FP&A Technology Explained

Technology is eliminating grunt work and boosting the value of financial planning and analysis.
Keith ButtonNovember 7, 2017

For those involved in financial planning and analysis, the bad news is that the work can be boring much of the time. The good news: It’s quickly getting more interesting.

As with many corporate processes, technology is driving fundamental changes in FP&A. Thanks to a new generation of tools, the drudgery factor is lessening and practitioners are spending more of their time doing actual planning and analysis. And that’s a fortunate development, not just for FP&A professionals, but also for the companies they work for. In almost every industry, today’s souped-up business environment drives a concomitant need for heightened strategic input.

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17Nov_SR_p34FP&A encompasses a plethora of strategic activities, from budgeting and forecasting to management reporting, business-decision guidance, and specialized tasks in areas like risk management. Unfortunately, as much of 70% of the work still consists of acquiring, verifying, and reconciling data, according to Brian Kalish, an FP&A consultant.

How fast is the change for the better happening? Perhaps not fast enough to satisfy finance departments, but Kalish says that on average finance chiefs are talking about doubling the amount of strategic work for FP&A staffs within five years. “All of that [rote activity] is going to be automated,” Kalish says. “Any activity that doesn’t improve by a human touching it is going to go away.”

That will provide an opportunity for more companies to follow those that have moved away from old-style, static annual planning and migrated toward continuous planning. “CFOs are [increasingly] able to see what’s going on in their businesses and their world in real time, and make adjustments [quickly],” Kalish says. “If a CFO can see opportunities faster than others because of the tools he has, or see where problems are going to happen so he can [address them or] get out of the business faster, that’s what it’s all about.”

For example, new FP&A tools allow CFOs to produce what-if balance sheets for multiple scenarios so they can anticipate 6 to 12 months out whether they might miss benchmarks required by debt covenants, says Alan Hart, principal consultant with Pacific Shine Group. But the new automation also goes far beyond that.

In-House or Outsource?

A few years back, many companies, especially large global ones, were increasingly outsourcing transactional FP&A functions. Now those tasks are more often handled with new planning and analysis software that can do the work less expensively and more accurately, notes Punit Bhatia, a Deloitte partner and leader of its business process outsourcing (BPO) practice.

Some Deloitte clients are even finding that the latest FP&A technology can produce more-accurate forecasts than their business-unit managers can, Bhatia says. Indeed, he notes, outsourcing providers are cannibalizing their own businesses by offering their clients robotics software and the related services for setting it up, keeping it going, and jumping in to handle exceptions that the robots can’t.

BPO firms traditionally have had human capital–centric service models, but today they have no choice but to raise their games with automation, as that’s what companies are looking for. The argument for outsourcing now is that a BPO firm may provide a service for hundreds of companies and also have the latest technologies. Therefore, it may be more efficient than a single company can be, Bhatia says.

17Nov_SR_p36bBut companies are unlikely to outsource their most strategically important planning activities and analyses. “It’s quite rare for a client to say, ‘I’m going to try outsourcing for the first time, and go with FP&A as the first wave.’ They’ll try it with the more transactional stuff first,” Bhatia notes.

For those lower-level tasks that generate the data needed for planning and analysis work, many CFOs and business-unit finance leaders at large companies prefer to tap their internal shared-services organizations. In that scenario, finance has more control over the work and can more easily intervene to fix problems.

The Holy Grail

The big three software vendors in the enterprise planning space—Oracle, SAP, and IBM—have been steadily pumping out new FP&A tools for a few years, as have assorted smaller vendors. Much of this automation is cloud-based and affordable.

“All of a sudden you’re able to move to that holy grail, the single version of the truth,” Kalish says. “Seeing your actuals in real time, and having built the analytics around it, really helps you identify what data you need to convert into useful information, which then transforms into knowledge, which gives you the ability to make decisions.”

There’s a night-and-day difference between the FP&A technology available today and that of a few years ago, agrees Gary Rihani, CFO of Lakeview Cheese, a processor and distributor with $100 million in annual revenue.

Rihani is researching enterprise resource planning (ERP) systems, something he also did for his previous employer, Ace Metal Crafts, which completed an ERP installation in 2014. The FP&A options available in new ERP systems are much more robust and easy to navigate, and the interfaces are more user-friendly and attractive, Rihani notes. “The functionality was there before,” he says, “but it would take a lot longer to get where you wanted to go than it does now.” Rihani expects the improved tools to help him pull up operating figures on a daily or real-time basis to better identify bottlenecks in production or spot cost issues.

And once a company has the right tools in place, not only FP&A professionals will be able to devote more time to strategic, value-add activities. “There are lots of little victories for CFOs,” says Kalish. “For example, they don’t have to spend time arguing about what this or that number means, or if the number is right, or whether everybody is comfortable with the numbers.”

Sticking to the Mission

If a task can be moved out of FP&A — to automation, to an outsourcing provider, or to another unit within the company — then it probably shouldn’t be considered an FP&A function, according to Kalish. For the most part, that includes any task associated with closing the books, reconciling transactions between business units, or dealing with budget variances.

17Nov_SR_p36aCFOs should also make sure that generating reports is well down the hierarchy of tasks for FP&A, which better serves the company as a provider of analysis. A drawback of the new tools is that they foster the ability to report information a thousand different ways, and they create a temptation to run reports that demonstrate that ability, notes Kalish.

It’s better to instead provide access to FP&A tools to internal business partners, letting them know they can slice and dice information any way they want. “Let the people running the business come to you with questions,” Kalish counsels. “Don’t let them ask you to run every report under the sun.”

Steve Larek, CFO for Clare Holdings, recently implemented a new ERP system for one of the company’s businesses, a Chicago-based beer distributorship. A key issue was making sure the finance staff was up to speed on the skills and competencies needed to use the system’s FP&A tools—but he then found that he had to restrain them from overusing their new analytical capabilities.

“You can’t let the team that’s responsible for deploying and using that kind of new product get too far away from the mission,” says Larek. “They may like to produce things and play with their new toys.”

He had a similar issue recently with the finance team for Clare’s Caribbean food-distribution business, but in that case the goal was reorganizing and training them to better use their existing analytical tools. “The big thing was making sure they didn’t spend too much time and effort refining numbers,” Larek says. “They have to take action that steers the next round of analytical effort to come up with answers.”

Specifically, he says, he pushed for the team to understand that achieving 98% accuracy within an hour is far more valuable than achieving 100% accuracy within a day or two. The training effort paid off in the aftermath of the two huge September hurricanes, Irma and Maria, that devastated the region. The team pulled together a new consolidated forecast for the business through year-end in two-and-a-half days, which Larek says astounded the company’s bankers.

“That business is as fluid and as dynamic right now as it’s ever going to be,” he notes. “It’s been rocked to its foundations, and we need data fast.”

What’s Next?

In the future, CFOs should expect to find more FP&A applications that take better advantage of the massive amounts of virtually free data that have become available from many sources, Kalish says. It wasn’t long ago, he points out, that crunching big data was either physically impossible — finance couldn’t get the information — or prohibitively expensive.

Finance chiefs should also look for applications with machine-learning capabilities—where the software gets “smarter” as it observes humans operating it—and even artificial intelligence features. FP&A software vendors are also likely to provide more specific tools that fit the needs of individual companies and that will integrate with other finance systems and software.

“It’s hard to imagine there’s going to be an FP&A product that covers everything you need soup to nuts,” says Kalish. “Instead, the market is going to provide a lot of specialized tools and then build bridges between them.”

Keith Button is a freelance writer based in Valley Cottage, New York.

Take the ‘F’ Out of FP&A?

A purely financial focus leads to damaging short-termism, KPMG says.

Try this on for size: Companies shouldn’t even be involved in FP&A. So says KPMG Advisory, which argues in a September report that FP&A should be replaced with BP&A—“business planning and analysis.” The idea is to downplay finance’s focus on short-term results and shift toward strategies aimed at a longer-run future.

17Nov_SR_p38“Financial planning is focused on budgeting and forecasting within a fiscal year, with an emphasis on meeting the quarterly or year-to-go target,” KPMG writes. “Functional teams aim to cut costs rather than anticipate upcoming business issues…. Reports, tools, and information are often outdated and not aligned to key business drivers.”

In contrast, “a business planning approach incorporates activities from functions that are crucial to moving the business forward  —such as sales, marketing, and operational planning — all aligned with the company’s strategic vision.” Rather than targeting a pure financial valuation, the company integrates key functional areas that directly influence business results.

To be sure, CFOs are looking for new ways to drive growth through their company’s business strategy and its performance-planning and management processes, KPMG allows. “When they examine the financial plan, however, all too often they discover that it reflects the numbers executives want to achieve without considering the reality of the changing business landscape,” the report says. “Leaders and staff become resigned to a plan they think they have to achieve but see no way of doing so.”

That mindset can lead to many challenges, like business leaders making short-term decisions so the numbers work temporarily but in the process creating bigger long-term problems.

A desire to avoid that kind of issue is what’s driving leading companies to take a broader, more integrated approach to business planning. There are obstacles to making such a shift, to be sure. But it’s worth the effort, as business planning is far more effective than cost management, KPMG says. David McCann