In this post, I will attempt to provide a brief overview of the role of the Financial Planning and Analysis (FP&A) department with a company or an organization.
The FP&A function typically supports senior management and ensures that the strategy of the organization is backed with a strong and achievable financial plan and that the strategic decisions being made are aligned with maximizing shareholder value.
Once a financial plan is approved, it is the FP&A function’s role to analyze and report on actual performance and issue actionable recommendations in order to enable effective management of plan and support subsequent decision-making.
Role of FP&A:
The specific role of FP&A may differ depending on the size of the organization and whether the department is setup to support a specific business unit / regional operation or whether it is more of a corporate and consolidated FP&A function.
Listed below are 3 key FP&A function activities and why they are essential to the success of an organization:
1. Forecasting, Budgeting and Planning – Target Setting:
A big chunk of an FP&A professional’s time will be dedicated to forecasting and forward-looking planning activities.
Since the competitive and economic landscapes are constantly evolving it is important to regularly revisit the underlying assumptions behind the financial models that are driving the forecasting process and ensure that the assumptions are reflective of the current business environment.
Accurate forecasting enables a balanced financial plan that highlights any associated risks and opportunities. This allows management to proactively manage the organization’s strategic and financial performance while effectively mitigating risks.
2. Analysis and Reporting – Accountability Support:
It is important for management to be made aware of how the company is performing against the targets that have been set. This is the (A) in FP&A.
Value-added analysis and reporting against forecasts are essential for identifying any risks and uncovering any new unexpected trends. These key findings also serve as input for any subsequent forecasting activity and should be incorporated as revised assumptions if they are deemed as a new trend vs. a one off occurrence.
Timely analysis and reporting is also important as it serves as an aid to holding the business accountable and successful against their targets. Without timely and transparent reporting, the likelihood of a business successfully meeting its targets diminishes.
3. Business Case Analysis / Investment Appraisals – Decision-Making Support:
Every FP&A function will support executive-level decisions and will analyze the financial impact of new decisions on the operating plan. FP&A also advises management with the best execution strategy given alternatives. It is the role of FP&A to ensure that the decisions being made are sound from a financial perspective.
Some types of decisions include investment opportunities, go-to market strategy for a new product launch, expanding into a new market or among other things accepting a new contract.
It is important to collect all the relevant data points and highlight the financial impact in order to effectively support the decision-making process.
Final thoughts:
In the last decade, managements' reliance on FP&A has increased dramatically. The FP&A function continues to serve a vital management support role by providing the relevant financial perspective and management continues to ask more of the function as it looks to establish and execute a sustainable competitive strategy.
Did you find this post helpful or do you have any questions? Please let me know by leaving a comment below.
Note: Image courtesy of pakorn at FreeDigitalPhotos.net
The FP&A function typically supports senior management and ensures that the strategy of the organization is backed with a strong and achievable financial plan and that the strategic decisions being made are aligned with maximizing shareholder value.
Once a financial plan is approved, it is the FP&A function’s role to analyze and report on actual performance and issue actionable recommendations in order to enable effective management of plan and support subsequent decision-making.
Role of FP&A:
The specific role of FP&A may differ depending on the size of the organization and whether the department is setup to support a specific business unit / regional operation or whether it is more of a corporate and consolidated FP&A function.
Listed below are 3 key FP&A function activities and why they are essential to the success of an organization:
1. Forecasting, Budgeting and Planning – Target Setting:
A big chunk of an FP&A professional’s time will be dedicated to forecasting and forward-looking planning activities.
Since the competitive and economic landscapes are constantly evolving it is important to regularly revisit the underlying assumptions behind the financial models that are driving the forecasting process and ensure that the assumptions are reflective of the current business environment.
Accurate forecasting enables a balanced financial plan that highlights any associated risks and opportunities. This allows management to proactively manage the organization’s strategic and financial performance while effectively mitigating risks.
2. Analysis and Reporting – Accountability Support:
It is important for management to be made aware of how the company is performing against the targets that have been set. This is the (A) in FP&A.
Value-added analysis and reporting against forecasts are essential for identifying any risks and uncovering any new unexpected trends. These key findings also serve as input for any subsequent forecasting activity and should be incorporated as revised assumptions if they are deemed as a new trend vs. a one off occurrence.
Timely analysis and reporting is also important as it serves as an aid to holding the business accountable and successful against their targets. Without timely and transparent reporting, the likelihood of a business successfully meeting its targets diminishes.
3. Business Case Analysis / Investment Appraisals – Decision-Making Support:
Every FP&A function will support executive-level decisions and will analyze the financial impact of new decisions on the operating plan. FP&A also advises management with the best execution strategy given alternatives. It is the role of FP&A to ensure that the decisions being made are sound from a financial perspective.
Some types of decisions include investment opportunities, go-to market strategy for a new product launch, expanding into a new market or among other things accepting a new contract.
It is important to collect all the relevant data points and highlight the financial impact in order to effectively support the decision-making process.
Final thoughts:
In the last decade, managements' reliance on FP&A has increased dramatically. The FP&A function continues to serve a vital management support role by providing the relevant financial perspective and management continues to ask more of the function as it looks to establish and execute a sustainable competitive strategy.
Did you find this post helpful or do you have any questions? Please let me know by leaving a comment below.
Note: Image courtesy of pakorn at FreeDigitalPhotos.net