Steve Gallagher is an advisory partner with audit firm KPMG in the UK.
As the economic downturn continues to bite, corporates are likely to be looking for every bit of help they can get to free up more cash from within their business. Spotting opportunities for further efficiency or for cost savings is never easy — but an ideal tool for doing just that may be right under their noses.
Businesses have been investing in data analysis tools for a while now, often using them as a way of spotting fraud. However, their applications can go much wider than just that. As Steve Gallagher of KPMG’s Advisory practice explains, the use of data analytics might just make the difference between surviving and perishing in the current economic climate.
Data analysis tools are nothing new — yet I feel that very few people are aware just how many possible applications they have. They simply do not realize what a powerful tool they have at their disposal.
I’d suggest that many businesses currently only use around 20 percent of the full capabilities of these data analysis tools. If they realized what uses these tools could be put to, this may go some way to helping them ride out the worst effects of the credit crisis.
That’s if they’ve even got these tools in place. Many have yet to fully embrace the technology while those that have done have tended to do so for quite specific purposes, with combating fraud often a key consideration.
In this regard, vast banks of data are mined with the intention of revealing anomalies, irregularities or suspicious trends. I’ve seen insurers able to clamp down on fraudulent claims from doctors in this way and businesses clawing back cash which was lost due to human error in paying the same invoice twice. Similarly, utility firms have been able to release significant amounts of cash back to the bottom line after using analytics to improve their management of revenue. Unearthing mortgage fraud, exposing organized electoral fraud — the list goes on.
One of the key points I have in mind is that no business should wait until it is in a criminal or crisis situation like this before it starts putting these tools to work. The way in which these tools operate means they can give a handy insight into how a business is operating but can also be put to work in a more forward-looking capacity, outlining possible ‘what if’ scenarios and assessing the risk to the business. In today’s economic climate, the potential benefit of having access to such a tool is undeniable.
In this regard, such tools could be used to properly assess a corporate’s exposure to the stricken financial sector for example, not just highlighting the risk but quantifying how great a risk it represents and where the fall-out would be felt most keenly.
Again, we’re highlighting the negatives here — but where data analytics could really come into their own is in helping senior management to run the business more smoothly. This is a business intelligence tool which can facilitate a greater understanding of a company’s customer base, its ‘hot’ products or its problem markets, enabling better informed strategic decisions to be made on the allocation of time, resources and investment.
In another possible application, data analytics can also bring about improvements in supply chain processes, optimizing the journey from raw material to finished product by showing the points at which cash is left inactive, tied up in inventory which needs to be moved on more quickly.
I believe that even in benign economic conditions, corporates would soon come to realize how data analytics could be put to work in a number of supply chain, supplier or cash management related circumstances. In these more unusual financial circumstances, that realization may come rather sooner, driven by the need to streamline operations and free up much-needed cash.
The problem some businesses may encounter is that they lack the in-house skills needed to make optimal use of the technology at their disposal. This is the legacy of having brought the technology in with such limited usages in mind. However, at least they are still one step ahead of those businesses which hadn’t yet clambered aboard the data analysis bandwagon. Those corporates that have mastered both the technology and the skills side of the equation should have put themselves in a more favorable position. I believe that correct use of data analytics is a source of competitive advantage but, in the unprecedented fiscal circumstances which we find ourselves in, it might just make the difference between riding out the storm — or being swept away.
