FP&A Technologies: (i) Tools vs. Applications

One of the key requirements of a competent financial planning and analysis (FP&A) professional is to help senior executives manage financial performance in a business environment that is increasingly uncertain. To do so, they must have skills in a number of areas including financial administration, understanding of financial policy and an ability to interpret and communicate financial results.

Yet one area where many FP&A personnel fall short is in the application of technology for planning. In recent years there have been significant breakthroughs in planning technologies but because of vendor ‘hype’ and a plethora of technical terms that few really understand, many organisations remain ignorant of what can be achieved. Even for those that have stepped out and tried some of these solutions, there is often a feeling of disappointment at the disconnect between what is promised and what can actually be delivered.

What is an Application?

For organisations of any size, there is a need to use technology for creating and monitoring plans. This is because today’s business world is both complex and fast changing, which means planners need to quickly look at the impact of changing events and make critical decisions on where resources should be allocated. This is best achieved through a mathematical model that simulates the connection between an organisation’s business processes, resources and outcomes.

There are several approaches and systems that can be used to achieve this. To help understand what these are, here is a familiar example. Imagine looking to buy a car for work and family needs. There are three basic ways you could obtain one:

  • Buy separate components such as the engine, dashboard and attach them up to a chassis of your own design. You would then need to add a gearbox, transmission, brakes, seats and windows. The advantage is that you could build exactly what you want, but the downside is you first need to know how to assemble the parts in a way that prove robust for the vehicle’s use, which will take a long time.
  • Buy a kit car. This would reduce building time and should produce, hopefully, a safer vehicle as the materials supplied have been designed specifically for that purpose. It would come with accessories you might not have considered that would make the car more user-friendly, and you wouldn’t need as many skills as in the previous option.
  • Buy a ready-made car but choosing from a range of options that meet individual budget and needs. Here you have a more limited choice in terms of customisation but at least the end result will be reliable and will serve the purpose of getting you around. It might cost more, but will save significant time and effort. You should also know what you’re getting before buying, providing the research beforehand is conducted well enough.

Something similar happens with planning software. There are basically three choices:

  • Choosing a tool, i.e. it doesn’t come with any specific planning capabilities and must be extensively configured in order for it to support organisational planning. Spreadsheets are a great example of this. It is up to the user to figure out how to put it together, as the quality of the end result will be down to his or her skill as the designer and the parts available. For most organisations, the end result is unlikely to be as reliable or capable as buying a ‘ready-made’ solution.
  • Buying a ‘kit’ such as a business intelligence (BI) system (examples include Hyperion Essbase, TM1). These are designed to support organisational structures and analyses but they still require the user to put things together. For example, they have limited financial intelligence, so the rules need to be carefully crafted as the user, who is also the designer, has to recognise the difference between balance sheet and profit and loss (P&L) accounts, and how to control currency conversions involving multiple rates. As they lack planning capabilities such as spreading or controlling submissions, these will also need to be built. For most they are still better than a basic tool, but they may not give the user everything he or she wants.
  • Buying a planning application that has built-in financial intelligence, is designed to handle business structures, and has a range of planning capabilities that are easy to invoke. As with the example of the car, applications may be customised within certain limits and there may be optional extras (such as reporting) that will add to the basic price. Although the cost may be more than a tool or kit approach, the end result is likely to be more reliable, quicker to implement, and easier to maintain. It is also easier for users to see what they will get before they buy – although vendors are notorious at overselling their products capabilities.

Basically, the different between a spreadsheet, a BI solution, and a planning application is the functionality that comes built-in and preconfigured for use. One thing to note is that just because a solution has a great level of functionality, it’s not necessarily better than one that doesn’t. It could be more complex, more costly, and the functions might not work as you require them to for your business.

The following graphic attempts to depict where some of the more recognisable planning solutions fit:
STW Consulting Planning Technology
The above illustration is not implying one solution is better than another. The ‘best’ solution is the one that is meets the complexity of the problem being solved, the support infrastructure available, and the budget.

When it comes to choosing a planning application, four things need to be taken into account, as each area impacts the overall capabilities of the solution. These are:
• Application architecture.
• Application functionality.
• Application delivery.
• Cost of ownership.

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