FP&A Board Maturity Model: Best-in-class FP&A and how to get there
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By Bryan Lapidus, Director, FP&A Practice at the Association for Financial Professionals (AFP)
Think about a cat video.
Well, really, I want you to think about how the internet works, but everybody loves a cat video, so let's think about how you end up watching a cat video on your screen. A piece of work is created, in this case, a video, then it follows a series of transmissions across various networks — digital networks, networks of people and organizations, and connected data sources.
From this example, you can see how work gets done: a requirement for work is defined and disseminated across collaborative and fluid teams, where it is altered, improved, and acted upon to drive more action. This process is called integrative intelligence, and for xP&A to be implemented effectively, it requires key elements of an integrative intelligence framework.
xP&A is extended planning and analysis, a term coined by Gartner to explain the technology that allows distributed inputs from the business units, algorithms and edge systems directly into the planning function. Information is dispersed, requiring a different set of skills to integrate the information.
Here are five ways you can apply the structure of integrative intelligence to your xP&A process.
Your challenge as a finance professional is to create a common focus for everyone who has a hand in the xP&A ecosystem. For example, budgeting and forecasting may not be popular processes but they are essential. If we are going to distribute ownership of key elements of a finance process, we need to define the work to be done and ensure they understand the value it can create.
To do that, we need to recognize that diverse members of our team have different time horizons, report to different bosses, and are bonused on different activities. We need to relate this back to them — create the context for them to understand what's in it for them and the broader company benefits.
When we build out xP&A, we need to think about doing it unit by unit to build the mechanisms, steps and calculations they are going to follow. This is a tremendous opportunity to create standardization around the enterprise of metrics, metric definitions, metric calculations, sources and uses of data, but it will require focused effort to build that alignment.
In addition, modularity in design should allow us to differentiate among the sectors. We can start and stop different parts of a process selectively, perhaps running an algorithm on some GL lines every day or multiple times per day, or having periodic updates of manual inputs for discretionary items, or selecting revenue-based versus expense-based planning elements to run or scrutinize.
xP&A focuses on who is providing the information. It could be other business partners such as marketing, supply chain, call center, or research and development. It could be other parts of finance, treasury, or accounting. It could be automated algorithms that create naive forecasts that will automatically create trends and predictive analytics. It could be non-employees, such as vendors, who have an API interface into our systems, or third-party gig and freelancers who are sitting right alongside of us.
All this will happen with remote teams that are physically distributed around the world. Increasingly, we need to think about algorithms and “bots” as members of the team, and how to manage them.
The logical extension of working with other people is the need to enhance our project management skills. This is not glamorous work, but it is leadership. Distributing work requires creating the cadence of operations such as how does this group communicate, where and how is information stored, when do we access it, how do we update each other, and how are decisions made. These core project management skills are going to be more vital in an xP&A world.
If xP&A works right, some of that time we spend — the burden of gathering and preparing data — should come back to us. The offset of gaining time is that finance needs to scrutinize the results very carefully. What a tremendous opportunity to spend more time analyzing projections, looking at competitive benchmarks and considering macro-economic impacts. As business partners, we challenge the assumptions, ask tough questions, and push for data-driven answers.
xP&A is more than a technology installation, it is a vision of a technology-enabled finance organization. It offers a refreshing way to think about what the work is that finance is trying to accomplish, and how we get it done. Seizing this opportunity requires us to apply all of our FP&A skills — financial acumen and personal, plus team effectiveness, in addition to technology and data. The framework of integrative intelligence is designed for this.
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