What is FP&A and why does it matter to your business?
Companies use financial planning and analysis (FP&A) to forecast financial profit and loss supporting their overall business strategies. It allows leaders to effectively manage cash flow and make the best use of their capital while making useful decisions on both operational and strategic levels.
However, this deep reliance on FP&A wasn’t always the norm.
The evolution of FP&A
Traditionally, FP&A is perceived as a group of number crunchers managing budgets and tracking where actuals stray from the goal. The function was limited to guesswork based only on historical data compiled from disparate spreadsheets provided by each department.
Today, FP&A compiles, reviews, and forecasts performance based on data from multiple sources beyond simple budgeting spreadsheets. With a quickly changing global economy, agile decisions are key in staying competitive, and businesses look to FP&A to provide information critical in quick and intelligent choices.
For years to come, FP&A departments will be leaders in the organization, driving data-informed decisions at all levels of the business, from executive leadership to departmental management. In short, FP&A will not spend all their time meddling in spreadsheets to evaluate past performance for application to future static budgets anymore. They are key players in the long-term success of a business thanks to their ability to provide accurate predictions.
Better access to big data enables FP&A analysts to create projections, modeling, and scenarios to inform the organization at large. Armed with this information, FP&A will not only improve the efficacy of the annual budgeting process, but will support a more adaptable, agile approach to continuous planning and reforecasting as required. Quarterly forecasting, event-driven forecasting, or rolling forecasting can empower on-the-fly adjustments based on real-time data. This data originates from a multitude of software sources including enterprise resource planning (ERP), customer relationship management (CRM), human resources information systems (HRIS), and more, and is then leveraged to support the appropriate planning process and disseminated to all relevant departments. Looking at financial performance holistically unlocks the potential to react and anticipate changes to factors impacting the business from sales to marketing, human resources, IT, procurement and supply chain.
Increasingly, FP&A will be a driving force for successful and competitive businesses. These companies will stay flexible, able to make informed decisions from the big data-driven and AI-powered predictive models from FP&A while simultaneously be positioned to react quickly to current trends.
Analyzing financial and operational results makes it possible to predict performance. The ingredients for predicting accurately include:
- Analyzing the competition and the market in general.
- Ongoing tracking of KPIs across applicable business units.
- Creating predictive models to both pivot when there is disruption and strategize long-term growth.
- Performing regular variance analysis of performance to plan for continuous improvement.
FP&A is a core business function for maintaining peak performance amid changing, and sometimes volatile, market conditions. The most successful leaders understand how to leverage FP&A on both corporate and business unit levels
The difference between corporate FP&A and business unit FP&A
Corporate FP&A supports an entire organization’s financial health and growth by planning, budgeting, and forecasting as well as management and performance reporting. In corporate FP&A, the goal is to manage performance by linking corporate strategy to financial planning to target setting to operational execution.
Just as it sounds, business unit FP&A has the same responsibility for planning, budgeting, and forecasting with a focus on a particular unit or division of the business. When these processes are applied at the business unit level, a deep connection to the overall execution of plans is achieved, helping to meet targets set at the corporate level. Business unit FP&A strategists deliver analysis of progress against specific organization-wide targets, while supporting the execution of their own narrower plans and addressing gaps and bottlenecks.
Some of the most common bottlenecks include overly siloed processes, poor visibility into operational drivers, and an over-reliance on spreadsheets—a very limited tool for a task of this scope. Data management is a huge challenge. As information grows in volume and importance, so must your capacity to collect, assess, share, and leverage it.
Even in the most straight-forward of businesses, it can be difficult to coordinate the sheer volume of data sources, point solutions, spreadsheets, and other systems used by each department. Add in human error and it becomes hard to imagine plans and predictions are ever accurate. Traditional manual methods of compiling and analyzing data are often time-consuming and resource-intensive. The whole cycle is arduous and unpleasant, with no way to know whether generations of mistakes are compounded and extrapolated on a regular basis.
What’s your FP&A strategy?
Companies choosing not to engage with collaborative FP&A processes could face a serious competitive disadvantage. Gartner surveyed finance and IT leaders, of which “96% confirm adopting a planning strategy that aligns FP&A with at least one operational planning area by 2024.”*
Our understanding of Gartner’s report is finance and IT planning leaders and their teams are using their growing confidence to use technology advances to strengthen their efforts to be deeply involved in enterprise planning. Without prioritizing FP&A as a driver of enterprise planning, businesses will find themselves behind the growing curve.
Anaplan, a pioneer in collaborative FP&A, specializes in helping planning teams evolve from merely keeping track of their businesses to truly running them. By providing the ability to manage multiple scenarios and tactical what-ifs, Anaplan makes it possible to align your organization’s strategy with viable and realistic business plans, achieving financial planning visibility across business units and throughout the entire organization. The Anaplan platform can also seamlessly incorporate other critical contributions to the process, including supply chain, workforce, sales, and marketing plans—everywhere decision-making occurs. The Anaplan platform provides technology focused on helping you achieve your specific strategic goals.
How are our customers leveraging Anaplan and what is their journey to achieving full connected planning across the enterprise?
“I like how dynamic it is, the flexibility in showing metrics by any dimension, and ease of interface with Tableau for reporting/KPI dashboarding. I also really like the ability to track each iteration of the forecast, which makes consolidation’s job much more automated and easy, with significant time savings, which can then be used for more strategic planning, partnerships with the business, etc. This feature also holds the FP&A team accountable in driving towards improved forecast accuracy. In addition, we can build specific models that work for each LOB, with easy pivoting, this is a must in a modern planning tool.” FP&A Leader, Lyft
When your business’s future is at stake, a patchwork solution of paper trails and spreadsheets will not cut it. Anaplan’s cloud-native solution lets you get up and running without expensive consultants or a lumbering learning curve. After all, you need to focus on making plans. And that’s what Anaplan is all about.