Jul 05 2016

FP&A is increasingly relevant

As we near a decade since the 2008 financial crash the business world has changed beyond recognition; technologically, culturally and economically, the companies that survived through the crash have adapted to this new era in different ways – with different degrees of success. One key area of business that has come under the spotlight in recent years is that of Financial Planning and Analysis ( FP&A ).

Currently, there is no consistent definition for FP&A across the industry; however, the simple definition provided by Mark Gandy, a business-to-business CFO freelancer, gives an appropriate overview of the field: “While the financial controller typically looks backwards, the FP&A professional looks forward and sideways, diagonally, upward, downward, multi-dimensionally, and so on.”

The FP&A world is a complex and exciting one to be a part of, particularly with the unstable economic time and the rise of big data analytics, all of which has meant predictive capability through data analysis is highly prized. However recent research has highlighted that not all businesses are utilising the new potential for FP&A directors, which is having a direct impact on a company’s competitive cost structure and affects their cost discipline.

CEB Financial planning and leadership council points out that CFOs have been unhappy with the returns on their investment in FP&A for some time. Johanna Robinson, a practice leader in the firm’s corporate finance practice said: “I think everyone would agree that the investments have produced better analysis and decision support. It’s just not good enough, or where they wanted it to be when they made the investments.”

The research carried out by CEB found that it wasn’t the data itself that was the issue, rather problems could be ascribed to a business culture that hasn’t embraced and adapted to the new tools provided by increased financial analysis. 61% of FP&A directors surveyed admitted that decision makers cherry pick analytics that support their gut instinct; whilst 25% of execs admit to not using financial analytics in making decisions as they don’t trust the data.

In order to deliver a competitive advantage to a company, the modern FP&A function needs to be flexible and dynamic and to ensure all data is used and presented agenda free in order to create a regular source of trustworthy statistics. One method is to employ sophisticated financial analytics through companies that provide tools such as finance dashboards. By adopting an outsourcing approach businesses can bypass the drawbacks caused by lack of knowledge and appreciation of this new data through providing objective analysis on what is best for the company.

CEB offers the following advice to businesses looking to expand the role of Financial Planning and Analysis within their company to improve their performance:

  • Outline the implications of analysis beyond the near term.
  • Draw attention to relevant scenarios.
  • Collaborate with business partners on interim analyses.
  • Provide a holistic picture of alternatives and uncertainties.
  • Help decision makers understand unforeseen tradeoffs.
  • Get the business to think of what could go wrong early

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