Financial planning and analysis (FP&A) is one of the fastest growing functions in the finance world. Every month, AFP takes a look at the disparate ways in which FP&A operates in different countries and cultures.
Though it is becoming commonplace to refer to financial planning and analysis as FP&A, this is actually an American term, and one that is still not widely used outside of the US.
UK & Europe
Larysa Melnychuk, founder of the London FP&A Club, noted that five to six years ago in the UK, not many people would have recognized the term. “I have worked in FP&A in the UK for the past 16 years, but it wasn’t until about five years ago that I began to hear the term FP&A,” she said. “Even now here in the UK, you will find finance directors at medium-sized companies that have never heard of FP&A.”
Instead, Melnychuk has heard FP&A referred to by several different names:
- Management accounting
- Business finance
- Commercial finance
- Decisions Support
- Budgeting and planning
- Business planning and analysis (BPA).
“FP&A is still perceived as a very American term in the UK,” Melnychuk added.
As for the chain of command, up until about five years ago, many FP&A departments in the UK reported to the financial controller. “For some companies this worked and others it didn’t, but they all seem to say the same thing: financial controllers look at historical information. They’re not forward-looking,” Melnychuk said.
Today, that trend is changing. Much like the US, the FP&A function is now more often reporting to the CFO in the UK. This allows for FP&A to be more strategic and influential across the organisation. However, there are still some companies where FP&A reports to the financial controller. A best practice for companies, Melnychuk noted, would be to have FP&A report to the CFO, because FP&A and the financial controller often require different skills and serve different purposes.
In Europe, how companies refer to their FP&A departments often depends on how international they are. Typically, the term FP&A is only used by companies that work heavily with the US.
Generally, in Nordic countries, as well as in Germany, France and the Netherlands FP&A is typically referred to as business control. Business control is not to be confused with finance control, noted Melnychuk. “Finance control is everything related to financial reporting and statutory accounting,” she said. “Business control is part of management accounting, which includes FP&A.”
Unsurprisingly, the titles for FP&A professionals in Europe also differ from their American counterparts. FP&A managers are often referred as business controllers in some European countries.
However, Melnychuk added that in Nordic countries and in Germany she’s met business controllers that do not consider themselves finance people. “One factory and plant controller described to me his role as operations rather than finance related,” she said.
For FP&A professionals to become more strategic and more influential, the best course of action for them is to report directly to the CFO, and practitioners are recognizing this. “We see indications that this is exactly what is going to happen over time,” Melnychuk said.
While the terminology for FP&A may differ from country to country in Europe, other things typically remain consistent. Medium sized companies with revenues less than US$1 billion may have combined functions in finance, but most large companies have a separate FP&A/business Control/management accounting (etc.) department.
FP&A in the Middle East differs from Europe and the US. Melnychuk noted that there are even some of the largest multibillion dollar companies are still family based, and unlike Europe, their finance departments are not divided into multiple factions. As such, many staff members have combined functions, so they may work in both FP&A and finance reporting.
“Traditional companies in the Middle East do not actually know what FP&A is; they’ve never heard of it,” Melnychuk said. “For example, the finance manager will simply be responsible for budgeting and planning, as well as statutory reporting.”
Given that FP&A essentially does not exist as its own department in many local companies the Middle East, it is difficult to determine any common reporting structure for FP&A. Finance staff of course reports to the CFO, but until companies in the Middle East begin to establish FP&A as its own entity, there is no clear picture of a reporting structure.