If a Business Transformation is about identifying processes that aren't being serviced to their maximum capacity, FP&A is where you can find the best value. As you well know, in businesses we don’t speak any language but numbers and the most important number in a company is, without a doubt, the future number. This is how FP&A exists. 

In this article, I would like to share some insights on why your FP&A analytical transformation might fail and how to avoid this. The article is based on more than 20 years of relevant experience transforming large organizations.

What is the expectation for the FP&A function?

Over the past decades, I watched the FP&A function trying to anticipate the companies’ performance and justify why they couldn’t hit the number. How many times did you hear something like “… we did not hit the number but it was not our number or the number that we originally proposed”?

It is very simple; in most of the cases the expectation is set (by the market or even by the owners of private equity companies) way before the FP&A function can prepare any scenario. A number is a goal that top management will need to achieve, and there is absolutely nothing wrong with it except that is exposing the obsolescence of the FP&A function in several organizations.

Should we have the FP&A team seating in the flight deck or in the last row?

I always hear about “aligning FP&A with the overall business strategy” while I think that the aspiration should be about “FP&A driving the right strategic choices in the company” even if the strategy is immediately “warning” that expectations will not be achieved.

Think big for the function and make no mistake, the vision is the most important step in your transformation, recognize that FP&A must help you to achieve the expectation rather than justify any variance. This is crucial.

Once set it, communicate the Vision is also very important

Setting the vision is not enough if it is not properly communicated. I’ve seen organizations failing in their very first step of transformation because they communicated it by holding a single meeting or sending out a single e-mail.

Transformation is impossible unless most of the organization is willing to contribute, often to the point of making sacrifices. Employees will not make sacrifices unless they believe that useful change is possible.

Without credible communication and a lot of it, the transformation will not occur.

Note that this will be the right step to empower your new FP&A function because it must be able to get better and faster answers while collaborating with the rest of the organization.

The transformation can’t take forever

Once you decide to transform your FP&A function, the next step is to consider the difference between continuous improvement and transformation.

I witnessed companies that extended their transformation processes for years, to the point that once the transformation ended, the “new” process was already “old” (e.g. implementing software during years may result in old technology once you are using it, the world changes fast!).

I recommend finishing the core transformation in a reasonable timeframe and implement a Continuous Improvement approach. Milestones approach is good but within a reasonable timeframe (less than one year).

Kick-off the transformation considering your KPIs

Another interesting common issue noted when trying to understand the low performance of the FP&A function is the use of non-sense KPIs.  Old business indicators in changing environments or one-dimension indicators (e.g. dollars vs. dollars) must be challenged.

There is a need to go back to basics before even discussing other aspects of the function. Asses your BASIC business dimensions (Is it weight? Is it cases? Is it a number of customers?), focus on the intersections (e.g. revenue per case/per customer?) and consider external (e.g. competitors) and non-finance (e.g. numbers of quotes) data. Go for quality and reduce quantity while focus on the trends.

Another important dimension of the FP&A is timing. The focus on the potential revenue drop when an important event occurs must be immediate. The capability of running scenarios on call within minutes is a must, consequently, your KPIs availability is also relevant.

It is well-known that the three pillars to support your function are processes, technology, people. My lessons learnt are:

To get the value out, the FP&A process must be an inclusive horizontal exercise with continuous planning capabilities that translate strategy into an actionable plan, identify resources needed, and document how operational plans will drive financial results (and monitor the progress). The old accounting/finance approach is another coincidence across enterprises with limitations in their FP&A functions, success seems to be possible only with a cross-functional approach.

Technology should be a tool supporting both long and short-term planning, non-financial data, use of narratives, modeling capability, easy re-forecasting, collaboration, cognitive intelligence, analytical capability (predictive), and more. Clearly it is not the typical ERP. You need to avoid customization in the early implementations of new tools. Interphases with existing systems are very welcomed but do not get frustrated when you realize that Excel still prevails in certain areas and consider partnering with external experts.

Talent evolving to multidisciplinary teams is important in the FP&A world. You are looking for professionals with core finance, business acumen, soft skills/collaboration, flexibility, advanced problem solving, data mining, data analysis, and ways to do predictive analysis. Partnering with an external expert in certain functions (e.g. data mining) can help a lot.

Finally remember, the biggest challenge of the transformation may be a leader wedded to a past or current success.