Get Started

Solving Foreign Exchange Rate Impacts on Profit & Loss

Use Cases & Projects, Dataiku Product, Scaling AI David Behar, John McCambridge

Calculating an income statement is a routine exercise for all companies. These vital results provide critical information to management and others by evaluating the economic health of the business. Although a fundamental accounting activity with common rules and practices, profit and loss accounting (P&L) can become challenging under certain circumstances.

For companies operating with different currencies, any P&L exercise requires an extra dimension of complexity. The impact of varying exchange (FX) rates can dramatically affect results from period to period. This complexifies account interpretation and comparisons between entities from different countries: With all results gathered into one consistent reporting currency, underlying performance may become more or less clear. According to HSBC, 70% of CFOs indicate their companies suffered reduced earnings between 2016 and 2018 due to avoidable, unhedged FX risk. Understanding how reported revenue was calculated and how sensitive it is to FX rate assumptions is therefore essential.

global currencies

Overcoming the FX Uncertainty

To add to the challenge of ever-changing rates of currencies, the ways of making conversions are sometimes different between two business entities from the same company or when comparing accounting and business analytics approaches. Teams may find they are faced with a rigid and formalized process of handling conversion rates, which is important for effective accounting but lacks the flexibility needed to experiment with new conversion practices and test out impact modeling.

Challenges such as these, in which a process that is well-designed for one goal (rigorous end-of-period accounting) but ill-suited for another (rapid experimentation in partnership with business leaders on possible alternative FX rate results) can contribute to the finding that 75% of finance professionals’ time is spent gathering data and administering different processes, rather than engaging in value-added analysis (according to APQC).

Dataiku has developed a solution that aims to ensure that business teams — hand in hand with finance teams — can quickly see the impact of various potential exchange rates on P&L, regardless of whether or not such changes are ultimately implemented in any formal P&L calculation. With this solution, finance teams can quickly iterate analyses of the impact of different FX on revenues and expenses to inform business decisions. By allowing for the underlying datasets to be automatically or manually updated and adjusted, the solution further speeds analysis and reduces rework.

How Can Dataiku's Business Solutions Help You Reach Full Potential?

Business Solutions are Dataiku add-ons accelerating the way to achieve advanced or foundational industry-specific use cases within your organization. They are an operational shortcut to achieve real-world business value. Taking advantage of Dataiku’s core features, they are built to be fully customizable and entirely editable.

They come with:

  • A user-friendly interface that enables fine tuning to match specific business requirements
  • Ready-to-use dashboards that can be customized
  • Documentation and training materials

Dataiku industry specialists develop solutions for every vertical, among which:

As a result, business professionals experience a boost in AI productivity and can rationalize their resources.

How Does It Work in Practice?

The FX P&L Impact Modeling solution provides a reusable project to evaluate the impact of foreign exchange rate changes on revenue and expense.

With this solution, finance, FP&A, and business analytics and strategy teams will be able to:

  • Simply ingest costs and revenues with full flexibility on periods, granularity, and input systems. 
  • Compute FX impacts across currencies and compare to various rates, e.g., budget, current, forecast.
  • Accelerate discussions between financial analysts and business owners thanks to powerful interactive dashboards with pre-built analyses.
  • Immediately begin FX rates experimentation and review results through the dedicated visual interface.
  • Empower all finance teams through a visual setup allowing any team to quickly create the project, connect datasets, and set key parameters, all with scalable design.

From a user perspective, the solution is made of the following easy-to-use components:

1. Instant Setup via a Dataiku Application

Easily connect to relevant data sources and specify appropriate exchange rates and cadences (daily to annual) without writing code or manual modification.

FX rates modeling

2. Easy-to-Use Interactive Tables

Test and measure the evolution of FX rates through a dedicated interface to accelerate fixed FX rate decision making during budget setting and other processes.

FX rates

3. Prebuilt Analytics Dashboards

Leverage available visual analytics for immediate insights and relevant summaries sharing with business partners and management.

analytics dashboards

4. Adapt and Apply Structure

Leverage the prebuilt flow to deliver insights. Adapt and customize to unique needs to derive full value by quickly adjusting the project flow.

Dataiku flow

5. Scalable & Flexible for Company-Wide Impact

Share a single project across multiple teams, or create copies to allow separate business lines or teams to experiment independently, and export results with ease.

input files

Start your impact modeling on conversion rates, with these simple requirements:

  • Datasets: Actual and forecast revenue/expense data & budget FX rates
  • Dataiku version: 10.0 or later

You May Also Like

MLOps Operationalizes Manager Performance Forecasts

Read More

Empowering Supply Chain Analysts With No-Code Machine Learning

Read More

Showcasing Achievements in Data, Analytics, AI, & Beyond

Read More

Using ML to Enhance Credit Card Fraud Analysis

Read More