How would you define financial planning and analysis (FP&A)?
FP&A is a process that involves planning, forecasting, and controlling the allocation of capital in order to maximize long-term value. It is a strategic and tactical system that involves financial policies and methods for the efficient, economical and effective use of both tangible and intangible assets. FP&A is primarily concerned with managing assets in order to create value, ensure liquidity (ability to meet short-term obligations), control risk, avoid surprises, and meet performance targets.
FP&A should help to meet the following business needs:
FP&A seeks to minimize risk and maximize shareholder value by promoting sound business decisions, including:
To accomplish these goals, there must be reliable and timely information on which to base decisions. This requires that all corporate departments must produce timely, accurate and relevant financial data. This data comes from four basic sources: accounting systems; budgeting, forecasting and planning systems; specialized accounting systems that take in other data (e.g. project accounting); and, external information (such as industry data).
FP&A refers to the entire set of financial management processes that an organization uses to support strategic decisions. These processes can be organized into three steps:
What are the main responsibilities of a FP&A professional?
Planning and forecasting: Formulating strategic long-range plans for the future; determining the sources of information on which such forecast will be based; evaluating each source, and synthesizing or integrating the data and projections from such sources.
Budgeting: Planning the operating budget for an organization; preparing an accurate budget based on the operating plan and projecting revenues, costs, and profits.
Cost accounting: Determining cost elements of a product or service; preparing cost accounting systems and procedures; developing cost standards; monitoring performance against standards.
Controlling operations: Monitoring actual cost and revenue performance against planned objectives; taking corrective action to assure compliance with plans, standards and policies.
Analyzing and interpreting data: Using past performance to predict future actions; studying cost, volume and quality of products produced, or services rendered, with a view to recommending changes in methods or materials; studying market research data for trends and development.
Collaborating on functional strategies: Coordinating with functional managers in planning and carrying out strategies.
Financial accounting/reporting: Preparing financial statements; analyzing financial information; auditing financial reports prepared by other staff members.
Responding to client/customer requests: Responding to correspondence from clients and customers; examining requests for information or proposals for services; preparing answers; supervising clerical or technical staff engaged in handling customer requests.
Working with customers and suppliers: Obtaining information from clients and suppliers; negotiating prices, delivery schedules, orders and other agreements.
What skills and experience are necessary for a successful FP&A career?
Financial analysis: Performing projected financial analysis, such as capital investment analysis, breakeven analysis, cash flow forecasting and cost-volume-profit analysis; assessing the effects of changes in sales volume, costs and prices on profitability; preparing financial forecasts and budgets.
Financial management: Preparing and conducting financial analyses, such as capital investment analysis, breakeven analysis, cash flow forecasting and cost-volume-profit analysis; analyzing the effects of changes in sales volume, costs and prices on profitability; preparing budgets.
Financial planning: Preparing budget estimates, such as short-, medium- and long-range plans.
Finance: Collecting data by gathering financial information related to products or services. Receiving payments by check or electronic transfer. Using accounting software to create reports.
Finance research: Conducting studies on companies, the industries and markets in which they operate, including stock market valuations, industry trends and competitive positions.
Financial statement analysis: Performing a detailed financial statement analysis of a company’s balance sheet and income statement to determine if revenues are adequate to cover expenses.
Forecasting: Preparing long-term and short-term forecasts. Preparing budget estimates by looking at the assumptions and general trends of an organization or market.
Human resources: Performing HR functions that include hiring, compensation and benefits administration, job classification, training and development, employee relations and management.
Investigations: Examining a company’s financial situation to determine whether its financial data is adequate to prevent losses and whether it is operating within the margin of safety required by federal laws including the Securities Exchange Commission’s Sarbanes-Oxley Act of 2002.
What do you think sets FP&A apart from other finance roles?
The FP&A program is more forward-looking, strategic, and forecast driven. FP&A roles are focused on long-term value rather than just day-to-day operational matters, which sets it apart from other finance roles. The type of information or data that FP&A works with differs from that which other finance functions work with; for example, working with longer-term forecasts and projections as opposed to dealing with shorter term accounting numbers.
One advantage FP&A has is that, unlike other finance roles, it is not constrained by accounting and financial reporting guidelines. These roles receive information that is more strategic and forward-looking than that which they receive from other parts of the organization. The benefit of this information is significant: since FP&A people have a broader view of the entire business, they can help to make informed decisions (as opposed to making decisions based on information received from others).
The FP&A program is able to provide relevant and timely information to improve the company’s performance. When other departments of the company receive information from FP&A, they will also be informed about how the business is performing. This means that employees in other parts of the organization can make decisions based on this information that enables them to perform better in their jobs.
Another advantage of the FP&A program is that it is able to bring a long-term view to the table. In this regard, the FP&A program and its employees can be thought of as objective since they do not have conflicts or biases that may arise when operational employees are making decisions and forecasts.
Can you share a project or situation in which you played a key role as a FP&A professional?
I was involved in the FP&A for a strategic procurement project and actually led the group that developed a scorecard approach to evaluate each supplier and their ability to deliver against our desired end state. We went through the process of identifying our key supply chain initiatives, goals and objectives and gave each supplier a score based on their ability to deliver versus the cost of delivery. We then generated a vendor scorecard for each supply chain initiative and benchmarked them against other companies.
We then developed an approach, with the help of a consultant, for evaluating suppliers based on their scorecard results and through a series of discussions with all key stakeholders, we were able to identify the appropriate suppliers to meet our desired end state. This project was atypical given the size of the spend and that it was entirely strategic in nature. I would say this project was one of my greatest accomplishments because it had a direct impact on pricing and negotiation outcomes versus historical precedent.