A recent article in
CFOs Frustrated with Return on FP&A Investments
Answers
Interesting article. I talk to my team all the time about the art of analysis versus the science. It takes a different mindset. It is one of the dangers of
There are only two reasons FP&A is not always the third most important function in an organization's financial success (operational performance and sales being first and second respectively). The first is inadequate staffing. The second, using improper processes. Inadequate staffing is a case-by-case problem. Process problems, however, are universal.
To maximize the FP&A process' value requires a tight linking of tactical and strategic planning and
The FP&A process also requires many other procedures including detailed and up-to-date data, rapid fact-based decision making, consensus input decision making. With modern
I know this because I have successfully done it during my CFO
What I am seeing in my practice is an incomplete FP&A process with very little value for many companies. This is mainly due to the fact that planning and budgeting data is not used properly to forecast the future financial health of the organization, using historical, current actual and forecasted data. What is typically lacking is the inability (and / or willingness) to forecast the company's balance sheet, using beginning (known) balances and forecasted data (revenues, expenses, etc.) to implement what I describe as an extension of the actual accounting system into future accounting periods.
When you have a complete and accurate forecasted balance sheet (accurate to the extent of the accuracy of the revenue and expense projections, as well as other assumptions, like asset acquisitions and disposals, investments, etc.) your FP&A effort will elevate the data output to the next level where company forecasted financial ratios and other derived financial data (e.g., likelihood of meeting loan covenants in certain future periods, and by what margin, amounts of credit lines that can be used, additional borrowings needed or ability to retire debt, etc.).
With this type of data management can intelligently make decisions that are based on data and facts, albeit forecasted, rather than on speculation and intuition only.
The technology to achieve that is available today and even smaller companies can implement it. Until they do, FP&A in most organizations will continue to be incomplete and with little or no benefit to management.