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Implementation of the ‘X’ Factor in Your Organization

  • By AFP Staff
  • Published: 3/25/2021

forecasting_Article

Last year, Gartner coined the term xP&A, proclaiming that it is the natural evolution of planning, and projected that it will become mainstream by 2022, and the majority of new FP&A projects by 2024. The aim of xP&A is to apply FP&A tools to any department within the organization that produces business plans, and layer in automated forecasting, thereby increasing the velocity of forecasting and simultaneously deriving forecasts from teams that are close to information sources.

AFP’s Asia Pacific FP&A Advisory Council (APAC) took up the topic and considered what it means, how it differs from FP&A today, and what finance professionals should consider when implementing xP&A.

First, the benefits

The implementation of xP&A is seen as a benefit for the business overall, an empowering process for all functions of the organization. Members of APAC agreed that it allows the entire business to get into planning, increase automation, and link financial and operational data.

Linking strategy with operations, xP&A allows us to present the big picture. And, with the broader vision of automation and distributed entry of forecast information xP&A provides, it also speeds up the process.

But wait…aren’t we doing this already?

Doesn’t FP&A already sit at the intersection of business decisions and finance? To an extent, we are, and xP&A uses many of the same processes and tools as FP&A. This is an evolution more than a revolution. It builds on current trends, frees finance from data drudgery, and makes the CFO and FP&A more valuable.

That said, since FP&A’s hands are no longer directly on the forecast, what exactly is our role? Members of APAC said it remains quite extensive, including running an efficient process, validation of data, validation of results, bringing the disparate pieces together to perform “integrative magic,” creating the right scenarios, checking for blind spots, and beating confirmation bias. Combined, this allows FP&A to become a trusted advisor to the business.

Cautions to consider

For all the benefits of xP&A, there are still some potential pitfalls to consider. The main ones include:

  • Validate the “black box” of automation, reviewing the assumptions and data flows going in, and providing the sanity check on outputs.
  • Beware the gifted amateur in the system who knows enough to be dangerous and play with the tools, but not enough to be expert on changes being made.
  • Watch out for potential tension between shadow IT and actual IT by defining owner and operator roles over the data, connections and software.
  • Automation removes some steps in the process and fewer conversations mean there is too much trust in the “black box.” Are we gaining speed at the cost of a lack of transparency?

One member is scrutinizing the xP&A systems now and hopes to continue that level of vigilance going forward: “We are in the beginning stages of automation, and it has been very helpful. We are more critical and questioning everything that goes into, and comes out of, the AI.”

What we can do as finance professionals

This is not the first time the role of finance has evolved, and it will not be the last. As we engage in the latest evolution, APAC members advise that the way to manage waves of innovation is to “stay curious about the business and invest in people,” said one member.

“Add value in any way you can,” said another, “and recognize that being a finance professional means bringing rigorous quantitative analysis to the work. The tools of how you do that may change but the role remains.”

Visit AFP’s Asia-Pacific FP&A page for more resources, and register for the complementary event, AFP FinNext Asia, created exclusively for FP&A professionals and taking place virtually 15-17 June 2021. 

Join the xP&A discussion, connect and share your thoughts online with your FP&A peers.

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