AI for Business - Finance Office

Artificial Intelligence for Business – BP&F & Continuous Accounting ~ www.firstalign.com ~ 1
May 2018
Maximizing Human Potential
~ Transformation ~
~ Centers of Excellence ~
~ Artificial Intelligence ~
Exploring the case for AI in the Finance Office;
budgeting, planning, forecasting and continuous accounting.
Artificial Intelligence for Business

What is a Finance Office?
“A finance office is department that oversees the management of the
organization’s money. This includes budgeting, accounting, planning and
forecasting, alongside reporting financial statements.”
Influence of AI:
❖ reduces the expensive and time intensive annual budgeting process;
❖ uses machines to carry out financial tasks in an intelligent way;
❖ improves accuracy and predictability of Budgeting, Planning & Forecasting (BP&F); and
❖ creates a blueprint for “Continuous Accounting” allowing focus to be strategic.

What is BP&F?
A three-step process for determining financial goals, managed by Finance
Department under the Chief Financial Officer (CFO).
❖ Planning: outlines future direction and expectations; by one to five years
❖ Budgeting: documents expenditure and plan execution; by month, quarter or year
❖ Forecasting: uses historical data to predict future outcomes; by month, quarter or year

State & Need.
BP&F observations:
❖ key business driver data often lies outside the “usual suspect” systems;
❖ collection, monitoring and reaction needs to be in near real-time;
❖ innovation is changing methods, with AI adoption increasing accuracy; and
❖ manual solutions can’t timely capture operational and financial complexities.
Outcomes:
❖ a shift towards perpetual, scenario based BP&F models; and
❖ the elimination of ceaseless manual processes; thus increasing efficiency.

Why Artificial Intelligence?
The objective of using Artificial intelligence (AI) is:
❖ to better streamline financial managerial tasks;
❖ to increase the accuracy of forecasting with quantitative predictions;
❖ to create self-improving systems that reduce errors; and
❖ to more effectively automate the process; targeting speed, flexibility and agility.
As AI becomes adopted more into the mainstream, financial forecasting and modeling
will become near real-time and more accurately predictive.

We Explore.
1. The possibilities for AI in rethinking “Enterprise Finance”
2. Intelligent applications to identify and mitigate impacts
3. AI-powered business intelligence and analytics
4. Continuous Accounting and its strategic application
5. How AI can improve accuracy and outcomes
6. Case studies on budget planning and forecasting

Understanding the Process.
What is budgeting, planning and forecasting?
Understanding BP&F and AI

BP&F Processes.
BP&F is:
❖ a process set for determining an organization's financial goals; and
❖ managed by the Finance Department under the Chief Financial Officer (CFO).
AI can impact BP&F in the following ways:
❖ analyze data to reveal patterns, suggesting actions based on trends;
❖ generate indicators for monitoring scenarios that improve accuracy;
❖ enable near-time understanding of objectives, directional changes; and
❖ enable risk assessment algorithms to accurately predict market movement.

Understanding BP&F and AI.
❖ Today’s business world is driven by customer demand
❖ As patterns vary it becomes a challenge to develop accurate forecasts
❖ Goals aim to reduce uncertainty and provide performance benchmarks
❖ Finance as a business unit that sees these impacts day-to-day [2]
▪ AI is used to improve accuracy, thereby enhancing the bottom line [1]
▪ AI is leveraged to deliver real-time insights, and inform decision making

Forecasting.
Is an estimation of future outcomes using data;
❖ can be problematic due to compilation time and historic nature; and
❖ often prevents data in “real time” when “speed critical” decisions are required.
Forecasting methods utilize the following:
❖ sales information, market information, and competitor intelligence;
❖ financial budgets and actuals - current and historical;
❖ production assumptions - L/OH, new lines, vendors, etc; and
❖ operational costs such as payroll, pensions, insurance, infrastructure, facilities, etc.

Lifecycle.
1. Year end and upcoming year
❖ Towards the later part of each year leaders begin setting business objectives
❖ A high-level focus on margin, revenue, profit, volume, etc. while considering market
conditions
2. Algorithms established
❖ In doing so, a top-level algorithm (ex: 4% +$.05) can be established
❖ Applied organizationally or to lines of business
3. Process and Timelines aligned
❖ Alongside business rules to achieve the upcoming year’s cycle

Continuous Accounting/ BP&F Lifecycle Matrix
Q1 Q2 Q3
Artificial Intelligence
Q2 Data
Import
Forecasting Model
OPEX Calculation Rules
P & L Rules
Close-to-Disclose Processes
Q4 Q1
Auto-Adjusting Rolling
Profit & Loss Model
OPEX Model
Budgeting Model
Planning Model
Break Back
Model
Annual Budgets
Q4Adjustment
Q1 Data
Import
Q3 Data
Import
Q4 Data
Import
Daily, Weekly, Monthly Data Imports
Picture of the BP&F models running
“Continuous Accounting”
▪ Delivers real time reporting
▪ Enables faster analysis
▪ Anytime processing and reconciliation
▪ Analysis of data can be continuous
▪ Business cycle driven
▪ Clearer, more incisive decision making

Continuous Accounting.
“An approach to managing cycles, that is key to achieving a
more strategic function. It is designed to be practical and
address the tactical issues that prevent a strategic outlook.”
Continuous Accounting embraces three main principles:[1]
1. Automation of repetitive processes in a continuous, end-to-end fashion
2. Optimizing the accounting calendar by;
▪ distributing workloads continuously and evenly over the accounting period
▪ eliminating bottlenecks and establishing task order
3. Creating a culture of continuous improvement in managing the accounting cycle
Source: http://blog.ventanaresearch.com/2015/10/30/continuous-accounting-enables-a-strategic-finance-department

Reconciliation
Consolidated
Reconciliation
Job
Scheduling
Cash
Matching
Intercompany
Processing
Transaction
Analysis
Journal Entry
Exception
Research
Account
Detail
Analysis
Variance
Analysis
Rules &
Business Logic
Analysis
& Reports
WorkflowTemplatesINTEROGATIONLAYER
Smart Agents
Web Services
Connectors
SFTP
ETL TOOLS
Close Ledgers
Management Reporting
Intercompany Settlement
Variance Explanation
Disclosure Management
XBRL Tagging
SOFT CLOSE
HARD CLOSE
if necessary
Idea of Continuous
Accounting.

Continuous Accounting Blueprint.
How
 Technology
 Process
 People and Organization
 Maturity
◦ Legacy Processes
◦ Modernization
◦ Continuous Processing
◦ Strategic Accounting
◦ Continuous Improvement
Steps
1. Analyze current state
2. Design future state
3. Automate and optimize processes
4. Monitor metrics and results
5. Review outcomes and controls
6. Improve continuously

Approaches.
Teams are established and tasked with;
❖ gathering data, compiling assumptions, and notification of commencement;
❖ loading data into systems, review and adjustment before plan publication; and
❖ adding quantitative and/ or qualitative analysis, particularly through AI.
AI quantitative forecasting uses the following techniques [4]:
❖ Time series: the future tends to reflect the past; and
❖ Relational: the future is dependent on the direction of a variety of factors.

Financial Modelling.
Key Phases & Approach!
Financial models uses rules
BP&F models
Calculation rules and parameters

Uses & Rules.
Tend to use information from one or more data sources:
❖ incorporated into applications, that serve the needs of departments and lines of
business; and
❖ a Chart of Accounts (COA)
▪ listing all of the classes or categorizations
▪ relevant to payables and receivables
o money or the equivalent

Forecasting Process.
COA is used to organize finances, thus segregating classes in
order to give a better understanding of financial health.
Each account in the COA has a unique identifier and is:
❖ associated with real financial data;
❖ loaded daily, weekly or monthly; and
❖ snapshots of the same loaded into the AI platform.

BP&F Models.
Functionally designed, presenting information from multiple
sources.
Examples models are:
❖ Sales Planning: alignment of planning and budgeting functions
❖ Profit and Loss: estimates over specific time periods
❖ Auto-Adjusting-Rolling-Forecast: used to continuously re-forecast change
❖ Break Back: top-down automation allows bottom up “Break-Back” re-adjustments
❖ OPEX: handles operational expenditure to categorize costs

Calculation Rules.
Calculations and rules used by each model during budgeting
and planning.
Example formula groups are:
❖ OPEX: rules for operating expenses for ongoing running costs
❖ P&L: formulas and rules used in profit and loss models
❖ Dimension: formulas and rules that link items into a cube or dimension
❖ Disclose: regulatory reporting calculations for general accounting – cycle time

Why AI for Finance?
No-one can see the future with absolute clarity.
❖ Cycles require significant resources through two-phases of activity [3]:
▪ setting a vision for the future; and
▪ allocating resources.
Flaws in this ideal include:
❖ a misconception that BP&F aims to predict the future
❖ scope at times sets targets
▪ AI can analyze business factors and indicate risk signals in near-time
▪ AI can optimize decision making and increase rates of return

Organizational
BP&F Maturity
& AI. Target
Organization BP&F Maturity
Department
Annual
Annual + Q
Annual + M
Annual + W
Rolling
Continuous
Low
High
Line of Business Enterprise
$$ Threshold & Support
Spreadsheets
Budgeting
Software
Enterprise Planning
Software
Artificial
Intelligence
BP&F
Software
Complexity / Depth
Frequency
Culture
Hurdles
Target
High

AI Systems for BP&F.
Commonly used AI systems in BP&F are: [4]
❖ Automating Routine Decisions and Reports
▪ Just 17% of time is spent on strategic activities
▪ AI provides an edge allowing a focus on what matters
❖ Supplementing Process with AI Machine Support
▪ AI pattern recognition highlights abnormal activities
▪ Devolves to humans when not fully trusted
❖ Risk Management and Fraud Detection
▪ AI can churn through large data sets
▪ Identifies abnormal patterns, and risks through adaptive learning

AI Systems for BP&F.
Continued:
❖ Enhanced Dashboards – risks and recommendations
▪ AI is able to better to evaluate the past, and anticipate the future
❖ Improved Forecasting and Reporting
▪ AI improves accuracy, allowing more tactical and strategic thinking time
❖ Advanced Scenario Analysis
▪ AI enables calculation of financial scenario probability, making it easier to test
▪ This reduces time spent analyzing data, and improves broad range availability

Use Cases.
Budgeting & Planning
Forecasting

Budgeting & Planning.
Challenge: Each September BP&F cycles were costing a manufacturing company millions, while taking 3
- 4 months and significant resources. The process began by loading 9 months of current year actuals
alongside the ending 3 months for the previous year. Plan final reviews and publishing were mid
December. After the new year the management team would still have to adjust for the last 3 months of
actuals from the prior year, realign and re-publish the plan.
Q4 was highly dependent on seasonal volume impacting
profit and loss. Demand forecasting was difficult because of
consumer discretionary spending. The aim was to reduce
time while increasing accuracy.
Solution: An AI based platform with “Break Backs” for
scenario planning. Possible outcomes were reported, by
integrating “Auto Adjusting Rolling Forecasts”. It showed key
financial indicators by “developing probability”, allowing
pro-action using pre-defined plans.
ValueofInformation
Data ➔ Information ➔ Knowledge ➔ Insight ➔ Action
Raw
Data
Standard
Reports
Ad-hoc
Reports
Decision
Modeling
Predictive
Modeling
Descriptive
Modeling
What happened?
Why did it happen?
What’s likely to happen?
How to make it happen?
+4 High Accuracy/ Trust
-3 Low Accuracy/
Trust
-1 Lacking
Budget Preference+2
Budgeting & Forecasting
Accuracy

Forecasting.
Challenge: A consumer based company predicted product price and profits margins using traditional
financial data and negotiations with Sales Channels. They wanted to increase price, however historic
sales and Sales Channels advice, did not align to proposals. This limited outlook to past trend-based
predictions, creating challenges in forecasting “price change”, affecting sales planning and price setting.
Solution: The process integration of AI forecasting to predict
best pricing scenarios. This incorporated market data,
competitor intelligence and Machine Learning Algorithms to
showcase market willingness to go against market
conditions.
AI analyzed historic time series data, estimating the impact
of a variety of factors, providing confidence in price
adjustments. Accurate forecasts of sales and profit margins
when increasing pricing, were possible even contrary to
Sales Channels’ advice.
W Cat Feast
Y Dry Cat Food
X Cat Chow
X Wet Cat
Food
Movement
M Cat
Price Perception
High
Low
5
4
3
2
1
0
-1
-2
-3
-4
-5
High
Low
WillingtoPurchase

Impact of AI.
AI better captures dynamic complexities in a timely
fashion, effectively automating planning processes,
increasing speed, flexibility and agility.
AI is better able to streamline managerial tasks.
AI increases prediction accuracy and reduces errors.
AI using ML algorithms self-improve over time.

1. Streamline reconciliation
2. Centralize intracompany and LOBs
3. Controls and close orchestration
4. Continuous accounting
5. Continuous planning and forecasting
6. Robotic process automation
7. Retain, retrain and re-allocate talent
8. Institute process benchmarking
9. Improved Shared Service Center (SSC) efficiency
10. Cloud computing
Areas of Benefit from AI.
10 areas
Finance can
benefit from AI

Observations & Conclusions.
Adopting AI BP&F solutions increases accuracy by
improving methods and market intelligence.
AI forecast modeling will be near real-time and predicatively
accurate.
This facilitates perpetual, scenario based planning and
monitoring.

For more information, please visit www.firstalign.com to
discover ways we can help.
Download our full white paper at
http://www.firstalign.com/press/index-publications.html

Notes & References.
[1] 7 Ways Artificial Intelligence and Machine Learning Will Impact the Finance Office.
https://www.accountingtoday.com/list/7-ways-artificial-intelligence-and-machine-learning-will-impact-the-finance-office#slide-2
[2] Artificial Intelligence has a Rising Impact on Financial Markets.
https://www.thestreet.com/story/13744043/1/artificial-intelligence-has-rising-impact-on-financial-markets.html
[3] Artificial Intelligence Applied to Business Planning.
http://www.31december2099.com/2014/12/24/artificial-intelligence-applied-to-business-planning
[4] Artificial Intelligence Techniques Enhance Business Forecasts.
http://gbr.pepperdine.edu/2010/08/artificial-intelligence-techniques-enhance-business-forecasts
[5] Five ways Artificial Intelligence is Changing Tax.
http://usblogs.pwc.com/emerging-technology/5-ways-ai-changes-tax

FirstAlign Solutions
o. 227 W 4th Street, Charlotte, NC 28202
p. 646-233-2488
e. contact@firstalign.com
www.firstalign.com
NOT JUST KNOWLEDGE, KNOW HOW
“Maximizing Human Potential”

AI for Business - Finance Office

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