Putting the ‘A’ back in FP&A

Next-level FP&A teams build more speed and flexibility into their own processes, which can trigger more efficient and effective operations throughout the company.

Even though the typical finance organization spends about 10 percent more time and resources on financial planning and analysis (FP&A) activities than it did a decade ago,¹ today’s FP&A teams still find themselves a step behind. Throughout this article, we examine key factors across business unit FP&A that have driven distinctive performance for the business unit and lead to best practice sharing across the enterprise.

Indeed, a number of trends have changed the playing field, especially for business unit or product line FP&A professionals. The increasing frequency and magnitude of economic volatility (for example, supply chain disruptions, labor shortages, etcetera) have put more pressure on traditional FP&A processes and teams, which are geared toward quarterly and annual cycles rather than real-time challenges. Additionally, FP&A teams must deal with an ever-increasing amount of business data that, in turn, require more reconciliation and consolidation before the relevant business insights can be factored into budgets, forecasts, and business plans.

Rather than buckle under the weight of these trends, some leading-edge FP&A teams are using them as a catalyst to improve how they operate and how they support strategy development. They are installing new technologies, tapping new sources of data and types of talent, and launching new reporting processes so they can work faster and smarter—and with more accountability and flexibility. We have also seen such teams reconsider how they generate critical business insights—and how they present those insights to leadership teams and empower them to make bold moves.

These next-level FP&A teams are positioning themselves as trusted partners to the business units—a capability that many CxOs have long claimed they’re looking for from the finance function. Throughout this article, we take a closer look at how business unit FP&A teams are transforming themselves and helping to transform their organizations, and will spend time in future articles on how corporate FP&A teams are changing to drive consistent performance across the organization.

Improve execution in operations

Next-level FP&A teams have figured out how to build more speed and flexibility into their own processes, which can trigger more efficient and effective operations throughout the company.

They emphasize speed

Many FP&A teams continue to rely on legacy processes—for instance, they generate reports as spreadsheets or static presentations, making it difficult to refresh data, even as the inflow of information about the business increases exponentially. By contrast, next-level FP&A teams have cleansheeted their processes and built fit-for-purpose processes and reports that they run frequently and with a high level of detail.

A business unit of a medical-device company wanted to optimize the production of certain devices to keep pace with competitors. To do so, it would need real-time information about manufacturing resources, pricing, and other factors—something that would not be possible if the company continued generating production reports and forecasts manually at the end of every month.

The FP&A team worked with members of the sales, operations, and IT teams to examine the existing reporting process and find a better, faster approach. They settled on an AI-based software platform that could ingest data from servers across the company and, using a series of algorithms, generate and update sales forecasts and other reports in real time. The team also developed a digital dashboard and a mobile app that the CFO and business unit leaders used to get the latest information and adjust device production in response to the market.

They rely more on data, less on intuition

Based on our observations, next-level FP&A teams are more likely than peer organizations to synthesize financial and nonfinancial data to create a consistent fact base that can help inform critical business decisions and improve organizational performance. They work with IT and other technology and operations stakeholders in the business unit to build and manage data lakes (or warehouses) that contain general-ledger financial data, inventory data, sales data, HR data, and a range of external business information. In this way, FP&A teams can easily collate facts and figures and feed them in real time to business leaders who are charged with improving key performance indicators.

For instance, the FP&A team at one consumer products company, with help from IT, has created an enterprise dashboard that executives can call up during their weekly meetings when a performance question arises—for instance, how can we reduce our transportation and logistics costs? The dashboard gives global leaders an end-to-end view of transportation and logistics data—inbound and outbound routes, the amount of raw materials and finished products being transported, and so on. With this information in hand, executives at the consumer products company quickly identified an increase in less-than-truckload (LTL) shipments. By working with inbound shipping companies, adjusting their outbound delivery frequency, and consolidating shipments in certain manufacturing locations, the company reduced instances of half-loaded trucks by about 15 percent, which ultimately reduced its carbon emissions and overall transportation costs.

Develop a detailed perspective on strategy

Next-level FP&A teams set themselves apart by identifying the critical factors that will have a material effect on the business, explicitly link those factors to financial performance with data, and participate in decision making.

Consider the situation at one large food manufacturer. Senior management and the heads of the company’s largest business unit, which was in a declining market, disagreed on the forecast. One group projected significantly higher sales and bottom-line performance than the other. The company’s standard approach to forecasting was based on SKU-level aggregation and a plus–minus approach that had built-in biases and relied heavily on historical data—both of which could skew the results, in the eyes of the FP&A team.

Under a new approach, the FP&A team defined the dozen most critical business factors for the food manufacturer and their impact on top- and bottom-line performance, by product category. (These factors included retail prices, channel trends, rate of private-label substitution, and expected changes to price of commodity inputs.) With more detailed information about those critical business factors, the FP&A team was able to generate a more accurate set of forecasts to ensure that the food manufacturer would have the right products in stock with shorter lead times to customers. The new approach to forecasting brought senior management and the business unit leaders’ perspectives on the business outlook closer together, improved the quality of their dialogue, and ultimately informed the company’s allocation of resources among its branded and private-label businesses. What’s more, the process took half as much time, and ultimately allowed the food manufacturer to capture an additional one to two points of growth and 100 basis points of margin.

Want a discussion to enhance your FP&A process – Contact Us