FP&A Week: Breaking the Paradox
October 10-13, 2023
By Eric Moses, Mergers and Acquisitions Lead - Americas at Shell
Business plans often take months to pull together and, in many ways, are outdated by the time the ink dries. We need a better approach to deliver long-term value. Moving from FP&A to Extended Planning is one way to achieve this.
The Houston FP&A Board met on October 20, 2022, at Three Post Oak Central in central Houston. The purpose of the meeting was to address moving from FP&A to Extended Planning and Analysis (xP&A).
As we kicked off the meeting, the attendees were asked to introduce themselves and answer the biggest challenge of FP&A. The following insights were collected according to the attendees.
Various challenges eventually centred around three themes: People, Processes, and Technology.
We structured our discussion around four questions, namely:
Over the course of the meeting, there was a good discussion on why traditional planning methods are no longer effective or optimal, including the enormous effort and cost to get to a level of precision that is elusive. Of the items discussed, one item that resonated with the attendees the most was the "Uncertainty Cone". The uncertainty cone essentially illustrates that our Predictability Span (PS) is shrinking, and only within PS can we plan traditionally. An evolved approach is required to handle uncertainty and multiple futures outside this span. Below is the diagram for illustration.
During the meeting, it was highlighted that traditional FP&A methods focus on scheduled frequencies, i.e., Q1, Q2, Q3, and often one scenario. However, given the dynamic world we live in and the integrated nature of supply chains, changing technology, pandemics, climate change, and many other risk factors, the need for change is clear to move from data to insights to decisions in an agile manner. Therefore, best-in-class FP&A is about re-forecasting and scenario management getting to real-time, multidimensional, and collaborative planning. In short, moving from a scheduled - scenario approach to an On-demand multiple scenario approach is the right way to mitigate uncertainty.
According to the meeting's facilitator, Larysa Melnychuk, Founder and CEO of the International FP&A Board at FP&A Trends Group, moving from FP&A to xP&A is the ideal approach to achieve best-in-class FP&A. Extended Planning and Analysis is a journey to analytical excellence that involves:
Moving from FP&A to xP&A will mean balancing and synchronising plans with models and data, adopting flexible processes to adapt to change quickly, and investing in flexible platforms. It is outlined in the FP&A Maturity Model below.
The next item on the meeting's agenda was group work. Three groups were set up to discuss the practical steps for xP&A. The points of view were:
Comments from Data and Models aspect included the following:
Comments from the Systems/Process & People/Culture aspect:
The final item on the meeting's agenda was a conclusion. Here are the takeaways.
This was the first Houston FP&A Board meeting I attended, and my takeaway was that the energy in the room was contagious and filled with curiosity. The attendees displayed an energy that indicated an interest in understanding how we create value within our respective companies and how we continue to grow as a profession. Based on my observations, moving to xP&A absolutely makes sense. Still, equally, this is about our ability to evolve, learn, and lead from the front with our actions as the premier performance management function. The model will continue to develop, therefore, living the principles and adopting new ways of working beyond Finance unconstrained by silos and fixed mindsets will win in the long term. It is the richness of the discussions that makes board meetings like those in Houston and other locations worthwhile to attend.
I would like to thank the attendees and sponsors for engaging in an enjoyable and informative meeting.
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