Building a good financial planning and analysis (FP&A) team is essential to the success of the finance function and even for the whole organisation.
In today’s business world, where technologies such as artificial intelligence, machine learning, big data and more specialised FP&A software are dominating the discussion, FP&A teams still need to build a strong foundation before they can take advantage of these new trends.
So, what are these foundations that an FP&A leader needs to understand and develop?
I call these the “ABC of FP&A”, where
- “A” stands for analytics,
- “B” stands for business acumen and
- “C” stands for communication.
Analytics: FP&A Role in Various Types of Analytics
In finance analytics FP&A professionals are expected to review and analyse P&L for business managers. It normally starts with the accounting close process. When the accounting or controllership function approaches month-end and completes the necessary closing procedures, FP&A professionals stay engaged to make sure that the business results are as expected. The accounting or controllership team can work with FP&A professionals to understand certain revenue recognition viewpoints. While the decision should be strictly based on GAAP, FP&A can help interpret customer contracts and make sure the controllership team recognises revenue in the right context.
In other areas, such as cost control, FP&A professionals can also help review the accounting results to make sure that cost control efforts undertaken by the business are impacting the bottom line. This is especially important when the organisation has built turnaround plans or cost savings initiatives that are communicated to external parties. FP&A will have to translate these cost savings from the accounting records to various initiatives so that all stakeholders are clear on the effort spent and results shown.
Another analytical skill that the business will expect from the FP&A team are general analytics on non-financial data. An increasing number of companies are now interpreting business results through various key performance indicators (KPIs). There have been a lot of discussions around balanced scorecards, and realisation that organisational performance cannot be based just on financials.
FP&A professionals are in a unique position to provide all kinds of data analysis as they are well-trained in interpreting and relating different data sets. For example, looking at headcounts is the most common non-financial data that FP&A professionals turn to when trying to understand the efficiencies of human resources. By looking at headcount and financial performance, FP&A professionals can identify the right time to look at hiring or resizing of teams. They also look into issues with charge-out rates and advise the business on appropriate rates for people-related services.
Finally, FP&A needs to be able to analyse general business decisions and provide the value-add from a business partnering standpoint. That means that on top of data analyses (financial or otherwise), FP&A professionals need to analyse risk and provide analysis on strategic decisions. This is an area where FP&A becomes more than a financial advisor and supports the line manager as a general business advisor. In order to be successful in this role, FP&A professionals need to develop strong business acumen, which we will discuss in the next section.
Business Acumen: Ways to Improve Internal and External Knowledge
Business acumen can be both external and internal:
- Developing externally focused business knowledge includes understanding industry trends, competitors and direction of industry.
- Internal business acumen includes deep understanding of how different function works, the challenges they face, their KPIs and how that impact the P&L.
FP&A professionals can partner with strategy and marketing teams to understand external trends. For organisations which incorporate a strategic planning cycle in their overall planning, FP&A frequently works with strategy teams and helps them develop financials in order to support the strategic planning cycle. During this exercise, they often provide insights in revenue and cost drivers so that strategy teams can assess growth opportunities.
FP&A can also assist in verifying numbers and sanity checks as determined by the strategy or sales team. It can be achieved through a detailed analysis on growth trends, market opportunities or growth strategy such as organic vs. inorganic growth.
Internally, by understanding how the organisation works, FP&A can collate and determine cost or expenses levers that can help drive revenue. For example, by understanding various marketing channels, FP&A can help determine marketing expenses and understand return on investment (ROI) of the various marketing efforts. Similarly, FP&A can look at various sales channels and help determine investment in each of the channels.
Through identifying and analysing these different business levers, FP&A can advise business managers on how to prioritize and at the same time maximize ROI of different initiatives.
Communication: Highlighting Value-Adding Activities
Finally, if the FP&A function wants to be successful in providing the analysis and drive discussions and strategies, the ability to communicate will help bring all these value-adding activities onto the table and allow the organisation to clearly focus on what is important.
Again, communication may come in different flavours:
- Data visualisation tools bring quantitative data in a format that easy to understand for business managers. FP&A professionals need to learn how to use data visualisation tools or be able to utilise traditional spreadsheets or presentation programs to communicate effectively to the business.
- Ability to convey the message at presentations or in other formal or informal situations. This means FP&A professionals will have to develop and refine basic communication skills such as assertive communication, effective writing and also learn how to put together and deliver messages in emails and presentations. All these are important skills that the FP&A team cannot neglect.
The FP&A function is evolving very quickly in today’s business world. However, in order for FP&A teams to take advantage of new technologies and proactively redefine their purpose, the team must develop a strong base in the “ABC” areas as discussed above. Otherwise, it is easy to trip and fall from trying to do too much without a solid foundation.
The article was first published in Unit 4 Prevero Blog