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The time for FP&A analytical transformation is here!

The past decade brought in many changes in the world of business. Most big organisations had a ‘2020 Vision’ whether it be to reach a certain revenue target or to transform digitally. Yet when the turn of the decade arrived, it threw us a curveball. The COVID-19 pandemic has confined billions of people to their homes and brought the flow of money to a grinding halt, threatening a deep global recession. A crisis of this magnitude and uncertainty has the potential to create more shifts in the world order than the entire previous decade. For example, the sudden surge in online shopping and subscriptions – this is a sticky habit that will stay even after the lockdown.

A crisis like this one, can be a great change maker and provides opportunities to drive changes that may deliver significant benefits in the long run. One such organisational change, whose need has often been discussed but not executed is ‘FP&A transformation’. In times such as these, when revenues start drying up and cost pressures start mounting, the demand for ‘value-add’ and ‘efficiency’ increases across the business world. FP&A transformation has the ability to make the overall finance function more efficient whilst adding more value through analytical insights. The time for transformation is now!

Key components of FP&A transformation:

1. Align the FP&A & overall business strategy and clearly define FP&A goals

The role of FP&A is to guide a business to more informed decisions and optimal performance. Hence, before attempting to transform FP&A, it is important to clearly define the business strategy and align it to the FP&A strategy. It is also important to define the goals of FP&A as clearly as possible. For example, giving an FP&A team specific targets on revenue growth and cost optimisation is a good way to build more ownership and can help drive the team to improve analytics, identify opportunities and make recommendations. This ownership mindset is important to drive true transformation. Without this, an FP&A team may remain in the comfort zone of building budgets, tracking variances to budgets etc. without bringing in much value addition.

2. Become friends with data and statistics

Over the past decade we have seen an unprecedented increase in the capability to both collect and process data. Data analytics now regularly drive business decisions and deliver improved results. FP&A cannot function without truly harnessing the power of data and learning the art of analytics. While forecasting, it is important to link financial metrics with non-financial ones and use statistical regression modelling. While business partnering, FP&A should use statistical methods such as hypothesis testing and A/B testing to drive a healthier decision making process. All of these methods require a good working knowledge of statistical concepts. FP&A team members with more traditional accounting backgrounds should be trained with courses in statistics and data analytics. It may also be a good idea to incorporate a hard-core data analyst into the FP&A team.

3. Let technology be your guide

The most important component to the success of FP&A transformation is harnessing technology. This is crucial to improving both the efficiency and effectiveness of FP&A. Through automation of repetitive, manual, non-value-adding tasks such as completing management reports, FP&A can be more efficient.

By using technology-enabled models and real-time dashboards, FP&A can generate more insights, interact with the business and impact decisions made. However, to truly harness technology, it is important to:

     A) Implement the right systems and tools

  • Planning systems need to be integrated, collaborative, easy to use and work in real time
  • Analytics tools need to be integrated with ERP (Enterprise Resource Planning) software, strong data manipulation and visualisation capabilities

     B) Engage and upskill the team

  • While implementing new systems and tools, it is a common fallacy that top-down enforcement works. There have been innumerable instances where a corporate team, responsible for ‘transformation’, has passed down a tool to all FP&A teams across a company without realising the nuances of one particular business unit or location. Hence, FP&A team members from across the organisation should be involved from the early stages to iron out issues prior to implementation.
  • Teams need to be upskilled to effectively use the systems and tools implemented. Investments in training can pay huge rewards in the long run.

4. Integrate with the business

The true benefits of FP&A transformation will only be seen when FP&A is fully integrated with the business. Through leveraging technology and being more data-savvy, an FP&A professional can add tremendous value to any business. They can provide real-time intervention in decision making. For example, a brand financial analyst should be able to provide inputs on financial KPI impact when a brand manager is planning a consumer discount. They will be able to verify the discount’s financial sense since the FP&A models used will determine whether the benefit of the volume uplift outweighs the revenue impact of the discount.

Overall, the benefits of a successful FP&A transformation are tremendous, and this crisis is a great time to invest in one. By making FP&A a truly value-adding function, this transformation will not only protect the FP&A function during the crisis but also strengthen the organisation’s performance after the crisis.

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Kedar Kale

Kedar Kale

Kedar is an experienced finance professional who strongly believes in the value FP&A adds to business, both strategically as well as operationally. Having begun his career as an external auditor with EY, he gradually transitioned into business partnering and strategic finance roles in the CPG industry, working for leading companies such as Colgate-Palmolive and Godrej Consumer. He currently works as FP&A Manager at Hala, a unique public-private partnership startup based in Dubai. Kedar has a keen interest in the future of finance and loves to write about his thoughts, leveraging on his diverse experience across functions, organisations and geographies. He is a qualified Chartered Accountant and has cleared all levels of the CFA.