The future of Financial Planning and Analysis (FP&A) | Digital FP&A
The budgeting, forecasting, and analytical processes that support an organization’s financial health and business strategy are known as financial planning and analysis (FP&A). Senior management relies on economic research and information provided by FP&A analysts, managers, and directors to make significant operational, financial, and strategic decisions. In the current scenario, moving with time towards digitalization will take FP&A to a level that helps achieve the best out of existing data. Articles covers The future of Financial Planning and Analysis (FP&A),
Digital FP&A. FP&A Digital Transformation.
Table of Contents
CFO’s key role in driving FP&A function
FP&A is the frontline partner of the company and is at the epicenter of the digital finance agenda during this revolution of the finance function. The FP&A function’s typical role in financial services is to develop financial plans that support the enterprise’s strategy, forecast near- and long-term economic outcomes, budget for estimated operating and capital expenditures, analyze actual performance against forecasts, and report management results to business units.
FP&A functions frequently hold analytical capabilities and business expertise that enable business divisions to make educated decisions. That is why, when transformations are planned, CFOs must take a more proactive role, one that includes modeling ideal mindsets and behaviors in the finance function’s change. A CFO engages in the following strategies to a better FP&A:
- Drive Revenue Growth
- Optimize Cost
- Ensure Regulatory Compliances
- Manage finance & capital structure.
- Manage shareholder’s expectations
CFO’s current arsenal in managing FP&A
Key CFO’s current arsenal in managing FP&A are as follows:
MIS & Dashboard:
A Management Information System (MIS) dashboard enables managers to identify KPIs (Key performance indicators) for tracking the contribution of various departments within their firm. MIS dashboards will allow you to record and report on particular data points from each department to determine an organization’s overall performance, offering a “snapshot” of performance.
Rolling Forecast:
A rolling forecast is a report that utilizes historical data to forecast future figures. It enables firms to predict future budgets, spending, and other financial data based on their historical performance. For example, rolling forecasts would allow companies to estimate future outcomes using a combination of actual fiscal year-to-date performance and the original budget, as well as revised income and expense forecasts for coming quarters.
Annual Budget & Planning:
CFOs may not perceive themselves as change agents. Nonetheless, they are exceptionally qualified to question the current quo. CFOs can ultimately influence better company decisions by using progressive budgeting methodologies, gaining manager buy-in, and enhancing budget alignment with comprehensive targets. All of this contributes to an organization’s ability to connect managers’ actions and priorities with the organization’s overall plan. In addition, it provides CFOs with the time and resources necessary to conduct in-depth analysis and transform the budgeting and planning process from hindering an opportunity.
Predictive Analysis:
CFOs utilize Machine Learning and Predictive Analytics to significantly reduce forecasting and budgeting time while increasing accuracy and consistency. This is accomplished by using historical data for autonomous predictive modeling, executive and SME overlays, and adjustment-based visualization, which results in consistent prediction scenarios with appropriate seasonality and consideration for all significant predictive factors. In addition, predictive models are tailored to your organization’s specific needs, considering both internal and external aspects such as demography and global economic conditions.
Variance Analysis:
Variance analysis quantifies the disparity between expected and actual outcomes of a manufacturing process or other economic activity. Measuring and analyzing deviations can assist management in cost containment and control and operational efficiency improvement.
CFO’s FPA-related challenges
CFOs face numerous challenges daily, including fierce competition, stringent government requirements, significant market volatility, and increased corporate complexity. Today’s CFOs are required to manage virtually everything. In addition, they are required to provide valuable insights to other decision-makers inside the firm and manage the organization’s operational and financial risks efficiently. FP&A Digital Transformation.
CFO activities have evolved into a critical link between finance and the rest of the organization; their tasks are often irregular and urgent. All CFOs aspire to be strategic CFOs or high-performing CFOs, as their line of work requires it. However, being a strategic-minded CFO or a high-performing CFO is not always easy, especially when expectations are unclear and the chores are numerous.
- Manual interventions
- Multiple systems
- Lack of standard reports
- No availability of real-time analysis
- Lack of holistic view
- Predictive analysis input
- Requisite data for benchmarking
Traditional FP&A vs. Digital FP&A
Traditional FP&A:
Financial planning and analysis (FP&A) function inside a company’s finance organization that forecasts the profit and loss statement and firm’s operating performance for the future quarter and year. These projections provide management with information about its strategic plans and investments and their progress and efficacy. Additionally, they facilitate communication between management and external stakeholders.
Digital FP&A:
A Digital FP&A encourages real-time & accurate reporting, thus enabling an organization to provide results that benefit the objectives of an organization. Financial Planning and Analysis professionals today face a unique combination of challenges: increasing income, reducing costs, and remaining aligned with the broader business plan. These objectives are communicated to the finance team by CFOs under pressure to provide accurate and timely reporting and deep, intelligent analysis to assist executives in making decisions. FP&A Digital Transformation.
Power of Digital FP&A
Adopting a digital-first approach to finance and accounting entails implementing techniques that prioritize process automation, agility, transparency, and metric-based insights. While accurate forecasting enables solid, data-driven judgments, the work is frequently created ad hoc and isolated across business groups. Finance is entering a new digital transformation era, and CFOs and senior management require financial models that can inform business strategy with the speed and intelligence associated with true innovation. The correct financial planning and analysis solution is critical to success, and a company’s financial health is dependent on it.
FAQ’s on The future of Financial Planning and Analysis (FP&A)
What is the ‘New Digital FP&A’ world?
Digital FP&A is a solution that combines data from existing tools and systems as well as external databases like data warehouses, intelligence tools, and websites to deliver real-time cognitive, prescriptive, and predictive insights with minimal manual work. FP&A Digital Transformation.
As it is more than just tools, technology, processes, and systems, implementation necessitates meticulous planning that touches every aspect of the organization. A successful implementation necessitates a solid understanding of people, processes, and technology. It’s a cutting-edge strategy for achieving company objectives.
We are an early-stage startup; do we need FP&A?
Of Course, it is essential to have FP&A at an early stage and every stage. Being Financially intelligent and alert is very important to maximize profits in the future. What you save and what you spend should be calculated and analyzed to better flow in your records. As a startup, it is very crucial.
Is the role of the FP&A team is Super Important for our Company?
Yes, it is a crucial aspect of a successful company. Though a financially prudent person can take on the FP&A but to be more precise, it is essential to have a team that is dedicated to understanding the company’s financials.
Also read: The future of Financial Planning and Analysis (FP&A)
Leave a Reply