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The financial planning and analysis (FP&A Board) Board of senior practitioners recently met in London, UK, to discuss the pros and cons of rolling forecasts, how best to introduce it, and to hear a case study from Maersk Group about how the shipping, transport and oil firm has benefitted. “We’ve abolished the annual budget completely and only use rolling forecasting (RF) now,” said Matthijs Schot, head of performance & analysis at AP Moller Maersk, as he shared his company’s implementation four years ago of an RF process and the lessons they’ve learnt.
One can find many definitions of financial analysis. Investopedia defines financial analysis as “the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment.”
What are the basic ingredients of advanced FP&A analytics? Getting the discussion underway the Board’s founder and managing director, Larysa Melnychuk, suggested that it should be proactive, forward-looking, agile, available in real-time, multidimensional and integrated – although these elements are no more than the basic essentials. The combination should be enough to provide the business with good quality information that enables better business decision-making in a timely manner, while also providing unique insights that make a difference to that process.
One of the realities that FP&A professionals need to realize is people tend to be too optimistic in their financial plans. People tend to expect higher revenues, lower expenses, or less time to recover the amounts of their investments. Psychologists label these expectations as optimism bias. As an accountant, I am guided by the conservatism principle.
In this recent interview with GTNews, Larysa Melnychuk sets out the fundamentals of FP&A, its vital role within the organisation, its international aspects and future FP&A trends to watch.
As we know a simple matter of spotting bias – systematic under or over forecasting – can get surprisingly tricky in practice if our actions are to be guided by scientific standards of evidence – which they need to be if we are actually going to improve matters.
The average level of MAPE for your forecast is 25%. So what? Is it good or bad? Difficult to say. If it is bad, what should you do? Improve…obviously. But how?
After her round of meetings with financial planning and analysis professionals across the globe, Larysa Melnychuk, managing director of the London FP&A Club, returned with plenty of stories and insights about the challenges they face.
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