Financial planning & analysis (FP&A) is the budgeting, forecasting, and analytical processes that support an organization's financial health and business strategy.
FP&A analysts, managers, and directors are responsible for providing senior management with the financial analysis and information they need to make major operational, financial, and strategic decisions.
The FP&A role is fundamental to business success as it allows management to effectively manage cashflow, make the best use of capital and plan financially to ensure the organizations strategic goals can be met.
Modern CFOs need to look at new ways and better approaches to optimizing cost and drive growth. An organization’s business strategy, performance planning, and management processes should be a core focus area. A high-performing FP&A function is probably a must-have for any business which seeks growth and sustainability.
FP&A is the front-line partner of the business and operates at the nucleus of the digital finance agenda.
The typical role of the FP&A function in financial services revolves around developing financial plans that support the enterprise’s strategy, forecasting near-term and long-term financial outcomes, budgeting for estimated operating and capital expenditures, analyzing actual performance against forecasts, and reporting management results for the business units.
At ACS, we help clients improve their existing financial planning and analysis (FP&A) processes by focusing on one or more improvement levers:
Improving the cycle time required to develop a new plan or forecast, resulting in more timely FP&A information
Level of detail
Reducing the level of detail to help focus the organization on planning what matters
Implementing a rolling time component to FP&A processes so that the organization is taking a forward-looking approach
Incorporating non-financial business drivers into FP&A processes to improve alignment with sales and operations processes
Improving management reporting, analysis, and business partnering efforts
WHAT ACS FP&A CONSULTANTS TYPICALLY DO?
Liaise with the client’s senior management to prepare the business's financial and strategic plans.
Work with Business Unit heads to build their annual budgets and forecasts, consolidating them into one overall budget.
Analyze financial and operational results to better understand & report company performance.
Prepare competitor analysis, market trends, and associated commentary to senior management.
Provide detailed analysis and commentary on Business Unit results.
Create financial models to project long-term growth & determine the impacting business factors.
Compare and evaluate previous budgets and forecasts, and perform variance analysis to explain differences in performance and make improvements going forward.
Evaluate whether the company’s current assets and investments are the best use of the company’s excess working capital.
THE CHANGING FACE OF FINANCE
The world of the Chief Financial Officer (CFO), and indeed, of the entire Finance function is changing at high speed. CFO role has transformed a great deal. Once considered number crunchers, CFOs have become partners to the business. Today, they are assuming the role of strategic “facilitators” and the CEO’s most trusted advisor.
CFOs are also looking well beyond the finance function, targeting and identifying areas of new value across the enterprise. This is the most dramatic shift of the CFO agenda, from driving value to building the digital enterprise.
Among the key roles to be played by the CFO are:
DIGITAL VALUE STEWARD
Creating new value in a digital world
Effectively evaluate and prioritize the significant investments in digitization of the enterprise and provide measurable outcomes.
Leading an efficient and effective finance function
Improve efficiency, effectiveness, risk, and compliance and in doing so become focused and agile, driving insights, decision-support, growth, and profitability.
Driving enterprise value
Diversify finance talent and capabilities to embrace a wider role in targeting and realizing new value, guiding transformation, and leading the operating agenda.
As CFOs continue to automate routine accounting, control, and compliance tasks, increasing their emphasis on value creation, they have kept their focus on being a strong business partner through the Financial Planning and Analysis (FP&A) function.
OPENING DOORS TO SUSTAINABLE BUSINESS GROWTH
The development of a strong and robust FP&A team helps CFOs digitize finance and harness the power of data.
CFOs are doing this so that their people can:
Focus on providing insight and guidance to the rest of the business
Unleash their critical thinking and creativity
Help the enterprise realize the full power of data
FP&A: THE FRONTLINE PARTNER TO THE BUSINESS
In this revolution of the finance function, FP&A is the front-line partner of the business and operates at the nucleus of the digital finance agenda. The typical role of the FP&A function in financial services revolves around developing financial plans that support the enterprise’s strategy, forecasting near-term and long-term financial outcomes, budgeting for estimated operating and capital expenditures, analyzing actual performance against forecasts and reporting management results for the business units.
The FP&A function often houses analytical skillsets and business knowledge to provide business divisions with key insights for informed decision-making.
Business unit finance is evolving into the future face of finance.
It can influence business performance by providing real-time insight into current performance, predicting business outcomes, and identifying opportunities to pursue future value.
There are, however, some challenges that the FP&A team should overcome if it is to support the expanded role of the CFO. For example, if the FP&A team lacks the right capabilities and tools, it can spend a significant amount of time on fixing data issues, creating reports (including target setting), undertaking strategic three-year and one-year planning, and explaining variances after the fact.
Typical Challenges Faced by FP&A
Many financial services organizations invest too much time in backward-looking reporting and analytics cycles, rather than supporting high-quality decision making, real-time analysis of investment, and business planning.
In our work with businesses across the globe and discussions with CFOs and their C-suite peers, we have come across numerous challenges compromising the effectiveness of FP&A teams. To illustrate a few:
A CFO sharing with us that his team had to cobble together 10 to 20 different reports to get a comprehensive view of their business.
For another firm, they had over 500 individuals engaged in planning, reporting and analytics—all doing things differently—with the inconsistency creating redundancy, rework and shadow organizations.
Spending months creating and updating a plan using information from the previous year.
Not knowing which people within the organization are reading the reports generated.
Other problems include lack of access to external data, data warehouses that do not include data from all required source systems, and mobilizing large numbers of people to address ad hoc requests from management.
Making FP&A an Integrated Function
These shortcomings arise due to a combination of different factors ranging from inefficient processes, shadow organizations and inadequate tools, to lack of standardization, complex business structures and the struggle to find and retain the right talent with the required skills to become indispensable business partners.
At ACS, we believe FP&A teams can overcome these challenges through a new operating model to transform their role and become the agile function operator that their businesses increasingly need.
DESIGNING A NEW FP&A OPERATING MODEL
Transforming the FP&A operating model for greater agility and enhanced capabilities
Designing an integrated FP&A operating model requires consideration of multiple key components that allow FP&A to support the company’s strategic imperatives.
This is very crucial as CFOs wield the power of digital and pursue their organization’s growth objectives. Leadership should also understand that technology alone is not the answer.
FP&A should shift from its traditional backward-facing analysis to more predictive analysis in order to support desired future business outcomes. However, there is no one-size-fits-all operating model for FP&A organizations.
Businesses should evaluate their maturity, growth agenda, business complexity and technological capabilities to define and articulate their future FP&A operating model. Organizations should design the future operating model journey with respect to the key capabilities needed in the future state as well as their primary areas of focus.
Capability Evolution of FP&A Operating Models
Nature of Budgets and Forecasts
Annual budgets based on unsupported assumptions and decentralized formula.
Annual budget replaced with driver-based rolling forecast; financial outcomes linked to key drivers of current and future value.
The concept of the budget is replaced by an advanced ecosystem of data-driven dynamic forecasting and strategic planning capabilities.
Iterative, bottom-up process with legal entity focus and central consolidation.
Business unit focused, aligned with central guidelines and schedules, and focused on drivers.
Company-wide, integrated and collaborative process focused on drivers and predictive forecasts leveraging broad sets of data.
Technology and Data
Offline non-integrated tools with limited automation; manually sourced and manipulated data.
Integrated driver-based models with cloud-based planning systems; automated, integrated and consolidated
Analytical dynamic models make use of transactional data combined with economic measures sifted from external sources to provide real-time forecasting capabilities.
Accountants focused on slicing and dicing of results manually
Business partners with focus on business scenarios and exceptions.
Business advisors working with data scientists to provide real-time decision support and analytical insights.
Detail-driven plans, forecasts and reports for every profit and loss (P&L) item; only results forecasted.
Selective budgets for most material and volatile P&L items; forecasts for business drivers and result measures.
Integrated business planning, business unit strategy and investment allocation with forecasts for key business drivers.