One of the core functions of financial planning and analysis (FP&A) according to Dahdi is to help explain the business better to senior managers who can then base their strategy around reliable figures and predictions. “It’s not just the what, but the why that is important,” he explains, citing FP&A as a tool to help organisations understand themselves better and improve their financial management.
“It’s especially important at my firm Pearson Plc, which owns the ‘Financial Times’ and a slew of educational titles and tools, because we are a listed company that constantly needs to report to investors. For instance, the company finished announcing Pearson’s half-year results at the end of July and FP&A was crucial in pulling together all the necessary information to give market analysts the context of how the current performance lies within the future expectations. The markets demand accurate, timely and on target results. Firms are held to their predictions now, so good forward-looking skills and tools are as important as confirming existing numbers.
“The financial reporting cycle at a FTSE 100 company such as Pearson is tight,” continues Dahdi, “and the challenge is to keep on top of it all. We are a big, diverse company so keeping abreast of all aspects of the business is never easy. That is my major challenge, and FP&A skills and procedures help me to rise to it.”
The former leisure centre manager and head of Holmes Place gym – who went on to join Ernst & Young in the UK after doing the profit and loss (P&L) at his first job and developing a taste for finance that lead to positions as a financial controller at the ‘Guardian’ newspaper and then the ‘FT’ – explains that Pearson has a 12-month reporting cycle. “We run our business by the calendar year with the annual budget roughed out towards the end of any given year and then formalised in February in Q1. This high-level budget then has more detail and predictive data added to it in Q2, Q3 and Q4 before we start afresh again.
“We do not do rolling forecasts and always start anew each year. Monthly risk and opportunity reports also fall to me and my team of two people. New contracts won or lost, tracking staff costs and monitoring risk are all part my duties, in addition to the financial reporting and planning role that I have.”
FP&A is not just for budgeting therefore as it can be used for risk assessments and to monitor, analyse and predict the future state of a corporation, its growth path and finances. It is truly ‘beyond budgeting’ in this regard, which was the name of the second London FP&A Club event held in the UK capital in April 2013. The Club is intended to help FP&A professionals such as Dahdi share case studies, contacts and knowledge, which is why he attended the third staging addressing how to improve forecasting.
Make a Judgement Call
Pearson doesn’t have the most advanced FP&A technology systems, admits Dahdi but he is no automatic fan of so-called ‘big data’ solutions anyway and gets by just fine without them; pointing out that too much data can be a problem in itself.
“You just need the fundamentals to be right,” he says. “At some stage you have to interpret the data and make a judgement call. Subjective judgement calls and predictions are a part of the job for an FP&A professional and I think everyone realises that. It goes back to what I was saying earlier about the why – the narrative – being just as important as the what (representing everyday accounting activities). Getting the narrative right and outlining a growth path is important.”
At the ‘FT’ division within Pearson ‘big data’ analytical software is more important in the commercial teams than it is in the general finance department, where Dahdi previously worked, because it can be used to better understand reader behaviour. However, in the finance function big data isn’t used in the same way: it is the procedure and interpretation of results, and not the technology, that is important.
The Future of FP&A
There is a role for technology in Dahdi’s view but that is as an automated support to the everyday collection of financial planning and reporting data without the need for a centralising figure or department.
“All the information could be sent upstairs by the line manager, meaning there won’t be a need for a specific FP&A manager in future – or at least not many of them,” he says, while expounding upon his idea that the function could be just a part of everyone’s normal day job in the future, with no need for specialist people or indeed qualifications. He is not necessarily a fan of the Association for Financial Professionals (AFP) plan to introduce a new FP&A test and certification programme due to this personal belief there may not be a need for a separate FP&A role in the future. There are, however, often only one or two treasurers within a corporation, so even though it may be a niche function a professional FP&A standard might of interest to some; in the same way that a treasury certification is.
“I don’t see it personally,” insists Dahdi, “as I think general accountancy skills and on the job training is sufficient to allow you to do financial planning and analysis well. FP&A is not a discrete function unto itself. Indeed, as I mentioned earlier I believe the role is going the other way and will increasingly be embedded into people’s everyday duties. Data will automatically be forwarded by staff and there won’t be a need for a centralising person to collate it. If a firm installs the right advanced technology you could even see this ‘horizontal’, less hierarchical structure in the next five years – if the correct underlying procedures are in place.”
“I see FP&A as just one aspect of my career. It is an important activity, but only one of many within the management accounting role. Getting FP&A right allows a corporation to align its strategy with the numbers – and not the other way around. This is where its importance resides.”
• If you would like to find out more about FP&A and the plans for the Association for Financial Professionals’ (AFP) certification programme please follow this link for more information, sign up to the AFP FP&A e-newsletter or visit the FP&A website. There are also two gtnews FP&A Interviews – with Fabrice Domange, senior vice president (SVP) and head of financial planning and analysis (FP&A) for Europe, Middle-East and Africa (EMEA) at AIG Property and Casualty, and Ricardo Losada Revol, director of corporate finance at World Fuel Services – for those interested in reading more about the subject.
• To contact the London FP&A Club about the free membership for finance professionals, or to find out more details about forthcoming events, please email Larysa Melnychuk or join the LinkedIn FP&A Group. The next staging of the London FP&A Club will be on 1 October 2013, when Rupert Merson, a professor at the London Business School will discuss the interaction between FP&A and organisational culture.
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