Introduction of Extended Planning & Analysis (xP&A)

A Traditional FP&A process within any organisation may look something like this:

• Planning Process has not changed in the last decade;
• Budget Process starts in Quarter 4 of every year;
• Refinements done for a 3+9, 6+6, 9+3 Plan in the next year;
• A bottom-up, consensus approach to Planning; or
• Top-down management commercial/sales-focused approach; and
• Final adjustment by top management and approval by the Board.

On the other hand, Extended Planning & Analysis (xP&A) is defined as harmonised planning process that goes beyond finance to the entire organisation. It is essentially a more dynamic and analytical method of planning that targets untapped planning and decision-making potential within organisations.

xP&A encourages departments and managers at all levels of the organisation to plan as a single process on a single platform. This means that plans at all levels of an organisation will be integrated, data-driven, agile and adjustable in real-time with collaborative support from the Finance and Business Teams.

This article explores the evolution of xP&A and provides some ideas, as well as new ways of working for Finance Teams and CFOs.

Evolution of the Traditional Planning Process

“Think ahead, don’t let day-to-day operations drive out planning.”

 ― Donald Rumsfeld, an American politician, government official and businessman

xP&A is the next-generation planning process that is needed for this fast-changing business environment. It involves the entire organisation and harmonises the three key planning processes:

• Strategic Planning;
• Business Planning and Forecasting; and
• Operational Planning and Forecasting.

Plans under the xP&A universe tend to be adjustable with more ease in real-time given that it utilises technology in assisting the FP&A team. These new-age planning platforms are equipped with advanced analytical capabilities that provide more insight into the future and enable great collaboration between key stakeholders. Such a planning framework would allow an organisation to manage scenarios at ease, be ready to face extraordinary events such as the recent pandemic, and plan during uncertainty.

CFO’s Role in xP&A

Planning is usually undertaken by a certain group of people and departments, leaving most of the organisation is usually detached from this. Hence, it boils down to the Finance/FP&A function to take the lead. Here, CFOs play an important role in driving their respective Finance function to transform their thinking from “score-keeping” to “goal-scoring”. 

Consequently, it means that Finance functions can no longer afford to wait for information and data to flow to them. CFOs have to embolden the Finance function to be proactive and gather insights. In order to implement and manage the xP&A process, the FP&A function has to become more static and influential.

Importance of Planning Beyond Finance

With a siloed department mentality, organisations are in danger of losing their collaborative advantage. As a central function, Finance is able to drive cross-organisational collaboration via the planning exercise. xP&A encourages Finance to venture beyond its departmental boundaries in its conquest of establishing the key metrics and business plan for the board. Furthermore, Finance has the added advantage of:

• Having a Bird’s eye view of the entire organisation;
• Being a Business Partner in all aspects of the organisation;
• Leveraging on existing stakeholder relationships with other departments;
• Financial skills and know-how coupled with adequate business knowledge;
• Accessing Enterprise Resource Systems quickly to procure data.

Transforming into the Business Partner Mentality Mindset

The evolution from traditional planning to xP&A is impossible without changes, and the most important is a shift in mindset. Here a Finance department comes into play by managing these changes and and playing their Business Partner role.

Apart from carrying out statutory and organisational responsibilities, the CFO and their Finance Team should be encouraged to transform into better Business Partners. It will ensure the xP&A is understood by all department/business unit leads’ in an organisation. Therefore, to bring their respective Finance function to the next level and to serve as better Business Partners, CFOs need to think differently. The transformation to Business Partners should involve the following:

• Develop an empathetic attitude towards stakeholders in the planning process;
• Convince stakeholders of the singular planning platform and process;
• Listen to stakeholders and deliver mutually beneficial solutions;
• Build a collaborative working relationship with stakeholders;
• Foster a resourceful way of working; and
• Ability to react quickly in case of sudden business/macroeconomic changes.

CFO’s Ability to Kill Two Birds with One Plan

It is a common occurrence that many departments within organisations utilise their own preferred metrics to assess and plan their performance and business. xP&A fortifies a single source of truth, given all departments enter their plan into a singular planning platform. Such a shift will automatically unify all metrics and design a unilateral plan. In addition, this has already been proven to be an added advantage as it also resolves any internal disputes between departments/teams. The Board is then fairly able to assess any deviations from a singular plan.

Getting the Finance Function Ready

“Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.” 

― Abraham Lincoln, the 16th president of the United States

Before CFOs can even begin to think about undertaking the xP&A transformation, they need to get their house in order. The Finance function, especially the FP&A team, needs to be of a certain calibre. The Finance function needs to consist of highly ambitious individuals who are able to think beyond their function and adapt fast. The ideal Finance Function team should be:

• Active Business Partners
• Bold and decisive
• Driven and ambitious
• Proactive
• Skillful in negotiation
• Empathetic
• Effective communicators

Top 5 Priorities for CFOs in xP&A Transformation

Assuming, the CFO is able to get their Finance function in order and is able to evolve their mindset to become more efficient, agile finance practitioners, then these are the top 5 priorities in xP&A implementation with practical applications:

Conclusion

xP&A is a very effective planning framework that is able to streamline various departments within an organisation to produce a single source of truth. It utilises technology and provides insights that allow the plans to be dynamic and reactive. It is important that the Finance function plays a key role here in driving the inter-organisational planning process. That said, the Finance function requires an evolution of its mentality and traditional central functional role. It needs to be more ambitious and hold a better grasp of the plan and the people behind it. CFOs, now more than ever, need to have the right team to execute this.

This article was first published on the Wolters Kluwer website.