Modern FP&A – How To Break Through Budgeting To Become A Full Business Partner
6
minutes
The past decade has seen a tremendous acceleration in the technology used in all aspects of business – from demand generation to engineering to operations there are many modern real-time enterprise tools that managers can use to evaluate and fine-tune their businesses.
And yet for many Finance professionals the role of FP&A struggles to leverage these enterprise tools because we continue to be stuck in the mindset of the “annual budget” and the technologies and processes are locked in decades-old paradigms that have undergone minimal change. It’s understandable given the Finance organization always has limited time (not to mention limited resources) to risk a process change that could derail tight schedules.
The result is that FP&A teams still spend 90% of their time collecting, consolidating, and confirming data – missing out on the role they could be playing as change agents. If FP&A could get back that additional time they would be able to focus much more time on modeling the drivers in the business, examining how changes in those drivers could optimize or detract from desired business results. Time would also be available to dig deeper into trends not obvious in the key metrics. Using these insights to advise business leaders is not only living up to being a change agent, it’s also one of the most satisfying things an FP&A professional can do.
Breaking Paradigms
Much of the paradigm for today’s FP&A work is rooted in decades-old workflows. Close cycles, access to information, and reporting cadence have all centered around the analysis of historical information – backwards looking trend analysis. Analysis in this paradigm risks losing key forward looking insights. It’s the difference between driving your car looking in the rear view mirror vs. looking out the windshield. Business leaders have struggled for years with stale data producing outdated insights and incorrect views of the future, missing key opportunities that can help increase growth and ROI opportunities.
Modern software for businesses provides real-time data for an array of areas previously out of reach for the typical FP&A team. Connecting to these systems is second nature for many enterprise tools – however the tools for managing financials are frequently an island to themselves – with only Excel downloads as bridges to/from that island. This creates processes centered around data collection/curation that translate into weeks and months of scheduled activities.
These timelines are not only inefficient and error prone, they produce data that is frequently so far out of date by the time it reaches the intended audience that it lacks any actionability. Tasks such as headcount forecasting, budget variance analysis, and many other operational tasks require hours of manual work by professionals who can be much better leveraged to create meaningful insights once they have a connected FP&A environment.
Developing a Comprehensive View
Planning and forecasting needs to become much more “driver-based” – static planning models don’t allow for the complex interactions of inputs that characterize the real-world of how a financial model actually functions in a business.
Developing a comprehensive view of your business through a model that allows you to flex all of your assumptions, combining them with real-time adjustments, gives you the insight to immediately change direction and optimize outcomes. Detailed scenario planning and “what-if” analysis becomes exponentially more valuable as you add the power of AI and algorithms that have the ability to extend far beyond an individual’s ability to see connections and patterns in data.
Excel based models do not have the power to leverage these large datasets and algorithmic calculations – new software is required to deliver on a true business “digital twin”.
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FP&A systems must also be able to connect to a wide variety of business systems – and do so without months of integration work by the IT department (or overworked FP&A team members assigned to perform that integration work on top of their day jobs). Once that FP&A system can “tune in” to the signals produced by the business it can leverage information in real time and produce insights that can have timely impact in the form of recommendations. Not only does the FP&A role need more connection to the data coming from the business – it needs to leverage AI and pattern recognition that derive insights that humans can’t easily see. A modern FP&A tool can not only produce insights – it can immediately suggest changes to forecasts or operational plans that can improve future results.
FP&A teams need strong collaboration between themselves as well as all aspects of the business. Well connected tools that provide insights in real time as well as the ability to seamlessly collaborate will combine the best of AI and machine learning with the benefits of human judgment and decision making to ensure that the business is making the best decisions more quickly and with greater accuracy. Modern work forces are relying on embedded real-time collaboration tools that allow dialog within the context of the information that is being reviewed – a modern finance system needs to create a seamless opportunity for finance professionals and their business partners to collaborate quickly right next to the financial data with which they are working. Not only does this provide increased efficiency – it also creates an auditable record of review and can improve compliance programs.
The business environment is experiencing stresses that haven’t been seen in decades. Record inflation, supply chain interruptions, geopolitical instability, and the thread of recession and economic slowdown are changing in real-time. These factors are creating tremendous challenges for business leaders – and they will need a strong partner in the Finance organization to develop a strategy to deal with them. At the same time, Finance organizations are stretched today more than ever with tremendous demands for data and analysis while constantly fighting for scarce resources inside the business. CFOs must be forward thinking to navigate these challenges. The best leaders are adopting a modern FP&A approach leveraging the cutting edge technology and integrations that harness key information in the organization combined with re-thinking the workflows of the FP&A team. Forward looking Finance teams that leverage the opportunities provided by new technologies and workflows will be able to deliver the insights required and play a critical role in helping guide businesses through the challenging times ahead.
