The Financial Analysis and Planning (FP&A) team is one of the most important partners for the CFO. The FP&A team works very closely with the management as well as operational teams. The FP&A team is usually an integral part of all strategic meetings where budgets, business strategy or major decisions are being discussed. 

FP&A team provides a range of scenarios depending on market conditions, generates business insight, assesses business environment or major events that impact the company and help management to make the right decisions to steer the business in the right direction. As the name suggests, FP&A provides the detailed reporting and analysis of the business, and also compiles the forecast to compare budgets to actuals to forecasts and identifies reasons for any variances between expected performance and actual performance.

Building Models

FP&A analysts are experts in building models, either using Microsoft Excel or other specialized planning tools (usually used by very large companies that are highly complex). Microsoft BI is another very popular tool that has been gaining traction in recent times allowing the publication of reports and analysis across the company.

Various operational and financial data feeds into the FP&A business model. Data is collated from accounting systems, production systems, sales systems (salesforce, Hubspot etc.), customer service systems with ticketing systems (Zendesk, Jira etc.) to build the base assumptions and forecasts providing a holistic view of the business. Each data point is a lever that can impact business performance. The ability to build a great data model that is highly flexible and provide management with answers to what-if type scenarios is the biggest value add from FP&A.  

Budgets vs Rolling Forecasts

In recent times, the debate has grown whether annual budgets are better than rolling forecasts. Some of the cons against annual budgets are the extended time periods required to build a budget from the ground up and the review process to drive consensus before approval. In may cases a budget can take 4-5 months to finalize which makes it obsolete even before it is finalized. 

With economic cycles becoming more volatile and significantly shorter and the impact of major global events that can impact every business, voices are growing stronger in support of the monthly rolling forecast. Instead of a fixed budget, the FP&A team maintains a rolling 12 month forward looking forecast, updated every month with input from key impacts from the current month and updating the next 12 month operational impact. This enables management to make real time adjustments to the business. Supply or demand shocks can translate into updated business plans more quickly, while any investments or cost reductions can be actioned more aggressively.

Reporting

FP&A teams also drive the Management Discussion& Analysis (MDA) in internal meetings as well as help investor relations on quarterly results call with business performance summaries. FP&A analysts usually have excellent communication channels with key leaders and stakeholders in the organization and are well informed of latest developments, which they incorporate quickly into their forecasts.

Ezee consultants can help setup an effective FP&A function by working closely with the various departments, leveraging Excel skills to build models and drive the important conversations to steer the company in the right direction.