FP&A analytical transformation & best practices
Have you glanced back at your plans for 2020? Perhaps they now seem a world away in light of the turmoil caused by the coronavirus pandemic? However, there's a new priority for 2021 that should stay at the top of the agenda — financial planning and analysis (FP&A).
Companies thrown a curveball
The past decade brought many changes to the world of business. Most large organizations had a 2020 vision, such as a revenue target, a reorganization, or key digital transformation steps. 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 slowed down the flow of money, threatening a deep global recession. A crisis of this magnitude and uncertainty has the potential to create more shifts than took place in the entire previous decade. For example, the sudden surge in online shopping and subscriptions is a sticky habit that will stay with us, even after the lockdown.
As well as creating a unique set of problems, a crisis like this can also provide opportunities to drive change that may deliver significant benefits in the long run.
Embracing FP&A transformation
One such organizational change — that's often discussed but rarely 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 can make the overall finance function more efficient while adding more value through analytical insights. The time for transformation is now. But what does it involve?
There are four key components of FP&A transformation:
1. Align your business strategy with clearly defined 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's important to clearly define the business strategy and align it to the FP&A strategy.
It's also essential 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 optimization is an excellent way to build more ownership and help drive the team to improve analytics, identify opportunities, and make recommendations.
This ownership mindset is vital to drive real transformation. Without this, an FP&A team may remain in the comfort zone of building budgets, tracking variances to budgets, and so on, without adding much value.
2. Use FP&A to become friends with data and statistics
Over the past decade, we have seen an unprecedented increase in the capability to collect and process data. Data analytics now regularly drive business decisions and deliver improved results.
FP&A cannot function successfully without truly harnessing the power of data and learning the art of analytics. When forecasting, it's crucial to link financial metrics with non-financial ones and use statistical regression modeling.
FP&A should use statistical methods — such as hypothesis testing and A/B testing, to drive a healthier decision-making process for the business. Each of these methods requires an excellent 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 as you seek to embrace FP&A best practices.
3. Let tech be your guide with FP&A
The most critical 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 become more efficient. Using technology-enabled models and real-time dashboards, FP&A can generate more insights, interact with the business, and strengthen decision-making.
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 enterprise resource planning (ERP) software and have strong data manipulation and visualization capabilities.
B) Engage and upskill the team
While implementing new systems and tools, it's a common fallacy that top-down enforcement works. There have been countless instances where a corporate team responsible for transformation has passed down a tool to all FP&A teams across a company without realizing one particular business unit or location's nuances.
For this reason, FP&A team members from across the organization should be involved from the early stages to iron out issues before implementation. Teams also need to be upskilled to effectively use the systems and tools implemented to follow FP&A best practices. Investment in training can pay huge rewards in the long run.
C) Integrate FP&A with the business
The actual benefits of FP&A transformation will only be seen when FP&A is fully integrated with the business. Through leveraging technology and becoming more data-savvy, an FP&A professional can add tremendous value to your organization.
Individuals can provide real-time intervention in decision making. For example, a brand financial analyst should provide inputs on financial KPI impact when a brand manager is planning a consumer discount.
They will verify the discount's financial sense since the FP&A models used will determine whether the benefit of the volume uplift outweighs the discount's revenue impact. You don't need to go on guesswork, instinct, or wobbly calculations.
The future of FP&A
Overall, the benefits of a successful FP&A transformation can be remarkable. By making FP&A a truly value-adding function, this transformation will not only protect you during the crisis but also strengthen your organization’s performance afterward. The future of FP&A is bright indeed.
How to achieve successful FP&A transformation
Achieving a successful FP&A transformation doesn't have to be complicated. Our intelligent financial planning and analysis tools are designed for people who deal with the complex but prefer simplicity.
We help your teams understand the numbers and share and act on that insight to achieve better results — through smarter performance management, planning, budgeting & forecasting; financial consolidation; reporting, visualization & analytics.
Unit4 Financial Planning & Analysis embodies the future of FP&A. It’s a modern, future-proofed solution, powered by AI, machine learning, and FP&A best practices. It helps you empower FP&A teams and is designed around intuitive, self-service tools. Using a single source of truth helps create a single shared platform for all your FP&A work.
Although the business outlook seems uncertain for everyone, FP&A will boost your stability and confidence in 2021 and beyond. Discover more about how Unit4 can help you achieve a successful FP&A transformation by looking at our product page for Unit4 Financial Planning & Analysis.