Highlights
- The COVID-19 pandemic has heightened the need to incorporate essential financial planning and analysis principles beyond the finance department.
- Extended planning and analysis (xP&A) allow planning, forecasting, analytics, and other benefits of financial planning and analysis (FP&A) to reach all operational departments in an organization.
- However, such a transformation requires a lot of planning, a readiness check, and an enterprise-wide strategy.
In this article
Introduction
The future is uncertain, but it is in uncertainty that opportunities lie.
Businesses that act on this are not only able to weather the storm but, in fact, emerge victorious. The CFO organization of a company studies the impact of external and internal changes and informs strategic decision-making. Additionally, CFOs have begun to play a more active role in accelerating an organization’s digital transformation journey and modernizing the workforce for future readiness.
This expanded role of the finance function will expectedly be technology-intensive and heavily involve extended planning and analysis (xP&A), digital replica, and finance control tower. We envision the consolidation of all sub-processes of the finance function onto a digital platform that will serve as the global source of truth and help the CFO organization serve the business effectively.
Future of planning and analysis
The financial planning and analysis (FP&A) function is critical to an organization’s strategy.
Therefore, focusing on transforming FP&A is a top priority for CFOs today.
Successful planning is based on how quickly real-time data is accessible and how well the FP&A team coordinates with the rest of the organization so that changes in ground reality can help in financial planning and course correcting. The FP&A function continuously seeks to ensure the organization’s objectives are discussed, reviewed, implemented, and executed, and if necessary, get course corrected.
When it comes to organization-level planning and strategy, the ‘top-down approach’ is not ideal as it often ends up as mere reporting, and that too, after an incident has occurred.
Often, the reason for not getting the desired results is primarily due to working in silos and not making the stakeholders part of the planning process. Besides legacy systems, manual touch points and complex processes are reasons why most finance controllers are looking for solutions to bring a future-ready FP&A function.
A recent survey by Gartner indicates the following challenges in current FP&A systems:
59% of respondents cited process efficiency as one of the key challenges, with high manual touchpoints leading to errors, frequently changing business models, the inability to adopt a swift financial model based on agile design thinking, and following repetitive and tedious manual tasks.
61% of the respondents cited inadequate systems and tools as key constraints for FP&A. The participants feel legacy systems hinder the existing reporting structure as they depend heavily on backward-looking forecasting analysis.
51% of the respondents also called out organizational constraints, where risk assessment is viewed as a barrier to day-to-day business activities. Hence, many finance leaders emphasize that building trust with the existing system is a big challenge.
49% of the respondents stated that they are not able to cope with the continuous evolution of customer needs, which has increased the risk landscape in the planning function.
Further, poor data management and inadequate skills limit the current FP&A system’s ability to function as its stakeholders expect.
Many finance leaders agree that the information they provide to their business partners, like HR, procurement, sales, and operations, is difficult to understand and use. This results in serious omissions, with the downstream functions ending up making their own assumptions. These are far from reality, and that’s where the organization-level planning starts to go awry. This further hinders the onboarding of stakeholders to a common platform, leading to repeated reviews and changes and extending the planning cycles. Also, as there is no trail of changes made by teams, manual correction takes a significant amount of time, and the purpose of inclusion gets lost.
Figure 1: How xP&A will enable finance as an integrated function
Demystifying xP&A
Get timely insight and improve decision-making with xP&A.
xP&A, a term coined by Gartner, is an evolution of planning that combines financial and operational planning on a single composable platform. xP&A aims to adopt a platform-led approach where all relevant data is available to stakeholders to work with and develop a common strategy while reducing the review cycle.
xP&A, powered by cutting-edge technologies, can help an organization overcome the challenges of the current FP&A systems by:
Offering a broad set of data sourced from all business areas, which improves the ability to predict the impact of any change in the underlying assumptions of any business function, such as HR, operations, or supply chain
Allowing seamless, real-time integration of financial and operational business through a centralized platform
Additionally, a platform-centric xP&A considers not only internal information to be integrated but also includes external input through enhanced integration. Further, cognitive technologies enhance planning performance and help organizations stay competitive.
Roadmap for xP&A implementation
The transformation requires a lot of planning, readiness checks, and an enterprise-wide strategy.
Here are some key factors CFOs need to consider for successful XP&A implementation:
Cross-functional alignment: The finance function must work with all functional leaders to build the greater vision and scope of xP&A. They need to clearly define how planning, budgeting, and forecasting will have an integrated view. They also need to consider how the input about the business drivers and planning cycles is collected and how the inter-function data dependency will be dealt with.
Data governance: xP&A’s success depends on the accuracy, reliability, and availability of data in real time. Therefore, a clear data governance process must be established.
Ecosystem approach: As xP&A covers not only internal but also external factors that affect a business, finance leadership needs to understand how they will collect, process, and transition information into the system to strengthen the decision-making process.
Change management: All FP&A transformations must go through the change management process, which involves shifting business culture and people's behaviors from siloed to collaborative and cooperative working.
Big data: Big data is one of the most important components of xP&A. Therefore, some critical questions to consider while implementing xP&A include the type of extensive financial and operational data to be integrated from sources, whether it is possible to bring all data into a centralized, uniform, global format, the challenges, and the ways to introduce gradual changes.
Technology: Organizations need to explore ways to promote technology to support the complex business model structure and increase the adoption rate of artificial intelligence and machine learning (AI-ML) for predictive analysis and anomaly detection and developing driver-based models.
Talent management: Finance SMEs must learn new tools and techniques to ensure they are ahead of the game and bring more effectiveness and efficiency. The finance leader also needs to ensure the talent gets adequate training and can carry out a new way of working by leveraging Machine First™.
The future of finance is about being resilient, agile, and predictive, and technology has a crucial role to play here. The success of xP&A implementation is only possible through exploring new ways of integration and coordination.
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