It is often said that financial accounting is a necessity and financial planning & analysis (or business control) is nice to have. And from one perspective this is absolutely correct. If invoices don’t get processed correctly, if cash does not get collected and if financial reporting is misrepresented, then the reputation of the organisation will suffer enormous damage and even threaten its ongoing viability.

If we reframe, however, then we can see that the core financial accounting and control activities are unlikely to be differentiators between organisations. The movement of technology solutions (Robotic Process Automation, Workflow Processing, Automatic Reconciliations etc.), as well as increased convergence of Accounting Standards, will lead to a convergence of operating models in financial accounting and a move towards a very efficient factory. This technology is however within reach of most organisations so, again, the race will be to get to a baseline efficiency.

This brings us to the point about KPIs and measuring success. In a factory, the output is easy to measure as is input as is cycle time as is waste. And so on. It is therefore also similar in such a “throughput” environment of financial accounting.

Why is FP&A different?

Contrast this with FP&A or Business Control or Management Accounting. Remembering that some key focus areas of FP&A are:

• Analysing what business drivers are behind actual results and differences to plan assumptions
• Building forward financial plans reflecting transparent business drivers and external environmental elements
• Recommending more longer terms strategic options, portfolio choices and resource (re)allocations 
• Supporting operational decisions relating to customer acquisition, development, brand investment etc.
• Developing KPIs that are relevant to the business in question

Therefore, the real job of FP&A is to help create sources of future value whilst being on top of how much value is being created at present. Neither of these two things is as easy to measure at any one point in time. 

So, how can we answer the question “is FP&A delivering what is expected of it”?

I do think there are ways. Even if there were not, an attempt has to be made to define and measure. Not only to demonstrate value to customers of the FP&A service but also to hold the function itself accountable and for the purpose of continuous improvement.

Potential areas for measuring effectiveness:

Given the different areas of responsibilities highlighted earlier, I would suggest the following metrics that would be appropriate to measure the effectiveness of the FP&A function.

#1 Unit growth and profit measures

Given that the key responsibility of FP&A is to support the business in sustained business profit improvement (amongst other stakeholder objectives of the organisation), this one is an obvious one.

#2 Optimisation of stock days (or working capital cycle)

Even if under certain ownership structures where capitalisation and cash may not be an issue, in aligning with an owner / entrepreneurial mindset for FP&A, operating working capital metrics should also be a measure on which FP&A should be measured. This is also an area that nicely illustrates the complex world of trade-offs which FP&A has to inhabit. For example, inventory levels optimisation is always a trade-off between opportunity cost, operating cost, risk and customer service levels.

#3 Quality of the short-term performance reviews

Holding the business accountable to deliver on profit commitments and most importantly on managing upcoming risks and opportunities is an essential part of the performance management contract. It normally falls to FP&A to lead this process – to ensure the right discussion is taking place with the right people at the right time.

#4 Successful delivery of next year budget and target setting process

Irrespective of the particular annual planning approach, the short-term target setting process remains an important performance management tool for many organisations. Ensuring that this is run as efficiently and as optimally as possible is a key responsibility and the success of this can be only be judged by the outcome.

#5 Quality of the in-year forecasting (rolling or other) process

This follows a similar logic as for the periodic business performance reviews and the budget process.

#6 Management reports delivered centrally via business intelligence

Operational as well as tactical reports serving management and leadership needs are frequently expected to be centralised. Whilst a big part of this can be related to transactions, it should also have in scope non-transactional information (for example social media usage metrics, customer acquisition).

#7 Compliance with internal control framework and authority schedule

The internal risk and control framework are very important features of FP&A work. Key business processes include customer acquisition, promotional management, pricing, contract management, inventory management, CAPEX requisition, customer bonus management, salesforce incentives, marketing campaign management, etc. Approval levels are put in place to ensure that appropriate risks are being calculated and taken as well as to prevent material conflicts of interest and in the worst-case fraudulent behaviour.

Summary

In summary, since FP&A can be seen almost as an internal advisory function, the key insight into success measurement must be seen from the perspective of the customer. Fundamentally, what is their experience of the service that has been promised from FP&A from productivity, flexibility, impact perspectives? In that context, measuring the deliverables of FP&A becomes more intuitive but it does require discipline, structured follow through and commitment from the internal business partners to provide this customer feedback.