ERPM Insights

Last month, Prophix Software released its findings from the survey, Defining the Evolution of FP&A: Benchmarks, Challenges & Opportunities. The survey which was carried out between Q2 and Q3 of 2017 received feedback from over 300 FP&A leaders from all companies of all sizes across the globe.

The survey was conducted to establish the maturity of analytics solutions across the globe, the effectiveness and efficiency of FP&A leaders’ planning processes, how companies are leveraging technology to improve FP&A processes, and to gauge internal perceptions relative to the value of FP&A.

Although certain parts of the results are encouraging, FP&A teams significantly need to improve on their role of delivering higher strategic value to their companies.

In today’s fast moving markets, characterized by intense competitive pressures, shorter product life spans, complex business environment, increased volatility, and heightened uncertainty, it is imperative that a company’s FP&A people, processes, and systems are highly mature, effective, efficient, and leverage the necessary enabling technologies.

While going through the survey findings, a couple of statistics captured my attention.

• 55% of the survey respondents reported being in a basic or developing state of the FP&A analytical maturity.

Comment: Essentially, more than half of the survey respondents have no formal FP&A process, no established analytical and reporting matrixes, no planning model and tools as well as BI tools. If ever they are there, these are all basic, highly manual and descriptive in nature.

This basic level of analytical maturity brings to light the fact that a culture of continuous innovation and improvement is non-existent in Finance. As the custodians of data within the organization, one would assume Finance to be at the forefront of analytical maturity, but this is not the case.

Surprisingly, 50% of respondents are mindful of technology but seldom upgrade. This statistic alone is concerning. Why are FP&A leaders reluctant to change? Are they happy with the status quo? Are they lacking the resources necessary to transform? Is it ignorance in its purest form?

Transitioning from a basic to an advanced or leading FP&A maturity level, above all, requires a cultural shift all the way from the top to the bottom of the organization. There has to be a desire to change for the better, a willingness to commit and continuous learning attitude.

Attending industry conferences, seminars or webinars and reading thought leadership resources as well as listening to their podcasts can help FP&A leaders keep abreast of trends and benchmark their company’s performance against peers.

• Only 12% of the survey respondents have access to the right data, at the right time, to inform strategic decisions at their companies.

Comment: Having access to the right data, at the right time is key to informing strategic decisions and driving business performance. Unfortunately, 88% of respondents do not have this access.

This means the majority of critical decisions in companies across the globe are based on gut-feel and not evidence-based.

In today’s Big Data age, it’s startling to know that companies are not leveraging advanced analytical tools to aggregate and analyze data from disparate sources and generate key nuggets on customer experiences, competitor behaviour, trends, emerging risks and opportunities.

Moving forward, FP&A leaders need to make use of data management framework that facilitates the creation of a central data repository and ensures everyone in the company has access to relevant data whenever they need it.

This can only happen if the company makes a key decision to advance its analytical maturity model. Highly manual processes make it difficult to update FP&A models in real time, thereby inhibiting quick decision-making processes.

With the recent advancements in technology, the costs of implementing new software to enhance FP&A processes have significantly reduced. Companies should therefore not use cost as an excuse for low adoption rates.

• Only 10% of companies reported that they find it somewhat easy to perform scenario analysis.

Comment: In today’s VUCA business environment, companies need to be proactive, develop superior forward-looking capabilities and be ready to deal with any disruptive forces threatening their survival and existence.

They need to become more flexible, adaptable and be increasingly aware of the impact on business performance of changes in the environment. This will help them take corrective actions more quickly and efficiently.

Unfortunately, 90% of the surveyed companies are finding it difficult to perform scenario analysis. As already reported, over half of them are still reliant on basic and highly manual processes which in turn makes it difficult to consider all possible scenarios in their FP&A models.

For the 10% who are finding it somewhat easy to perform scenario analysis, what are they doing right? They have managed to figure out that FP&A is a collaborative process extending beyond the walls of Finance. Also, rather than use fixed time-specific budgets, they are using driver-based rolling forecasts to see beyond 12 months.

Instead of sitting on their desks all day long, these professionals engage the wider business community, learn about the external and internal factors influencing strategy execution, how they are all interrelated and their material impact. They are then able to leverage new technologies, calculate any probabilities and update their FP&A models in real time.

Having a deeper understanding of the key drivers of business performance helps FP&A leaders define relevant scenarios that describe a range of future operating environments, and generate forecasts reflecting the changes in scenarios which in turn helps decision makers to adjust their strategic plans, targets and action plans.

•  55% of respondents conveyed that their companies don’t think that FP&A delivers high strategic value.

Comment: FP&A professionals are a critical part of the Finance team. They help operational and strategic decision makers make informed decisions by providing them with reliable, timely and fact-based recommendations.

They bridge the gap between financial and operational plans and ensure decision makers receive the right information, at the right time. The reason why 55% of the surveyed companies are not happy with value-delivery of FP&A is because FP&A teams are spending the majority of their time on low-hanging fruits.

According to the survey findings, 51% of the time spent on FP&A is allocated to data collection or validation. Thus, instead of spending more time on generating insights and influencing business decisions, FP&A teams are busy reporting on the past and justifying reported results.

This quite understandable given the high levels of technological immaturity in many companies. By leveraging advanced analytical tools, FP&A will be able to reduce time spent on data collection, reconciliation and cleansing and free up resources that can be used to deliver higher strategic value.

Instead of generating reports and analysis that they feel are valuable, FP&A teams should regularly liaise with business teams and establish their reporting and information requirements. This will help ensure that resources and time are constantly not being wasted on non-value adding activities.

For the majority of companies that are still basic or developing their analytical maturity, I recommend that they take a candid review of their current FP&A people, processes and systems, and make an honest conclusion of whether they are happy with where they are at the present moment or need to make significant changes.

Everything might look good today, but always remember that Good is the Enemy of Great!