First off – definitions
There is a lot of jargon around “analytics”. For example, Business Analysis, Business Intelligence, Data Warehouse and, more recently, Data Mining, Data Science, Machine Learning, Predictive Analytics and so on. Let us agree that “analytics” as a capability refers to the processes, technologies, applications, competencies and organization practices involved in supporting decision making.
Financial Planning & Analysis (FP&A) has also been confused with Management Accounting, Commercial Finance, Business Controlling, etc. Let us agree that FP&A is focused on improving business performance, and it does this by focusing primarily on the future and by engaging deeply with the business.
Secondly – why all the fuss and why now?
The explosion in computing and data processing power has led to an exponential increase in data available to the business. Paradoxically, this has led to business leaders becoming more uncertain about what to do with this data. Because they have this “gift” but are unprepared to harness its powers. Hence, business is scrambling to put the appropriate “analytics” capability in place. This generates a lot of friction and tension because business leaders and managers, who have been brought up in a very different world, have to scramble to learn new languages and redress their relationship with data.
Decisions – not data
So, one would think that it should be as simple as just finding better ways to mine data – much like mining for bitcoins. Nothing could be further from the truth. Accessing bigger, better and faster data only creates the illusion of value. Something else is needed to bring this to life. It is called Decision Making. Analytics is not synonymous with technology, and, in and of itself, it will not generate better decisions.
If the pot of gold at the end of the proverbial rainbow is “better decision making”, then it leads to the key insight that Analytics is about People, which in turn is also about Culture. Because it is people who make sense of data and give it meaning and who (at least for the foreseeable future) will continue to make decisions.
So, is Analytics as a capability a threat to FP&A?
If the battleground has moved from preserving and protecting existing value in a more stable and certain business environment to creating value in greater uncertainty and volatility, then unquestionably, the focus on creating deeper analytics capability poses – on paper – a threat to traditional FP&A. Why? Traditionally, FP&A has excelled at the more descriptive task of answering “what happened”. And, if time, systems and culture permit, to get into “why it happened” – a more diagnostic view.
Today, predicting what may or could happen and when and prescribing how to make it happen become far more pressing questions to answer. And for that, traditional FP&A with a focus on management reporting is poorly positioned to tackle these.
In other words, the focus has moved from data and information (and then primarily financial and transactional) to knowledge discovery and insights generation. Supported by more robust, clean, relevant and timely data – both financial and non-financial, both structured and unstructured. For traditional FP&A, this is a clear move away from their existing comfort zone.
Can FP&A thrive in this brave new world?
Does this spell the end of FP&A as we know it? No. Like in life, adaptation and evolution is the pre-eminent force driving not only survival but the ability to thrive. Even in an environment where organisations are building centralized Data Analytics capability staffed with roles such as Data Engineers, Scientists, Architects, etcetera, we need to look at what traditional strengths of FP&A can be used to drive the required adaptation.
I would focus on the following 4:
1. Strategy into action within the operating model
From a business partnering, financial planning and performance management perspective, FP&A can have more impact by ensuring analytics efforts are directed in and to the right places. They can leverage their organizational awareness to help achieve this. Bear in mind that this will may require a step up in judging context and sensing change.
2. The holistic view around value creation
As “owners” of the financials, FP&A has been the spider in the web. Where they can oversee the financial implications across the whole business model and value chain. In this respect, FP&A can play an even more visible role in helping allocate resources to analytical activities where it has the most impact. For this, there will be a need to build up courage and resilience – primarily to dare to say no.
3. The bridge between business and analytics
FP&A has always been at the intersection of business and technology. They have also always been translators and educators – helping the business understand the language of finance, of the financial statements, of how decisions lead to financial assets and liabilities. This role becomes even more critical – in the world of analytics. Translating business problems into a hypothesis for analytics to test and then translating the outcomes into a business story. This will require a step up in becoming more analytically minded, curious to understand the analytical processes and systems and models used as well as communication skills.
4. Decision process and governance
As stated earlier, an enhanced analytical capability is there as a means to an end. To enhance the quality of decision making. A more cognitive and social process than just a rational and analytical one. FP&A can continue to help leverage the analytical capabilities by focusing on strengthening the organisation’s decision culture, processes and governance. For this continued focus on collaboration and negotiation skills will be key.
The analytics “revolution” is the next logical step in a journey that FP&A is familiar with. The shift from an information focus to insight focus provides a clear path to achieve complementarity with deeper analytics capability rather than competing. FP&A does not have to aspire to be the “quants” made famous in the Wall Street days of the Eighties and Nineties. Rather continuing to build stronger bridges between the business and a more powerful analytical dimension to decision making will give FP&A the stage to demonstrate tangible business impact.