The way a company FP&A suite is organised (i.e. its setup) covers the way data are organised and analysed, the way the reporting and the forecasting are produced and performances are measured.

This setup is or should be highly indicative of a whole given company. It reveals:

• its business and competitive environment, 
• the way it interacts with this environment, 
• its challenges, 
• its culture in particular management culture, 
• the company data management quality,
• and also, the “level” and place of its finance function.

Intuitively, one may question whether the revealed image is exact or not (i.e. the setup is correct or not)? Then, whether he likes the image or not? It opens possible strategies either to bring changes to the company which FP&A setup will have to facilitate and follows or to adapt the FP&A set up only [12].

“I do not like the image so FP&A set up is incorrect” is a call for disappointments. An ingenious response could be “Anyway FP&A will have to adapt so let us build the best FP&A set up”. It poses two different questions:

1. What will qualify as the best FP&A set up?
2. How will it be accepted by the company?

Defining the Best FP&A Set Up

There are different industries, strategic setups, organisations, challenges, cultures, etc. There is no reason for a standard type of an FP&A setup to emerge. Do not be blinded by the consulting companies’ marketing or specialised authors’ literature. They will give you a good level of awareness on the methods and challenges you will meet but it will not give you “The” solution adapted to your company. 

This solution needs:

1. To be customised to your specific environment. In other words, there is no BEST set up. There are only tools and methods that need to be adapted to fit optimally a particular situation [11]. 
2. To creatively match your present and future business and competitive environment and the way your company interacts with it [11].
3. To develop more focus on the key challenges met by the company.
4. To favour (promote) achievements of company overall goals through management ownership thanks to sound technical processes that give visibility and predictability based on an educated understanding of the situation and proper decision-making process.
5. To be supported by data management excellence.
6. To be fully integrated with the company management logic and supported by a finance team that acts as a true business partner to all functions.

Your solution will have to respond to 7 challenges that are generally addressed by FP&A:

1. Timeliness,
2. Accuracy, 
3. Relevance,
4. Transparency,
5. Efficiency,
6. Help to decision-making,
7. Flexibility,

The different domains i.e. orders, revenues, OPEX, CAPEX, inventories, cash flow, etc., will be organised by responsibility centres (geographies/departments) and permit to understand the profitability evolution by product lines and customer/customer types, potentially projects [11] [3].  

The natural complexity of the company situation drives the overall setting yet the setting shall not complexify nor oversimplify the situation. Finding the right balance is key [4]. 

So that is a lot to take into consideration! But not enough!

Making the FP&A Set Up Accepted by the Company

The setup needs to be highly culture-compatible i.e. well-accepted by the company. Lack of cultural compatibility will create behaviour biases that can become highly counterproductive. Still, it shall not be “sacralised” to the point of becoming THE only reference. “FP&A fundamentalism” can be extremely damageable [5].

This poses an issue when the company culture needs to be or is challenged. The FP&A setup is a good tool to support changes but can it be the tool that initiates the changes by itself? It may be a chicken and egg question. 

Cultural changes need a strong leadership push and support but also changes in the tools that are culturally sensitive such as FP&A setup and recognition mechanisms. So, both are needed and shall draw in the same direction.

What Should Be in the Set Up Then? 

Tools that permit to give visibility and predictability and insure management ownership:

• Financial statements giving the overall financial situation.
• Tools that permit to analyse the results in a meaningful way considering the company situation. The standard financial statements are definitively insufficient (except for small, mono-product companies). 
• Tools that permit to communicate the results and the analysis outcomes to the relevant accountable managers.
• Tools that permit to predict the situation in the future.
• Tools that permit to take (material) decisions.

Depending on the company size and situation, on its market and geographic reach, on its type of activity, those different tools will have to be configured differently i.e. customised [11]. 

The key will be how you match the 7 challenges previously mentioned and to make sure there are tested against the possibility to generate Simpson paradoxes [9] i.e. the dependant variables clearly identified and followed, the time distribution effects are correctly taken in consideration as well as the different data group size.  

How to Handle the 7 Challenges? 

1. Timeliness

The way different industries/businesses “respire” is different i.e. different Time To. Some have a high degree of immediateness (e.g. retail) whereas other goes through sales and delivery processes that are measured in weeks, months potentially years. Some may have seasonal activities others are driven by large recurrent revenue type contracts etc. This shall drive the time table of analysis, reporting and forecasting activities. It may result in budget windows that are quarters/ semesters/year, or seasons, or in rolling forecasts of different frequencies (rather than the annual standard financial time table).  

The whole point of the time table is to bring the information when it is needed i.e. actionable. Too early/too often, too late/not frequent enough will both result in inefficiencies and frustration [8]. 

This poses a specific challenge in companies having product lines with materially different time to. It may bring mix solutions where different product lines have different forecasting frequencies with some overall full company consolidation along the way. 

2. Accuracy

Actuals and forecasts are two different “animals”. Accuracy shall not be confused with precision. For actuals, it largely refers to data quality but not only. For the forecast, it is both data quality and competitive and business intelligence. Budget base zero is a possible option in this domain [10] [7].

3. Relevance

The main point is that the person that receives a piece of information can determine (with the help of FP&A) if actions are needed and if yes, take the appropriate actions.

Receiving information (in a systematic manner) that is outside its area of responsibilities and ability to act can only create confusion and be a distraction. Same if the information is not specific enough.

Furthermore, some focus needs to exist on the key company challenges e.g. If financing situation is dire, the cash in and cash out needs to be work in more detail and focus more attention. 

4. Transparency

Understanding and transparency on the way the figures are built are important to achieve trust in the figures and then focus on actions rather than on challenging the figures.

5. Efficiency

The amount of effort it takes to produce a report, a forecast, a product or customer P&L is often a source of discussion not to say complaints. Data quality, IT tools and FP&A processes are key to deliver efficiently. Yet, a clear time table and due deliverables are a must (who shall deliver what and when).

One note here, amounts of effort and delays are two different things e.g. a forecast may take 3 months to finalise but involve only 10 men days of effort.

6. Help to decision-making

Most decisions involve understanding the underlying financial impacts. This involves the ability to produce a view that is limited to the area of decision as well to model the consequences of the possible decision(s) [1] [2].

7. Flexibility

It covers several possible aspects. Let say here that the setup shall not impact the ability to make decisions and act on it whether it is internal changes or reaction to the environment. This is particularly true for budget/forecast. Actions shall be business-driven rather than budget/forecast driven [6]. 

The following specific articles give more details on a number of subjects:

[1] “Business Cases: A Key Decision-Making Tool for FP&A”, Christian Fournier
[2] “Explaining, Reporting and Forecasting Revenues Evolutions”, Christian Fournier
[3] “FP&A and profitability”, Christian Fournier
[4] “Role of FP&A in Mastering Company Ecosystem Complexity”, Christian Fournier
[5] "When a measure becomes a target, it ceases to be a good measure", Christian Fournier
[6] “Two Examples of Flexible Target Setting for FP&A Process”, Christian Fournier
[7] "Competitive and Business Intelligence in Forecasting Activities", Christian Fournier
[8] “Watch Your FP&A Processes”, Christian Fournier
[9] “FP&A Analytics and Simpson’s Paradox”, Christian Fournier
[10] “Forecast Accuracy”, Christian Fournier
[11] “My FP&A suite”, Christian Fournier
[12] “Evaluate your FP&A processes!”, Christian Fournier

In summary, as CFO or FP&A manager, you must take the time to analyse your complete FP&A setup and define what it reveals in your company. The image can bring you to improve your setup and/or to promote more general changes in your company culture.