At its essence, financial planning and analysis is the forward-looking hub of the finance function. FP&A typically holds the primary responsibilities of ensuring that the company has created reliable business forecasts, sufficiently analyzed past financial performance, and reported this information as well as its recommendations in an easily digestible fashion. FP&A reporting is especially important in that it directly supports high-level operational and strategic decisions. Reporting from FP&A in many cases is created through intensive data visualization methods, allowing for fast and effective absorption of information.
Forecasting and Budgeting
Forecasting is attempting to make reasonable assumptions about what will happen in the future based on current evidence. Budgeting is a product of forecasting used to create a business scenario incorporating the impact that the future will have on all of the organization’s components. Poor forecasting data will set your team up for failure in the analysis. Create forecasts in a way that allows for useful variance analysis and an accurate rolling picture. Most organizations now incorporate rolling forecasts that continually adjust after each incremental period, generally in months. This is in contrast to a static forecast typically conducted at the beginning of the year with a set year-end stop point in mind.
Create multiple forecasts for different key targets, including sales, production, and other operational goals. These targets should be realistic yet consistent with management expectations. An economic model created by FP&A will detail the business’s operations and highlight fundamental cause and effect relationships.
Proper forecasting and data management allow FP&A to produce its most valuable resource, the analysis. The analysis component gives management the insights they need to make informed decisions about the company’s future. Useful analyses include insight into the historical financials and an explanation of the causal variables at play. The analysis will provide variance explanations, high opportunity areas, detailed key performance indicators (KPIs), and other special research.
No one piece of the FP&A recipe is more important than another. Without proper forecasting and data management, analysis becomes a wash. In tandem, without detailed and understandable reporting, the analysis becomes a waste of time. FP&A is also highly reliant upon accurate information from accounting and real-time access to the data.
There should be a clear and constant communication line between management and FP&A, aided by tools such as flash reports to help the CFO keep a pulse on financial developments. FP&A reporting needs to be extremely sensitive to arising problem areas, communicating issues to management quickly to react as soon as possible. In public companies, the head of FP&A should work closely with compliance officers to account for all reporting requirements. The CFO regularly relies on information produced from FP&A in discussions with the board of directors.
Corporate Performance Management Software
Also known as EPM or BPM, Corporate Performance Management (CPM) is a set of processes and tools to help management achieve objectives. Many FP&A teams now rely upon CPM software to cut down on time spent budgeting and forecasting and increase efficiency by having reliable data throughout an organization. A central CPM takes the organization’s disparate spreadsheet methodology and turns it into something concise and scalable. Need help designing and implementing a CPM? Or do you need to know where to start? Feel free to reach out to us. We work with experts in finance technology and can give you a place to start.