How can my finance team be a more impactful business partner?
FP&A can expand its role by harnessing new opportunities from data and analytics.
Rethinking the traditional approach to financial planning and analysis (FP&A) has been on the to-do list for a growing number of companies over the last few years. But the current “new normal” business climate of fast-changing risks and opportunities has now catapulted that task to the top of many companies’ must-do lists.
Even before the COVID-19 pandemic, business leaders were facing an increasingly dynamic landscape. They needed to make more rapid decisions, but their finance teams were often focused on reports that were outdated by the time they were released. Managers often feel hamstrung by budgets or targets from two or three quarters ago, and so they make shortsighted decisions to “make the numbers work.”
These problems contribute to the perception of finance teams as “scorekeepers” disconnected from real business needs and concerns. At some organizations, that perception has made it harder for finance to get a seat at the table where important decisions are made. For finance to become a true partner in the business, the function must be wholly realigned to strategic and operational imperatives.
With Finance as my Copilot
To be clear, the future of FP&A doesn’t mean abandoning the finance team’s longtime functional strengths. Finance will need to continue to support traditional tasks aimed at preserving value, such as scheduled reporting and enterprise risk management.
But the opportunity going forward is to expand the team’s focus on activities that create value, such as strategic planning, market analysis and developing financing strategies. This is how the traditional scorekeepers turn into “copilots” who deliver meaningful new contributions to the leadership team.
3 Keys to FP&A Transformation
Moving finance up the corporate value chain will require process, organizational and technological changes across the FP&A function. Here are some insights on each area:
1. Process changes
Incremental or even zero-based fiscal year budgets won’t cut it anymore. Instead, adopt a continuous, rolling forecasting approach that looks ahead as far as 24 months. Continuous forecasting is not solely focused on current or actual budget but also incorporates business drivers—the data that best correlate with future results. Many organizations already do this on an informal, ad-hoc basis. FP&A teams can move to a data-driven approach by testing drivers for material impact, and then formalizing their inclusion into future forecasts.
Continuous forecasting also frees business managers from having to make resource allocation decisions based on the calendar. Instead, they can focus on anticipating or responding to key business events (product launches, major customer orders, a busy sales season) or on proven business drivers like the spend on marketing and innovation.
2. Organizational changes
FP&A can also support its company’s overall transformation to integrated business planning, which incorporates all business units and functions that move the business forward, such as sales, marketing and operations. Continuous, driver-based forecasting requires finance to align with commercial and operations on key business drivers, planning cycles and management reviews.
This integrated planning will require changes across the FP&A operations model as the function increases its scope from “reporting up” to senior leaders to “reporting out” to the overall business. For example, many companies may want to bifurcate the controller and the FP&A functions due to their fundamentally different roles. They may wish to have separate FP&A teams to support evolving initiatives in areas like ad-hoc planning, management reporting and strategy, advanced analytics capabilities, and group planning that supports commercial and operations functions.
To achieve this organizational change, FP&A professionals will increasingly need more than just the requisite finance skills. Building the finance organization of the future may require hiring data scientists or improving the skills of the existing FP&A team. This will help enhance business acumen, provide context for new responsibilities, master new data analysis technologies and generally understand the relationship between data and its impact.
3. Technological changes
Technology will play a key role in moving FP&A up the corporate value chain. The finance function is uniquely positioned to bring data-driven decision-making to the forefront of organizational planning, and advanced technology is crucial to producing better and faster insights with greater efficiency.
EPM Cloud technology is fundamental to next-generation FP&A, given its ability to evolve with the business. The cloud helps to enable consistent data usage by integrating business processes and applications across the enterprise. Working from a single source of truth helps to ensure that all teams employ the same assumptions when performing analysis or forecasting. Using the cloud also speeds access to the latest in game-changing technologies like advanced analytics.
Other key technologies include:
- Predictive analytics, which relies on internal and external datasets as well as artificial intelligence for more accurate forecasts.
- Digital labor, such as robotic process automation, which automates routine processes so finance teams spend less time developing reports and aggregating data, and more time on analysis and partnership.
- Data Visualization & Reporting tools present data in dynamic and user-friendly ways to people inside or outside the FP&A function.
For finance to move from value preservation to value creation, it will require a transformation of the function and a change of mindset among its business partners. FP&A will play a key role in that transformation as it helps the entire organization become more agile, forward-looking and data-driven.
Learn more about how data and analytics are driving the Future of Finance: