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Finance

Great expectations lie ahead for finance  

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Michael Judd, senior director – strategic finance transformation, Anaplan

 

Evolutionary change in business is inevitable. Often shaped by emerging technology, evolution gradually influences consumer demographics, culture shifts, market dynamics, and job roles. For finance professionals, this change has been constant over the past five years as analytics, data, and technology provide organisations with increasing opportunities to steer business performance. So, what can they expect for the next five years? What does future planning need for sustainable success and what skills will the office of finance need to adopt?

Five years ago, the function of Financial Planning and Analysis (FP&A) primarily supported the needs of the Chief Financial Officer (CFO). Fast-forward to today, and FP&A professionals have evolved from record keepers and controllers to strategists and catalysts for change. This has also shifted the internal customers of the FP&A team; rather than responding solely to the CFO, FP&A teams now respond to the needs of the entire C-suite, as well as leaders of business divisions and key markets.

Understanding the implications of this change for the business and how to better enable the finance team can still prove challenging.

Organisations face disruption from regulation, digital technologies, business model innovation, volatility and uncertainty in economics, global politics, currencies, and commodities. This change is unrelenting and continuous.

As organisations and FP&A teams adapt processes and systems to today’s uncertain environments, the budgeting and forecasting process often needs to be reimagined. To accomplish this, there are four emerging trends that finance teams need to consider as they navigate the years ahead:

  • Forecasts need to be real-time. Planning platforms will connect all aspects of the business with one another so that changes in workforce, for instance, immediately flow in to forecasts. Production scheduling changes will be driven by demand forecasts that take in to account the impact of trade promotion, pricing decisions, and demand-sensing indicators. All changes to operating tactics flow seamlessly to the financial plan in real-time, and decisions and assumptions are easily accessible to the people making the day-to-day decisions and the strategic decisions that the C-Suite make.
  • Death of the annual budget. It will be replaced by regular focus on long-term strategic decisions throughout the yea

    Michael Judd

    r, in combination with fast, reliable forecasts. Examples of this include frequent reviews of footprint strategy, profit pools, innovation, and mergers and acquisitions. Business decisions regarding strategy will be supported through continuous, real-time forecasts and performing scenario analysis. Resource allocations are tied to the plans on which forecasts are based. Resources are available as needed and not through detailed annual budget allocations. Indeed, forecasts become the primary steering mechanism for business performance.

  • Planning by exception. In the future, organisations can anticipate looking only at considerations in the plan that could prevent the system from calculating the right forecast, such as a unique event or human factors. Advanced analytics, machine learning and statistical methods will eliminate cognitive bias in forecasts. This helps to achieve acceptable levels of variation, significantly eliminating effort, and increasing speed in the forecasting process.
  • Emergence of rolling forecasts. Internal performance will be viewed as a continuum of “innings” rather than tied to financial year ends. It will no longer be tied directly to fixed external metrics, but rather, directional, ambitious, and relative goals such as growth relative to competitors. Reaching the goal for internal metrics will deliver the conditions for continuous outperformance of the external metrics. Planning and forecasting will be in real time, continuous and much more lightweight from the user perspective. The majority of the process will be automated and connected throughout the organisation.

With these trends in mind, where does finance need to focus in order to move ahead? As data sets deepen across the organisation and beyond traditional boundaries, FP&A professionals will need to connect data to insight, decisions, and action to create value. This capability will become even more critical in the future. This demand for connectivity gives rise to a need for FP&A professionals to sharpen their skills in areas that may not come naturally, especially for those who work in controlling or traditional finance positions. Areas such as:

  • A deep understanding of analytics
  • An ability to work with ambiguity
  • Strong communication skills with senior leaders outside of finance
  • The ability to simplify problems and quickly find solutions
  • Lead fast & innovative change
  • Focus on the critical few strategies that will drive impact

The mindset needs to shift toward a focus on business drivers, leading indicators of performance, external data, and non-financial data. Moving forward, the finance function will play an increasingly strategic & integrated role within the business.

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Finance

THE IMPORTANCE OF ACCURATE AND TRUSTED TIMESTAMPING IN FINANCIAL SERVICES

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Richard Hoptroff, CTO, Hoptroff

 

Recent global financial regulations such as MiFID II require that all stock exchanges, credit institutions, investment firms and other trading venues, and their members or participants, must synchronise their server clocks to Coordinated Universal Time (UTC) to be able to record the date and time of any reportable event.

Stock exchanges, futures, investment firms and banks within the financial services industry require accurate timestamping to track transactions across networks. When networks lack clock synchronisation, the involved end users on the network become out of sync. If there is no precise and trusted timestamping solution present on the network, then every device is at risk of being out of sync.  The aim of the clock synchronisation requirement is to, amongst others, make sure there is consistency in reporting and to assist market surveillance in the event of suspected foul play.

Current solutions for accurate and trusted timestamping in fintech services rely almost solely on Global Navigation Satellite Systems (GNSS) for their time source. These GNSS signals, whilst free at the point of use, are often susceptible to interference from a variety of human-made and natural sources. This is a risk that can indirectly and directly affect multiple industries, including global financial services. Typical interference occurs when additional radio waves are generated via non-essential equipment ranging from ovens to faulty antennas. These signals begin to drown the GNSS signals causing false information on the position, navigation or timing of a device connected to the GNSS network.

Richard Hoptroff

A second risk of inaccurate time to the global financial services is the ability to be sure of, and to be able to prove, traceability. If you had two clocks, each with distinct, independent chains of comparisons back to different Stratum Zero sources, you would at least know if one was wrong, but you wouldn’t know which one. For complete traceability, three clocks are needed, each with independent chains of comparisons back to different Stratum Zero sources e.g. NIST/NPL. This additionally offers resilience against the failure of any individual chain of comparisons as well as failures in GNSS outages.

In global financial services, accurate and trusted timestamping is a legal requirement. These requirements come in the form MiFID II in the EU, and Consolidated Audit Trail (CAT) in the USA.

Both require sub-second accuracy and up to 100 microseconds for certain entities. Therefore, every device on a bank,  stock exchange, or investment firm network needs to be accurate and trusted within this margin. If not, the records produced from the events taken place on the network will be incorrect, causing reputational and authenticity issues for the banks, stock exchanges, fintech companies and other trading venues respectively.

Terrestrial timing solutions only have one stratum source zero grandmaster clock (GMC) that controls one individual network. Banks and stock exchanges would have to buy a terrestrial timing hub for each of their networks to ensure accurate and trusted clock synchronisation between networks. The problem with this is that these GMCs are not cheap to install or maintain. Every 3-5 years they need to be changed and require human labour to operate and manage their timing solution. As the popularity amongst cloud-based fintech solutions increase, software-based solutions must become the standard for global financial services.

Timing and timestamping solutions need to be cost-effective and forward-thinking. With the shift to the cloud, fintech firms will need to adopt a resilient cloud network architecture such as a Cloud Timing Hub. This Hub creates resilience and accuracy through simultaneously comparing multiple timing sources to confirm the time is always correct. In effect, the solution will maintain timing accuracy and traceability to a higher standard than local installations that generally rely on one connection to primary UTC.

Satellite signals crashing and losing connectivity would be considered to most, a ‘black swan’ event. However, if anything was learnt from the coronavirus pandemic it was that preparation and fall-back options are now necessary. In early 2020, US Executive Order 13905 mandated that all critical infrastructure in the United States must be able to function reliably in the event of disruption or manipulation of GNSS services. A similar approach was taken in the UK with the UK government announcing £36 million investment in a new National Timing Centre to provide additional time resilience to financial services and other key industries against the potential impact of satellite systems failure.

Governing bodies, at the highest level, are committing to reducing their vulnerability to these risks by implementing necessary legal requirements. However, this risk must raise the question on an industry basis, do we need to back up our sensitive data and time feeds and not rely on one fragile satellite system?

The future of timing solutions and trusted timestamping in the global financial services and fintech ideally needs precise and accurate clock synchronisation across the major industries, such as, stock exchanges, banks, and data centres. These solutions must include multiple time feeds that effectively distribute data across a network, with accurate time synchronisation that meets legal requirements, and most importantly, validation and traceability right back down to multiple stratum zero sources.

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Finance

QUESTIONS TO ASK YOUR FINANCIAL ADVISER

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With World Financial Planning Day approaching, it is the ideal reminder to meet with your financial adviser and review your financial position. To help you prepare, Jaco Prinsloo, certified financial planner at Alexander Forbes, outlines some questions to ask:

 

Am I sufficiently covered?

Just like insuring your car against a loss or damage, you also need to insure your life and your ability to generate an income. Your financial planner can assist you in setting up a personal insurance policy to protect you against the loss of income or life. You can use the proceeds from the policy to replace your income or take care of your loved ones when you are no longer here to provide for them. A good financial adviser will also warn you if you are over-insured, as this leads to paying unnecessary premiums which could be better used elsewhere.

 

Jaco Prinsloo

Am I invested according to my risk profile and goals?

Knowing your risk profile will help you determine your risk appetite to reach your investment goals. You might like the safety and security of money market funds, but saving for retirement using money market funds means your money will not grow fast enough. You exchange the risk of your money fluctuating with the market, with the risk that you will not be able to retire due to insufficient savings. Your financial adviser can help you find a balance between your comfort level and your investment goals to make sure you sleep well at night while being able to retire one day.

 

Are my investment goals on track?

Your investment returns must be secondary to your goals. Ask your financial adviser to give you a future cash flow projection for your goal to see if you are on track. Although the projection is just an assumption, it will give you a target to aim for. In addition, if you need to make adjustments, your financial adviser can help you find a cost-effective and tax-efficient solution to meet your investment goals.

 

What fees am I paying?

Some investors believe that they are not paying any fees or that there are no costs associated with their investments. However, reinvesting dividends, issuing statements, and buying and selling shares all come at a cost. Ask your financial adviser what your effective annual cost (EAC) is. This will show you the total cost of managing your investment. If you are paying above the industry average, ask your financial adviser to help you to explore alternatives. With investments, you get what you pay for. So do not always look for the cheapest option – look for the option where you believe you could get the most value for your money.

 

How is my financial adviser doing?

As you will be sharing personal information about your finances, it’s important to build a trusting relationship with your financial adviser. To ensure you receive up-to-date and current advice, remain current with industry changes and do not be afraid to question your financial advisor on these developments and the potential impact to yourself. An informed decision will give you the trust and confidence to act on any advice provided by your financial adviser, as you know it is the best for you.

Our emotions and feelings are often our worst enemy when it comes to personal finances. Your financial adviser cannot pick the next hot stock or make your debt go away. But they can save you from making emotional decisions and provide you with the support to reach your goals. Schedule that meeting with your financial adviser – and if you don’t have one as yet, there’s no time like the present.

 

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