Innovative, forward-looking accountants understand financial data as a strategic asset to anticipate economic patterns that reveal opportunities to improve processes, track performance and mitigate risk. Also, with many chief financial officers (CFOs) identifying data analytics as a key contributor to better financial performance, businesses place a premium on accounting professionals with advanced expertise in extracting value from data.
The four primary methods of data analytics are as follows:
- Descriptive: identifies trends and patterns in historical data.
- Predictive: anticipates outcomes.
- Prescriptive: models scenarios that enable business leaders to determine which projected outcome will produce the best results.
- Diagnostic: interprets data to understand why something happened.
Accountants who can formulate and test data-based hypotheses, draw conclusions and build frameworks that improve decision-making help their organizations thrive.
Descriptive Analytics Are Critical to Accurate Financial Reporting
Identifying trends in large historical data sets gives accountants an in-depth understanding of financial performance. Those advanced insights enable them to produce more precise financial statements, budgets and forecasts, performance evaluations and risk assessments.
“Insights on company-wide operations such as new product launches or compensation plans, along with analytical reviews before book closures can be used to ensure that the financial reporting is accurate,” according to Acuvate, a digital transformation consultant.
Using Predictive Analytics
Accountants use predictive analytics to forecast future financial performance and identify opportunities to improve financial results and assess risks, including what Deloitte calls “the phantom menace: risks that are already materializing but with losses that haven’t been recognized yet.” Predictive analytics integrate historical and real-time data sets to expand decision-makers’ ability to uncover and prevent potential risks before they do actual financial damage.
Accountants also use predictive analytics to conduct scenario analysis and assess the impact of business decisions — such as pricing changes, marketing campaigns and capital investments — on future financial performance. For example, they can simulate the outcomes of different scenarios, such as changes in pricing, marketing campaigns or capital investments, and evaluate the financial implications of each.
Data Reveals How to Achieve Desired Outcomes
Finance leaders use prescriptive analytics to determine which predicted outcome will yield the best return and how to make that happen.
For instance, prescriptive analytics uses mathematical models and algorithms to understand how predicted resource allocation scenarios will play out and gain insights into optimizing resource allocation across different business units, projects or activities.
As Infosys BPM explains, prescriptive analytics “helps you understand how and which variables can be choreographed to achieve the desired result. This will help businesses in responding to evolving changes in their environment while making real-time decisions.”
Accountants also use prescriptive analytics simulations to evaluate different risk mitigation strategies, identify the most effective process and analyze long-term growth options to choose the best course based on the organization’s goals, resources and constraints.
Diagnostic Analytics Answer the Question, “Why?”
Accountants use diagnostic analytics to understand the reasons behind past financial performance and discover the root causes of any problems.
Diagnostics provide insights into financial ratios, determine underlying causes of declining sales and increasing costs and analyze the difference between actual financial results and budgeted or expected results.
Understanding the root causes of such variances enables business leaders to take proactive corrective measures, enhance risk management and make decisions more quickly and with greater certainty.
“In the process, they’ll produce outcomes that can give an organization a real competitive advantage and, ultimately, create shareholder value,” according to the Association to Advance Collegiate Schools of Business (AACSB).
How Do Accounting Professionals Gain Expertise in Data Analytics?
The AACSB-accredited online Master of Business Administration (MBA) with a Concentration in Accounting program offered by Southeastern Oklahoma State University equips graduates for senior management and C-suite roles through relevant coursework, including the following:
- Data Analysis for Managers emphasizes the interpretation and use of data analytics.
- Management Economics highlights the quantitative analysis of pricing, production and profit maximization.
- Financial Statement Analysis focuses on the analysis of financial statements (including asset and liability valuation, income recognition and cash flows), profitability and risk analysis, earnings quality and forecasting.
Graduates of the online MBA with a Concentration in Accounting program develop the knowledge and skills to enter influential accounting positions, such as financial controller, director of accounting or CFO.