Rethinking the FP&A Operating Model

The Finance Director or CFO must remain focused on providing near-real time insight into business performance and multi-response scenarios to business leaders in order that they can make informed and risk-adjusted decisions as internal and external challenges unfold.

 

The Financial Planning and Analysis (FP&A) function is well placed to help lead the FD through this strategic process by leveraging their financial insight, systems capabilities and direct access to operations. However, with the passage of time, ever increasing volume of data, and increased complexity as businesses grow and evolve, FP&A can find itself distanced from business front line teams and swamped in a never ending sea of data and process.

 

FP&A Challenges

It is generally accepted that the FP&A service delivery model includes ownership and coordination of strategic planning, budgeting, forecasting, management reporting, financial analysis, business modelling and regulatory reporting support, but what about getting out into the business in order to become value-adding (and trusted) business partners, not just owners of process?

 

Increasingly, FP&A teams are challenged to balance the responsibilities of financial control, governance and process ownership with the more dynamic behaviours of an agile, insightful and critical business analyst. The ever-increasing array of systems and technologies offering time savings and process efficiencies (sometimes verging on the promise of 'automated insight') are not helping.

 

Principles underpinning FP&A Enhancement

Optimising the FP&A operating model can be achieved in a number of ways and in each case should be tailored to each specific business.  There is no 'one size fits all' model, but the underlying principles are shared.

 

  • LEAN finance: Cutting out wasteful activity, embedding a culture of ownership and innovation, continuous improvement.
  • Strategic Alignment: An aligned team culture beats isolated groups of excellence every time.
  • Technology as 'enabler': The real value is in linking people together, not in the technology itself.
  • Investing in people: Business Insight is a people skill. Software cannot do it for you.

 

Key questions should be asked by the CFO:

  • Are the questions being asked by senior management of sufficient quality?
  • Can the business identify and gather the required data?
  • Can insightful analysis be performed on the data gathered?
  • Can the output be communicated within the required time so as to remain useful and relevant?
  • Does the business have an aligned culture that works together to deliver on strategic objectives, or is strategy, planning and performance seen as a 'finance initiative'?  With the best will in the world, FP&A cannot motivate and direct the business on its own. It needs executive level support and shared ownership by business heads in order to ensure healthy operational relationships.
  • Are existing systems and technologies being maximised? Many independent surveys highlight that in most cases businesses already have all the tools that they actually need in order to operate more efficiently and derive the required insight into performance, but these systems are not being properly utilised.

 

Targets to aim for

  • FP&A as active business partner: Typically seen as a corporate cost centre that's isolated from the business, it should instead be functionally positioned in a way that allows it to work collectively on operational projects when not directly supporting the CFO support and reporting cycles. Consider secondments in order to build real business knowledge.
  • Adopt a LEAN approach to all activity management, supported by ownership and accountability of actions.
  • Engage in entire business food chain in planning and forecasting: Balance the bottom-up data gathering and analysis process with top-down feedback to business around assumption setting, economic factors and corporate level decision making.
  • Leverage the full capabilities of existing software. Most planning applications can be used to model multiple scenarios, not just aggregate data.
  • Remove links between bonus incentives and targets.  It breeds bad behaviours.  If required, replace budget-related incentives with forecast accuracy.
  • Visualise the output: Analysis and reporting needs to be accessible and legible to the entire organisation, not just finance.
  • Risk: understand common risks and how they interact. Planning, budgeting and forecasting is about more than just the numbers.
  • CFO backing: leadership comes from the top and cannot be delegated or outsourced.
  • Publish consistent business-wide governance.  Clearly communicated guidance avoids costly miscommunication and strengthens aligned working relationships.