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January 11, 2021

FP&A Must Up Its Game in 2021

By Nilly Essaides  – Senior Research Director, Finance/EPM/FinOps

FP&A leaders should be on the alert: Many of finance’s priorities for the New Year will depend on their ability to do a better job.

According to The Hackett Group’s 2021 Key Issues Study, finance has an ambitious agenda for 2021. Six of the Top-10 functional objectives for 2021 require strong level of involvement from FP&A teams. The problem is that on some of this most important issues, FP&A falls short of meeting today’s business needs.

HOW FP&A CAN HELP

Ongoing uncertainty is elevating the role of FP&A as the purveyor of insight to support key decisions. More than ever, business leaders need to anticipate and prepare for different scenarios. Our research shows that 41% of executives across G&A functions predict we’ll not return to stable business conditions until the second half of the year, and 36% think it will be even later.

Become a strategic advisor to the business

COVID-19 intensified demand for greater finance involvement in setting the company’s strategic course. FP&A and business leaders must work closely, so management can make difficult choices about how to allocate scarce resources, execute enterprise strategies and drive financial performance.

Improve analytics and modeling capabilities

The coronavirus crisis was a wake-up call for many finance organizations, as they struggled to keep up with the pace of change and fulfill demand for more forward-looking insight. These deficiencies exposed outdated forecasting practices as well as obstacles to access to quality, enterprise data. In our April 2020 Covid-19 Response Poll, we found that inflexible planning was a major impediment to a successful crisis response.

Improve finance agility

Agility enhancements are a new item on finance’s Top 10 list. Given the unpredictable business environment, organizations must make decisions faster and expedite their implementation. This has important implications for FP&A, as it is charged with providing data-driven insight to support strategic decisions. Staff need access to real-time data and advanced analytics solutions to make a meaningful contribution to the planning process.

Align skills with talent needs

Finance organizations have struggled to identify and develop future skill sets. Their challenge is twofold:

  1. They need to prepare staff by upskilling their digital and analytics skills.
  2. They must continue to improve communication, collaboration, leadership and storytelling skills.

This combination is essential to the effectiveness of FP&A. Fancy new tools are useless if staff cannot use them effectively. And even the best analysis won’t impact decisioning, if it’s communicated in terms the business doesn’t understand.

Take advantage of new technologies

FP&A will benefit greatly from trends across the technology spectrum. We see a projected 25% YoY growth in the adoption of cloud-based core finance systems, and a 22% hike in cloud, best-of-breed solutions. Both generally enable a more collaborative work model, include a single data repository and offer rich functionalities. The path to greater insight must also include broader adoption of smart automation technologies. Our study participants project aggressive growth rates in advanced analytics, data visualization and data-management technologies (see image below).

ADDRESSING CRITICAL DEVELOPMENT AREAS

FP&A is set to play a major role in enabling finance to realize its top objectives. But it has its work cut out for it, because it currently fails to deliver on business needs in some of the most important goals. The image below illustrates the gaps between the importance of the objective and finance’s ability to meet business expectations. It’s not a nice picture. In the two areas where FP&A plays the most critical role (business advisory and analytics), the gap is the widest.

How can FP&A can do a better job? Below are some key actions items.

  1. To become a more effective advisor to the business, FP&A should:
    • Advance beyond the traditional reporting mindset to consider how it can support top-line growth by informing decision-making through timely and relevant insight and foresight.
    • Act as an independent voice by challenging long-held assumptions and finding innovative ways to solve business problems.
    • Engage with business leaders and management to understand their expectations and tailor information and insights to their specific requirements, e.g., frequency, format and granularity.
    • Present solutions within specific business contexts and use storytelling and visualization to engage your audience.
  2. To improve analytics capabilities, FP&A should:
    • Establish a robust data management platform with clearly defined governance rules.
    • Upskill staff to become fluent in advanced analytics methodologies and modeling techniques.
    • Ensure staff is proficient in leveraging new technologies.
    • Transition to future-looking insight by adapting the forecasting process and spend less time on historical analysis.
  3. To improve finance agility, FP&A should:
    • Migrate data into a single repository and democratize access to “blessed data,” so different parts of the organization can pull real-time and quality information to enable quicker decisions.
    • Inventory and rationalize the reports library and identify a smaller set of business drivers to create action-oriented, interactive reports with drill-down capabilities using data visualization.
    • Push more analytics capabilities closer to the business by deploying self-service tools, so managers can get faster answers to pressing business problems.
    • Reconsider activities placement to align FP&A with the finance function of the future, by shifting more work to analytics centers of excellence, embedding business advisors in the operations, and spearheading the introduction of enterprise capability centers (ECC), which provide analytics services across functions and businesses.
  4. To integrate planning processes, FP&A should:
    • Understand the purpose, inputs and outputs of disparate planning activities throughout the company.
    • Coordinate planning events, which typically follow a different cadence.
    • Orchestrate the information value chain so everyone had access to the latest plan.
    • Create finance/operations planning committees to assess the design an annual plan that takes key financial and business drivers into consideration.
  5. To take advantage of new technologies, FP&A should:
    1. Understand the modern EPM technology landscape by meeting with different vendors and third-party advisors.
    2. Transition activities to the cloud, to enable remote work and better access to advanced functionalities and “blessed” data.
    3. Scale-up pilot programs in order make a more meaningful impact on the financial planning and analysis process.
  6. While there’s a lot of work to be done, FP&A also has a enormous opportunity to elevate its role within finance and the overall company, by leveraging its planning and analytics expertise to transform the insight-generation and insight-distribution processes, and support companies as they struggle to emerge into the new normal.