What is FP&A?
This is arguably one of the questions that you will encounter from people who don’t understand what financial planning, forecasting, budgeting, and reporting entails. Well, financial planning and analysis (FP&A) involves evaluating all aspects of a company’s operational setup.
By undertaking FP&A, corporate bodies can gauge their performance as well as plan for the future. Typically, FP&A analysts consider business and economic trends, assess past performance, and try to predict potential problems and obstacles.
According to the Corporate Finance Institute, the goal of financial planning and analysis is to forecast a company’s future performance. To do this, FP&A experts apprise a broad range of finance-related matters, including company income, capital expenditure, investments, taxes, and financial statements.
Why FP&A is a Collaborative Undertaking
The financial planning and analysis department of a company is not as autonomous as you might think. To fulfill its mandate, the department needs to liaise with other departments and business partners so that the company’s financial and operational plans get included in the analysis.
The work of FP&A experts has become more prominent in recent years. Many corporate bodies are leveraging advanced planning techniques such as the implementation of rolling forecasts. To develop financial plans that reflect your organization’s aspirations, you have to analyze both past performance and present-day trends.
If you are an FP&A professional, your work will mainly entail the establishment and maintenance of operational and financial plans in collaboration with other departments. Similarly, you are required to report the progress that your company is making towards the attainment of these plans. Collaborative work with other departments also enhances your analytical capability.
What is FP&A? (Financial Planning vis a vis Financial Analysis): FP&A Defined
Generally, the financial planning aspect of an FP&A exercise mainly involves budgeting and forecasting. In this case, you will be required to develop financial plans for a fixed period, which is often 12 months. The policies that you create should indicate expected future business performance. The forecasts need to be regularly updated to reflect the current performance of the company.
On the other hand, financial analysis entails evaluating finance-related entities of a corporate body to determine their suitability and performance. This analysis should be performed recurrently by, for instance, looking at monthly management reports.
Reporting is a critical element of financial planning and analysis. FP&A teams ought to regularly report their findings to managers so that they also gain an insight into how the company is performing. The financial reports ought to compare actual results with forecasts, plans, and budgets.
Financial planning and analysis professionals report variances and forecasts, besides also leveraging data to advise senior management. The advice typically relates to pertinent decisions such as how company performance can be improved. Likewise, this decisional support helps management to capture new opportunities while mitigating both internal and external risks.
Challenges Faced by FP&A Teams
Financial planning and analysis professionals have a broad mandate. As a specialist in this field, your work has far-reaching implications on the success of your organization. Often, organizations regard the planning and budgeting aspect of FP&A as being mission-critical. As a result, most strategic analytic activities are only undertaken using resources that remain after baseline planning activities have been completed.
The work of FP&A teams is often crippled due to budgetary constraints with management teams focusing more on operational aspects that are deemed to be more critical. However, the reality is that FP&A is as essential as any other management activity.
There has also been a lag in the automation and efficiency of critical FP&A processes such as budgeting, forecasting, planning, and reporting. These processes are crucial to the success of FP&A undertakings. Sometimes, you spend too much time on projects due to the use of outdated systems that cannot adequately support your baseline processes.
Excel spreadsheets might be a useful productivity tool, but they often lead to inefficiencies, especially when used to support planning, budgeting, forecasting, and reporting processes. FP&A professionals are sometimes unable to fully support the organizations that they work for because they spend a lot of time chasing after spreadsheets.
In recent years, several cloud-based solutions have been advanced to expedite the work of FP&A teams. These cloud-based applications are tailored to support core FP&A functions such as forecasting, planning, and budgeting. The tools offer an array of solutions that not only free up FP&A resources but also automate and add value to hitherto low-value and time-consuming processes.
In today’s competitive corporate world, business decisions ought to be data-driven. One of the ways that you can consolidate data is by undertaking financial planning and analysis. This will enable you to think into the near future as well as weigh various possible scenarios that can affect the performance of your organization. Company managers should regularly undertake financial planning and analysis so that they can have a better understanding of their organizations.