A New Application of TRUE Math Programming Optimization for Finance: The Optimized Income Statement (OIS)

• Date: 01 March 2016
• Author: Alan Dybvig
• DOI: http://doi.org/10.1002/jcaf.22136
• Published date: 01 March 2016

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© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22136

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A New Application of TRUE

Math Programming Optimization

for Finance: The Optimized Income

Statement (OIS)

And Why It Is Very Important for Finance to Get Started Now!

Alan Dybvig

The time is now

for Finance to

get started to

apply optimization/

advanced analyt-

ics. Quoting Gary

Cokins, perfor-

mance management

author, consul-

tant, and Institute

for Management

Accountants’

Executive in Resi-

dence,stated:

Get on the bus or be

under the bus. … Now

I will change my tune

from skeptic to advocate

regarding the urgent

need for modeling and

prescriptive analytics

capabilities leveraging

optimization… The

world is no longer flat.1

Further, according to Mary

Driscoll, Senior Research

Fellow, American Productivity

and Quality Council (APQC):

“What is really sad is that

20 years ago, when I was

at CFO magazine, we

were writing about the

need for improvement in

this area… The research

shows that most

CFOs are will-

ing to invest in

better financial

systems and data

models, but they

are not necessarily

inclined to develop

analytical talent or

polish their FP&A

process models.2

Finally, Robert

Kugel, SVP Research,

Ventana Research, has com-

mented “Optimization analytics

is a breakthrough technology

with the potential to improve

business performance and cre-

ate a competitive advantage.”3

This article is divided

into four sections: (1) The

Primacy of the Income State-

ment, (2) Why Analytics Are

More Important than Ever

The time has come for Finance to get started to

apply optimization/advanced analytics. By apply-

ing advanced analytics to the income statement,

the “one report every organization needs,” it is

now possible to optimize it, creating an optimized

income statement (OIS). The key deliverables of

an OIS are an updated forecast that is maximally

profitable and an updated supply chain that is the

optimally feasible one required to make and fulfill

the new forecast. © 2016 Wiley Periodicals, Inc.

Commissioned