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Predictive Analytics in Finance and Accounting

FitzRandolph Gate, Princeton University
(FitzRandolph Gate, Princeton University - Kimberly Chen)

 

Predictive Analytics includes data collection, data modeling, statistics, and deployment. It encompasses a variety of statistical techniques from data mining, predictive modelling, and machine learning, that analyze current and historical facts to make predictions about future or otherwise unknown events.

Today, customers interact with banks and financial institutions across several different channels which has lead to an explosion in customer data being collected by these organizations. This data can be effectively leveraged using Artificial Intelligence (AI) to gain insights on current and future customer behavior. 

Predictive analytics can enhance a variety of finance processes, as well as offer insights into business problems and areas of potential. It is one such AI application that could help banks to optimize their processes while simultaneously reducing cost and resources deployed.

Here are several ways finance leaders are putting predictive analytics to use:

  • Predicting revenue. A plethora of marketing, sales, operation and even customer behavior data is making it possible for finance teams to not only forecast revenue more accurately but anticipate future demand for products. 
  • Improving supply chains. Supply chain inefficiencies can be a big drain on profits. But finance leaders are using predictive analytics to maximize efficiency in creative ways, such as ranking vendors to see who is most vulnerable to fraud, or identifying equipment that may fail.
  • Analyzing loss drivers. Predictive analytics can also identify trouble spots, including what's driving company losses. 
  • Detecting fraud. Finance leaders have been especially keen on tapping analytics to detect potential fraud, both internally and externally. In many companies, finance teams are using predictive analytics to identify potentially fraudulent purchase orders.

The potential for predictive analytics is only growing - and while the possibilities are exciting, there can also be serious pitfalls. This targeted use of data can lead to privacy missteps, faulty use of data and even discrimination.

 

Financial Accounting

 

Financial accounting (or financial accountancy) is the field of accounting concerned with the summary, analysis and reporting of financial transactions pertaining to a business. It is the process of recording, summarizing and reporting the myriad of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement, that record the company's operating performance over a specified period. 

Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.

 

 

[More to come ...]



 

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