Redefining the Role of FP&A
This blog article originally appeared on the Digitalist Magazine website on January 17, 2019. Here is a link to the original article
https://www.digitalistmag.com/finance/2019/01/17/redefining-role-of-fpa-06195605
By: Michael Coveney, Conference Speaker and Author
Part 2 of a 2-part series. Read Part 1.
This two-part series explores the changing role of FP&A in today’s dynamic, complex business world, where the future is increasingly unpredictable and technology has given organizations unprecedented abilities to analyze customer behavior.
Traditionally, the financial function has been charged with looking after accounting and support systems, adding up numbers, and producing and circulating reports on what has happened in the past. The finance team also conducted the organization’s planning processes that set budgets and helped control expenditures.
However, the introduction of modern systems, paired with the falling cost of computing, has resulted in the automation of many of these tasks. Initially, this had the impact of reducing finance staff; but a recognition that financial data often contains hidden value led to the creation of what we now know as FP&A.
In recent years, the progress of technology has threatened this role, as data is now readily available throughout the organization, and applications such as self-service business intelligence mean that end users can be self-sufficient in their data analysis.
There is still a great need for FP&A departments, but they will require adjustments to the role they play. In looking into the future, there are two main roles where FP&A will need to excel. I’ve split them into “basics” and “business direction.”
FP&A Basics
This first role relates to the way in which users and management have been traditionally served. Most consultants agree that FP&A teams are responsible for:
- Data governance. This is to ensure consistent definitions of any item of data used and that these definitions are well-known throughout the organization. Anyone wanting to invent a name, such as a new budget item, must first get the approval of the data governance team, define it, and document its source, availability, and reliability.
- Data reliability. This ensures that any data held is reliably updated, consistent in its definition, and conforms to the “one version of the truth.” Any report using the data can be traced back to its source and version.
- Management processes. FP&A has a role in ensuring that these are totally integrated and operate as a single process, triggered by events and exceptions, focusing on the implementation of strategy to achieve corporate goals.
Business Direction
I’ve avoided using the term “business partner,” as it is overused, and one can argue that any assistance provided by departments in the past could be considered partnering. In this revised role, however, FP&A departments do take a more active part in guiding management and supporting organizational performance. This includes:
- Data interpretation. FP&A can help managers understand the details of both internal and external data, including its reliability.
- Early warning. FP&A will need to monitor organizational performance as it relates to strategy and provide management with early warning of potential issues that threaten corporate goals. This could be internal to the organization, as well as events in the business environment.
- Advanced model creation. This relates to using the latest technology to create better, more intelligent models that investigate strategic change. This will require FP&A staff to keep up-to-date with cutting-edge technology and how it can be applied to business analysis.
Summary
This adjusted role of FP&A makes it an ideal training ground for operational heads and senior executives. Nowhere else will people get a better understanding of how the organization operates, its strengths and weaknesses, and how strategy can be better implemented.