When corporations started adopting technology and software products like ERP systems during the 1990s and early 2000s, the finance department was the busiest in the company. They were at the heart of ERP implementations, as every transaction needed to be tied correctly to the financial statements. Different ERP systems were developed worldwide, ranging from ones that could handle global implementations to locally developed smaller systems catering to SMEs. It is hard to imagine any finance department having manual bookkeeping today.

After the ERP wave, the next technological change was the advent of cloud computing. Its adoption was slow due to concerns about data security. Most finance departments preferred on-premise systems that made them feel secure about their data. While it took some time, the cloud-based ERPs were eventually adopted with a rigorous cost-benefit analysis and upgraded cloud data security.

The next frontier in technology adoption came with analytics due to the availability of large amounts of structured data generated by ERPs. The new age Business Intelligence tools has made reporting and dashboarding more exciting than boring Excel and PowerPoints. Data and statistical algorithms have evolved to a more advanced science of Machine Learning (ML), a branch of Artificial Intelligence. This is truly a game changer for business operations since the technology offers forward-looking predictive power for the first time. Some departments have already adopted this new kid on the block. Sales, marketing, supply chain and even HR have started adopting and observing the benefits of AI/ML. However, this is where the finance departments still lag behind others. As per the 2024 FP&A Trends Survey, even now, 52% of the companies use spreadsheet-based planning (Excel). This number could be much higher in developing markets like South Asia. What has prevented FP&A teams from benefiting from the technology like their counterparts?

Why Is the Adoption of Technology so Slow?

Let’s examine the possible reasons behind it.

1. Comfort zone

We cannot get rid of our love of spreadsheets. Finance teams’ hold on spreadsheets is unlikely to match others in any branch of any company. Interestingly, the use of Excel increased by 2% from 2023.

2. Bottom-line impact

When the supply chain function implements an S&OP system, it directly impacts the bottom line in terms of inventory savings and higher sales. Even HR may impact the bottom line by better hiring decisions. Similarly, marketing can showcase higher Return on Investment (ROI) on the right promotions and competitive analysis. What does the FP&A have to show in terms of ROI? It probably appears more like a cost investment than one that can show a good ROI. Some may think the proposal is not worth even going to the management.

3. Cost of change

While many FP&A teams are keen to evaluate the new age planning systems, they may not be able to proceed with the implementation due to their cost. After liking the system demo, the internal discussions may conclude that the spreadsheets still do the job. Why shall we go through the pain of implementation and justify the cost in the budget? Finance has also been the early customer of the outsourcing drive, which means the cost is even lower now than what it used to be onshore. Indeed, it probably explains why 22% of organisations still use legacy systems, which are more than five years old.

So, this brings us to the moot question: is the financial planning system worth it? If so, what are its compelling advantages? Let’s examine it.

What Advantages Can Modern FP&A Systems Bring?

• Time

As per the 2024 FP&A Trends Survey, the budgeting exercises take 30 to 90 days for most (57%) FP&A teams. Why does it take so long? It requires data and file preparations, sending them to each department, making several versions, conducting meetings and finally coming up with the final approved version. Communication is over emails, the compilation is manual, assumptions are scattered across, and minutes of the meetings are saved separately. “Is this really happening in 2024?” one may ask. Technology can bring down this time frame to 30-45 days.

• Predictive Analytics

The spreadsheet-based planning process has a rudimentary predictive approach like the last year + x% growth. This is then brutally overridden by each department’s judgments. It seems that it's challenging for finance to add value. Modern systems can provide much granular predictive capability with statistical algorithms, allowing for a much-needed science to the process. It helps the departments to have a scientific baseline forecast, which they can override only on a need basis. For instance, it’s easier to recognise the trend and seasonality in the sales pattern and predict it than to use averages in spreadsheets. It also allows finance teams to question the numbers and have a meaningful discussion. Unfortunately, only 6% of the 2024 FP&A Trends Survey respondents are currently using ML. Hence, our function has the opportunity to regain its former glory of decision support instead of being number compilers.

• Single Version of Truth

One of the biggest challenges the finance teams face is having disparate data sources. 30% of organisations claim they don’t have a single data source, as per the abovementioned Survey. Technology is shouting to be heard, as it can easily solve this problem for the benefit of all stakeholders through modern cloud-based systems with self-service Business Intelligence tools such as Power BI or Tableau. These tools have the capability to query data from multiple sources and present them via beautiful graphical reports. Users can create their own views as well, making it self-service.

• Collaboration

Spreadsheet attachments, emails, share points, or shared drives with or without access controls are the bane of the manual spreadsheet-based process, making everyone look like they are working hard. However, technology can turn it into smart work by leveraging cloud collaborative features instead of clogging email boxes. It also helps record versions, comments and assumptions in the same place for easier and quicker reference during the actual period for tracking.

• Scenario Analysis

Scenario analysis in the world of spreadsheets means creating yet another static sheet or file. Most modern planning systems offer on-the-fly scenario analysis that helps in goal-seeking. It can be done by any department in a self-service mode instead of depending on the finance function. This feature helps us reduce the number of versions as the scenarios can be simulated right at the beginning of the cycle and each version. Only 22% of the organisations have a quick scenario planning capability as of now.

• Rolling Forecasts

Gone are the days of the annual operating plans that were used to track for the rest of the year. COVID has ensured that planning exercises must be more dynamic to navigate the Volatility, Uncertainty, Complexity and Ambiguity (VUCA) world. One cannot afford long forecast cycle times if it needs to be done on a monthly basis. Hopefully, it is achievable with a technology platform. As an encouraging sign, this planning method appears to be one of the most popular. It is adopted in 49% of the organisations.

• Value-Adding Activities

Let technology take care of the mundane activities, and your FP&A team will be able to do their real job of analysing the numbers from the business perspective and shaping them to align with the overall company goals. It is the biggest ROI of the system implementation, as you have someone as custodian of the company’s long-term and short-term goals. It’s a harsh truth that most FP&A professionals spend 45% of their time on data wrangling and reporting instead of meaningful analysis and decision support. It directly affects a company’s competitive edge by avoiding false assumptions or challenging existing ones and making forecasts more accurate.

Conclusions and Recommendations

• Create a vision for the FP&A team to become a strategic Business Partner to the management within a specific time frame.
• Have the team trained in analytics and Business Intelligence tools.
• Spend more time on forward-looking strategic insights to the management than historical achievement reports.
• Show the dollar value impact on the P&L by investing in an FP&A system by computing the cost of time savings and impact brought in by Predictive Analytics, Rolling Forecasts, etc. This can easily be achieved by showing their effects on revenue and expenses through timely interventions by insights.
• If CapEx is not approved, outsource the planning and analytics activities and get the same benefit on an OpEx model. The FP&A team can drive internal discussions with the help of analytical reports provided by the outsourced partner.
• Outsourcing such activities can also help demonstrate the benefits of the FP&A before making the capital investment, hence a smarter move.

The only considerations for implementing an FP&A system should be whether it offers all the abovementioned features and value additions.