Financial Planning and Analysis (FP&A) Leaders are Failing to Deliver Higher Strategic Value

​Recently, Prophix Software released its findings from the survey, Defining the Evolution of FP&A: Benchmarks, Challenges & Opportunities. The survey which was carried out in 2017 received feedback from over 300 FP&A leaders from all companies of all sizes across the globe.

The survey was conducted to establish the maturity of analytics solutions across the globe, the effectiveness and efficiency of FP&A leaders’ planning processes, how companies are leveraging technology to improve FP&A processes, and to gauge internal perceptions relative to the value of FP&A.

Although certain parts of the results are encouraging, FP&A teams significantly need to improve on their role of delivering higher strategic value to their companies.

In today’s fast-moving markets, characterized by intense competitive pressures, shorter product life spans, complex business environment, increased volatility, and heightened uncertainty, it is imperative that a company’s FP&A people, processes, and systems are highly mature, effective, efficient, and leverage the necessary enabling technologies.

While going through the survey findings, a couple of statistics captured my attention.

  • 55% of the survey respondents reported being in a basic or developing state of the FP&A analytical maturity.

Comment: This basic level of analytical maturity brings to light the fact that a culture of continuous innovation and improvement is not the norm in finance at most companies. As the custodians of data within the organization, Finance is in position to lead analytical development, but at many companies this is not the case.

Surprisingly, 50% of respondents are mindful of technology but seldom upgrade. This statistic alone is concerning. Why are FP&A leaders reluctant to change? Are they happy with the status quo? Are they lacking the resources necessary to transform? Is it ignorance in its purest form? Answering these questions for your company is a great first step in moving beyond basic FP&A analytical maturity.

This transition also requires a cultural shift that can only occur when the value of analytics are understood and taught throughout the organization.

Attending industry conferences, seminars or webinars and reading thought leadership resources as well as listening to their podcasts can help FP&A leaders keep abreast of trends and benchmark their company’s performance against peers.

  • Only 12% of the survey respondents have access to the right data, at the right time, to inform strategic decisions at their companies.

Comment: Having access to the right data, at the right time is key to making good strategic decisions and driving business performance. Unfortunately, 88% of respondents do not have this access. This means the majority of critical decisions in companies across the globe are based on gut-feel and not evidence-based.

In today’s Big Data age, it’s startling to know that companies are not leveraging advanced analytical tools to aggregate and analyze data from disparate sources and generate key nuggets on customer experiences, competitor behaviour, trends, emerging risks and opportunities.

Moving forward, FP&A leaders need to make use of data management framework that facilitates the creation of a central data repository and ensures everyone in the company has access to relevant data whenever they need it.

This can only happen if the company makes the key decision to advance its analytical maturity model. Highly manual processes make it difficult to update FP&A models in real time, thereby inhibiting quick decision-making processes.

With the recent advancements in technology and declining costs to implement new software, the investment required to enhance FP&A processes have been significantly reduced. This reduction in cost makes the return on developing new analytical capabilities higher than at any time in history.

  • Only 10% of companies reported that they find it somewhat easy to perform scenario analysis.

Comment: In today’s volatility, uncertainty, complexity, and ambiguity (VUCA) business environment, companies must be proactive, develop superior forward-looking capabilities and be ready to deal with any disruptive forces threatening their survival.

They must become more flexible, adaptable and be increasingly aware of the impact on business performance of changes in the environment. This will help them take corrective actions more quickly and efficiently.

Unfortunately, 90% of the surveyed companies are finding it difficult to perform scenario analysis. As already reported, over half of them are still reliant on basic and highly manual processes which in turn makes it difficult to consider all possible scenarios in their FP&A models.

For the 10% who are finding it somewhat easy to perform scenario analysis, what are they doing right? They have managed to figure out that FP&A is a collaborative process extending beyond the walls of Finance. Also, rather than use fixed time-specific budgets, they are using driver-based rolling forecasts to see beyond 12 months. Where does your company fall in collaborative planning and rolling forecasts? Make it your charge to develop these important capabilities.

Engage the wider business community, learn about the external and internal factors influencing strategy execution, how they are all interrelated and gain a deeper understanding of the key drivers of business performance. Leverage new technologies, calculate probabilities and update your FP&A models in real time. Set these as objectives and work your plan to get there.

  • 55% of respondents conveyed that their companies don’t think that FP&A delivers high strategic value.

Comment: According to the survey findings, 51% of the time spent on FP&A is allocated to data collection or validation. Thus, instead of spending more time on generating insights and influencing business decisions, FP&A teams are busy reporting on the past and justifying reported results.

This is understandable given the high levels of technological immaturity in many companies. By leveraging advanced analytical tools, FP&A will be able to reduce time spent on data collection, reconciliation and cleansing and free up resources that can be used to deliver higher strategic value.

FP&A teams should regularly liaise with business teams and establish their reporting and information requirements. This will help ensure that resources and time are not being wasted on non-value adding activities.

Take a candid review of your current FP&A people, processes and systems; against the backdrop of the points above. Identify your deficiencies, discuss them with your team to develop implement an improvement plan to deliver higher strategic value to your company

Assignment:

1. Is your FP&A function in a basic or developing state of analytical maturity?

If No, skip to the last question

2. What action will you commit to taking to improve your understanding of the analytics needs of your company?

3. Select a potential project to improve your data analytics and develop a financial model to understand and explain the ROI to your team. (the right analytics at the right time to make a better strategic decision)

4. Determine the % of time of your FP&A function is spent on data collection or validation?

5. If that % is too high, what is your next step?

6. How will you use this learning in your business?


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