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.
Nikita Miller, FPAC: In my position now, we do an annual budget process. We say it’s a zero-based budget — meaning we wipe the slate clean and start with what it is that you need to get the work done for the next year. In reality, we’re not really doing that.
At the end of the day, we have a kind of mandated cost increase or decrease or goal that we have to meet. Teams typically refer to what they did in the previous year, where they landed, and build their new plan starting from there. If you’re a startup or starting a new project, I can see how zero-based budgeting makes sense. But for ongoing planning purposes, we are not really doing zero-based budgeting.
Justin Kuzma, FPAC: Even though it’s a zero-based budget, everyone compares to the forecast anyway. I have never seen someone be able to increase on a true zero-based budget if you’re doing it correctly.
Alina Traistaru: When you have a big organization, you cannot do zero-based. You cannot start from zero. You start from what you know is going to happen, then you look for where you want to go and how you adjust what you have going on.
Here is our usual process: I have my team roll forward everything that we know is going to happen. Then we say, “What else do we spend based on our goals?” Anything additional spend has to continue to be linked to a goal, and you hope that you are not too far away from where you need to be based on expected revenue. There is always more proposed spending than we can manage, so then you go back to the expense line and say, “Why should we cut?” You start to question whether we really need everything that is here.
Bryan Lapidus, FPAC: ZBB is a topic that the Wall Street Journal pulls out when it smells a recession and wants to talk about how businesses are cutting expenses.
Jesse Todd: My experience has always been that we spend weeks putting together a forecast, wanting to make sure we really nail that number as close to the pin as possible. And then, very often, the next day, something happens, whether it’s in the business or in the market. Something new comes to light, and the forecast is kind of thrown out the window.
I always remind folks on my team that a forecast is just a forecast. It’s just our best assumption and best set of estimates at a point in time, but those are always changing. What I would want to emphasize, rather than the accuracy, is the forecast process and the insights that we’re learning through all of the discussions we’re having as we break down the factors that are driving growth or cost, or that are causing disconnects between the assumptions that we made at budget time versus the assumptions we’re making now. To me, that’s the value of the forecast. It’s not getting the number right but the learning.
Justin Kuzma, FPAC: I think the forecast is overused for too many things, and that’s something we’re trying to culturally change in my organization. We're trying to shift the conversation of forecast accuracy for projecting cash and things like that. When business partnering, we ask things like, “What's your more recent trend of KPIs?” We want to make sure that we're really getting into what is driving the business day to day. The forecast is really for longer-term strategic planning or cash management.
Catherine Jirak: A forecast is trying to help inform your decision-making about the future, whether you’re underperforming or overperforming. I don’t think it’s overrated from that perspective, but if people are using it to justify their own performance, that’s different.
Data Science in Finance
Hector Rubalcava, FPAC: As finance folks, we need to do our best to understand the full lifecycle of data. Basically, how it’s coming in from different platform systems applications, build effective mapping tables, and gain both actionable insights and also foresight. I think it’s pretty hard to build a sustainable and effective predictive analytics environment unless we really understand and have a passion for data analysis.
Ken Fick: I see many technologists doing data analytics and many fewer practitioners. I think it’s overrated when we have the IT department leading the charge and underrated if it’s finance because we need to be more involved. Typically, IT knows the tools but not the data.
Mario Vasquez, FPAC: I’m lucky enough to have been in jobs where finance always has a seat at the table, if not leading the project. So to me, it seems appropriately rated.
Beginner Excel Modeling Skills
Amy Johnson: As a developer of talent, I find Excel underrated. Today’s young-in-tenure talent gravitates to VBA, SQL and web scraping as the ultimate final answer. While these are required skills, many analysts take the accuracy of data for granted, lacking the proficiency to inspect and validate data. Excel allows analysts to think about and explore data to determine if the results answer the question asked. Amazon’s guiding leadership principle is customer obsession. Leaders start with the customer and work backward. They work vigorously to earn and keep customer trust. An analyst root causes by working backward from the question earning trust and influencing through their data-driven results. Without the foundational skills learned using Excel, analysts potentially make wide-reaching missteps causing inefficiencies and churn. The ability to extract data is expected. The ability to clean, interpret and tell the story of data jumpstarts a career.
Alina Traistaru: At the end of the day, the more advanced modeling tools all have spreadsheet logic behind them. You have a model, and if I give you the starting point, you need to be able to tell me how to do the follow-through and figure out where this number is coming from, what the formula is, and what numbers in the model mean. I think all of this is the base for understanding how to deconstruct a model, so you can actually construct one later.
Catherine Jirak: I think understanding the process and really knowing the meaning of the data is important. If you don’t understand those things, you can write a script and get a result, but you really are not familiar with how you got there. From my experience — I implement technology — I always teach Excel first, and I always have consultants build in Excel first, so they understand that process.
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Featured North America FP&A Council Members
- Ken Fick, Industry Veteran
- Catherine Jirak, Principal, QueBIT Consulting
- Amy Johnson, Senior Finance Manager, Amazon
- Justin Kuzma, FPAC, Senior Director of Financial Planning and Analysis, United States Steel Corporation
- Bryan Lapidus, FPAC, Director of the 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, Press Ganey
- Alina Traistaru, Vice President, Finance, University of Arizona Global Campus
- Jesse Todd, Director, Cross-Industry Finance Transformation, Microsoft
- Mario Vasquez, FPAC, Senior Director of Finance, The E.W. Scripps Company
Read the second article in this series to see different perspectives on private equity external reporting, cost cutting as a strategy, and big data.