Dec 02, 2016

Big Data and Data Analytics – What Every CPA Should Know

John H. Higgins, CPA, CITPJohn H. Higgins, CPA, CITP | CPA Crossings LLC

One of the highest value services that a CPA can provide is to help business decision makers (BDMs) make better decisions. Whether you are CPA in public practice, business, the not-for-profit sector, or any of the numerous roles in which we lend our expertise, you can leverage the science of data analytics to help with decisions that will ultimately improve business performance and return on investment (ROI).  Developing expertise in this area will also increase your personal market value as the ability to combine your business knowledge with technology tools will grow in demand. Below is a baseline understanding of what big data and data analytics are all about, as well as some of the various ways in which CPAs can tap into their value.

Data analytics is not a new phenomenon; but its usefulness is expanding rapidly as we create bigger databases of information (big data). The growth of these databases is being fueled in large part by the cloud computing paradigm, which brings us virtually unlimited data storage at an extremely low cost. What is new is that the tools are becoming more practical for use by CPAs, and is no longer reserved exclusively for highly specialized data analysts.

Big Data Defined

Big data is at the root of the rapid increase in data analytics for BDMs. “Big” is relative to the size of the organization. For a small or medium-sized business, big data might be a database of 100,000 transactions. For a large organization, that metric might grow to 100 million transactions.

To accurately define big data, it is necessary to understand the three V’s that are characteristics of big data:

Volume – Big data sources can be as big as hundreds of millions of data elements.
Example: Delta Airlines worldwide flight reservations for the past two years.

Velocity – This refers to the rapid rate at which the database is growing.
Example: All the prescription drugs that are sold across the country every single minute.

Variety – This describes the fact that the data can be in multiple formats, including digital documents, transaction databases, video files, and audio files.

From a practical perspective, the big data that most CPAs are likely to be involved with originates in financial and enterprise resource planning (ERP) systems. Think about the potential value of being able to perform predictive analysis of sales, operating expenses, inventory levels, and employment levels. The more data history we have to analyze and interpret, the better able we are to forecast the future.

The IoT

The single biggest factor contributing to the explosion of big data is the Internet of Things (IoT). With the development of miniaturized electronic sensors that receive their power simply from Wi-Fi impulses, we can capture data anytime, anywhere, from anything.  

We now have smart prescription pill bottles that have sensors embedded in them that can track the number of pills in the bottle and the specific dates and times at which the level changed. This data can be analyzed on a real-time basis to know when the prescription needs to be replenished; more importantly, it can send an alert via text message or phone call to a designated caretaker if the patient has missed a dose.

Another practical example of the application of IoT is the “Smart Belly” trash container. These containers have sensors that are powered by the Wi-Fi signal that connects them to the cloud. They continually send capacity information back to a central database that is analyzed in real time to route the waste haulers so they do not spend time and energy driving to containers that don’t need to be emptied. The information can also be analyzed to determine where containers should be located around a municipality and how many containers should be placed in a specific location.

Data Analytics

What are we going to do with all this data? That is where the science of data analytics comes into play. There is an abundance of tools available to analyze big data and support making better business decisions. Depending on the nature of your organization, you may have dedicated data analysts who crunch the numbers for you. What is truly exciting for CPAs is that the tools are becoming a lot easier to master, and with all the financial and transactional data available, data analytics has reached the office of the CFO, controller, and external CPA/business advisor. I can’t over emphasize the career opportunity this presents for CPAs. When you combine your depth of knowledge in business information and the ability to master data analytics software, you substantially increase your value to your organization and clients.

One of the most popular tools to come on the scene in recent years is the additional functionality of Microsoft Excel’s business intelligence (BI) functionality and the Power BI.com application that is part of the Office 365 suite of applications. Since so many CPAs have a high level of proficiency in Excel, mastering these tools is more of an incremental pursuit as opposed to learning a new software application from the ground up. It is likely that Excel BI and Power BI.com will become the leading data analytics tools for CPAs.

I recommend that you begin to explore the use of data analytics and how you can bring additional value to your business by providing information that is more relevant and timely.

To hear more from John Higgins, attend the Decision Makers Conference on Dec. 12. King of Prussia  or  Webcast

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