In 2020, we were challenged to face a new global pandemic. Whether you consider the COVID-19 pandemic a Black Swan event or not, it is difficult to argue that every single organization has been affected by it.
It helped us to realize how people are psychologically and socially ill-equipped to handle unexpected outlier events, just as analyzed by Nassim Taleb in his work (“The Black Swan: The Impact of the Highly Improbable”).
Working in FP&A (Financial Planning & Analysis) during a period like this is extremely challenging but it is also an opportunity to mature processes.
The main objective is going to be the transformation from a Basic FP&A area so that it reaches a stage where it can conduct organizational changes.
In this sense, we can highlight three main areas for improvement for not only short-term survival, but also the evolution of the department to a position where it can be seen as a real Business Partner:
- Over-communication and collaborative planning
- Cash planning
- Integrated planning process
Over-Communication and Collaborative Planning
Over-communication and collaborative planning must be considered a priority in this moment, as perfectly said by Alessandro Cardito, Global Consumer Beauty FP&A Director at Coty, at the latest Global FP&A Trends Webinar entitled “Modern FP&A at the time of Black Swans”.
The creation of a free channel of communication that can work downwards and upwards throughout the company is extremely necessary so that all the areas can be on board and paddle together in favor of a common goal. It is important to understand that communication and participation walk together: the clearer and encouraged the communication in the planning process is, more easily the company will solve its problems and challenges.
What usually happens when the finance department tries to improve communication with non-financial colleagues is that we usually frighten them with complicated words and math. It is essential to simplify the complexity of matters as much as possible in order to aggregate all business areas in the process of creating scenarios and strategic initiatives.
Once FP&A starts thinking outside its box, it begins to adopt the position of Business Partner, helping to explore the ideas presented by the business areas, encouraging and helping to execute plans that will help along this turbulent journey.
Please note that we cannot leave aside the most traditional mindsets in the area, such as our role as financial reporter, controller and our analytic view. The important thing here is to be able to bring these mindsets without remaining static, bringing them in a way that adds value to the areas that will be the driving force to the vessel in this moment of turbulence.
The Financial Planning analyst must maintain several crucial characteristics that were obtained over time. The ability to interpret data and understand the values generated by the business units and the ability to quantify strategies are immutable characteristics for the FP&A professional.
In the short term, one of the primary objectives in this turbulent period is to buy time for the right strategies to be established and adopted. That is why cash planning becomes one of the three pillars in this article.
It is critical to have a correct understanding of all the sources of money and where it is flowing within the company. This will make it possible to establish priorities in this first moment and to correctly plan future resource needs. At this point, it is necessary to design strategic initiatives to optimize revenue capitation and reduce costs.
The cash planning process can no longer be understood as a single, static process. In this sense, it is necessary to delve into three terms: sense, shape and adapt. Short term will be a constant demand and it requires a high degree of accuracy, so it is necessary to simplify processes and avoid rework.
Integrated Planning Process
The above two points highlight crucial areas for the company's short-term well-being, but the real objective of any company is its long-term sustainable maintenance combined with value creation.
A mature FP&A department is a department that cannot only present itself as the leader of an integrated planning process, but it is also capable to integrate several drivers and generate multidimensional scenarios. FP&A needs to create a driver-based model that will work as the single source of truth and that can provide all the information needed, with greater agility and accuracy.
An integrated planning process should be based on three pillars:
- People: Always start with people. Management needs to understand the role of business planning and all of the benefits it brings to the organization, enabling the participation of several areas of the organization.
- Processes: FP&A must understand the full process of planning and search for shorter cycle times, using a clear planning approach.
- System & Data: Clear drivers with data quality enable a more emphatic and aggressive approach in terms of management control.
The current scenario crisis has shown us that every decision and every scenario built has countless uncertainties, so it is necessary to develop skills in FP&A that allows the company's board not only to see the possible outcomes, but also to faces them or at least treat them as manageable. The budget cannot dominate the organization; it must work in its favor. This type of approach will shield the company from risks considered unnecessary.
The world will not be the same after the pandemic, and the same should happen with the traditional FP&A. The pandemic helped us to understand that no matter how much we plan, the world will not go according to our plan, but as good FP&A professionals, we must offer some options to our executives react to events.
By integrating traditional points of the role of a controller and reporter with technologies and innovation, we can ensure that resources will be allocated correctly in the right strategies to achieve sustainable growth in the short and long term.
The key is to understand that finance will not survive alone through the journey; we need the full body of the company together in this sail.