Although it is becoming commonplace to refer to financial planning and analysis as FP&A, this is actually an American term and one that is still not widely used outside of the US.
UK & Europe
Larysa Melnychuk, founder of the London FP&A Club, notes that five or six years ago in the UK few people would have recognised the term. “I have worked in FP&A in the UK for the past 16 years, but it wasn’t until about five years ago that I began to hear the term,” she says. “Even now here in the UK, you will find finance directors at medium-sized companies who have never heard of FP&A.”
Instead, Melnychuk finds FP&A is referred to by several different names, including:
- Management accounting
- Business finance
- Commercial finance
- Decisions support
- Budgeting and planning
- Business planning and analysis (BPA).
“FP&A is still perceived as a very American term in the UK,” Melnychuk adds.
As for the chain of command, up until about five years ago, many FP&A departments in the UK reported to the financial controller. “For some companies this worked and others it didn’t, but they all seem to say the same thing: financial controllers look at historical information. They’re not forward-looking,” Melnychuk says.
Today, that trend is changing. Much like the US, the FP&A function now more often reports to the chief financial officer (CFO) in the UK. This allows for FP&A to be more strategic and influential across the organisation. However, there are still some companies where FP&A reports to the financial controller. A best practice for companies, Melnychuk suggests, would be to have FP&A report to the CFO, because FP&A and the financial controller often require different skills and serve different purposes.
In Europe, how companies refer to their FP&A departments often depends on how international they are. Typically, the term FP&A is only used by companies that work regularly with the US.
Generally, in Nordic countries, as well as in Germany, France and the Netherlands, FP&A is typically referred to as business control. Business control is not to be confused with finance control, Melnychuk stresses. “Finance control is everything related to financial reporting and statutory accounting,” she says. “Business control is part of management accounting, which includes FP&A.”
Unsurprisingly, the titles for FP&A professionals in Europe also differ from their American counterparts. FP&A managers are often referred as business controllers in some European countries.
However, Melnychuk adds that in Nordic countries and in Germany she’s met business controllers that do not consider themselves finance people. “One factory and plant controller described to me his role as operations rather than finance related,” she says.
For FP&A individuals to become more strategic and more influential, the best course of action for them is to report directly to the CFO, and practitioners are recognising this. “We see indications that this is exactly what is going to happen over time,” Melnychuk says.
While the terminology for FP&A might differ from country to country in Europe, other things typically remain consistent. Medium-sized companies with revenues less than US$1bn may have combined functions in finance, but most large companies have a separate FP&A/business control/management accounting (etc.) department.
FP&A in the Middle East differs from Europe and the US. Even some of the largest multibillion dollar companies are still family based and – unlike Europe – their finance departments are not divided into multiple factions. As such, many staff members have combined functions, so they may work in both FP&A and finance reporting.
“Traditional companies in the Middle East do not actually know what FP&A is; they’ve never heard of it,” Melnychuk says. “For example, the finance manager will simply be responsible for budgeting and planning, as well as statutory reporting.”
Given that FP&A essentially does not exist as its own department many local companies in the Middle East, it is difficult to determine any common reporting structure for FP&A. Finance staff, of course, report to the CFO, but until companies in the Middle East begin to establish FP&A as its own entity, there is no clear picture of a reporting structure.
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