From good to better practice

There are three key areas where improved FP&A practice can drive increased value to a business:

•         Making financial information ‘consumable’
•         Managing risk
•         Driving decision making.

Making financial information ‘consumable’

This is a question of taking the basic information that is coming out of the FP&A function and turning it into something truly user-friendly that allows for better application of management focus.

Rather than just putting out a monthly balance sheet and income statement, the best FP&A teams can provide P&Ls that reach the granular level. These reports give visibility over individual products, segments or clients and allow management to direct their focus appropriately. One of our clients, Robertson Group, are able to view projects in such detail at invoice level that they can then decide if a project needs to move to another area of management focus and do so, supplying all of the information at a granular level.

A static cash flow forecast can instead be presented in the form of a dynamic, rolling forecast. Although it remains a forecast and won’t be 100% accurate, these up-to-date numbers become the closest thing the organisation has to a single version of the truth. Our client IKEA use their rolling forecast to drive operational activity, safe in the knowledge that the entire business is basing decisions on the same set of numbers at any one time.  

And standalone summaries, like production efficiency reports, can be instead presented through dashboards, where users can interact with the information and gain a better understanding of the drivers and implications of the numbers they’re being presented with.

Ultimately, improved FP&A practice allows management information to up its game.

Managing risk

Strong FP&A practice allows the business to take a different slant on scenarios, asking ‘what if?’.

Running these scenarios helps the organisation understand the impact of possible events and disruptions, including:

•         Competitors entering core markets
•         Reduced consumer demand thanks to economic slowdown (or slower rate of recovery)
•         Supply chain disruptions that reduce product availability, increase delivery times or result in higher stock levels.

Interrogating the potential outcomes of likely events and disruptions creates an awareness of risks and opportunities and therefore a chance to either minimise or capitalise on them.

Driving decision making

Using scenario planning to manage risk relies on an appreciation of the key drivers for the business. Improved FP&A practice moves past the provision of month-end packs towards proactive communication and collaboration around these drivers. An ability to model what happens when these drivers change gives a true appreciation of the risks faced by the business and allows for the provision of contingency plans depending on the likelihood of individual scenarios.

With the FP&A function leaving their silo and partnering with the rest of the business, a culture of learning from one another is developed. Through this, the whole organisation becomes aware of what is going on behind the major drivers and therefore better equipped for profitable decision making.

Businesses that can master all three of these areas will become less vulnerable to competitors and risk. At the same time, managers are more likely to make better decisions that are informed by a deeper understanding of the real environment in which the organisation is operating.

To discover the benefits you could gain from improved FP&A practice thanks to IBM® Planning Analytics, get in touch today.