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Financial Planning & Analysis

Financial Planning & Analysis: A Helpful Overview

Introduction

Financial planning and analysis (FP&A) is a crucial function for companies and organizations of all sizes. It involves budgeting, forecasting, performance reporting, and data analytics to support financial decision making [1].

Having a solid FP&A process is key for understanding costs, identifying opportunities, and planning for the future financially.

FP&A Responsibilities

The core responsibilities of an FP&A team typically include [2]:

  • Budgeting – Developing financial plans and budgets for the upcoming year or multiple years out
  • Forecasting – Making projections about future revenues, expenses, and other metrics
  • Reporting & Analysis – Tracking performance vs budgets/forecasts and analyzing variances
  • Modeling – Building financial models to evaluate scenarios, options, investments etc.
  • Presenting – Communicating findings and recommendations to leadership

Having a dedicated FP&A function allows companies to have professionals focused on these strategic activities rather than getting lost in day-to-day accounting tasks.

FP&A Skills & Qualifications

To be successful in an FP&A role, there are several key skills that are very helpful [3]:

  • Accounting knowledge – Understanding accounting principles and financial statements
  • Excel modeling – Building and analyzing models in Excel
  • Data analysis – Working with large datasets and synthesizing insights
  • Communication – Clearly conveying analyses and recommendations
  • Strategic thinking – Understanding how decisions impact financial metrics
  • Leadership – Influencing without authority and driving change

Many FP&A professionals have an educational background in accounting, finance, or economics. Certifications like the CPA or CFA are also common and viewed favorably. But hands-on modeling and analytics experience can be just as valuable.

FP&A Systems & Processes

To enable effective planning and analysis, FP&A teams rely on several key systems and processes [4]:

  • Chart of accounts – Standardizes accounts to facilitate reporting
  • ERP systems – Capture transactional data in real-time
  • Data warehouses – Integrate data from multiple sources
  • FP&A software – Specialized tools for budgeting, modeling etc.
  • Financial close – Month-end close process led by accounting
  • Rolling forecasts – Regular cycles to update projections
  • Variance analysis – Comparing actuals to plans and investigating drivers

Having mature processes and technology infrastructure is crucial for FP&A functions to operate efficiently and provide timely insights.

FP&A Best Practices

Some best practices for an effective FP&A function include [5]:

  • Maintaining an organizational chart of accounts for consistency
  • Clearly defining planning cycles and calendars
  • Establishing data-driven cultures focused on insights vs reporting
  • Automating data integration and reporting where possible
  • Collaborating across finance and business units
  • Hiring FP&A professionals with analytical and business experience
FP&A Best Practice Description
Chart of Accounts Standardizes accounts across systems
Planning Cycles & Calendars Ensures alignment on deadlines
Data-Driven Culture Focuses on actionable insights
Automation Improves efficiency and data quality
Collaboration Breaks down functional silos
Analytical Skills Enables value-add analysis

Making FP&A strategic and central to decision making requires buy-in across the organization to adopt these leading practices.

The Evolving Role of FP&A

The role of FP&A continues to grow in importance and evolve to provide greater value. Some of the key trends include [6]:

  • Adopting advanced analytics to build predictive models
  • Leveraging cloud technologies for increased agility and insights
  • Focusing more on business partnership vs number crunching
  • Centralizing fragmented finance functions under FP&A
  • Standardizing data and processes across business units
  • Automating reporting and focusing efforts on strategic analysis

As technology and data analytics continue maturing, FP&A has the opportunity to drive insights and help shape strategy across their organizations.

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