We asked finance professionals on AFP’s North America FP&A Advisory Council to discuss what they think is overrated or underrated in finance. Here is what they had to say.
Private equity external reporting
Ken Fick: I've had to deal with multiple private equity owners. The challenge of being an operator and reporting to external investors is that they require a ton of information to monitor the performance of their investments. This typically requires the creation of a monthly reporting pack. It may be necessary but it's certainly an arduous endeavor in one’s career.
Marcus Gadson, FPAC: There have been a handful of times where a VP or CFO comes to me and says, “Hey, the board wants to know this based on our prior call.” I'll ask why, and the answer is, they just want it. It can become a time drain and a time suck for a lot of leaders running around in circles to ask questions, to find answers to questions that are not expected to change the direction of the business.
Bryan Lapidus, FPAC: I worked for two PE-backed firms. When everything was fine and we were making our numbers, they were hands-off. And then the moment that we didn't, they were all over us with weekly reports. Suddenly that became a big part of my job — feeding information to them — and it took away my time to focus on running the business.
Cost cutting as a strategy
Kayla Davis: In finance, we tend to talk about managing costs, but that is really a short-term tactic for managing short-term numbers. There are times when it's appropriate, but that is not a growth strategy. Strategy is about taking the company in a direction. When you think about the long-term, you won’t get there if your focus is to restrict spending.
Mario Vasquez, FPAC: Cost cutting is never going to get you to growth on its own. You can only cut so much, and it could end up actually hurting you depending on what costs are being cut. Sometimes you're spending too much in a lot of different areas, and you need to reduce in order to narrow your focus, but it can't be your way out of a bad business. I agree; it's not a strategy.
Scott Corvey, FPAC: Cost cutting can be PART of a sustainable practice of optimizing costs. This implies that you’re simply reviewing and/or re-contacting vendors or services to rationalize certain expenses within the operation and leverage that data to get better unit pricing. It could be a strategy to optimize margins.
Jesse Todd: Cost cutting can be a tactic to use within a specific strategy to free up capital and re-focus on some business objective. But, when cost cutting is an end in and of itself, then finance is leaving some influence and value on the table.
Marcus Gadson, FPAC: In most cases, big data is overrated. First, a lot of the people who have access to big data are often unaware of what or how key decisions are being made, and that leads to paralysis of the analysis. There's so much information available, and not all of it is pertinent, that it can delay the speed at which we provide something insightful that can support decisions.
Second, the different types of data that can be pulled together often create confusion over what is the right or best data. And whenever people know there are multiple sources of truth, they can challenge the credibility of FP&A, and that's a no-no.
Third, I question the return on investment for these big data efforts. Companies spend millions of dollars to get and maintain the data in the right format to connect queries from different sources so that they can manage the big data. What is the point of diminishing returns for the organization?
Jesse Todd: Big data without a strategy is just a big box of Legos without any instructions. It’s great to have access to all this stuff, but if there's no cohesive way to align around it, then you can get lost really fast.
Nikita Miller, FPAC: I think people want to use it – who doesn’t want more information in an uncertain world? To get the results you are looking for, you’ve got to know the process for getting the data in, what you're looking for, and how to get it out. What are we trying to achieve? How are we going to build our data and/or queries? There's a lot to it; it can be complicated.
Mario Vasquez, FPAC: When big data is not overrated is when you have the right kind of machine learning and AI. If you have the right tools to analyze it automatically for you without spending a ton of personnel time on it, and you actually get usable data that you can act on, then it's obviously not overrated.
Hector Rubalcava, FPAC: It's not only having the proper tools to extract useful information from massive data lakes or data warehouses but also having the right mindset, the appetite, the curiosity, the coaching, the learning and motivated staff. And for that, yes, it could be overrated in certain teams’ functions, but then underrated in others.
Read the first article in this series to see different perspectives on zero-based budgeting, data science, forecast accuracy and beginner Excel modeling skills.
Featured North America FP&A Council Members
- Scott Corvey, FPAC, Vice President of Finance, Consero Global
- Kayla Davis, CFO, Icon Parking
- Ken Fick, FP&A/CFO Advisor, FP&A Expert
- Marcus Gadson, FPAC, CTP, Sr. Finance Director, Wellpath
- Bryan Lapidus, FPAC, Director of FP&A Practice, AFP
- Nikita Miller, FPAC, Director of Facilities and Financial Planning and Analysis, The Kresge Foundation
- Hector Rubalcava, FPAC, Director of Financial Planning and Analysis
- Jesse Todd, Director, Cross-Industry Finance Transformation, Microsoft
- Mario Vasquez, FPAC, Sr. Director of Finance, The E.W. Scripps Company