FP&A and risk management | Unit4
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FP&A and risk management

Running a company, among other things, requires dealing with ambiguity. How you do this depends on the people – some are more open to embracing the challenges, while others prefer to continue with past practices, believing that the change will not last. 

The behavior is not exclusive to a specific industry; it is primarily about the management style of people leading the company. 

FP&A can better support the business in a set-up where those responsible for the project are open to recognizing uncertainty and addressing it. When it comes to planning and performance management, there are two types of cases to deal with – risks and uncertainties.

The risks 

Risks are different from the events built into the base plan as assumptions but can be identified under normal circumstances. Those could bring either upsides or downsides to the business. 

Traditionally, risk management has addressed those essentially predictable cases by applying the following principles:

  • Focus on events that are of significance to your business  
  • Assess the impact (i.e., financial, organizational) 
  • Assess the probability or likelihood of occurrence  
  • Set priorities (tackling risks with the highest impact and probability first) 
  • Agree on an action plan  
  • Appoint team leader(s)
  • Monitor development 
  • Take corrective measures when necessary 
  • Review (i.e., any new elements to consider, changes that happened in the meantime) 

Usually, you give your CFO a mandate to drive risk management on behalf of the company. They will typically rely on support from FP&A professionals, particularly when it comes to assessing risk impacts.

The uncertainties

Uncertainties are cases that you typically can’t predict but create significant disruption for the company. Often, you can link them to innovations or enhancements in your systems or processes.

We have seen how advances like the internet and smartphones have transformed the business landscape. But breakthroughs are not exclusive to our century. The industrial revolution brought many changes, and businesses did not disappear. Therefore, for a company to continue to be successful, it is not an absolute must to be innovative. Instead, what it has to ensure is that it can adapt to new circumstances fast enough. The degree to which a company can adapt mainly depends on its culture and the commitment from the top management towards being open to change.

When talking about FP&A, the nature of its work requires flexibility. How else would you remain enthusiastic about the job and repeatedly start from scratch when working on business scenarios? As such, FP&A can become an advocate for making and keeping the rest of the company comfortable with implementing new ways of working or new projects to focus on.

There are different activities involved in recognizing and responding to the new reality: 

  • Monitor external environment, identify new trends and innovations with the focus on the changes that those bring 
  • Determine the significance which identified change / innovation has on the company and its key stakeholders 
  • Depending on the level of significance, identify and prioritize what the company should and could do differently in response to those changes 
  • Define the action plan, including roles and responsibilities of the individuals 
  • Implement the action plan 
  • Monitor the execution of the action plan  
  • Measure the performance of the outcomes 
  • Share the update on the progress with relevant parties 
  • Take corrective actions if needed 
  • In parallel, continue monitoring external developments and repeating the process 

Identifying significant changes  

To respond to a change, it is necessary first to be aware of it. Therefore, it is essential to keep track of the outside world’s developments and remember that not every initially appealing invention automatically represents an exposure for the operations. The polaroid camera was an attractive product, but it did not revolutionize photography. However, the digital camera has changed photography forever.

The implications for your businesses tend to occur more when a change increases the quality and flexibility for your users and/or goes beyond an individual’s experience. Price has also been a significant factor in many cases, it’s a model low-cost airlines, and “one-dollar” stores are built on. But is it right for you?

Depending on the industry, the knowledge and experience of your people working in other functions are invaluable for a comprehensive evaluation of potential impacts. It often comes down to how customers and consumers respond, and cooperation with marketing and sales teams is essential. Those departments usually expect to estimate potential developments, such as the movements in demand and consumption. At the same time, FP&A contributes by reviewing those estimates and revising them when feasible, complementing the picture by adding a financial dimension. 

What-if scenarios 

For your senior managers to make good decisions, you have to present a clear business case. Still, no prediction is certain when dealing with an unknown future. To help put things into perspective, FP&A can provide quantified scenarios and financial impacts of changes in percentages. These could be anything from the effect on sales and profit if you lose 1% market share; the level of investment required to upgrade or what production facilities and payback period to set when introducing new products, etc.

Project data and business continuity  

Once you have decided to go ahead with a specific project, FP&A is on hand to help the project lead focus on the project data to keep track of the project’s progress and provide early signals for significant variances. To properly do that, FP&A needs the necessary tools, practices, and experience. 

Last but not least, it is up to people leading your FP&A team to ensure proper structure and task allocation within their team – strategic projects are essential. However, they can’t forget that FP&A also has to prepare many other outputs to secure business continuity.

How can Unit4 FP&A boost your risk management?

Our intelligent FP&A software solution sets your teams free to spend more time delivering insights and creating value for your business. We help you understand the numbers more deeply and turn that insight into action for better business results. Take a closer look at Unit4 FP&A today to discover a world of automation, AI-infused financial planning and analysis, budget management, and financial forecasting with highly interactive dashboards and powerful, pre-configured models.

image of Tijana Truong - Performance Management Specialist

Tijana Balotic Truong

Tijana Balotic Truong is a performance management and commercial finance specialist, with 15+ years of international experience in large FMCG companies. She is strong in risk management and developing business partnering within markets, regions and HQ, and is now helping start-ups and SMEs in the domains of strategy and finance. Tijana is also active in NGO sector, most recently focusing on enhancing fund raising strategies and programs that improve children well-being. She is a Chartered Global Management Accountant and a Master of Management.

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