This is typically a busy time of year for FP&A professionals with planning and budgeting underway moving into 2017 for many organisations or about to begin. In the course of running a business, it's essential to have a solid process in place for handling financial planning and analysis (FP&A). Doing so will enable your company's stakeholders to make smart, forward-thinking decisions about the future of the business that are well informed.
It's essential to have a solid process in place for handling financial planning and analysis (FP&A).
Staying on top of FP&A is a challenging endeavour because the field is always in flux. This notion is supported by the Association for Financial Professionals (AFP),which recently came out with its 2016 FP&A Benchmarking survey. The conclusion? Times are changing.
Nilly Essaides, Director and Practice Lead for FP&A at the AFP, said in an interview with Host Analytics that analysing and forecasting a business is a significantly different process than it was just a few years ago, as high-tech innovation is driving rapid change.
"Overall, we found that FP&A is a function in transition," Essaides said. "It's moving from where it is to where it wants to be, and the key to this transition is investment in technology, better access to data and the adoption of more advanced analytics."
There are plenty of interesting numbers from the research that support this idea.
Technology can accelerate FP&A productivity
The AFP survey found that over half of companies still rely on Excel to develop budgets, forecasts and plans, it also shows however, that when companies invest more in technology they achieve significant gains in process efficiency. This being perhaps the most important finding from the research - the fact that investing in technology like enterprise performance management (EPM) systems that automate the budget cycle is proven to deliver productivity gains. Essaides emphasised that when companies put money into FP&A technology, they generally see those dollars and cents come back to them in the form of reduced grunt work and shorter cycles in forecasting work. This frees up FP&A personnel to spend time focusing on improving other areas of the business.
AFP found that when companies invest less than 10 per cent of their total budgets in this type of technology, they end up spending 384 total FTE days processing and collecting data. When that investment is in the 10 to 19 per cent range, that time is slashed by more than half. In addition, when system investment is in the 10 to 19 per cent range, this also translated into shorter cycle times delivering the budget 18% quicker.
Looking forward with better forecasting & access to data
FP&A is becoming a forward-looking operation. What began as a function that reported merely on past events is now transforming into one that focuses on why those events occurred as well as what is likely to happen next. FP&A is working hand in hand with business units to create realistic business plans. Consequently, it must stay tuned in to the organisation's overall strategic objectives, assess risks and identify growth opportunities. FP&A is evolving into the analytics hub at an increasing number of companies—becoming the "brains" of the organisation.
It's difficult to make any predictions about the future of your organisation when you don't have clear, comprehensive and accurate information about the world around you. This is another key finding from the AFP research - the idea that, in the near future, companies will prioritise having better access to data that will help them make their budgets and forecasts more advanced.
Currently, approximately one-third of AFP's survey respondents say they have ready access to the information they need both inside and outside their organisations for running predictive models. This figure is expected to grow in the years ahead, and companies will get more creative about the data sources they use, including pulling in numbers from non-financial systems to run their models. FP&A are using techniques like driver-based modeling at nearly 60 per cent of companies, rolling forecasting is almost a half of the respondents and zero-based budgeting at 39 per cent of organisations.
Improving the accuracy of forecasts is being closely monitored by organisations reporting a variance of plus or minus 5 per cent. This is in the wake of many public forecast errors like Walgreen's last year where the CFO was fired and the stock price took a sharp dive. What matters is not the variance so much but being able to identify its root cause so it can be fixed at the source.
Real-time financial planning needs the cloud
Essaides says that previous research shows CFOs are planning to sharply increase the amount of technology dollars they plan tospend on cloud-based software applications. "The demand for cheaper, faster to implement and collaborative tools is likely to speed up the adoption of SaaS solutions as FP&A seeks to move away from Excel, adopt predictive analytics capabilities and gain better access to real time, and bigger data."
According to Essaides, "Old ERP and CPM solutions were built around functional silos. Reengineering them to cut across departmental barriers is nearly impossible. The only way FP&A can collect and analyse enterprise data in real time is through cloud applications."
Fortunately, new dedicated financial-planning software is becoming available at a lower cost. Many of today's cloud-based solutions offer "self-service" options that empower FP&A to run its own queries rather than require IT involvement. They also allow FP&A to put powerful analytics into the hands of business partners, resulting in timelier and richer conversations. Indeed, over half of the survey respondents deem future access to integrated, internal and external data and real-time analytics as a key competitive differentiator. FP&A already "feeds" on multiple sources of data—from both within and outside an organisation—to identify trends and provide management with insight and foresight. With nearly half of organisations relying on rolling forecasting to continuously refresh their outlook, FP&A is moving to the helm of the ship, helping management navigate the company away from rocks and toward better financial performance.
Excel spreadsheets will never go away. But without dedicated budgeting and forecasting software that pulls data into a single repository, it will get harder and harder for FP&A to execute on its mandate of streamlining its core processes, and elevating its role by performing more advanced analytics and acting as an adviser to the business and senior management.
