacts and opportunities from individual product lines and customer segments. Only 22 percent of survey respondents feel that their institution has a clear understanding of the profitability of their products, customers, and channels, with 73 percent of respondents indicating that they are looking to improve their capabilities in the profitability measurement and management arena.

Collaborative cash flow margin planning also plays a key role. With the right tools and processes in place, financial institutions can more accurately assess margin contributions across the institution, plan cash flow contributions over time, and employ stronger modeling capabilities to process meaningful “what-if” scenarios (e.g. What happens if interest rates fall even further?).

Finance teams need solutions that support these types of financial planning requirements, allowing senior management to make more timely and informed decisions to optimize financial performance.

Strengthen Reporting Accuracy

As financial institutions gain insights into their financial drivers and improve planning methods, they continue to be hampered by inefficient reporting processes and inaccuracies within their data. In the Kaufman Hall survey, only 10 percent of respondents indicate high satisfaction with the quality of financial reporting, while 60 percent of respondents indicate that their organizations struggle to ‘drill’ into reports to understand the details behind the results. Almost as many (55 percent) have trouble pulling data from multiple sources into a single, usable report.

Inefficiencies in data analysis and reporting are even more problematic when it comes to annual budgeting. The survey found that 48 percent of financial institutions that responded take three months or longer to complete an annual budget. By the end of the process, the data used to craft the budget often is outdated and no longer provides the most accurate picture of the bank’s position. As a result, many institutions devote extensive time and energy to produce reports that provide limited value. Implementing modern performance management practices such as rolling forecasts, and introducing tools to streamline the budgeting process overall, allows finance teams to use those resources for more effective analysis that better contributes to strategic growth.

Ensure Security and Reliability

In looking for solutions that improve reporting accuracy and understanding around financial drivers, institutions must not lose sight of the need to keep their data secure and accessible. Solutions that integrate data through a cloud implementation, powered by services such as Microsoft Azure or Amazon Web Services can help institutions achieve and document SOC 2 compliant hosting. SOC 2 requires controls for security, availability, process integrity, confidentiality, and privacy—all critical issues to protecting an institution’s customers/members.

Although some perceive cloud computing as less secure, there have been very few security breaches in the public cloud, according to Gartner’s 2015 report The Top 10 Cloud Myths. Most breaches continue to involve on-premise data center environments. Data accessibility can also be much higher in the cloud, with built-in redundancy and uptime guarantees often in excess of 99 percent, eliminating reliance on in-house servers and maintenance schedules.

Kaufman Hall survey data clearly indicates a desire for improvement when it comes to budgeting and financial planning. Ultimately, IT and finance teams must work together to embrace modern performance management practices that will protect customers/members, while empowering institutions to better meet the challenges of a constantly changing business environment.