Building a flexible and dynamic FP&A function

The new decade which began with so much anticipation and dreams has thrown us quite a few curveballs in a very short period of time. Soaring geopolitical tensions, tariff wars, the threatened outbreak of an actual war, volatile oil prices and finally, a new contagious virus.

This is certainly not how we thought the new decade would commence. It has wreaked havoc across global economies and reminded us how volatile, interconnected, and complex modern-day business environments are. And It’s shown us that the parts of business responsible for planning for the future – such as our FP&A functions – must radically change their ways of working in order to truly safeguard our organizations against risks. However unpredictable these risks might be.

Managing businesses in such environments is a tall order for business leaders. It is not a surprise that they look to their CFOs for support, to provide real-time business insights and manage risks. As the forward-looking, business partnering team in the finance department, FP&A has a key role to play in enabling this.

But are FP&A functions well equipped and capable?

To answer this, we must first understand exactly what challenges are business leaders are facing, and how FP&A might be able to help address them.

1. A globalized world: The pace of the geographical spread of COVID-19 shows us how truly globalized today's world is. An escalated rivalry between leaders of two oil-rich nations can throw oil prices and their businesses into a frenzy. In a similar way a new technology or idea originating in a remote town in Africa now has the potential to impact the way the whole world does business – and usually much more quickly than most of the world is ready or willing to adapt. FP&A teams can and must be ready to provide information not just on organizational trends, but wider economic trends, and how they might affect the organization.
2. Rapid pace of change: Technology is advancing at a dizzying pace, upending entire business models across all sectors. The expanding array of new technologies, such as Blockchain, AI and big data, threaten large scale disruption and redundancy of many businesses. FP&A must be able to plan for scenarios in which parts of an organization become irrelevant to future success or must pivot rapidly in order to create a sustainable business model.
3. Aggressive competition: Globalization and the internet have made competition more intense than ever. Small businesses that truly understand customer needs and provide customized offerings are regularly giving deep-pocketed multinational conglomerates a run for their money, whilst building their own lasting brands. FP&A must be able to assess an organization’s ability to compete financially and operationally against current circumstances and a variety of future scenarios.
4. Data availability: Increased data capture and storing capabilities have led to a data explosion. This creates a double whammy dilemma for some leaders. They need to make quicker decisions to respond to a fast-paced business environment, but they also have access to infinite data to analyze in order to make those decisions. FP&A teams must step up to the role of data interpreters – providing the insight leaders need to effectively plot their course.

This is where FP&A must step in. The challenge is to translate changing circumstances and available data into actionable insights and revised budgets. To successfully do so, the FP&A function needs to be dynamic and flexible. This process involves 4 aspects.

1. A mindset change

The static budget is firstly a mindset problem among business and finance leaders. Most senior leaders in large corporations are too accustomed to the long-drawn out process of building annual budgets that become stale quickly. While merits of having long-range strategic plans may exist, in terms of organizational direction, using them as a guide for running a business daily is ineffective. A focus on short-term rolling forecasts needs to be instilled within the FP&A team as well as leaders. Since these forecasts quickly adapt to evolving business dynamics and ensure allocation of optimal resources to achieve business objectives.

2. A process change

Most organizations have elaborate processes for annual budgets. Similar processes need to be established for shorter planning cycles to allow for quicker reviews and rollouts to the business teams. To successfully influence better business decisions, FP&A team members need to be integrated into different business teams. Incorporating FP&A information into the decision-making process will allow FP&A professionals to fully understand business dynamics and therefore be able to build better analytics to support decision-makers.

3. A systems change

A truly flexible and dynamic FP&A function requires FP&A systems and tools that are integrated, collaborative, easy to use and perform in real-time. A lack of such systems is one of the main problems faced by FP&A professionals. Many enterprise software versions are complex and require considerable technical expertise. This results in shadow spreadsheets and a waste of organizational resources. The implementation of software, that uses BI technologies and fast computing capabilities, can eliminate time wasted on non-value-added tasks. It can enable quick analytics including what-if scenarios and multiple iterations of driver-based forecasts. Ideally, systems should evolve to offer maximum self-serve reporting capabilities, therefore enabling greater visibility and transparency between business and finance teams. This will lead to better collaboration and corporate performance.

4. A team change

Every change management initiative has people implications that must be considered if an organization is serious about developing a flexible and dynamic FP&A function. FP&A teams of the future must be tech-savvy, have great business knowledge, be excellent storytellers and possess influencing capabilities. Team members who resist these changes need to be managed well or even let go from the team in extreme circumstances.

Charles Darwin said: "It is not the strongest of the species that survive, nor the most intelligent; it is the one that is most adaptable to change". The future is always unpredictable and yet organizations and FP&A teams must plan for it. In doing so, the best approach is to be nimble and agile in response to changes. A dynamic and flexible FP&A function is, therefore, a critical element of a successful business enterprise.

To discover more about how Unit4 can help your organization’s FP&A team’s skill up to confront the challenges of an increasingly uncertain and volatile working world, check out our FP&A product page or get in touch with us today to book a demo.