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Financial Planning and Analysis – The Magic 8 Ball® of Accounting

Mar 21, 2018

Financial planning and analysis (FP&A) is a means for any company to look into the proverbial Magic 8 Ball® to possibly predict its future and take steps to make adjustments to its strategies in a timely manner. This discipline, if used effectively, can provide a significant view into the future and the ability to be proactive, rather than a look in the rearview mirror and the need to be reactive. The current atmosphere of rapidly changing technology, uncertainty in various markets, and an increase in business risk factors has changed profoundly the way a company should incorporate an element of FP&A into its business environment. 

One way that even an emerging business can incorporate FP&A practices is to focus on its people, processes, and technology (PPT):

  • Do you have the right people in the right seats to make the right business decisions? 
  • Are you challenging the process? Is there a way to streamline and/or centralize your process?
  • Do you have the right tools in your “toolbox”? Are you utilizing cloud-based applications or just keeping your records in Excel?

These are just a few questions you should ask yourself and your team. A comprehensive plan should be developed internally to address PPT within any organization. The traditional approach of operating on only an annual budget and forecast is no longer effective. To be competitive and stay on top of market fluctuations, a modern FP&A function should be implemented. The FP&A function can simply be small and part-time, considering the maturity and size of a company. However, no matter the size of the FP&A function, it should always be flexible and dynamic and encourage collaboration. FP&A may require a cultural shift or a change in mindset, but the simplest FP&A process can play a significant role in a company. 

Planning Made Simple

Planning is vital, and it needs to be a dynamic process that is easily adjusted for different situations, risks, and scenarios. It can be driver based, activity based, or even adaptable to changes in events. The planning process should be transparent throughout the organization, and it should be continuous. This shift in your process could be from an annual budgeting process to a continuous planning and forecasting process. 

Simplification is necessary, especially when time and resources are not on your side. Keeping it simple plays a large role in making decisions and moving quickly at times when the market is disrupted. Spreadsheet planning methods can be inefficient and provide opportunity for calculation errors. With cloud-based applications at your fingertips, the landscape for financial analytics is now forward-looking and faster than it has been before. The smallest of companies can begin implementing a rolling forecast as a first start in its FP&A process. At its core, the rolling forecast can help unfold any mismatch between your strategy and your budget process and provide reliable forecasts. This reliability will aid in predicting the impact of an economic change that may have a negative influence on your business or strategy. 


In addition to rolling forecasts, dashboards have become a powerful tool that can enable the quick decision making that may be needed at the time of an interruption in your marketplace. Dashboards can show a “story” that describes results or could provide a quick look into a possible change that is coming and provide you the necessary foresight to make a proactive change rather than a reactive one as you might have in the past. A simple dashboard could potentially make complex things understandable, help keep you focused on specific key issues or a specific strategy, and ultimately make big data accessible to anyone. However, there could be drawbacks to dashboards if they are not used properly. Dashboards, like most FP&A reporting, need to be kept simple. The key to a successful dashboard is using fewer metrics rather than more. Too many metrics could provide too much information and could make it difficult to focus and make a good business decision. The user experience needs to be easy, including access, and the dashboards and reporting must be adopted. You must determine the most effective metrics, and this requires a deep understanding of what drives the most value in your company. 

Know Your Business

Although having data at your fingertips helps with making quick business decisions, the information provided must be reliable and accurate. Because the ultimate objective is to understand how a business makes its money in the most cost-effective way, it is imperative to know your business’s key drivers. Identifying your key drivers should be a step in your business intelligence process that is being tested continuously. The key drivers in one quarter could be completely different from the key drivers in the next quarter because of a market disruption. Therefore, it is imperative to keep this process automated and simple. To understand your key drivers, it is necessary to understand various aspects of what drives change—for example, cost, demand, resource requirements, pricing, and operating constraints.  

Although utilizing technology may be the most effective and efficient approach to an FP&A process, companies must also invest in their people. Resources should be provided to ensure that processes are designed properly and efficiently and that there is a focus on strengthening analytical skills to leverage the technology. When resources are minimal and it’s imperative to cross-utilize skills, companies should provide training to accountants to assist in acquiring consultative skills versus having the traditional accounting skill set and should be open to providing training for adoption of a forward-looking mindset by all key stakeholders and decision makers.

FP&A can be implemented in an emerging business or one that is mature in its industry. At the most mature organizations, various FP&A functions could be performed by a few key people with various skill sets and roles. The FP&A team needs to be involved in the problem-solving process. This team can assist in identifying issues and challenging decisions, can offer revisions, and can be part of the brainstorming process along with management and the CFO. Communication is imperative for FP&A to work in any organization, no matter the size. Those individuals closest to the activities and key business processes should be incorporated in the process. This will decrease the risk of matching bad data with a business driver and will ensure that all needs and strategies are considered when prioritizing the key drivers. Everyone involved in planning, synthesizing, and problem solving should clearly understand what is driving the financial results of any organization. Even if your business is lean, an FP&A process can be implemented. At times, this may not be a full-time position; therefore, outsourcing this position to your outside CPA or consultant could be a way to begin developing an internal process and making a good FP&A rhythm in your organization.


Michelle Berkoben, CPA
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