Mastering the Four Fundamentals of FP&A to Serve Your Organization from Top to Bottom
July 18, 2018
The most successful Financial Planning & Analysis organizations establish strong relationships across their enterprises.
Just a decade ago, a Financial Planning & Analysis (FP&A) department was considered a back-office tactical operation. Need an annual budget or variance report? Talk to FP&A.
Demands have changed since then, however, and robust FP&A teams are no longer the sole province of large organizations. Now, even lean organizations generate some type of FP&A capability into their enterprise.
In today’s competitive global economy, businesses are under intense pressure to succeed — they need all the advantages they can find to avoid a downward spiral that can occur in just a matter of months, sometimes even weeks. A high-performing FP&A team may make the difference between financial success and failure by providing crucial analytical capabilities to the business’s operating units. Given the significance of their impact, agile organizations of every size are evolving their FP&A functions to be indispensable front-office resources for strategic decision making.
FP&A as a Business Partner
The best FP&A teams manifest as true business partners, supporting both functional departments and their respective operations. With increased data availability and new technologies associated with advanced data analytics, agile FP&A teams can produce real-time data analysis. These FP&A teams may offer sophisticated insights that drive planning, forecasting and overall business strategy at all levels and functions of the business.
As with any successful business partnership, providing value is integral to strengthening the relationship. In leading organizations, the FP&A team not only identifies and explains issues, but also proactively offers data-driven solutions and recommends improvement initiatives.
In leading organizations, the FP&A team not only identifies and explains issues, but also proactively offers data-driven solutions and recommends improvement initiatives.
To reach this state, an FP&A team must be intimately familiar with all aspects of the business. FP&A must collaborate closely with functional leads to provide insightful, objective, and actionable information that can be leveraged to drive impact outside of finance.
Below are four critical areas that FP&A departments may focus on to become a better business partner, supporting their company’s operations.
Expertise in Technology and Tools
FP&A needs to leverage financial technology and tools to provide better value to its stakeholders. Like any two partners, FP&A and IT/Business Intelligence teams need to be fully aligned on system capabilities, data requirements and strategic initiatives. Alignment between FP&A and IT is crucial to establishing and maintaining a financial platform that operates as the single source of truth for the entire company. A clear understanding of “must haves” versus “nice to haves” should be maintained and consistently articulated to IT. If IT is responsible for maintaining the data warehouse, then FP&A fulfills the critical role of gatekeeper.
Realistic Planning Processes
Examining every department within the business to understand how each operates, its financial standing and its cost-efficiencies, lays the foundation for an effective partnership.
In many organizations, the annual budget process is a cost containment and cash-allocation exercise. However, the most effective FP&A teams use budgeting as a tool to hold business leaders accountable and to drive business decisions. Adoption is critical because it enables business leaders to “own” their budgets, rather than simply outsourcing a financial model to the FP&A team that will be abandoned at the first sign of financial disruption. As always, collaboration and partnership are the critical elements that drive effective processes – this is no different for budgets and forecasts.
Similarly, the forecasting process needs to be performed collaboratively on a level playing field where business leaders recognize FP&A as their partners in understanding operating effectiveness and in driving decision making. Four elements are key to an effective planning process: Driver-based, collaboration, achievability flexibility.
The ability to plan accurately and realistically (not overly-aspirational) is vital. So too is being aware of the difference between a forecast and a target.
Essential FP&A Skills
- High level of financial acumen
- Constructive communication and listening
- Interpersonal skills, including relationship management
- Ability to convey complex matters clearly and plainly
Leverage Business Intelligence and Advanced Analytics
In an ever-expanding data environment, the ability to harness, process, and synthesize data effectively is a critical differentiator for leading-edge FP&A departments. As noted in the first fundamental above, FP&A must collaborate with IT to design tools that manage large data sets and enable the FP&A end user to create information in real time. Standards and processes are critical, and a regular communication cadence that aligns strategies between Finance and Operations is a must. This often includes the financial close as well as operational reviews.
However, the ability to perform meaningful ad hoc analyses in real time is often a differentiator between good and great FP&A organizations. A transparent, documented, and clearly understood data management and analytical infrastructure, designed and managed by FP&A staff, enables an organization to fulfill both objectives effectively. It typically provides a competitive edge through the ability to proactively identify and address issues.
Topical and Timely Management Reporting
First and foremost, an FP&A team serves as management’s “lens” into financial performance. While the line between financial and operating performance often blurs, the responsibility for reporting results to management will always be a core FP&A function. Analytics are important, but “storytelling” and the articulation of clear and easily understood (by both financial and non-financial management) observations is by far the most visible, and as such, the most critical role of an FP&A team.
An effective management reporting infrastructure includes a regular cadence of reporting for senior management that covers key financial results. If FP&A is going to fulfill its role as a true business partner, not only does that infrastructure need to demonstrate the “what” of the results (e.g. performance versus budget, trending, etc.), but also the “why.”
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© Copyright 2018. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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