Implementing AI into Corporate Finance Strategies
Posted by Sjoerd-Jaap Westra
The media has been flooded lately with stories predicting how "the robots" are coming to take over (or steal, depending on which publication you read) human jobs, and the industries that are likely to be most affected. According to a report by Gartner, it is predicted that one of every three jobs could be lost to artificial intelligence by 2025.
While many of these stories may be littered with doomsday predictions, should CFOs be looking to capitalize on the latest AI innovations by incorporating artificial intelligence into their corporate finance strategies?
Applying AI to Financial Processes and Strategies
A recent study revealed that 38% of enterprises have already embraced AI technologies and that 62% will have implemented AI technology in some form by 2018. These higher adoption rates are largely due to a number of factors: the cost of computing has rapidly declined, there have been dramatic advances in analytics, and thanks to the conception of gargantuan data farms, we now have more computing power than ever before. All the while, AI technology has been evolving quietly in the background and growing exponentially.
Over the next decade, AI is expected to transform and assist with many of the core functions within the office of the CFO. Able to offer a heady business cocktail of intelligence, accuracy and speed, AI is perfectly aligned with financial reporting and disclosure processes, reconciliations and identifying issues in a timely manner. Rather than waiting for the quarterly "close" and firefighting problems, finance teams will be able to harness the power of AI to detect issues, adjust figures and present more accurate data.
When applied to financial processes and strategies, artificial intelligence will be at its most effective when automated analysis is merged with human insight known as Intelligence Augmentation (IA).
AI comes into its own in relation to programmable processes like accounting and backward looking disclosure. The technology can autonomously replace human cognitive functions by analysing massive amounts of relevant data very quickly in a way that we just can’t. Very useful where the end goal is well-defined and outcomes can be predicted. While this frees up time for us to focus on more valuable tasks, the human brain comes into its own where common sense and logic are required to create and set in place a subsequent action plan.
Where AI is less successful is where human thinking is required for non-programmable processes like strategy definition and business planning. In these cases, the finance function will see value in Intelligence Augmentation (IA) where AI supplements and supports human thinking, analysis, and planning. Systems can evaluate data and even provide recommendations based on that, but people are required to decide what action should be taken.
I’m confident that AI will affect the following areas of finance in the very near future:
Also known as Distributed Ledger Technology, blockchain technology is already starting to sweep the floor with traditional financial transaction methods, such as settlement, clearing, execution and payments. What makes this technology so tempting is that it is extremely efficient, accurate, secure and cost effective while it reduces the risk of fraud. It also eliminates much of the administration handled by back office staff.
While it's still in its infancy, trading using algorithms is rapidly changing the shape of the market environment. When applied to the trading floor, AI can not only interpret changes in market data, but also adapt and refine itself so that it devises better trading strategies. What's more, these refinements take mere days compared to the months required to adapt to changes manually.
The industry is also starting to see a shift in the ways that wealth management and investment companies are using AI technology. Using AI tools online, companies like Vanguard Group and Charles Schwab are able to collect information from their clients and find the best investment strategy that suits their risk profiles and needs. They are also adopting smart products that are able to dynamically adapt according to the information fed into them.
Automated Portfolio Management
The big asset management companies like BlackRock and Bridgewater Associates are starting to set their sights on automated portfolio management solutions. By developing smart algorithms that use statistical probability and historical data to made decisions, these companies are able to come up with the best investment strategies for their clients.
Finding the Right Balance
Despite the advances in AI in general, corporate finance is likely to approach automation in a very careful and considered manner. Compliance, security and trust are paramount across many processes, and experts expect to see organizations use a more augmented (where the machines assist rather than take over) approach to implementing AI into corporate finance strategies. In short, knowing when to use Artificial Intelligence and when to use Intelligence Augmentation might be one of your key differentiators for the future.