The Changing Face of Financial Planning & Analysis

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“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.” – Charles Darwin Darwin could well have been talking about the corporate species. There is a reason why only 61 companies that appeared on the Fortune 500 list in 1955 are still on the […]

“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.” – Charles Darwin

Darwin could well have been talking about the corporate species. There is a reason why only 61 companies that appeared on the Fortune 500 list in 1955 are still on the list in 2014, and that reason is adaptability to change.

With change being such a constant, it is surprising that as critical a process as Financial Planning & Analysis (FP&A), which drives the direction of an organization, has undergone only small incremental changes over the years. Despite many tools being available, most FP&A teams still breathe on Excel.  Plans, forecasts and analysis still rely heavily on individual knowledge and analyst competence rather than hard data. In this globalized world, leaders still cherish asking a colleague sitting in a nearby office when they need analysis for decision making. While FAO outsourcing has blossomed, FP&A processes are still held close to the chest.

 It isn’t difficult to understand why this is so. Change is resisted in all areas, but I find it is particularly true in FP&A. The data is too critical, plans are too business centric, time for decisions is too limited and disrupting current processes could throw the organization off course, especially since FP&A answers the “why” question rather than the “what” question. However, a surprising number of CFOs we talk to list FP&A as a big pain point – they can’t live with it in its current form and they can’t live without it.

There also seems to be the feeling that the time is now right for change. Organizations are already rethinking the way they look at organizational data and analytics. Data from point of sale, supply chain, marketing, etc. is being pooled together and tools are being implemented to mine and analyze it all.

FP&A is the function that can leverage this the most. In the past, Analytics and FP&A functions stood as standalone in organizations, but now they are starting to converge and feed into each other to ensure the entire organization is talking the same language. 

 

 

So what does change mean for FP&A?  A few thoughts:

  • Financial Planning: Quick and flexible…Base budgets and forecasts will be mostly automated, real time system links to business and industry data will improve accuracy of inputs, and the focus will shift from preparing budgets to simulations, what-ifs, statistical predictions and quick iterations. There will be much better visibility during the budgeting process and top down and bottoms up budgets will “talk” better to each other.

  • Management Reporting & Analysis: Information at fingertips…Standard reporting will be automated, ad hoc reporting will be aided by better data and analysis will be quicker and easier. Linking financial metrics with business metrics will enable immediate answers to the “why” question. Statistics will make its way into the Finance domain and forward looking analysis will be more important than historic analysis.

  • Strategic Planning & Decision Support: The new core…With easy access to data, analysts will focus on options, simulations, risk reduction and optimization for the current business; and market analysis and modeling for new business.

At Capgemini, we are seeing the convergence of FP&A and Analytics emerge, and are leveraging Analytics as a tool for FP&A. Clients use standardized interactive dashboards to easily drill down into root cause analysis and spend more time on what-if simulations. Output of FP&A becomes a deep dive for Analytics and those findings are fed back into the FP&A process to drive changes in the business. 

 It will be interesting to see how other disruptive forces such as automation drive further change in FP&A. I’d be interested in your views on this. Feel free to comment below. 

 

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