Financial Planning and Analysis (FP&A) is a vault with unlocked immense potential. This area within finance has gained increasing importance. COVID demonstrated how relevant and strategic FP&A is. If the business is not resilient, it succumbs to major supply chain disruptions, uncertainty, and unstable economic conditions.

Although there has been progress in showing how critical the FP&A’s role within an organisation is, there is still an untapped goldmine in advancing FP&A to the highest level. In this article, you will learn about the following:

• how to strategically position FP&A in the business,
• how FP&A can leverage demand planning along with sales and operations planning (S&OP)
• how to quickly advance from FP&A to Integrated Business Planning (IBP)

Strategically Positioning FP&A in the Business

Becoming a partner to the business represents one of the top three priorities for 43% of finance leaders, per PwC Pulse Survey, August 2023¹. Consistent with the importance of positioning finance as a partner, McKinsey’s research² indicates that while most organisations have a robust understanding of financial and accounting principles, they still want to build on Change Management skills, the ability to make decisions with Business Partners, and extract insights based on advanced analytics.

The FP&A function is especially poised to make this transformation due to its forward-looking and data-driven approach. From my perspective, there are two major challenges:

1. the time that FP&A teams spend on managing data and 
2. the FP&A department is being perceived by other business functions as siloed in finance.

John Davis, VP of Finance at Tempur Sealy, a $4.9B company, provides an illustrative example of the data-related challenges when interviewed by Eric Wilson³. Davis explains that FP&A resembles a pyramid. Forecasting and planning activities are the base of such a pyramid or its foundation, while analytics stays at the top. He also adds that he would like his team to move from the base to spend more time on the analytics.

By embracing new tools like Power Query and Power BI and advances in technology, FP&A teams can shift their focus to the analysis component to provide strategic recommendations. Such a shift also relates to the second major challenge, when FP&A is seen as “a finance thing.”

Leveraging Demand Planning and S&OP

When facing the abovementioned challenge, FP&A has made efforts to build a solid relationship with sales and marketing to forecast revenue. However, demand planning and sales and operations planning remain an untapped goldmine. In my experience as an S&OP practitioner at the intersection of operations and finance, I have seen that the sales team may overestimate future sales, causing inaccuracies in forecasting revenue.

Demand planning, often related to supply chain, specialises in demand forecasting and planning, so it can become an essential Business Partner for FP&A. Demand planning teams have the talent to forecast sales by adopting a data-driven approach, just like FP&A, minimising the risk of overstated or too optimistic sales forecasts.

In addition to leveraging demand planning for FP&A, the S&OP process offers a wealth of knowledge for FP&A. The demand plan is the starting point of S&OP to then balance it against supply, considering capacity and inventory.

Companies can be at different maturity levels in their S&OP journey, but even if they are in the first stages with no finance integration, FP&A may benefit from getting granular data that they wouldn’t obtain otherwise. Besides, the business acumen that FP&A can get is significant. In turn, S&OP can become a more effective process due to FP&A. As a result, building a relationship with the supply chain department is key for FP&A to become a partner to the business.

Of course, this doesn’t mean that the supply chain team will greet FP&A with open arms. There will be hurdles to overcome. I have witnessed friction between FP&A and operational planning. They were related to a sense of urgency, financial and operational cycle mismatches, and keeping the information “evergreen” or in weeks as opposed to at the end of the month or by quarter.

The key is finding a common ground that benefits FP&A and the other business functions. Consider the case when operational cycles don’t match financial cycles. This may happen when the team plans based on seasons that extend over more than a fiscal year. To address this, companies can add the fiscal year to the operational planning and show both teams the data they are interested in. I have seen how well this solution works, and it is simple to implement with Power BI.

Quickly Advancing from FP&A to IBP

Integrated Business Planning, the most advanced level in S&OP, is a strategic management process which involves commercial, operational, and financial planning. IBP facilitates better decision-making considering the company as a whole and breaking down functional silos.

The consulting firm Oliver Wight coined this term to show how S&OP has evolved. Other consulting firms use different terms, but the underlying concept remains the same. Regardless of the terminology, it is one plan⁴ for the business.

As there is strong integration between finance and operations in IBP, FP&A can naturally take the lead. The secret to unlocking success fast is for FP&A to build on the existing S&OP process. Alternatively, if it is non-existent, FP&A has to establish solid relationships with sales and operations.

Accomplishing a true Integrated Business Planning is like getting ready to play at a completely different level. In IBP, companies run scenario-based simulations to understand the impact of operations in the three-statement model – Profit and Loss, Balance Sheet and Cash Flow statements. Companies use a balanced scorecard as opposed to having supply chain or financial metrics only.

Enterprises can also optimise operational and financial plans with IBP. It is not about pursuing a feasible scenario, but it is about choosing the optimal scenario, considering the company's strategy.

Based on my experience, below I have listed five key steps to move from FP&A to IBP:

1. Leverage the existing S&OP process; sit in their meetings.
2. Assess the maturity of finance integration. Mature S&OP process will have ties to the financials.
3. Based on the assessment, detect gaps and opportunities for improvement.
4. Prioritise such opportunities based on the impact and the ability to forecast the P&L.
5. Execute and adapt according to the results.

This brings us to the connection to strategy. IBP is a bridge that allows companies to execute strategy while portfolio reviews are part of the process. We can reach the alignment of the commercial, operational, and financial functions. There is only one game plan.

Conclusion

Taking FP&A to the highest level with IBP means capitalising on the existing demand planning and S&OP process and building and strengthening relationships with sales, marketing, operations, and the other functions of the business.

IBP represents another playing field with finance integration, scenario-based simulations, and portfolio reviews (strategy). FP&A has great potential to make this transformation happen by shifting the focus to the analysis component. New tools, as well as advances in technology, facilitate such a shift, allowing FP&A to become a trusted partner to the business.

References:

1. PricewaterhouseCoopers. “As recession fears fade, CFOs plan for Transformation”. PwC’s August 2023 Pulse Survey. PWC.com. https://www.pwc.com/us/en/library/pulse-survey/business-reinvention/cfo.html Accessed March 29, 2024.
2. McKinsey & Company. (August 31, 2023). CFOs’ balancing act: Juggling priorities to build resilience. McKinsey and Company’s Survey. mckinsey.com.
   https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/cfos-balancing-act-juggling-priorities-to-build-resilience Accessed March 29, 2024.
3. Demand Planning. How Does FP&A Fit Into The S&OP Process? Financial Planning Meets Demand Planning. Interview with John Davis. YouTube.com. https://www.youtube.com/watch?v=WHq9dZ_v_c4 Accessed March 29, 2024.
4. USM Supply Chain. (January 9, 2024). Have you Heard? The Business is Screaming for ONE Single Plan with Financial Ties: S&OP, IBP, FP&A, xP&A (almost a poem). USMsupplychain.com. https://usmsupplychain.com/have-you-heard-the-business-is-screaming-for-one-single-plan-with-financial-ties-sop-ibp-fpa-xpa-almost-a-poem/ Accessed March 29, 2024.