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By Kedar Kale, FP&A Manager at Hala
Today’s finance department is a weaved together mix of shared service centres, centres of excellence, outsourcing arrangements and the retained business partnering functions such as FP&A. The responsibility on these retained functions is, therefore, immense as the justification for their retention is their high business involvement and customized business knowledge based decision support.
This means teams such as FP&A must rise up to the occasion and deliver true value-add to the organization. Amongst the many factors involved in achieving this, this article focuses on the importance of having an external orientation and awareness besides the more traditional functional expectations.
Finance teams and professionals have traditionally been involved in activities such as accounting and reporting. Someone engaged in these activities needs to possess a good knowledge of the business transactions being done by the company and their appropriate accounting treatment.
However, in very few instances such as determining the appropriate discounting rate for valuing pension liabilities in the balance sheet, one needs to look externally for information or answers.
FP&A teams need to bring to the table an ability to deliver value-added decision support analysis. This requires a combination of
The challenge for most FP&A professionals is to develop the deep understanding of the business that is necessary to be able to analyse data and relate it to the on-ground business reality to fully understand the “story” and provide actionable insights.
How does one develop this understanding and awareness of the business and business environment?
Unfortunately, as finance professionals, we have not had those experiences. However, we can surely take some proactive measures to get there.
"Spend a lot of time talking to customers face to face. You'd be amazed how many companies don't listen to their customers." - Ross Perot
It is just impossible to develop a thorough understanding of business from the confines of your cubicle in office. To become aware of the business environment, you need to consider taking several steps:
For business teams involved in every day operational work, information of events affecting the business is learnt as a course of their dealings.
For FP&A professionals to provide better decision support, it is vital to stay abreast of the latest news especially economic events that are likely to affect business. While framing annual budgets or forecasts, this can be a strong value add as inputs such as the expected entry of a competitor or expected movement in crude prices can significantly affect business and must be captured in the assumptions of the budget to determine the best possible response.
For a long time, FP&A teams dealt only with financial data. However, today, most FP&A analytics are incomplete without analysing critical non-financial data. As an example, for a consumer products company, the sales in a region may be dropping consistently. An FP&A professional cannot fully grasp the story behind the numbers until he captures non-financial data such as market share, market penetration, share of voice (SOV) in media advertising, etc. within his broader analysis. It is, therefore, critical to firstly understand these metrics and their implications and then be able to relate them to the financial data.
To conclude, FP&A teams are under ever increasing pressure to be business partners in the real sense. Merely dishing out an annual budget that becomes stale the minute it is framed will not justify the true value-add expected from FP&A. I
n order to support better business decision making, a deep understanding of business and business environments is a prerequisite. A conscious effort in this area is, hence, vital and should be taken seriously.
The article was first published in Unit 4 Prevero Blog
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