IMA® (Institute of Management Accountants) recently released a new Statement on Management Accounting (SMA), Overcoming FP&A’s Biggest Challenge: Predicting the Future, which explores how predictive analytics, combined with knowledge of the business and scenario planning, can help organizations make better forecasts. The SMA is the first in a series on this topic.

The report discusses how among the many impacts of COVID-19, financial planning and analysis (FP&A) became even more challenging. The report further explains that by using basic predictive analytics with different types of data, any company can improve its forecasting and ability to make corrections quickly. This process does not have to be overly complex or require expensive software, as simple tools such as Bayes Theorem and the “Rule of Five” can help decrease a great deal of uncertainty.

“Any information that can be potentially useful to reduce uncertainty can add value to predictive models,” said Kip Krumwiede, Ph.D., CMA, CSCA, CPA, IMA director of research and lead author of the report. “Contrary to common belief, anything can be measured and modeled.”

The SMA discusses nine ways to facilitate effective predictive analytics:

  1. Expand the data available
  2. Tools: Start small and add on
  3. Use scenario planning
  4. Address the “Knowing-Doing Gap”
  5. Model building: Think causality
  6. Establish data collection systems
  7. Improve assumptions and estimates
  8. Monitor results and quickly identify the business reasons behind variances
  9. Improve analytical skills

“Management accountants should expand their view of what data is available for forecasting purposes and may even need to identify and collect such data,” added Krumwiede. 

The SMA is directly related to Part 1 of the CMA® (Certified Management Accountant) exam, which covers competencies related to financial planning, performance, and analytics. The SMA can serve as a guide for those interested in learning more about these competencies or are studying to take the CMA exam.

Visit the IMA website to read the full report.