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If we travelled in a car that could take us to the future, where would we see Financial Planning & Analysis (FP&A)?

The future of FP&A would not be standstill. FP&A may borrow from many traditional planning and analysis processes but will make them more dynamic and accessible to companies of all sizes. Instead of crunching numbers, FP&A will use powerful prediction technology and highly collaborative teams that provide insight into the business.

If we come back to reality, the question many organisations currently have and will have in the future is: “how do we bridge from where we are today to where we want to be tomorrow?” 

The key lies in the integration of Predictive Analytics and agile planning.

Demystifying Definitions

Predictive Analytics does not just mean predicting the future. It is about assessing and verifying insights that provide an indication of relationships and an ability to predict potential results.

Agile planning means more than planning quickly. It is about having the right people, with the right authority granted, enabled by the right platforms, to pursue the right initiatives fluidly and therefore make incremental but measurable organisational progress.

Combining integrated FP&A with Predictive Analytics and agile planning may be as challenging as saying my definitions in a single breath. Agile planning and Predictive Analytics, together, are all about process management and process leverage.

Pre-Requisites for Successful Predictive Analytics

When executed successfully, these processes allow a company to understand its data more thoroughly by using software and identifying key drivers along with their relative cause-and-effect relationships. This requires positioning people and enabling them, not just based on talent but through technological capability. Thus allowing them to analyse, forecast, and reforecast promptly, flexibly, and at scale. In some cases, humans themselves do not do forecasting – machines conduct it automatically – but it is humans who instruct the machines what to do.

Improving Data Quality and Analytical Processes

When data is fractured and multi-dimensional, such as with this company, it poses an increased risk that we are making decisions relying upon poor-quality data or even gut instinct. A key factor in agile planning and Predictive Analytics is being able to retrieve information that is timely, accurate, high-quality, and easily accessible.

Upon establishing a hub for sanitised, accessible data, FP&A should be encouraged to develop uncomplicated, repeatable analytical processes. These processes aim to leverage analytics for greater intelligence and thus facilitate better planning. Ensuring these processes run consistently also means that analytics can be applied and revisited, not just by the individual conducting analysis but by others who may be collaborating on the initiative.

Achieving Accurate Predictions

When agile planning and Predictive Analytics are rolled out successfully, more accurate predictions may be achieved through Rolling Forecasts and cross-functional collaboration. The contribution will come from financial and non-financial groups as cross-organisational knowledge is encouraged rather than siloed. Reforecasting may take place in sprints with shorter lead times because of the benefits of better predictive insights.

Challenges along the Way

Perhaps the greatest challenge in the marriage of agile planning and Predictive Analytics is that, if rolled out successfully, as soon as insights are offered for planning, they may render themselves obsolete. Let me offer to explain.

Integrated agile planning and Predictive Analytics mean that we, paradoxically, never actually reach our objectives. Every transaction and every executed decision in an organisation creates new data from which we launch our next set of Predictive Analytics and assumptions. That is, assumptions often do change as a new reality presents itself. This infers that the prior assumptions we relied upon to arrive at our decision may no longer remain sound.

Just as we cannot turn back time on humanity to introduce today’s innovations to our predecessors, we cannot build time-relevant, high-quality assumptions on outdated data. No destination is reached when organisations aspire to embark upon greater capabilities in agile planning and Predictive Analytics. It merely allows organisations to obtain greater capabilities that provide more effective new foundations from which to improve. The objective is to bypass arriving, as arriving may mean relying upon outdated assumptions.

Summary: FP&A Needs to Embrace New Developments

We don’t need the flying-car time machine to take us to the future because the future is already here. We are entering an era of increasingly flexible, scalable, agile, and collaborative solutions and processes. They are moving downstream in terms of ease of use and economic affordability which permits smaller organisations to stretch their FP&A capabilities far earlier in their maturity.

FP&A teams need to be assertive about adopting decision-making processes that are growing in their integrity and do not just offer rapid data outputs. As organisations increase in size and complexity, Predictive Analytics and agile planning will be more important than ever. This requires the involvement of platforms and processes that can scale when necessary rather than reinvent themselves at every stage of the FP&A journey.

This article was first published in the SAP blog.