Financial planning and analysis: why it occupies centre stage

Larysa Melnychuk is managing director of the London Financial Planning and Analysis (FP&A) board, which she launched in 2013. She has nearly two decades of FP&A experience gained through senior positions at Invensys, Ace Group, Key Bank and HSBC.

During her career she has implemented several innovative FP&A projects, such as introducing survival analysis techniques into the FP&A model; developing risk adjusted profitability concepts; and managing multimillion activity-based costing projects.

In this interview with GTNews, she sets out the fundamentals of FP&A and its vital role within the organisation.

Financial planning and analysis, or FP&A, is a term widely used in North America but is less familiar in other parts of the world. Under what other names might GTNews readers know FP&A?

There are a number of examples, which include ‘controller’ in Germany and ‘business controller’ in the Nordic countries, Netherlands and France. The UK uses a variety of terms, such as ‘management accounting’, ‘commercial finance’, ‘decision support’, ‘budget control’ and ‘business partnering’. Away from Europe the term ‘budgeting, forecasting and planning’ is used in many other countries.

In short, FP&A goes by many names. This reflects the fact that the function is responsible for business forecasting; budgeting and planning; financial analytics; modelling; and management reporting. While many outside the US and Canada don’t yet recognise the term ‘FP&A’, it is steadily gaining acceptance outside of North America

Very often FP&A also becomes responsible for the company’s strategic planning process. The business partnering role of FP&A is crucial for organisational success and sits at the very heart. As one of my colleagues put it: “FP&A is the MIT (Massachusetts Institute of Technology) or Harvard of the organisation”

FP&A has obviously established itself in North America – where else in the world is it widely recognised and used?

The term is gaining growing recognition in different countries around the world. I’m proud of the fact that our FP&A Club project introduced it to many geographies through round table discussions and via the LinkedIn community.

However, it’s still a good idea to “translate the term”, as in many companies the FP&A function is still just a part of the finance department.

Do FP&A principles and practice vary from country to country? If ‘yes’, what are the main differences?

The strength of FP&A principles is that they are universal and not country-specific. However, our work includes dealing with accounting statements – FP&A professionals recognise that there are many accounting standards in the world, with each country using a version of their own generally-accepted accounting principles.

Obviously, FP&A culture differs from country to country. For example, in some Nordic countries even though business controllers are actively involved in planning and forecasting, they’re sometimes not even perceived as finance people. By contrast, in the UK and US planning and forecasting has always been part of the finance profession.

Educational requirements for FP&A also vary from country to country. For example, in Germany, France and the Nordics and France it is enough to have a university degree in finance. In the Netherlands, acquiring the Dutch Business Controllers qualification is desirable. In the UK, the most logical qualification for FP&A is that from the Chartered Institute of Management Accountants (CIMA). In the USA many MBAs hold this position.

In the Middle East a mixture of different qualifications is recognised; indeed, there is almost a tendency to have as many qualifications as possible to beat the competition.

From this point of view it is good that we have now one international, non-country specific FP&A certification, developed by various professionals around the globe. I’m proud to have been part of the group of experts that developed it.

What advantages does FP&A offer to a company and which individuals should be involved with the FP&A function?

Generally speaking, there are two types of FP&A. Firstly corporate FP&A, which sits at the centre of a company and normally sets the standards, develops the processes and models.

Secondly business FP&A, sometimes called operational FP&A. It sits within the business unit and is responsible for financial analytics, forecasting and planning of this business unit. Often, business FP&A has a matrix reporting structure and reports both to the business unit and the corporate FP&A.

The main advantages that both FP&A types share is the role of a trusted business and financial advisor to the organisation, which aims to improve corporate performance management and the decision-making process.

So FP&A deals with many of the organisation’s stakeholders – both internal and external – and occupies the centre of the organisational universe. It allows the company to see exactly where it is at any specific given moment.

What are the main attributes of the all-round FP&A professional?

That’s very much the subject of popular debate at the moment. Generally speaking, an ideal FP&A professional should combine good analytical skills; good communication skills and good business partnering skills.

In reality it’s rare that you find the combination of all three skills in one individual and explains why it’s not easy to find good FP&A people. Instead, typically you find that, for example, someone who’s a good analyst isn’t always a very effective business partner, a talented business partner has a rather less assured analytical approach, or a good system analyst isn’t as equally talented at communicating.

Increasingly, we’ve come to recognise that the success of FP&A department lies in team building, which means hiring people with complimentary skills and developing them into a synergistic team.

How did the London FP&A board come to be established and what are its main aims?

It was created in September 2013, in response to the fact that the corporate world in which financial professionals operate is changing so much that we need to regularly examine best practice in FP&A, hear about the hot topics and communicate these back to our colleagues. We’ve launched blogs to assist in this goal, so that members can exchange ideas.

While we started in London, we have very much an international aspect to FP&A, so a growing number of members outside the UK join in meetings via the internet. Ahead of what will be our 10th meeting later this month, the London FP&A board has acquired two valuable sponsors: the international recruitment firm Michael Page and the analysis and consulting group Metapraxis.

Based on the feedback that you receive, what are the main challenges in making FP&A an integral part of any business?

There are a number, beginning with the organisational culture. Often, traditional budgeting cultures are in need of changing if FP&A is to be made fit-for-purpose. A new generation of technologists at the top and in the boardroom mean that business decisions are increasingly analytical and data-driven, while less political and biased.

Another challenge is systems and models. Often these are still firmly stuck in the 20th century, rather than the 21st, with hundreds of legacy systems creating unnecessary levels of complexity, inconsistency. Outmoded systems lead, in turn, to poor quality or incomplete data. Many financial professionals complain that extracting ‘smart data’ is difficult and they must also check its accuracy.

A lack of modern FP&A education coupled with a lack of FP&A skills is another obstacle. As with many FP&A systems, too many schools are still stuck in the 20th century and have yet to move into the 21st, so there’s a need for new thought leaders and ways of learning.

We also run up against the current trend worldwide to reduce the cost of running finance departments, although ensuring that FP&A lies at the heart of the business requires investment and resources. The traditional budgeting culture of target negotiations and political games is also very much embedded within organisations.

Add to these challenges the complexity of financial models and financial systems, which is something that we, as financial professionals, have to deal with.

How do you expect FP&A to develop over the next few years?

I believe that we’re about to see many FP&A transformations around the globe. The cost of finance departments should be steadily reduced through a combination of further automation; more shared service centres (SSCs) and outsourcing. The best companies can deliver an efficient finance department that costs no more than a small percentage of their sales.

Many financial professionals are, unfortunately, now losing their jobs due to cost cutting even though FP&A infrastructure is still underdeveloped in many organisations. Finance transformation aims to pare the costs of finance departments back to a minimum, but a robust FP&A infrastructure needs investment. I’m certain that we’ll see more FP&A transformation projects, which will involve investing in people, their education and hiring best-in-class individuals. Investment will also extend to systems and analytics for FP&A.

Systems implementations will extend to both FP&A and business intelligence (BI). It isn’t only about collaborative planning and managing FP&A routine – it’s also very much about analytics. FP&A will work closely with statisticians, IT and data scientists to bring predictive and prescriptive analytics into the field. Big data trends should be taken seriously and those companies that prove able to distinguish signals and new drivers from Big Data will be able to generate new business insights that will generate insights and change business models completely.

Self-service BI and self-service FP&A systems are important. Finance will be at the centre of system revolution, and there with be less dependency on IT. There will be many data quality and process simplification projects around the globe, which will mean financial professionals working closely with data scientists and statisticians to ensure that FP&A is more analytical.

Currently, FP&A professionals are too busy with the various deadlines they must meet and have little time in which to break from our day-to-day activities and actually engage in much thinking, which means that a company’s finance department is often less analytical than its marketing department. We’re hoping that the next London FP&A board’s discussion – on analytical FP&A transformation – on March 16 will generate interesting insights on the subject.

Rolling forecasts and balanced score cards will improve the quality of budgeting process. Although most companies are not yet ready to fully abandon the budget, it will be transformed significantly, to become a less political and more value-adding process.

We’ll see the more projects aiming at harmonisation of the three main organisational planning processes – strategic, business and operational – which will be achieved through systems and drivers.

A new generation of financial analysts will come to the FP&A arena, who are less theoretical, more analytical and practical. The FP&A department will take responsibility for models, systems and analytics

I believe that automation and outsourcing will release us from routine FP&A tasks and will free-up time for value-adding analysis, making us more forward looking. Projects to improve data quality, coupled with process simplification, will allow us to hone in on the 20% of business drivers that typically explain 80% of a company’s total business. That said, strategic or analytical FP&A should always be exempt from outsourcing, as it represents the company’s competitive advantage.

It is an interesting time for our profession and a new era for FP&A.

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