Listen to our latest podcast from Insights to Action Podcast series. Julio Dalla Costa provides a deep dive into how analytics capabilities are used in financial management and specifically how SAP Analytics Cloud can unify disparate data sources to streamline real-time forecasting, cash management, what-if scenarios and reporting.

Also, below is a transcript of the podcast episode:

Jim Hunt: This is Jim hunt for Bramasol’s Insights to Action podcast series. Today, we’re going to talk about one of my favorite topics with Julio Dalla Costa, Director of Technical Accounting at Bramasol. That topic is analytics with some specific drill down on forecasting and historical analysis. So Julio, welcome. Good to have you.

Julio Dalla Costa: Nice to be here, Jim. Good to talk to you again.

Jim Hunt: So why don’t we start with kind of a broad overview of why every company needs analytics?

Julio Dalla Costa: Sure. So Jim, I think this is one of the most important measures in the space of financial analysis, financial accounting. You know, I’m an accountant, so in my days of closing the books and doing budgeting and forecasting and financial planning, we would do a large amount of work to actually get the numbers together. Once we had the numbers together, they were distributed to various executives within the company and various interested parties, such as the CFO, the CEO, the VP of sales, VP of operations, etc.

And why is that? That’s because, you know, whatever the company is doing, whether you’re making products or you’re selling services, at the end of the day, how you do that is very important, but what’s more important is how you assure that and how is the activity reflected? And the activity is reflected in the numbers. So in the old days, you know, you would put together a financial package. In my old days specifically, you would use a tool Hyperion or what have you to consolidate, and then you’d have a reporting platform where you would at least I used to generate the financial numbers for the end of the month or the end of the quarter. And then I would put it in a financial reporting package, usually Excel, sometimes a PDF. And I remember days when I would literally stand by the printer and print out 12 copies of this PDF document, put it in a hard core binder, make a three hole punch and basically hand deliver to the executives. That was my job, part of my job. I think now, with technology, especially SAC, which is, you know, the SAP Analytics Cloud platform, it makes it a lot easier.

Julio Dalla Costa: I think, gone are the days when you had three hole punch, you have to sit by the printer and wait for the copies and God forbid the formatting was out of line, you gotta do a whole printing run over again. So now, you have this platform called SAC analytics where you basically, after the accounting team has actually closed the books, you can start running your own reports. So what you see is enablement using technology where executives or anybody in the company, from the staff accountant to the CEO, they have their own platform and they can go into the technology and run their own reports. So a good example is a staff accountant might be interested to understand what sort of postings went through for the month end. A CEO, now he or she is more interested in looking at what is my revenue trend for the quarter versus last year, this quarter, or what is my, you know, trailing 12 months analysis of my earnings or my contribution margin.

These are things that companies want real time and they want, as soon as your books close. I remember, in my former controller days, you know, you have the three and the CFO is already asking, what are the numbers looking like? Because I’m pretty sure his CEO and his executive team is asking him, what are the numbers looking like? SAC enables that to get real-time reporting and not only real-time reporting, but now you can slice and dice the data, however you want it. So in the SAP space, you know, Bramasol provides revenue, treasury, lease accounting, but now we’re dipping our tools into the space of overall financial analytics for any company, financial performance analytics. And that reads right into beyond looking at what happened historically, it’s, what’s going to happen, which is financial planning and analysis. Jim, is that a good overview of what I’m talking about?

Jim Hunt: Yeah, that’s a great overview, Julio. Thank you. One of the things that occurred to me is, I commiserate with you from the old days when you were printing all those pieces and putting them together in the three hole binders. There was in those days, obviously there was lack of transparency back to your spreadsheets about how it had been done. And one of the things that we talk about a lot is a single source of truth concept with analytics that are integrated and span all of the native data sources. Everybody is operating from the same source of truth from the outset.

Julio Dalla Costa: Exactly. I think that’s very important, Jim, you bring up a really good point because, um, in my old days of that three hole punched doing the print runs, when I presented that package in my three hole punch binder to the executives, you’re exactly correct. There was no way to really tie what I was presenting in this PDF that I generated from Word or an Excel to the actual numbers that are coming out of the system. Some of it was actually manipulated to change some formatting to change some adjustments. So there’s no controls. I was the only control and unless something fell way out range, let’s say I had a hundred dollars last month and this month I have zero. Then if it was a hundred compared to 95, more or less people say, okay, that looks about right, but there’s no validation about, well, is that really a real number? And what did Julio or his team have to do to come up with that number? So that’s actually spot on point.

Jim Hunt: Yeah. Or if they wanted a slightly different drill down view, you and your team would have to go back and research that question and create it for them. Whereas with integrated analytics, you can just help them with their dashboard to focus on what they’re interested in.

Julio Dalla Costa: Yes, exactly. And I mean, you know, if you think about it, analytics is just a fancy word, which is basically financial number analysis, analytics spans the whole world. You can use analytics in, you know, in my old days, working in the oil field industries, companies used analytics to look at the operational efficiencies from, you know, how much oil was coming through the pipeline to health and safety analytics. But what we’re actually focused on and I’m focused on is financial analytics, which is looking at the financial performance of the companies from the general ledger data coming from accounts payable, accounts receivable, general ledger into a consolidated financial picture of that company. So looking at things like cash, accounts receivable, return on equity, return on capital employed, EBITDA, EBIT, net contribution, group contributions, all of those financial analytics.

You know, if you line those metrics up, most companies, what they would do is at the end of every month, you would have a set of data points that you’re looking at. And you’re looking at trend analysis to see over the last six months over the last nine months over the last quarter. And you’re comparing that to prior year’s quarter, the last five years, and you’re creating these cool graphs and trends. And if you like bar graphs or you like, uh, you know, whatever trend you like, you have this nice chart in front of you. That gives a picture of something in a couple of seconds. So if you think about earnings before interest and tax EBIT, a lot of companies like to start with that analysis because you know, you have a picture and pretty much Jim, if it’s going up, you can tell right away if it’s going down, you can tell right away. And the name of your podcast is Insight to Action. That’s going to give you a lot of insight to action and that’s the power of real analytics,

Jim Hunt: Great foundational overview. Let’s dive into how analytics can be used for forecasting.

Julio Dalla Costa: Yes, very important. Because you know, a lot of companies are very interested in, tell me how I did, but a lot of CEOs I realized, they don’t care too much about what happened in the past. What happened in the past is really for content to put together the historical picture. And we’re really good at that. But I think what CEOs, and especially if you’re a public company and you follow Wall Street and they have all these buy-side analysts and sell side analysts, they’re really interested in the future, what will the company do? And what is the guidelines and what is the, the, the estimates that they’re giving out. A lot of companies give out quarterly estimates for the next 12 months, 24 months, five years in advance.

And when you think about that, you think about analytics, and analytics builds upon the historical background of any company. So it takes historical performance and it layers upon putting in your budget and your forecast into this analytics tool that we call SAC and it basically gives you a number of indicators. So in forecasting, what you’re doing is you’re taking, I guess the most common people use is a trailing 12 months. They use a trailing 12 months analytic, and they can use that for revenue, for gross margin, for net, profit, whatever you’re using. And they use that as their starting point for their rolling budgets. When I talk about rolling budget, there’s two differences here. The first one is your budget. Your budget is your annual forecasting plan. So you usually have a 12 month budget. And that turns into a longer term budget or five-year budget.

Then layered on top of that, you would have your rolling forecast. So some companies reforecast as we call it every month, they reforecast every quarter and the reforecast every six months. So what does that do? So you’re going to start with your budget. So at the beginning of the year, like right now, you’re going to have a 12 month budget. At the end of March, now you’re going to compare what did I do versus my budget, but then, you know, maybe I’m doing better than my budget, or maybe worse than my budget. So what companies do is you have a reforecast process where you say, you know what? I know I’m not going to make my budget this year. So let me, reforecast down closer to my actual, because certain things have happened. Maybe COVID, or maybe you forecast up, maybe won a big contract in Q1.

So what you’re trying to do is track as close as you can to your budget, but then you re forecasting to get more nuanced into what’s actually happening in the business. Because if you think about budgeting, budgeting happens a quarter before you get into the new year. So most companies have finished their budgeting by the end of the last year, which, in this example, we would have finished our budgeting by the end of November or early December of 2020. So a lot of things could have changed in my industry. So you’re trying to do a reforecast to get closer. So the good thing about SAC analytics is you can do all of that process within the tool. You can get your trailing 12 months, you can get your actual budget in, and then you can do your reforecasting. And then there’s a lot of neat analytics that you can do. What am I doing for my actual, for my budget, for my reforecast, and then really come up to fine tune. How is the company really doing? And that’s the power we see of the FP&A tool within the SAC analytics environment.

Jim Hunt: Well, thank you. You know, it sounds like, if your historical data is rich enough, as you accumulated and you build a base in the analytics system. There’s a lot of also modeling that you can do looking forward. Like if you, if you anticipate your product mix or your gross margin is going change, or you’re doing a facilities expansion, you can model those based on real data rather than just kind of a guess.

Julio Dalla Costa: And that’s exactly what we’re trying to become, Jim, is become more accurate. We’re trying to become more real time because big things happen to companies all the time. You know, if you think about last year around this time, COVID was just starting up. And then we have many companies, you know, were negatively impacted by COVID. On the flip side, we have many other companies who were positively impacted by COVID such as Zoom, you know the real time video company, and we had software as a service boom last year. And it’s important to really reforecast because especially if you’re a public company what you’re doing is you’re giving, we call it the street, new estimates. And usually if you give good estimates and usually you beat estimates as they would see every quarter, your stock price goes up. So it’s very important to understand what are the drivers of my business and how are we doing that to increase or decrease, or to come in within our estimate guideline, very important process within public companies.

Jim Hunt: Yeah. And when you consider that, you know, so many people say the stock market is a forecasting mechanism, then you really want to be able to provide accurate data to enable analysts and investors to do that forecasting with you. Let’s talk a little bit more about historical. You’ve touched on it some, because it’s such an important baseline for forecasting, but are there any other issues with historical analysis and how you’d use it and why it’s important.

Julio Dalla Costa: Yeah, absolutely. So, you know, when you have these high level dashboards or analytics, you start with these big numbers, revenue, and expenses, and what’s my cash availability in cash. But if you think about it, companies want more than that, you know you have different audiences. So when you start getting down to the CFO and you start getting down to the Director of Revenue Accounting, what’s more important than analytics? And you know, what I find very interesting is there’s this tool within the SAP space and it’s called the growth and performance dashboard. And when I say that, it means that if you look at sales or revenue is driving a certain amount of performance, but then the next question comes into play is, well, why, why did my sales go up? You know, is it because of growth?

What is the driver of that sales? And the neat thing about this tool, I wish I could show you on the computer, but there’s actually something that SAP uses called the “group effects”. So what can drive revenue,? There’s volume if I sell a lot more product or let’s say I increase my price. Well, what is my mix of volume and price? Those are the things that are very important to the revenue team that tells me, you know, did I have a volume variance or did I have a price variance? Or both sometimes. If you’re lucky enough, you increase price and your volume goes up. Usually if you increase price, maybe your volume goes goes down. But if you increase price enough that doesn’t have a negative impact on my volume, then I am increasing my overall revenue.

Those are very important variables that companies want to know. And that tells you about efficiencies of my revenue growth. Is it because of volume? Is it because of price and more importantly, what products are increasing in volume? What business units, what are the countries we have had the highest growth. So as you think about that from a picture perspective, Jim, you can tell that when you start drilling down into these metrics about volume price, region geography, and you layer that on to legal entities and countries, it’s going to give you a really good picture of where I’ve been, what I’ve been doing, but more importantly, where should I put my marketing focus? If I look at a big company and I know we had a price increase in Europe, and for some reason, my volume went up, you know, I have some inelastic volume.

What happens is I may say to myself or my executive team, we need to put more resources or more marketing spend in Europe. Because even though I raised prices, the volume was not negatively impacted. So it’s a good indicator of looking at what is my spend, my marketing spend, what is my ad spend, and where do I put those dollars, those scarce dollars. Where’s my best allocation of dollars going to be to get my highest return. So that’s the kind of that you need.

Secondarily, if you look at cash, everybody wants to talk about cash and treasury and accounts payable. When companies start looking at what is my day sales outstanding, what is my days payable? If you think about that from a cash perspective, how fast am I? How am I converting accounts receivable into cash? That’s one metric. Also how slow can I pay my vendors? Those two influence my working capital metrics. If I slow down my payments to my vendors, let’s say 90 days. And I increase my account receivable conversion to less than 30 days. I am putting more cash into my business. Then my treasury folks are going to ask the question, well, you know, we’ve been accumulated a lot of cash in this region of the business. How best can we put that to work? Can we decrease our loans, pay off our loans with the excess cash we have and reinvest in the business. I mean, Jim, we can talk about this for days upon end, but that’s some of the power of understanding, what are the drivers of your business and how can I best allocate resources within my business.

Jim Hunt: Great overview. Thank you. In the few minutes we have left, let’s talk a little bit about, uh, what companies can do to get started. And also if you could maybe address if I’m a CFO and I’ve got multiple legacy systems, maybe I’ve been doing a lot of M&A activity or something. Talk a little bit about how SAP analytics can address heterogeneous multiple legacy platforms.

Julio Dalla Costa: Yes. Good, good point, Jim. I mean, SAP fully believes that SAC analytics is the way of the future. It’s the way that companies look at manage and allocate resources in their businesses. And if you think about it, we in Bramasol are fully behind this initiative. In fact, we are fully involved in analytics, not just in overall financial analytics, but in all our key areas of revenue recognition of leasing of treasury, and S/4HANA. And to answer your question specifically, if you have a multiple entity platform and they’re using different, you know, general ledger, different ERP, they may be have JD Edwards in Europe, they have SAP in the United States; SAP analytics is a great tool to feed all the numbers from these disparate systems into this analytics platform, because what’s going to happen is you’re going to have a consistent stream of data coming into this platform. And, you know, revenue is revenue all over company, whether you get the revenue out of JD Edwards or Dynamics or SAP, the neat thing about SAP analytics is you’re feeding these revenue sources or cash or treasury needs, or AR/AP or anything, any financial number into this analytics platform. And then once it’s there, the data becomes homogeneous. The data becomes equal and consistent, and then you start mining the data for Insights to Action. And that’s the beauty of this tool.

Jim Hunt: That is great. And just to thought, we should do a future session on using analytics to streamline M&A integration activity.

Julio Dalla Costa: Definitely. We should. And you know, more to come, we will be doing webinars on the analytics offering from SAP and the SAC analytics platform. And we will be applying that to our space as well in the revenue, treasury, and leasing spaces as well. I think it’s a great offering. I think any CFO or CEO who wants Insight to Action and wants to have actionable questions back to his business teams needs SAP analytics.

Jim Hunt: Perfect note to end on Julio. Thank you again for your time. I really appreciate it. I know our listeners will learn a lot from it.

Julio Dalla Costa: Thank you, Jim. Have a good day.

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