As Donald Rumsfeld, former US secretary of state for defence famously proclaimed: “There are known knowns, known unknowns, and unknown unknowns… the unknown unknowns, we do not even know we don’t know them.”
Since Rumsfeld uttered those words back in February 2002, at a news briefing about the lack of evidence linking the government of Iraq with the supply of weapons of mass destruction to terrorist groups, they have been applied to other scenarios. Most recently, they were given yet a further airing following the unprecedented and irreversible British vote in late June 2016 for the UK to leave the European Union (EU).
This event represented a huge geopolitical shift and moved the global business environment into a new phase of prolonged uncertainty and high risk. Suddenly, many organisations found themselves in the realm of “unknown unknowns”.
Many questions are left unanswered. What will be the legal and tax implications of the post-Brexit world? How might business models be adjusted to the new reality? Have companies’ pre-Brexit strategies retained any relevance? These have added to the various existing realities of FP&A transformation, as outlined below:
In addressing these questions the role of financial planning and analysis (FP&A) becomes even more prominent and strategic. As we re-plan and reforecast quickly in the post-Brexit reality, the flexibility and dynamism makes FP&A essential for tackling the “unknown unknowns” that suddenly emerged in the early hours of June 24.
In order to implement the quick, flexible and dynamic processes that have become essential, FP&A needs to go through analytical transformation; moving closer to the leading stage of analytical maturity. That means advancing into the new world of simplified driver-based modelling, advanced analytics and modern integrated planning process. It also needs to ensure finance responsibility for FP&A systems and models.
In other words, modern FP&A needs to be agile and keep in mind the words of Bill Gates: “Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent”.
The FPA& analytics maturity model
The FP&A analytics maturity model was recently developed by the London FP&A Board and provides an easy approach for financial professionals to evaluate their stage of FP&A maturity and where their company should be aiming.
The model was presented to members at the recent inaugural meeting of the London FP&A Circle – formerly the London FP&A Club. As with its predecessor, the mission of this new professional forum is to educate FP&A community on the latest trends, insights and best practice in FP&A. The forum also provides the best in class professional networking
The meeting, held in London on board the historic battleship HMS Belfast (pictured above) moored on the river Thames, took place less than two weeks following the UK vote for Brexit. In this dramatically transformed business environment the role of FP&A is more important than ever in helping to manage the value of the company. In undertaking this task, the analytical maturity of the company is very important.
The FP&A Analytics maturity model was presented by Hans Gobin, FP&A director at Laird plc and a member of London FP&A Board. Members also heard from Julie Brown, director of resources at the UK social services organisation the Children and Family Court Advisory, aka Cafcass, who earlier this year described how driver based planning (DBP) – an essential element of FP&A – had helped streamline financial planning at her organisation.
A further case study, outlining FP&A analytical transformation in a commercial organisation, was given by Maria Olsson Carroll, head of group FP&A at thread manufacturer Coats Group and a London FP&A Board member. Her previous roles include more than two years as global sales and marketing (S&M) senior business controller and global solution expert at Sony Ericsson.
During her time with the Japanese telecoms group, Sony introduced the Smart Management Dashboard, which provided strategic senior leaders across its global operations with a descriptive and predictive analytical tool accessible on Intranet launch screens, enabling them to effectively manage organisational performance.
Olsson Carroll, who while at the group was closely involved in the process of dashboard implementation across Sony’s operations, described how the dashboard provided “one version of the truth” across the organisation through multiple data sets centralised in a data warehouse and visualised intranet. A variety of data was made easily available, including:
• External data for market share, customer share and value share.
• Actuals, such as volume, sales and gross margin, by product/country/customer.
• Open orders, volume and sales, by product/country/customer.
• Plan and forecast projections, by product/country/major customer.
• Sales and operations planning (S&OP Demand) plan by volume and value, for each product and country.
The ability to provide “one version of the truth” was a critical success factor in supporting the “effortless adoption” of the dashboards, said Olsson Carroll. This was added to by speed in system performance and usability; relevance in providing insights; functionality and clear visibility of trends; and the ability to produce presentation slides at the click of a button.
Sony has enjoyed an analytical transformation as a result of the Smart Management Dashboard project. Firstly, it succeeded in eliminating inefficiency and ineffectiveness, by:
• Validating data and manual manipulations.
• Validating assumptions and drivers in debating the interpretation of projections.
• Using central overlay guestimates to adjust for deviations between top down trends and bottom up data projections.
Secondly, the project enabled more time and effort to be spent in:
• Providing quality insight to the right people at the right time.
• Continuous improvement, such as quality of data through improved processes including collaboration and drivers
The FP&A Circle will hold its next event on October 4, when the topic for discussion will be the evolution of the FP&A profession. The evening will be organised in partnership with global recruiter Michael Page at the firm’s offices in central London.
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