A double-duty mandate on the CFO has resulted from the extension of financial planning & analysis (FP&A) responsibilities to leaders throughout the enterprise, placing additional demands on finance leaders.
High stakes: FP&A expansion stems from an increasing need to drive value, optimize costs and enhance agility enterprisewide amid a dynamic business climate being influenced by many factors, including continuing inflationary trends, geopolitical conflicts, trade wars, supply disruptions and workforce challenges.
Bottom line: CFOs should help their business partners, as well as their own finance function, nurture their FP&A capabilities to increase the relevance and accuracy of the FP&A outputs with effective governance and controls. This focus plays to the finance group’s partneurial mission.
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As financial planning & analysis (FP&A) becomes more integrated into different business functions, and thus becomes a core responsibility for the leaders of those functions, CFOs can expect their own historical and traditional roles, and workloads, in FP&A to keep evolving and expanding.
Enhancing FP&A has always been a top-of-mind issue for most CFOs. Thus, it is no surprise that most finance leaders and professionals rate financial planning and profitability analysis and reporting as a priority for the coming year, according to the results of my firm’s latest global survey of finance leaders.
But a double-duty mandate on the CFO has resulted from the extension of FP&A responsibilities to leaders throughout the enterprise, placing additional demands on finance leaders. Boards and C-suites are demanding more predictive data-driven analytics not only from product and service lines, but also from supply chain leaders, chief human resources officers, chief marketing officers, chief revenue officers, heads of ESG and sustainability initiatives, and other organizational leaders.
This FP&A expansion stems from an increasing need to drive value, optimize costs and enhance agility enterprisewide amid a dynamic business climate being influenced by continuing inflationary trends (which may be showing signs of abating), geopolitical conflicts, trade wars, supply disruptions and workforce challenges, among many factors.
This shift places new requirements on CFOs and their finance groups (without removing any old requirements — once again, the finance group takes on more). Finance leaders must work with their counterparts throughout the organization to help ensure the relevance, accuracy and security of the data used in their respective planning activities and analyses. In many cases, finance may need to supply relevant data to different groups. In addition, as new analytics related to sustainability reporting, supply chain risks, supplier performance, demand fluctuations, skills inventories and forecasts, and labor cost projections emerge and mature, finance groups will want to integrate those analyses and key performance indicators (KPIs) into their own financial analyses, forecasts and projections.
Given the high stakes underscoring these activities, finance leaders will benefit from an exercise to assess the maturity of their current FP&A capabilities. Below we discuss how.
Assess and Evolve
Subpar planning and analysis capabilities can trigger too many gut calls—impulsive decisions, such as discontinuing new product development with intention to stabilize short-term profitability — that often create larger, longer-term challenges (such as reduced focus on innovation and lack of resilience and agility). To evaluate their FP&A efficacy, CFOs should benchmark their current practices against industry best practices to assess where their function stands on the FP&A maturity continuum.
To illustrate, the following breakdown of basic, defined and optimal FP&A practices is culled from a more comprehensive maturity matrix:
- Basic: At the early maturity stage, FP&A processes are supported primarily by spreadsheets (versus more advanced business information tools), static presentations, manual data entry, basic financial reporting and comparatively weak process governance (e.g., lack of clear policies, existence of ad hoc validation routines and too much reliance on intuition). The process is heavily dependent on people; however, there is little to no collaboration with business partners.
- Defined: In this mid-level phase, dedicated planning and consolidation tools facilitate financial planning processes, although finance groups still rely heavily on spreadsheets for analyses and reporting. On the analytics front, finance groups typically conduct driver-based profit-and-loss modeling, diagnostic analytics and enhanced financial reporting. Standard global data models are also present, as are formal governance policies, processes and reporting activities, resulting in decision-making that is more data-driven. The finance team routinely collaborates with business partners across the organization, incorporating other known factors into analyses and forecast models.
- Optimized: A fully optimized, holistic FP&A function is built for speed and employs integrated and flexible self-service tools (and advanced technologies) that facilitate real-time collaboration and digital on-demand planning, integrated driver-based machine learning models, predictive and prescriptive analytics, and self-service reporting across mobile platforms. Effective governance and controls are fully integrated into established standards and processes, a clear linkage to strategy exists, and there is a commitment to continuous improvement.
The optimized state for FP&A advances the organization’s progress toward a more holistic planning capability (sometimes referred to as business planning and analysis, or BP&A) that combines activities from across the organization to focus on the most critical business drivers that must be addressed to execute the organization’s strategy successfully — a capability that reaches beyond finance to include other business functions that have a stake in the corporate-wide planning process.
The point at which FP&A activities are positioned on the above simplified continuum is a key determinant of the extent of opportunities for improvement.
Planning and Analysis — and Expertise
We find that most non-finance business groups reside on the “basic” end of the FP&A maturity spectrum. A fair number of finance groups are at this stage, as well. For the CFO, elevating the maturity of FP&A capabilities — and assisting their supply chain, HR, ESG, marketing and other peers in getting started on building and advancing their planning and analysis capabilities — begins with evaluating and, as needed, improving the quality of three enabling components:
- Data: What data do we need to provide insights about our current and future performance to the C-suite and other business partners? Do we have access to the skills and processes required to analyze this data in a meaningful manner?
- Tools: How reliant are we on spreadsheets in our planning, reporting and analysis activities?
- Governance: What data governance controls are in place to provide guardrails around our data collection, analysis and reporting activities? Are we aware of the risks associated with our use of unstructured data sourced from multiple systems (both inside and outside the organization)?
For example, collaborations with chief procurement officers might espouse a total cost of ownership (TCO) perspective on sourcing investments and the development of new supplier selection and management strategies. Finance leaders can also help supply chain partners develop KPIs that more effectively measure and monitor quality, reliability, risk management capabilities and capacity for innovation.
As is the case with supply chain operations as well as other business units, sustainability teams need finance’s assistance in accessing and analyzing relevant, high-quality data in accordance with organizational data governance standards — and, in many cases, new disclosure rules in place in different parts of the world where the organization operates.
As sustainability reporting groups race to comply with a wide spectrum of global disclosure requirements and deal with market demands for data from non-regulatory stakeholders, they can look for opportunities to leverage this work — which involves a combination of internal controls, data management, risk management and regulatory reporting — to improve sustainability planning and analysis. In addition to taking charge of ESG data management and reporting, CFOs can assist these teams with developing sustainability metrics that monitor ESG performance and help spot potential operational improvements (e.g., reducing total production costs).
Helping business counterparts strengthen the relevance, accuracy and security of the data used in their planning and analyses plays to the finance group’s partneurial mission. While it may require more work on the front-end of the FP&A process, keep in mind that finance leaders are inevitably called on to perform even more work — primarily of the troubleshooting and investigative variety — on the back end if other business leaders over-rely on intuition when planning and forecasting. A healthier approach is for CFOs to help their business partners, as well as their own finance function, nurture their FP&A capabilities to increase the relevance and accuracy of the FP&A outputs with effective governance and controls.
This article originally appeared on Forbes CFO Network.
