The Need for Stochastic Controlling  or The End of FP&A as We Know it Today

The Need for Stochastic Controlling or The End of FP&A as We Know it Today

Classical FP&A (Controlling) approaches are on a dead-end street. We are witnessing the materialization of three fundamental facts of life which is forcing us to change: Incomplete data – 1 The avalanche of newly created data is growing faster than ever before. IoT or Industry 4.0 is real. Incomplete data – 2 The number of deployed enterprise systems has grown for more than 30 years now. The knowledge about how these systems interact is fading away, day by day. Incomplete data – 3 Today, it is not uncommon for vendors to not fully understand how their ERP systems function in detail. The developers who have conceived these products are all above 60 years old. As a result, classical deterministic approaches are doomed to fail – sooner than later. Therefore, deterministic approaches need to be complemented with stochastic statistical approaches – better sooner than later. Do these proven approaches—used by physicists—work in enterprise finance? Yes, they do. We don’t know how “stochastic controlling” will unfold in the future. Our vision is that “stochastic controlling” will revolve around performance scoring. FP&A stands for Financial Planning & Analysis. Planning is largely determined by aspirations and ambitions rather than capability to execute. Analysis is more or less confined to Excel massaging. In order to improve planning – advancing it from once a year to continuously – one must cognize business drivers. This means FP&A need to understand which of their financial indicators are dependent on which operational process steps. Moreover, FP&A must know about each and every operational process steps. Provided FP&A has access to all detailed money and goods movements during a...