What benefits can an integrated FP&A deliver

Introduction: A harmonious partnership between the business and FP&A

The core responsibility of the financial planning and analysis (FP&A) department is to measure current performance and plan for the future. In this blog we will look at the topic of integrated financial planning and analysis: what it is and why it is relevant. We will also explore what is required for a successful FP&A integration with the business and identify the main challenges. By integrated FP&A, we mean an FP&A function that is working for but also in harmony with the business.

Three reasons why an integrated FP&A department is relevant to and beneficial for the business

Reason #1: Foster collaboration across departments

FP&A, as part of the broader finance function, is a support function. The purpose of FP&A in its broadest sense is to support the frontline activities that directly generate revenues, costs, assets and liabilities. Therefore, one requirement for integration is the necessity of a constructive relationship to enable effective support. This relationship will allow FP&A to better understand how the business works and provide business leaders with relevant analysis and an associated narrative.

Reason #2: Improving the analysis of performance drivers

One of FP&A’s responsibilities is to analyze performance drivers. An organization exists to deliver tangible outcomes. These are so-called performance outcomes. When measured, they act as a way to determine progress, rewards and learnings that help develop different directions, tactics or plans. Every part of the organization has an impact on the financial statements and will appear as an expense item at some point, be that immediately or at some point in the future. For example, a department may create assets that generate future revenues or liabilities, these will ultimately also generate future expenses. To sufficiently analyze the performance of all different business units, FP&A needs to be integrated with the business and be engaged with business leaders. This integration is necessary in order for FP&A to acquire a deep enough understanding of the business performance drivers so they can measure, analyze, interpret and plan them.

Reason #3: Emphasis on the forward-looking financial planning

Just measuring performance today will not inform the business of the actions it needs to take tomorrow or the decisions it needs to make about the future. Understanding the causes of performance will help shape the context and allow management to take relevant learnings. Thus it is only by understanding the why, in other words the performance drivers, that it is possible to clearly plan the trajectory of the business going forward. In addition, a robust plan for the future of the business cannot exist in a vacuum. The business is accountable for performance, yet plans need to be connected with the financials. Otherwise, organizations cannot set real targets against which performance can be measured. Only by collaborating together can a shared and committed to plan be achieved.

Requirements for shifting towards integrated FP&A

An integrated FP&A team is one that is in daily interaction with the business, constantly updating its knowledge and insight of the business whilst also supporting the build of detailed, driver based, key performance indicators (KPIs). These KPIs act as a robust system that allow each business area to assess its own performance. An FP&A team that is not integrated is more like a commodity that can be outsourced or done away with completely.

In practice, moving from being a traditional FP&A team to an integrated FP&A department requires team members to change from being gatekeepers to enablers. In addition, it requires an ability to generate better insights, which can be supported by the use of analytical and digital tools. These two shifts will lead to FP&A being embraced as a collaborative team to the business. One that the business would not dream of outsourcing.

Summary: Successful integration is a joint effort

The true shift comes with trade-offs for the business. It requires cooperation, an open mind that welcomes challenge and generosity with time to allow for the education of FP&A. People do not always want to hear trusted advice, but it is necessary to continually re-evaluate one’s own fundamental assumptions. This re-evaluation is a quality that finds itself in increased demand within the complex business environment that exists today.