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financial planning

Precise financial planning is an integral part of every business’s success. It also takes a substantial amount of time and energy from the business’s financial department, especially if the business is dealing with a volatile market. To meet the need for accurate and consistent budgeting, forecasting and financial analysis, large companies have formed specific financial planning and analysis (FP&A) branches within their organizations to help them plan for the future.

FP&A professionals help companies tighten their financial processes and make more informed decisions regarding business operations and financial goals. Keep reading to learn more about the FP&A process and its benefits — and how Solver can help streamline this process for companies across industries.

What Is FP&A? Overview: The FP&A Process

FP&A can be thought of as a process involving three basic steps: budgeting, forecasting and analyzing a company’s financial reports.

Within a company’s finance department, FP&A professionals provide financial reports as well as insight into that company’s financial decision-making processes. In general, FP&A professionals work closely with a company’s leadership to provide data-driven support in major financial decisions.

Unlike accountants and financial analysts, FP&A professionals analyze financial data, identify patterns and trends in their companies’ financial processes and recommend strategies to improve their companies’ financial and operational success. The role of an FP&A is multifaceted, but the purpose of this position ultimately lies within helping companies make better financial decisions.

The general FP&A process contains these basic steps:

  • Analyzing the organization’s current financial situation
  • Defining financial goals based on this data
  • Considering variables and identifying different courses of action
  • Creating a financial action plan with potential alternatives in mind
  • Revising and re-evaluating the action plan with an organization’s leadership as needed

Precise FP&A steps can vary depending on the size of an organization, its industry and any enterprise resource planning (ERP) or other software it has in place. However, the general budgeting, forecasting and analysis steps remain the same across FP&A roles.

Advice From Professionals: Improving Your FP&A Process

The FP&A process can get complex as an organization grows and takes on more financial responsibility. Oftentimes, an unpredictable economy can force an organization’s financial department to get creative when it comes to planning and resource management. This is when FP&A professionals are needed more than ever.

To make the most of your FP&A process flow, take a look at the following FP&A expert tips:

Define the Financial Planning and Analysis Process for Your Company

Every company is unique. As a result, every FP&A process is going to vary slightly from the next. In order to get the most out of your FP&A process, you need to determine what FP&A means for your organization.

To most companies, FP&A refers to the sum of all annual budgeting and monthly financial reporting processes. However, FP&A can also include quarterly re-forecasting, weekly sales reporting and other financial operations.

Determine what your FP&A processes need to look like in order to meet your organization’s short-term and long-term financial goals. Remember that your FP&A process needs to handle both financial and non-financial data from every level of your organization.

Designate a Specific FP&A Department Within Your Company

While handling FP&A processes comes with the territory of finance departments in general, FP&A has emerged as a rather specialized job.

It’s best to have a sector of your finance department dedicated specifically to FP&A processes, where you can benefit from the financial insights of experts who not only know your company but are also experienced in evaluating your company’s financial data holistically and with a vision for future growth.

Having a sector of your finance department dedicated to analyzing how your business is spending money and generating revenue will put your business on track to reach its financial goals.

Get the Full Story Behind Your Numbers

The ultimate goal of FP&A is to help you understand the “why” behind the numbers on your financial reports. FP&A professionals not only gather the company’s financial and operational data, but they also analyze it to determine patterns and correlations between the data and their organization’s financial practices. This helps business leaders spot problematic trends and develop a plan of action to improve their organization’s financial practices.

FP&A professionals help organizations learn from past data so they can improve upon their financial habits and processes. FP&A helps stakeholders understand why the numbers are what they are — and how to achieve better outcomes.

Prioritize Learning

FP&A processes will inevitably highlight opportunities for organizational improvement. When such areas are identified, companies should harness these moments and learn from them. Not every financial decision is perfect, but when an organization can acknowledge where it may be lacking and immediately get to work on finding solutions, it sets itself up for long-term success.

To make the most of FP&A processes, company leaders must embrace the financial data as they see it and prioritize learning from the insights of the FP&A professionals on their team.

Stay Future-Focused

Overall, the FP&A process is a future-focused endeavor. With so many variables such as the market, supply chains, changing internal operations and much more, company leaders can easily get lost in the details of present-day data.

However, good FP&A practices turn the company’s focus toward future growth with cutting-edge budgeting and forecasting models that take a holistic approach to the company’s growth trajectory.

Implement FP&A Software to Improve Processes

One of the best things you can do for your company’s FP&A processes is to implement the right corporate performance management (CPM) software for your FP&A budgeting process needs. At Solver, we offer innovative CPM solutions that can be tailored to the budgeting, forecasting and reporting processes of your company.

With Solver CPM software, you can keep all of your financial data in one place and put together comprehensive reports, perform advanced analyses and more.

Contact Solver to Optimize Your FP&A Processes Today

With CPM software from Solver, financial reporting and analysis has never been easier. Contact us to speak with an expert on how you can optimize your FP&A process flow with our globally popular software solutions. Submit an inquiry or request a product demo today!

 

It is easy to predict the future when it is business as usual. However, if your business environment is suddenly impacted by something like the coronavirus, a delayed product launch or an unplanned acquisition, your corporate budget may become obsolete very quickly.

How Do I Know it is Time To Replace the Budget with a Forecast?

Sometimes unexpected events happen and it is clear the company’s actual performance is moving so far above or below the annual budget that it no longer provides value in the following ways: 

  • A cost control tool
  • A target for employee compensation plans
  • A detailed financial break-down of corporate strategic goals
  • A financial plan for various corporate initiatives

There are many signs that you need to create a budget reforecast because it is becoming obsolete due to unexpected events, such as:

  • Management comments why a revenue or expense budget variance is occurring
  • Complaints from sales teams that their targets are too high due to XYZ event
  • Lack of budget ownership from department heads

In addition, you will start hearing from executives that the budget column in the financial statements is “useless” or that the budget target figure in a Key Performance Indicator (KPI) is no longer valuable. 

Some organizations have a predefined monthly, quarterly or semi-annual reforecasting process, and when the unexpected happens, they simply take this into account next time they reforecast. These companies often have budgeting and forecasting software such as Solver, Adaptive Insight or Planful to speed up and automate the time and effort it takes to create budgets and forecasts.

Other organizations’ forecasting techniques only include a single annual budget version as a baseline, and for these companies a “forced” reforecast due to unexpected events might involve a lot more arms and legs and interruptions to people’s work schedules.  

What to do When the Corporate Budget Becomes Obsolete?

Companies generally do one of the following when their budgets become obsolete: 

  1. Do nothing and live with the undocumented comments and questions until next year’s budget is launched
  2. Leave the budget as is and use report comments to explain big budget variances (see sample screenshot below).
  3. Reforecast the rest of the year and replace the now defunct budget with the new forecast

Most companies enter their corporate forecasts at a higher level than the annual budget, and often it is only done at the Profit & Loss account level and sometimes also for Balance Sheet and Cash Flow.

In most cases, smaller organizations with well organized, home-grown Excel models can forecast in their spreadsheet and then re-import the forecast into their ERP system or third-party reporting tool. In mid-sized and larger organizations even forecasts at the GL account level may require a lot of work due to requirements to do this by division or department. These companies either have more human resources available to perform the work or they use a budgeting tool to automate it.

Picture1

How to Reforecast Your Budget?

Whether your forecasting requirements are simple enough to be handled in Excel or your company is using a modern budgeting tool, there are ways to avoid the painfully slow bottom-up data entry process. The problem with the latter is that the new forecast may already be old by the time you are done. In these cases, the unexpected event that led to the reforecast could have changed again, leading you to start all over.

Budgeting and forecasting software automation typically means that your input model is highly formula driven. For example, your forecast model can rapidly calculate all the required entries automatically such as % Revenue Increase, Target Net Income, Reduction/Increase in Headcount, etc. This functionality has many names such as:

  • Top-down planning
  • Driver-based modelling
  • Break-back modelling (see sample screenshot below)
  • What-if analysis

Picture2

Regardless of what you call it and the type of planning tool you use, an automated reforecasting model can create an entire forecast in minutes or hours versus days or weeks with manual methods. 

 An automated model also allows you to create multiple scenarios. For example, armed with a “Best Case”, “Worst Case” or “Likely” forecast scenarios, you can be prepared for unexpected events without rushing to reforecast. Instead, you replace the “Likely” budget version with the already created “Best Case” or “Worst Case” scenario and you are done. 

If the situation calls for a brand new scenario, you adjust the drivers in the automated model and it will recalculate and store the underlying account-level forecast transactions.  

When your company has the right tools and plans ready for a budget reforecast they will be prepared for a virus outbreak, stock market crash or exciting acquisition of a competitor. Planning ahead will reduce stress and blood pressure for the organization’s finance team.

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