Following a year of unprecedented uncertainty, organizations find themselves immersed in a world of dead budgets and unrealistic forecasts. A world in which senior managers look to the financial planning and analysis (FP&A) department to lead the way so that the organization can more readily adapt to fast–changing business conditions with unpredictable futures.
It is a situation that FP&A have been anticipating, demonstrated by the 7 top current FP&A trends discussed below. These trends, which started some years ago, not only challenge the traditional view of FP&A, but also the way in which the FP&A department engage with the rest of the organization. The reality is, FP&A is being transformed from a solely finance function into a function whose influence spans across the whole organization to implement strategic change.
Trend 1: Evolving into extended planning and analysis (xP&A)
Although xP&A is a relatively new term, coined by Gartner, the concept has been around for many years under different names, including integrated FP&A.
This approach requires FP&A to step outside of traditional planning, where the focus is on finance. More specifically FP&A need to step away from setting budgets and monitoring performance against them. XP&A recognizes that operational plans such as workforce, production and purchasing, are entirely linked to strategy and are a key part of any financial plan. To plan without recognition of the role these departments, their more detailed plans and their managers play, just does not make sense.
In a webinar survey we conducted on the professional view of xP&A, in January 2021, 21% of 100 finance professionals said they had already moved towards xP&A. Forty-two percent were bringing in the structure and tools required to move in that direction. Only 1% did not believe in the concept.
Trend 2: Planning for multiple futures
In a world of uncertainty, investing planning resources into solely the creation of one financial plan, with one set of assumptions, is a risky move since that one plan can become obsolete very quickly. When it reaches obsolescence, organizations are left with no other option but to start the whole process again. Even then the time lost, and the risk that the same resources are wasted when the next plan reaches the same fate, costs the organization dearly.
The only type of plan that works is one where the organization considers multiple futures, based on the latest information available. Organizations like Citi and GoCompare constantly evaluate multiple scenarios in real-time of the situations that could arise. From this they are ready to either mitigate threats or take advantage of those situations as they arise.
Trend 3: Embedded predictive analytics
For a number of years, the use of statistical modelling and artificial intelligence / machine learning (AI/ML) has been growing. These advanced capabilities are able to analyze large quantities of unstructured data at a very detailed level, to reveal drivers and make predictions that were previously impossible. Early adopters of these techniques have found them to be far more insightful and reliable than traditional methods, which has in turn led to faster and better decisions being made. The main drawback of these new technologies however, is that they require data scientists and certain skills, that are way beyond typical finance teams.
However, recent trends have shown that these capabilities are now being built into software solutions directly. This means FP&A staff are able to use them without understanding their complexity or possessing the necessary technical knowledge.
Trend 4: Self-service analytics and FP&A platforms
In the past, software applications were only available as single-purpose, self-contained systems, that were installed on the organization’s computer hardware. Although these eliminated many of the downsides of using a spreadsheet (e.g., they were more secure, allowed far better control over versions, and sped up the process as any data entered was automatically available for analysis), they also came with their own issues:
- Cost: The initial software purchase cost was high and they incurred significant ongoing software maintenance costs.
- User accessibility: Users required specific personal computers that often tied them to a specific location.
- Plans: Different areas of the business used different plan structures that were difficult to link and maintain.
The move to xP&A requires far more than a single solution. In fact, it needs a complete analytic eco-system controlled by finance that can support integrated models from across the organization. A system that is flexible enough to adapt quickly to change.
The introduction of cloud-based systems makes this requirement possible. Today, many vendors offer comprehensive self-service FP&A platforms that can be controlled by finance without engaging IT. At the same time, end-users can create their own reports and analyses without needing FP&A’s involvement.
Being cloud-based means they are securely accessible from anywhere and any device. Changes made are instantly available as are the connections to underlying data sources. The cost is also more favorable as it involves only a simple, monthly subscription fee.
Trend 5: Robotic process automation in FP&A
Robotic process automation (RPA) is a fancy name given to something quite basic – the ability to automate manual processes. FP&A Trends’ surveys have shown that FP&A departments spend, on average, over 40% of their time on low-value manual tasks such as data checking, data manipulation and writing reports. These are all tasks that could be automated in a way that would at the same time improve the quality of the process.
Similarly, as organizations move towards integrated plans with real-time access to data, certain tasks become too great to handle manually. For example, ensuring data is up–to–date, ensuring analysis has been carried out, and conforming that only the right people can access the right results.
RPA is where these needs are met. In the past this type of control was managed by scripts and macros that were typically outsourced to IT consultants. Today, these capabilities are being embedded within analytic platforms, allowing FP&A to focus on things that will add value.
Trend 6: Expanded FP&A skillsets
FP&A’s role is to generate insights for decision-making and drive subsequent actions. In times of uncertainty and as results come in, senior managers look to FP&A to answer questions on what those results mean for the next quarter and for the next year. Also, to figure out their options, and what they need to do. FP&A are in a great position to answer these questions, but it requires a range of additional skills from those traditionally found in the team.
Today we are seeing a development of cross-functional teams in FP&A, teams that really understand the business. Inside these teams are defined roles. The person charged with developing analytic models (Architect). The person analyzing the data and producing reports (Analyst). The person utilizing advanced analytical tools to generate hidden drivers and predictions (Data Scientist). The person who is able to present results in a context to allow clear decision making (Storyteller). And finally, the person who is able to work with and influence senior executives on the direction the company needs to take (Influencer).
Trend 7: Cash flow management and life-cycle profitability
Traditional planning is typically around the profit and loss account, where the allocation of resources is set for a 12-month period. This view is untenable in an uncertain business climate for two reasons:
- It masks where a product or service is in its life-cycle and hence its overall profitability. Some will need more resources early on in their life-cycle, while others will need less. None of this fits into a 12-month budget.
- Cash is king. This valuable resource needs to be conserved, and so plans must consider cash implications. Cash that is not used wisely, will impact profitability – the two are heavily interlinked.
To maximize profits, many organizations are now turning to 3-way planning system (P&L, balance sheet, cash flow) where time is not set at a particular length but reflects the natural life-cycle of its products or services.
FP&A is undergoing significant change. Change brought about through these unprecedented times of uncertainty. The trends we see are concerned with how FP&A can add value to the business and how it can be a true business partner that not only supports organizational decision-making but can also challenge it.
The tools for making this happen are here. The critical question is whether FP&A can adapt quickly enough to cope with the next normal. To quote Albert Einstein, “The measure of intelligence is the ability to change.“
To learn more, have a look at the Ventana Research paper, sponsored by SAP, Achieve Agility in Planning and Execution: Contingency Planning Built with Predictive Analytics Delivers Better Results.