Ira Apfel, Director of Communications and Editorial Content, AFP
Financial planning and analysis (FP&A) professionals and experts say the role of the finance team as a partner to the business adds the most value to enterprise performance. It’s how finance can solve business problems, offer insights and foresight and provide advice to business leaders and management.
Growing pressures on business to perform is translating into more pressure on FP&A to collaborate effectively with the operation, using advanced analytics and offering data-driven decision support. While there’s still a gap between where CFOs want their FP&A teams to be and where they see their teams’ value today, that gap closing. A 2016 Q3 Adaptive Insights CFO Indicator survey shows CFOs expect their FP&A teams to double the amount of time they spend on strategic activities by 2020.
An upcoming AFP FP&A Guide, How FP&A Can Become a Better Business Partner, explores the reasons the FP&A role is changing and provides a detailed roadmap on how FP&A professionals can build trust with the operations and reconfigure their skillset to enhance their relationships with business leaders. It also highlights how new technologies enable FP&A to merge operational and financial planning by synching disparate data streams across functional silos, which can build the right organizational structure to support effective partnering.
Successful FP&A functions today are measured by the degree to which they contribute to enterprise performance. According to Katan Goculdas, director of FP&A at Sparta Systems Inc., “it’s about partnering with the business, enabling people to think beyond their functional silos and working together effectively to have a meaningful impact on the company’s performance.”
Partnering closely with operations is now a key expectation of the FP&A function. “FP&A is an absolutely critical role within the company; it’s a strategic partner to the CFO and the executive leadership team. You need to be able to influence both tactical and strategic decisions by collaborating with functional leads to objectively assess the financial implications of proposed actions,” Goculdas said.
Five key drivers
Here are the key reasons the role of FP&A as a partner is gaining momentum:
1. Improving the forecast. According to finance consultant Brian Fink, finance and business must collaborate in order to ensure the accuracy of the financial forecast. Even a small miss could result in a dramatic and direct hit to the stock price (recall Walgreen’s). “To be effective, and produce a reliable forecast, you have to be very knowledgeable about the different functional areas of the business,” he said. The idea is to not just accept the forecast but be able to challenge, collaborate on and understand the numbers at a detailed level.
2. Driving the right decisions. “It’s difficult for functional leaders to make the right decisions without having the right financial information,” said William Howell, FP&A manager at payroll and HR technology provider, Ceridian UK. “FP&A has shifted from being the people who dealt with the data. It’s now about providing concise and actionably information to the business to help them direct their energy and resources appropriately.”
3. Creating a two-way flow. “I sometimes use an analogy and refer to FP&A as the financial heart of the company and the functional departments being the organs,” said Carl Seidman, an independent management consultant and trainer. Just as organs cannot sustain themselves without a two-way flow of blood, without that constant two-way flow of information, organizations cannot be as effective.
4. Making sure everyone is aligned around the strategy. “For FP&A, the value add is— and should be—in helping to proactively drive business collaboration and performance,” said Scott Page, director of FP&A at YP. “The other piece related to better collaboration for the FP&A role is ensuring that functions are attuned to what’s going on in other parts of the business.” Page can see changes in profitability or revenue across the business and can share that insight with the business and rationalize it, making sure that overall each function is in lockstep with the business strategy.
5. Allowing the business to anticipate the future. According to Tony Levy, business unit executive, IBM Analytics Software, “FP&A insight allows the business units to anticipate the future; that’s the value finance brings to the relationship with the business.” That may involve understanding how customer churn data can help the business kick off an initiative to hold on to and grow the most profitable customers. Or on the expense side, it may help HR understand employee attrition and what action it can take to help retain and develop top talent.
The role of FP&A as a business partner has always been important, but today it’s gaining additional traction.
Competitive and volatile markets are putting more pressure on companies to optimize performance, in turn pushing FP&A to provide better analytics and advice to the business. “The speed of change in business has accelerated,” Fink said, “which makes it even more important not to plan by extrapolation.”
Emerging technologies underpin the partnership between the two functions. New solutions include self-service analytics and integrated planning applications that allow FP&A to cut through old functional barriers. “FP&A is the only group that can take operational drivers and link them into financial results,” Levy said.
Finally, FP&A has access to more diversified and actionable information and the ability to share it with multiple stakeholders. “As a result, FP&A can have a more timely and strategic discussion with the business,” said Ian Charles, founder and CEO of SaaS vendor, Tidemark.
“It’s one thing to give marching orders; it’s another to have the confidence that the organization is marching in the right direction. The core finance group at HQ may not have all the answers. It’s imperative that they work with the real business operators to understand the story behind the numbers.”