FP&A Evolution: From Silos to xP&A
Every FP&A professional has a similar horror story. At some critical juncture, a detailed analysis and recommendation on a critical decision must be presented to management. The presentation has been practiced for days, the numbers have been checked (and rechecked), and multiple scenarios have been analyzed with a key recommendation.
However, when the team sits down with the executives in the board room, they are quickly met with confusion. “Didn’t I just review a similar presentation from sales last week?” the CEO asks. Blood runs from the team’s faces.
The executives are, once again, frustrated to be presented with different recommendations from different functions, with each presentation lacking a cohesive view of the entire business. So, what’s a leader to do? They do what they’re accustomed to with such disconnected analysis: they continue to lose trust in their teams and, make a decision based on their tenured intuition.
The good news is that, while painful, these integrated analysis challenges are far from unsolvable.
The word ‘silo’ derives from the word ‘isolated’. A silo is essentially an island within the corporate geography, limited by distance, culture, leadership, and technology. Silos occur when departments or groups within an organization work independently from one another for various reasons, including differences in goals, communication breakdowns, and competition for resources.
Organizational silos are a significant problem in many businesses, that harming productivity, communication, and morale. In some cases, silos can create an us-versus-them mentality, further impairing collaboration & productivity.
While sales, marketing, HR, engineering, operations, and supply chain all contribute to the bottom line, each is accustomed to creating their own operational plans using separate planning tools, methodologies, and standalone spreadsheets – without insight or awareness of how they may impact each other.
Figure 1: The challenges of traditional planning practices- FP&A Board Maturity Model Research Paper 2021
xP&A De-silos Organizations
The best solution to resolve siloed efforts is Extended Planning and Analysis (xP&A).
As the name suggests, comprehensive planning and analysis (xP&A) expands past traditional financial planning and analysis (FP&A) tools, practices, processes, and methodologies. Here, the “x” is a variable representing any and all departments- finance, sales, operations, supply chain, or HR. The planning process expands beyond the finance function, as depicted in the right table in Figure 1.
At its core, xP&A links plans and people to identify potential impacts, opportunities, and risks within different departments, helping organizations to develop solutions as soon as challenges appear. With xP&A, multiple scenarios can be analyzed with one “Number of Truth” outcome clearly demonstrating the impact on each organizational function.
Even better, xP&A doesn’t just link operational plans to each other – it also links plans to strategic objectives, which helps CFOs and their teams to forecast, monitor, and evaluate matters holistically. Now, executives can pair their intuition with real-time, accurate, and cohesive analysis to boost their decision-making confidence.
For example, when a new blockbuster product takes off, xP&A solutions indicate staffing and production requirements, possible supply chain disruptions, the need for additional capital, and forecasted profits and cashflows. The beauty of xP&A is that when one plan changes, the fully integrated model shifts, and the whole organization can focus on confidently taking its product to market.
As you can see in Figure 2, pairing the right tools to implement xP&A creates a unified planning capability.
Figure 2: Next Generation FP&A Model
Technology finally catches up
The pain points of integrated planning aren’t new, and this isn’t the first time a solution has been called for. However, what has changed is that technology and organizations have finally evolved to the point where they are both ready for each other. After first learning how to walk, we are now ready to run.
Centered around best-in-class technology, xP&A leverages the power of teams to break down silos between departments– and connect and synchronize plans across the entire organization compared to an FP&A-led approach. What’s integral is having your planning system connected to your ERP and other enterprise applications in real-time.
To prepare for xP&A, organizations must prioritize investment in change management for all involved — from executives and directors to managers and users. A well-prepared and trained function will ensure change management and communication are seamless throughout the xP&A deployment process.
Conclusion – FP&A Evolution: From Silos to xP&A
While Silos have always been a persistent challenge to sound decision-making, the future is promising. No longer theoretical, xP&A can be adopted by savvy organizations today.
Organizations that embrace integrated xP&A’s modern technology will beat the competition. Instead of more of the same and trusting only FP&A teams to produce analysis, xP&A stands poised to drastically enhance the planning process, allowing executives and each function to seamlessly run simulations to support what-if analysis and planning scenarios. Organizations embracing xP&A can trust the data available to them as they have a fully connected planning and enterprise application platform that doesn’t replicate data and embraces a single version of the truth. With xP&A, silos are broken down and work collaboratively to produce fast and informed decisions across the business, to better understand the impact on operations and the bottom line.
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