What ignited this article? I was talking with some upcoming college graduates from a similar background...
Why so many Chartered Accountants are becoming FP&A professionals
Every large organization in the world today, from Apple to P&G and from Ford to Goldman Sachs has a dedicated Financial Planning & Analysis team with bespectacled finance professionals claiming to be “more than mere accountants” or even “value-adding business partners”. What is FP&A and why has it become arguably the most important function in a company’s finance organization?
While Investment bankers may scoff at any acronym that ends with “&A” other than their all-too-glamorous “M&A”, the FP&A buzz has surely caught on within young finance students and professionals. FP&A Heads are being looked at as the CFO’s right hand and in many instances, their potential successors. What is it that FP&A professionals really do? Let’s try to demystify the buzz.
What do FP&A professionals do?
The work profile of FP&A Professionals can be divided into two broad components clearly indicated by the name – Planning & Analysis.
1. Financial Planning:
- Every business organization operates according to clear Operating Plans and Budgets. FP&A professionals are responsible for drawing up these Plans and Budgets.
- This involves a range of activities starting from analysing business trends and past company performance to working with cross-functional teams across the organization to develop plans for the upcoming period which are realistic and ensure optimal performance in terms of company’s objectives: revenue growth, margin expansion and other strategic goals.
- For example, FP&A analysts would typically work with Marketing to forecast potential growth for a product category or brand and the marketing expenditure that would entail. Using financial metrics such as ROI, revenue targets would be set along with the allowable expenditures towards their achievement.
2. Financial Analysis:
An ever-increasing amount of analysis and insightful inputs are expected out of FP&A teams today. Let me categorize this broad analysis function into three heads –
a) Actual Performance vs Budget / Past Performance:
- This is the more traditional analytical work FP&A teams are responsible for.
- It involves tracking the company’s performance vis-à-vis Operating Plans and Budgets laid down during the Planning Stage and analyzing variances to identify causes and highlighting to senior management.
- The performance is also tracked vs past corresponding periods.
- Such analysis often takes the form of periodic flash reports and monthly review decks (MIS).
- The inputs provided through this analysis are very critical to ensure business performance stays in line with plans and any corrective actions needed can be promptly taken.
b) Real-time ad hoc analysis:
- Business environments are changing rapidly and there is an increased expectation from FP&A teams to provide real-time strategic inputs to leaders and decision-makers to ensure quick responses and best results to changing circumstances.
- For example, when a competitor launches a new cheaper product or slashes the price of an existing one, an FP&A analyst is expected to be ready with a shadow P&L of the competitor product, likely impact on market share and thereby, revenues and margins as well as probable response scenarios to protect the company’s business and P&L.
c) Other Value-adding analytics:
- Today, there is no dearth of data available with business organizations and it’s becoming more and more difficult to make sense of the vast data to make better tactical and strategic decisions.
- FP&A professionals are perfectly positioned to address this problem – they are deeply aware of the way the business functions, the impact business decisions have on Financial KPIs and are Excel monkeys.
- From spreadsheets analysing profitability of various business channels to calculation of the cannibalizing impact of a well-funded new launch on existing product portfolios to comparing the effectiveness of R&D and Innovation spends vs ATL / BTL Marketing spends in enhancing the company’s top line and bottom line growth, the potential to analyse and contribute is truly infinite.
How FP&A differs from traditional finance functions
- From the above understanding of what work an FP&A role entails it would become obvious that the FP&A function is truly embedded into the business organization and forms a critical component of successful business strategizing and performance.
- In a marked departure from the isolated financial accountant or auditor persona, the FP&A professional is a strategic business resource.
Why so many young finance professionals aspire to be FP&A professionals
- As young aspiring Chartered Accountants (MBAs have had it the easier way!), most of us have hustled as auditors or accountants either during internship or after qualification.
- While we all loved the part where we got to see different businesses and understand financial statements, we all felt we were not too involved in adding value to a business. We complained that our work was more of a “post-mortem” or “compliance” activity.
- And then there came FP&A! FP&A offers an opportunity to use our deep domain expertise in financial accounting and reporting, number crunching and business understanding to actually have a say in better decision making. It holds great potential to add value to a business (which we have all aspired so much to do)!
In conclusion, I would say, as businesses increasingly build FP&A capabilities and look to them for value-adding inputs, finance professionals too need to adapt to the new reality and move past the bean counting days to find out how the beans are grown and seeking ways to grow more! Only then will we be able to become true strategic business partners!