If you ask a Finance person in which department they are working, you are quite likely to receive an answer such as “in accounting”, or “in controlling”. In some cases, you will also hear “in financial planning and analysis”. But only in few cases, people will answer “in extended planning and analysis”. This article explores why many of us still think in silos and reasons why traditional business controlling should evolve into extended planning and analysis (xP&A).
We like to put things in boxes… too much?
Putting things in boxes brings comfort because it creates order. We know where things are and where they belong to. As enterprise management has become more complex over the last decades, job specialisation in companies has grown, in order to increase the expertise level of people. While previously a finance director could cover most finance activities on their own or with a team of generalists, dedicated controllers have emerged as a complement to accountants for a long time already to steer the business towards the goals set. What should be today’s leading state of “controlling”?
From Controlling to xP&A: Changing requirements for finance practitioners
Controlling is known for its focus on descriptive aspects such as variance explanation of actual cost of cost centers vs. budget, or of actual cost of profit centers vs. standard cost. A pitfall of traditional controlling consists in only explaining the “what” (i.e. which cost types were above budget or forecast), in explaining the “why” in a too shallow level of detail, and not addressing the necessary counteractions “what should be done”.
In trying to find an answer to “what should be done”, the controller evolves from a co-pilot role into a more driving role of company performance which is often referred to financial planning and analysis (FP&A). The ability to act in a prescriptive way requires FP&A practitioners to understand the key drivers of the company’s financial performance and to work closely with business.
At the same time, budgets and forecasts are also facing a profound change in the requirements placed on them. Sudden and unpredictable changes have made budgets and forecasts outdated almost before they were worked out. Faster and more agile methods have become necessary. Finance had to increase its integration in the company even further and break any barriers to other functions. As a result, finance practitioners conduct their analytic and predictive work on an extended scale, justifying the expression “extended planning and analysis”, xP&A.
Becoming an xP&A professional
Although the recent crisis has exerted a disruptive impact on finance, there are 7 things you can do to support a move towards xP&A:
- Continue building your business acumen. xP&A does not work only with finance data, but with key performance indicators (KPI) from other functions, across the overall enterprise. For this reason, xP&A practitioners must have a deep understanding of KPI in the areas of sales, production, development, or supply chain, just to name a few, in order to initiate actions to increase performance in all areas.
- Leverage the power of modern technology. FP&A must redefine its position to strengthen its value for the company. “Doing more with less” may sound like an old cliché. However, intelligent automation tools offer opportunities to take over traditional manual analytic and planning activities, at a higher and faster quality level. In the meantime, xP&A practitioners can be freed up to perform more value-adding, and complimentary activities.
- Question the detail level of traditional budgets. The current business environment is rather volatile. Traditional time- and resource-consuming budgeting processes can be redefined as global frameworks while rolling forecasts and scenarios should be optimized to define the financial situation on a deeper level.
- Act in an agile manner. Scenario planning is an effective tool, in order to work out reaction alternatives on key business drivers, depending on the possible changes in the company environment. In order to deliver powerful and realistic scenarios in a rapid manner, Finance is led to expand its field of action and to increase its integration in the company even further and break any barriers to other functions. The expanded field of an action justifies the renaming into xP&A.
- Avoid creating a new silo. Offshore working possibilities can offer the tempting advantages of cost reduction through the relocation of activities into low personal cost countries. Some routine activities can benefit from nearshoring, for example as a prior step to their automation or replacement by artificial intelligence solutions. But the connections within the xP&A function and the close contact with other functions could get lost. This could result in creating an xP&A silo.
- Stay close to the business. For xP&A to act as a business partner, it should maintain the complex activities close to the business to have a strong understanding of its challenges and developments, especially in manufacturing environments. After all, xP&A creates its value by acting as the integrated finance business partner.
- Ensure integration and ownership. As an xP&A organisation, finance is no longer the sole owner of financial planning, budget, forecast and scenarios. All functions must be involved and committed to the goals set and work in a collaborative manner, in order to achieve them. xP&A takes over an orchestrator role to ensure that the different functions work towards the targets in an aligned way, and place the achievement of corporate objectives above their individual functional objectives.
Finance as a business partner has been on a deep transformation journey, evolving from a historical controlling department into an FP&A organisation predicting future developments and prescribing necessary actions. By gaining a deep understanding of the key performance drivers outside of finance, and by expanding its field of prescriptive action into all functions across the enterprise, FP&A can move the next level up and transform itself into an extended Finance & Analysis (xP&A) organisation.
Using innovative technologies, xP&A teams get a unique opportunity to further remain integrated into the business, even when working on a remote basis. While companies can benefit from the lower cost of delocalised or automatised descriptive analytics, predictive and – especially – prescriptive analytics remain the core activities of XP&A practitioners and should stay as close as possible to the business to ensure the highest integration level and constant involvement on an extended scale beyond pure finance activities.
Doing this, the xP&A community should be empowered to act as the strong driver of the company’s financial performance, while providing its team members challenging and motivating development opportunities.