Understated spending, overspending, financial mismanagement, and fraud can lead to disaster. One of the main reasons organizations go out of business is their inability to forecast and/or ensure sufficient cash flow. Planning is necessary, but not sufficient, and must be complemented by skillful control. Information systems play an extremely important role in supporting organizational control, including: risk analysis, budget control, auditing, analysis of financial ratios, and profitability analysis and cost control.
Risk analysis – Companies must analyze the risk of doing business with other entities and give credit to customers. Palisade.com’s @RISK for Excel product is a powerful tool that performs risk analysis on Microsoft Excel spreadsheets using Monte Carlo simulation. You can answer questions like “What is the probability that the win will exceed $1 million?” or “What are the chances of losing money in this venture?”
Budget Control – The annual budget should be broken down into monthly allocations to ensure that the business has sufficient funds to pay expenses, especially if the business is susceptible to long gaps between paychecks. Managers at various levels must monitor departmental expenses and compare them to the organization’s budget and operational progress. Numerous software programs can be used to support budget control; most of them are bundled with estimating packages from providers such as outlooksoft.com,clarisystems.com and capterra.com
Auditing – The main objective of the audit is to ensure the accuracy and state of the financial health of an organization. Internal audit is performed by the organization’s accounting/finance staff, who are also prepared for external audit by public accounting firms. Internal auditors may use information technology to facilitate the audit. For example, intelligent systems can uncover fraud by finding transactions that deviate significantly from previous balances.
Analysis of financial ratios – An important task of the accounting/finance department is to monitor the financial health of the company by monitoring and evaluating financial ratios. Data collection for ratio analysis is done through the transaction processing system, and calculation of ratios is done through financial analysis models. The interpretation of ratios, especially the prediction of their future behavior, requires judgment and professional experience.
Profitability Analysis and Cost Control – Many companies are concerned about the profitability of individual products or services, as well as the financial health of the entire organization. Profitability analysis software allows accurate calculation of profitability and allows allocation of overheads. Oracle Hyperion Profitability and Cost Management provides valuable cost and profitability insights by uncovering cost and profitability drivers, providing visibility to users, and improving resource alignment.
