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By Alejandro Nicolás Ruiz, UK Business Controller at DHL
There is no doubt that 2020 has been one of the most disruptive years for all of us in many aspects of our professional and personal lives. In this article, I would like to discuss the new challenges in FP&A and how we need to face the new circumstances in the short and long term.
Due to the crisis, financial planning and analysis (FP&A) is now faced with growing demands from the business. FP&A professionals are expected to constantly run scenarios and plan for contingencies in order to help organisations avoid financial risks. On top of this, the home office environment made collaboration across and inside departments even more challenging.
Impact of COVID-19 pandemic on FP&A has modified the way we work in our organisations:
Historically, the FP&A function has been tasked with helping the business identify valuable insights for future business decisions, based on historical assumptions and data (usually from internal systems), however, the COVID-19 pandemic has revealed the vulnerabilities of traditional FP&A processes and brought new challenges to the teams.
By embracing the new demands, the FP&A function has to address new challenges:
A truly flexible and dynamic FP&A function requires FP&A systems and tools that are integrated, collaborative, easy to use and perform in real-time. A lack of such systems is one of the main problems faced by FP&A professionals. Many enterprise software versions are complex and require considerable technical expertise. This results in shadow spreadsheets and a waste of organisational resources.
The implementation of software, that uses BI technologies and fast computing capabilities, can eliminate time wasted on non-value-added tasks. It can enable quick analytics including what-if scenarios and multiple iterations of driver-based forecasts. Ideally, systems should evolve to offer maximum self-service reporting capabilities, therefore enabling greater visibility and transparency between business and finance teams. This will lead to better collaboration and corporate performance.
Flexibility is the cornerstone to reach a high level of confidence, no matter what the stakeholders need, FP&A will able to adapt it in a proper way.
Typically, any organisation will have hundreds of business drivers. However, in order to manage organizational performance, it is important to identify not more than 20 key drivers.
As time passes, new drivers may appear and older ones disappear. Monitoring the dynamics and sensitivity of the drivers will help organisations in maintaining a quick, flexible and dynamic planning process (and the organisation should be ready to adapt it).
To select new drivers, FP&A can adopt the following approach:
Once we have selected the drivers, we need to decide how to cascade them from strategy to operations. Effective strategic business planning requires a dynamic, methodical process that keeps the organization focused on the right issues and actions. This means we must diligently define or redefine the strategy.
Each organisation will manage different drivers, but FP&A needs to push beyond the edge. Rethinking old drivers and finding new ones is a challenge that we have as a team in a long-term perspective.
Historically, a big part of the analysis was based on data that generally came from internal systems. Business leaders want to know not only what issues others in their industry or sector are experiencing as a result of the pandemic; they also want to know how their broader ecosystem of partners and related industries and sectors are coping and positioning themselves for the longer term.
Nowadays the world is much more global than ever, and all sectors/industries are connected, no matter how different they are. FP&A needs collaboration with Market Research in order to spot potential risk and opportunities and take them into account in the planning process.
Rolling Forecast is one of the most promising aspects in FP&A. By creating a dynamic system, FP&A will be able to update the financials on a monthly basis. It is needed to understand the business not only from an overall perspective, but we also need to be able to break down on different stages of the company.
Resilience is defined as being able to quickly recover from difficulties. Improving agility only increases the resiliency of an organization in the long run. Improving the agility and responsiveness of an organization with a modern enterprise performance management solution not only increases its resiliency but ensure it better maintain a competitive edge once the storm passes.
It is one of the most important priorities from a long-term perspective because if we have an accurate Rolling Forecast, we will be able to build annual planning up more consistent than ever before.
In a nutshell, no matter the industry, sector, business, country you are based, years of experience you have, FP&A professionals need to face the future going deeper, broader and braver, looking after the interest of their stakeholders.
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