FP&A as a profession changed dramatically during the Covid-19 pandemic. The Chicago FP&A Board met in person at the newly constructed Bank of America Tower to discuss how FP&A practice evolved and optimised based on the opportunities and challenges the pandemic created.

Matt Poleski, Regional CFO at Arthur J Gallagher & Co., provided examples of the best practices his team instituted throughout the pandemic and how they continue to inform business decisions in the present.

Some FP&A challenges are inherent to prediction. Larysa Melnychuk, CEO and Founder of the International FP&A Board and FP&A Trends Group described the “Uncertainty Cone.” One can forecast in the near term, but the further one looks into the future, the more unforeseen events can dramatically affect the business. Larysa provides examples like 1) a change in government, 2) manufacturing and supply chain issues, 3) social media influence and changing social norms, and 4) a pandemic worsening.

How can we plan for uncertainty at the scale of the pandemic?

A traditional FP&A best practice is to leverage Scenario Analysis. This is exactly what FP&A professionals did during the pandemic. In fact, many FP&A executives report using Scenario Analysis significantly more during and post-pandemic than they did previously. Larysa Melnychuk argues there is a better way to operate: scenario management.

There is no perfect scenario to model for. She counsels rapidly developing multiple multi-dimensional scenarios that account for different variables and constantly iterating on these models.

What is Best-in-Class Scenario Planning?

Larysa posed this question to the assembled group. The group agreed that they have seen multiple recent trends, the most important of which is aligning FP&A with risk management. And the facilitator contends that there is another solution: xP&A

What is xP&A? 

xP&A integrates the FP&A function into cross-teams and core company objectives. XP&A incorporates sales, marketing, supply chain and HR data into planning, and aligns strategic, financial, and operational objectives into forecasts.

One aspect of the pandemic that made the evolution to xP&A easier is the rapid digital adoption that occurred after March 2020. Finance professionals have access to significantly more data than they did previously. This creates a fundamental shift in how finance operates. Rather than holding tight the purse strings, financial professionals now use data to partner with cross-teams to help them fulfil objectives. Finance professionals are empowered to present data to cross teams on the best case, worst case, and most likely scenarios that could arise. This helps cross-teams understand how their decisions affect the rest of the organisation and make FP&A a strategic resource helping them navigate business objectives.

The members of the Chicago FP&A Board noted that their teams are actively shifting from primarily working on and hiring for financial analysis to bringing on data scientists and analysts that can closely partner with cross-teams and provide regular, quick information to empower decision-makers.

Arthur J Gallagher & Co: An Example of Best Practices in Action

In March of 2020, Arthur J Gallagher & Co needed to adapt quickly contends Matt Poleski, Gallagher Regional CFO. The pandemic rendered all of their forecasts incorrect immediately and it was difficult to forecast for the future; when would the pandemic end? How would the government and consumers respond? 2021 brought some predictability, but staff turnover and supply chain issues continued the uncertainty.

Poleski cites a McKinsey study that found that 50% of companies increased performance during this period. The others need to learn about the new best practices. 

The role of FP&A is not to overanalyse the data. The best practice is to give cross-team practitioners the data they need to make decisions. Outline the best case, worst case, and likely scenarios that will result from making a decision. FP&A should act as a partner and valued resource that helps teams define their path and help them own their decisions.

The first differentiator Poleski describes is leaders who “invested disproportionately more time crafting clear goals and clarifying strategy for their organisations. Gallagher FP&A put more focus on our monthly strategy meetings with scenario analysis and xP&A.” He described his team as “planting seeds facilitating decisions and communication.”

The second differentiator is integrating finance professionals into cross-functional teams. A key factor is creating small, cross-functional working groups “empowered to make decisions that drive impact.” These teams broke down geographic divisions and aligned them around the product, business line and strategic goals.

The third differentiator is focusing on people through coaching and recognition. Matt describes overlooked skillset finance teams possess: “listening and helping others articulate their ideas with real numbers. What happens before the strategy meetings to prepare for them and to debrief afterwards is more important than the meeting itself.”

The fourth lesson underpins them all: adopting technology and tools that allow for real-time analysis. A constant stream of information is most valuable when it is made relevant through dashboards that empower decision-making and allow for quick pivots.

Summary

Larysa elucidated Poleski’s point further noting that “Digital FP&A generates real-time analytical insights by using both internal and external data with a minimum of manual effort.” She led the Chicago Board in a discussion on the topic and then ended the session to allow for individual discussion.