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5 Steps to Creating a Data Life Cycle Approach to FP&A

  • By Douglas S. Yeung, CPA
  • Published: 8/6/2018

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It is hard to believe, but there was a time when FP&A professionals complained about the lack of data with which to perform detailed analysis of their businesses.

Fast forward 10 years. Companies are collecting more and more data through improved financial systems, data warehouses, and a general shift into e-commerce where all sorts of data are captured through direct interactions with customers. But how can FP&A professionals take advantage of this trend to play a strategic and integral role in their businesses’ growth?

Asking the above question means re-thinking the role of FP&A in an organization beyond financial metrics, and affirming that FP&A personnel have the skills and acumen to help define overall business direction and new growth opportunities.

By applying the data life cycle framework, a response to this new abundance of data can be framed by asking these questions:

What kind of data is most relevant to the business? For FP&A professionals, the primary source of data are financial data focusing on P&Ls and balance sheets. However, as data become more voluminous and diverse, the first step is to identify and agree with your business the ones that are most important, such as key performance indicators (KPIs) or metrics you include on your balanced scorecard.

How to access the data? Most FP&A professionals can obtain financial data through enterprise resource planning systems (ERPs) such as Oracle Financials and SAP. However, to analyze revenue or cost drivers, you may need to access data stored in enterprise data warehouses, and extract business intelligence via software tools like IBM Cognos, Oracle Business Intelligence Suites and Microsoft SQL/Power Pivot.

How to analyze the data? With the data in hand, linking revenue and cost drivers to actual financial performance is the next, and likely the biggest, challenge. This is where FP&A can add strategic value to the business - while data retrieved can be analyzed from an operational perspective, interpreted as KPIs, and can provide valuable information to the business, the same data can also be used to identify inefficiencies that affect financial performance.

How to present the data? After collection and analysis, it is crucial to present your findings in a concise and understandable way. Data visualization helps audiences understand your message in a simple way, and can prompt discussion and actions, such as changes in the field, new areas for funding, or a move toward certain products or a new geography. The ability to lay it out clearly for your audience is crucial to your success.

How to track the data? FP&A should also track the data and provide feedback to the business on performance. Initial metrics identified should be reviewed and refined as the business changes, so that the business and finance can fine-tune their focus on what actually drives performance.

So what are some concrete steps that FP&A professionals and their teams can initiate immediately?

Staff your team accordingly: Traditional FP&A functions are usually comprised of accounting professionals, with strong background in accounting and controllership. FP&A managers usually focus on developing their staff in business acumen, financial analysis, and business partnering skills. However, given the more intensive use of data, FP&A professionals must further their skills in data analytics and visualization also. Furthermore, besides focusing on candidates with strong financial acumen, managers should also consider candidates with programming, data analysis, and strong statistical skills with curiosity in developing the business acumen needed to interface with other teams.

Upgrade your team’s data analytical skills: While it is ideal to have a mix of data analysts and financial analysts in the FP&A team, that transformation will take a longer time. As you ramp up, training for your existing team members will be crucial to success. Developing the skillsets can take either more of a generalist or specialized approach. FP&A teams traditionally are organized either by function (e.g. revenue analysis, cost analysis, etc.) or by product or geographic regions. Therefore, you can arrange for specialization in different data tools, e.g. Tableau/dashboards, data retrieval/SQL, or hard skills like Excel models and database programming. Not only will it elevate your team’s analytical capabilities, but it will also serve as additional development opportunities for retention and career development.

Develop a “scorecard” mindset: If business acumen was important before, it is even more important now. Your team has to understand the financial implications of actions taken by business leaders, speak the same language, and have the same level of understanding about core business drivers. Being able to understand and participate in discussions that involve non-financial KPIs for the business, and also demonstrate an understanding of how those indicators can affect the bottom line, are where FP&A professionals can shine. In practice, it means taking additional steps to analyze the operational KPIs in relation to revenue or cost, or finding relationships of drivers within your P&L. For example, how do you segment your revenue by customer demographics and relate online spending to revenue generated by that consumer segment? The abundance of data now should enable FP&A professionals to develop more strategic insights.

Lead discussions through data visualization: One unique FP&A value proposition is the ability to link up and look at all parts of the business holistically. The importance of data visualization means that FP&A professionals will also have to develop skills in presenting that holistic view to clients in a concise and engaging manner. Data visualization is not about PowerPoint skills, but the ability to strip down information into simple but meaningful forms that prompt the right questions and decisions.

Establish regular reviews to improve performance tracking: Businesses are never static, and even though the strategic direction of the company should not change regularly, an evolving business environment means the team will have to adjust tactics dynamically. FP&A can take the lead in conducting regular reviews and identifying areas of improvement by assessing different metrics and providing feedback to the business.

So, how should FP&A managers approach the above needs? One approach is to convene a task force with members from finance and the business to establish the basic framework of what to track and how to measure performance. Prioritizing time and resources for this exercise will always be a challenge, so senior management support is crucial.

Another focus area is in training, so that the FP&A team is equipped with the skillset to take advantage of this shift. FPA& managers can also improve the reach and productivity of the finance team, and make it more scalable, by taking a systems focused approach instead of focusing on just increasing headcount.

Finally, the most important aspect is to develop a strategic mindset among the entire FP&A team. The FP&A team should not look at the business just from a finance standpoint; instead, FP&A professionals will have to reinvent ourselves as part of the business team, with the ability to understand key business drivers, and become owners of the business as much as being stewards of the company’s financial well-being.

Douglas S. Yeung, CPA, is the founder of Epitelligence Consulting in Singapore. He previously worked as a finance executive in Singapore and Hong Kong. 

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