As the world has come to grips with the “new normal” coming out of the global pandemic, the role of Financial Planning and Analysis (FP&A) has become increasingly important. Organizational leaders are demanding better business insight and more accurate data from their finance teams to help their companies regain lost revenue and become more sustainable in the future.
Traditionally, the FP&A function was based on historical data and trends to identify valuable insights for future business decisions. However, the financial landscape has changed dramatically, and historical information can no longer be used as the sole foundation for future analysis. Traditional processes have become vulnerable and a whole new range of challenges for accurate forecasting have become more evident.
FP&A Challenges
Access to Real-Time Information
Organizational and business leaders need timely information, so finance teams are consistently under pressure to deliver actionable insights to assist decision-making as quickly as possible. The lack of accurate, real-time data hinders the level of detail a financial planning system can provide.
FP&A teams are then forced to make assumptions to make up for this missing information, which can cause unrealistic expectations to the organization’s strategic goals. Organizations that have processes and systems in place that provide real-time information are more agile and can drive real value and growth.
Finding Reliable Systems to Support High-Quality Analysis
A significant amount of planning processes depends to some degree on having access to accurate and timely data from other parts of the organization. Integrating the various planning processes provides several benefits, but integrating plans from different business areas challenging, especially if you are dealing with unreliable systems and disconnected spreadsheets. Cloud-based systems, such as NetSuite, make it easier to move from spreadsheets and integrate financial planning and analysis with other areas of the business in real-time. This allows the leaders of an organization to make key strategic decisions more effectively and efficiently.
Lack of Automation and Digitalization
As actual information and forecasts are becoming more granular, finance teams are constantly optimizing their various business models to project the company’s revenue and costs to accurately identify key performance indicators. Strategic tasks like FP&A are crucial to generate timely, meaningful insights. However, FP&A teams often spend too much time performing manual tasks and sorting and organizing data, while struggling with reducing their cycle time and finding time to analyze their data. Automation and digitalization allow finance teams to work more efficiently and effectively by reducing cycle times from quarterly forecasting to monthly, as an example.
Inefficient Budgeting and Forecasting
Budgets set detailed targets for the next 12 months whereas forecasts provide the latest outlook based on the actual results. In other words, the yearly budget outlines the plan for where the business wants to go, and the forecast indicates where the business is headed.
The problem many companies encounter during budget season is that the process is laborious, time-consuming and filled with aspirational organizational goals. Forecasts, on the other hand, are rooted in reality that gives management timely information to evaluate the causes to any deviations to the budget and adjust plans accordingly. However, many companies do not achieve accurate forecasts from month to month or quarter to quarter due to steps being missed from time constraints or finance teams not listening to the data.
Lack of Collaboration
Communication between various departments is one of the most important aspects of an organization, especially at important deadlines during budget and forecasting periods. Unfortunately, most collaboration between Finance and other departments only occurs during the budget planning process and is not considered as important during each forecast cycle. This can be very challenging for the FP&A teams when it comes time to understand the deviations from budget that occur throughout the fiscal period. Finance needs to build trust and have constant communication with all departments to understand what is driving the business for each department fully.
FP&A Solutions for These Challenges
Although there are challenges for every FP&A team, there are also some very tangible solutions that can add efficiency and accuracy.
Technology
Cloud-based planning systems help establish a single source of truth across an organization by combining the financial planning process across different functions while maintaining autonomy for individual business leaders. Cloud solutions also offer greater flexibility and scalability while still having the transparency and controls necessary for the FP&A teams. Furthermore, cloud-based applications (e.g., NetSuite) also increase a firm’s efficiency by having several departments share real-time information and ideas instead of constantly sending Microsoft Excel files back and forth.
Culture
Creating a more collaborative environment across the various business units within an organization helps build strong partnerships across the departments. By meeting more frequently with the business leaders, FP&A teams can understand and anticipate each department’s needs, which will help the decision-making process. For instance, through continuous collaboration, the FP&A team can learn or identify certain initiatives the various departments may need in the short and long run. In doing so, they can provide the business units with more robust analysis to make better decisions.
Since everyone has an interest in the budget and subsequent forecasts, there are fewer mistakes and more confidence and willingness to achieve a single goal for the organization.
Talent
Today, finance professionals are expected to take on more responsibilities than in the past including financial analysis, asset valuation, budgeting and forecasting, management reporting, and strategic reporting and analysis. The need for more in-depth analysis has increased – and exceeded the traditional finance and accounting knowledge expected from FP&A professionals. Finding talent that can process large, complex data into valuable information with a solid understanding of the organization’s strategic goals along with the ability to leverage technology to add value for a company is extremely important. The best place to start in finding these types of professionals would be through consulting firms, such as 8020 Consulting, where the consultants have earned advanced degrees combined with years of experience across various industries and roles.
Conclusion
The challenges facing FP&A teams today are significant, but they also represent a major opportunity. By adopting the right technology solutions, fostering a culture of collaboration, and investing in top-tier talent, organizations can transform their FP&A function into a strategic powerhouse. These changes drive better decision-making, support sustainable growth, and help companies thrive in the fast-paced, ever-changing business landscape.
