Scaling your Financial Planning & Analysis (FP&A) Process: A Leap into the Future with Psychological Safety.

While Financial Planning & Analysis (FP&A) is one of the most important strategic functions within mid-sized and large organizations, it is also one of the most under-performing and under-utilized. Even the most mature Fortune 500 corporations leading the evolution of FP&A aren't realizing the fullest extent of return and insight from the function. A number of trends have changed the playing field, especially for a business unit or product line FP&A professionals. The increasing frequency and magnitude of economic volatility (for example, supply chain disruptions, labor shortages, etcetera) have put more pressure on traditional FP&A processes and teams, which are geared toward quarterly and annual cycles rather than real-time challenges. Additionally, FP&A teams must deal with an ever-increasing amount of business data that, in turn, require more reconciliation and consolidation before the relevant business insights can be factored into budgets, forecasts, and business plans.

The FP&A teams are positioning themselves as trusted partners to the business units—a capability that many CxOs have long claimed they’re looking for from the finance function. The value FP&A creates is generally broken down into 4 key categories: 1) Planning, 2) Specialized Experience, 3) Analytics, Analysis and Decision Support, and 4) Management Reporting.

Planning:

This involves alignment with the strategic plan, driving and supporting more informed decisions about operations. Leadership is better able to quantify operational and fiscal outcomes desired, gain deeper financial insights, and identify the various drivers needed to achieve those results. Forecasting is key because it incorporates how influences and risks impact the financial future of the business. 

Specialized Expertise:

This is the key area with the greatest variability across companies and, sometimes, offers the greatest impact. FP&A often brings with it specialists who possess technical acumen but also deep institutional, industry, or functional experience. FP&A professionals may focus exclusively on risk management, real estate analysis, M&A, or corporate development. They may build the center of excellence and best practices and relied upon by others. 

Analytics, Analysis and Decision Support:

The availability of data has made FP&A a more data-centric function. FP&A has a deep connection to data analytics, business analytics, intelligence, and the financial analysis related to those activities. FP&A is responsible for assessing and planning capital projects and deciding which projects are worthy for growing the business. FP&A often has involvement in managerial accounting, ICT upgrade, HR strategy, procurement, and process efficiency. FP&A is frequently in a position to offer guidance on pricing, supply, demand, production, and cost analysis. Expertise in financial modeling allows the running of scenarios to help leadership make more confident decisions. In some instances, there may be a need for FP&A to have involvement in audit and accounting. I tend to see this in smaller businesses where there aren’t as many resources available and there’s no clear title or label for FP&A.

Management Reporting:

Because accounting and finance functions have ‘traditionally’ been more focused on reporting, these roles still sometimes fall to FP&A and Controllers. FP&A should maintain consistent, timely reporting so that there is a defensible basis for decision-making. This may include assessment of profitability by customers, products, product lines, and geographies; reporting of sales person performance, commissions, and bonuses; reporting of efficiencies, overhead expense allocations, and other production reporting; and reporting to third-parties.

Of course, these are only a handful of segments we often see within the 4 focus areas. What makes our profession so interesting is that one FP&A professional may spend an entire career in a single field, while another may never touch that field. FP&A at every company is different, yet there are clear overlaps in how the function is structured and managed.

A path to next-level FP&A

For those FP&A organizations seeking next-level status, it will be critical to make internal changes in three areas: processes, technology, and talent. Note that leaders may be looking at a multiyear transformation effort, but, in our experience, taking even small steps now to remake and mobilize the FP&A organization will ultimately result in improved performance.

For financial planning and analysis organizations seeking next-level status, it will be critical to make internal changes in three areas: processes, technology, and talent.

Improve processes to drive performance. As a first step, FP&A leaders (with support from the CFO and others in the C-suite) should evaluate their existing processes to identify critical drivers of company performance. From my vast experience a teardown and rebuild of the planning process linked to key decisions such as pricing or production can yield immediate positive benefits to raise organizational performance.

Invest in technology to deliver deep insights. Making key technology investments is a second lever. FP&A must work with the CEO, the CFO, IT leaders, and other key stakeholders to demonstrate the value of combining business process changes and new technology. The FP&A team can help to democratize data through real-time, action-oriented dashboards that bring the organization together around a single source of truth, as the consumer products company demonstrated.

Develop talent beyond core finance capabilities. The role of FP&A continues to evolve to be a more strategic business partner and challenger. Bringing in a developing talent that could identify key performance drivers specific to the industry, define the competitive dynamics that are affecting key financial trends, and influence the organization to change course to enable big moves is a super decision for success.