Simplified Financial Planning, Part II: Responding to Market Volatility in Financial Planning and analysis
In the “5 Advantages of Thinking Ahead” blog, I discussed five essential market advantages that can be achieved with the right FP&A technology and strategic management of KPI’s. Now in this blog, will go deeper into what finance executives are saying about their future FP&A mandate and precisely what kind of technological innovations they will need. The FP&A mandate in the coming years will be for finance departments put the right tools in place now so they can make more substantial contributions to profitability over the next few years. The finance department is becoming a more integral part of business decision making process, participating actively and effectively. That’s what planning and analytics can empower the finance function to do.
A Survey on the Future of Financial Planning and Analysis
The main objective of any enterprise is profitability. Organizations understand that in order to improve accuracy in financial reporting, they must get a better understanding of the business drivers that impact performance. They must also involve more key stakeholders in order to ensure that all essential information is accounted for. Incremental improvements to the existing FP&A methodology haven’t delivered the kind of cost controls that companies need going forward. These pressures call for changes to the FP&A process, as well as the technology that supports it.
SAP sponsored a global survey, conducted by CFO Research, of 335 senior finance executives earlier this year. The result was a report titled, “The Future of Financial Planning and Analysis: Finance Leaders on Their FP&A Mandate—and the Technology Innovations that Will Help Them to Fulfill It.” The ultimate goal of the report was to gather consensus from finance leaders about how to assist the organization in creating value. Specifically, the survey covered how the advanced techniques and technology in FP&A can factor into the bigger picture of profitability. Here are the top two findings from that original research:
Companies Need to Respond Swiftly to Volatility
Agility is emerging as the defining feature of companies that lead their respective markets. Ramped-up global competition and economic uncertainty may turn out to be persistent, if not permanent, features of this new world. The ability of finance to respond rapidly to changing market conditions came up repeatedly in our survey results. The CFO Research survey, “Future of Financial Planning and Analysis”, revealed that:
- Approximately 77 percent of respondents identified “greater agility” in responding to market threats and seeing new lines of business have proven to be a critical competitive advantage.
- Three out of four — 76 percent — senior finance executives said that they believe greater agility in the face of uncertainty will be critical for basic business survival over the next two years.
- Nearly all — 92 percent — of financial execs said that better speed and responsiveness in the finance function would present the most “substantial, measurable financial benefit” to their organization.
Today, speed translates into tremendous number-crunching power. Access to real time data can empower finance departments with ad-hoc business decisions very quickly through high-performance, collaborative solutions.
CFO’s Must Prepare for Real Time Data
Making business decisions based on historical data was the only possibility in the past, but now, the real time data adds a very different kind of value added features in planning for the future. Today’s competitive landscape demands more actionable, real-time analysis to match the sudden shifts in market conditions. The kind of agility finance leaders are hoping for, will require original solutions. This is not just because of Big Data era. Different data structures, even data in lower veracity or volume can be valuable for the finance department to process, report and extract business decisions from it.
The study from CFO Research found that most CFOs recognize that demands on finance to improve profitability will grow from now through 2017. The hurdle they must overcome is the time it takes to collect, normalize and build reports from the flood of data. The “Future of Financial Planning and Analysis” also reported that:
- CFOs are being called on to provide company decision makers with clear options and forward-looking insights. They also recognize that they have to provide them faster.
- 84 percent say that requirements for ad-hoc decision support and analysis from finance will intensify over the next two years.
- Among the biggest obstacles to offering insights is collecting and compiling data from various, incompatible information systems. By the time the data is merged and normalized, it is no longer real-time data.
The finance function is growing in importance as businesses’ reliable navigation system through tempestuous economic storms. New technology and solutions for FP&A operate as the finance leader’s guide to what’s on the horizon.
Financial Resource Kit
This three-part series will conclude by rounding out the top five findings from the financial executive survey. It will show how financial leaders characterize the role of finance today and the most likely scenarios for the next few budget cycles. You can build your own resource kit starting with the Finance Solution content hub. You’ll be able to read technical documents or watch videos on what’s happening in the world of SAP finance solutions.