In the first post “The Future of FP&A” of this blog series, we discussed how the CFO must be the guide, and Financial Planning & Analysis (FP&A) must take control of new and changing expectations for the finance department. From that foundation, now we dig deeper into that discussion and offer a framework for how to accomplish this, beginning with the “why.”
Why: Overall tone for FP&A
The “why” sets the overall tone, explains what our customers can expect from us, and the direction we are taking our teams:
- Who: The mission of FP&A is
- How: To drive (development of)
- What: The right strategic choices
- Where: Within the company
Who: The mission of FP&A
The priorities of Finance are changing due to business demands and the opportunities provided by new technology. Our time and energy will shift from compliance and control to planning, analysis, and business partnering—deploying resources rather than just counting coins. This puts FP&A at the center of the finance functionality. We need a framework to be specific about what it is we want the department to do differently in the future to support the CFO and our business partners.
How: To drive
FP&A needs to be in the driver’s seat next to senior management for successful implementation of strategic change. The next generation of FP&A will require that you harness the tools and methods to automate data gathering and reporting. This will free up time, but you will need to supply analysis and meaningful insights at a faster rate. Your finance skills will still be in demand. You represent the CFO’s point of view, and it also necessitates a complementary skill set of communication, influencing and relationship-building to be effective.
This has and will continue to require FP&A to be good problem solvers. Digging into challenges, developing fact-based recommendations, and creating winning scenarios is standard stuff. Driving the business means going a step further and finding good questions to ask. You can only do this based on your understanding of the business and detailed knowledge of financials, to see challenges before they arrive, and ask about what is not immediately visible. This creative skill set will earn finance a seat at the strategy table.
What: The right strategic choices
A company is made up of thousands of decisions or choices made on a daily basis. If these choices can be improved by a fraction, the company gains a competitive advantage. FP&A has the opportunity to seed the strategic plan into daily operations, bringing alignment, flexibility and impact.
To drive the right strategic choices across the value chain, FP&A must look more at leading indicators and business drivers rather than historical numbers. We believe the democratization of data and tools will give many departments analysis and projections; however, FP&A is “bi-lingual” in that it speaks the language of business and finance and must represent the CFO’s responsibilities as a steward of capital.
The classical tasks of budgeting, forecasting and planning will remain, but a lot of it will be done by algorithms which are much more accurate at forecasting than humans. Re-forecasting and fast reactions to external events will replace obsessive budgeting. This means that the planning discussion will be around strategic choices and agile pivots to implement contingency plans. This will be qualified by multiple what-if scenarios.
With great data comes great challenges, how to sift through it all, know what is relevant, and focus on adding value. Easier said than done, so here is a guiding principle: alignment for finance means to link the mission and the money. Mission is the company’s purpose, enacted through strategy and objectives; money is how the company funds itself. The KPIs, business cases, and budgets are all ways of expressing that basic responsibility. When conducting analysis, you should ask yourself if the work you are doing links mission and money in a positive way.
Where: Within the company
Essentially, Financial Planning & Analysis works wherever strategic choices are made involving money. That is just about everywhere. FP&A should work with all functions in the company and not see itself limited by silos or departmental barriers.
The corporate level is where the overall strategy is created and company results consolidated. Ideally FP&A is involved in the strategy work by qualifying the attractiveness of different possible strategic choices and making recommendations from an economical perspective. Once choices have been made, FP&A needs to continually follow-up on their success rate and make adjustments accordingly at both the corporate level and business unit level, where strategy is converted into executable action.
The framework in a nutshell
Through making better strategic choices, the company becomes more valuable and will deliver better results to stakeholders.
This framework is the first step, and adopting this or a similar approach, will allow your own FP&A team to take the reins and be able to offer better, faster, and more reliable insights and recommendations.