High-functioning, tightly integrated financial planning and analysis (FP&A) functions have always been a staple of successful business operations — and the last 13 or so months offer a mountain of fresh evidence as to why. Sprung in the ship by COVID-19 were not so much leaks as geysers, with impacts touching liquidity, risk analysis, modeling, contingency planning, budgeting, forecasting and more. And nearly every time urgent priorities emerged, FP&A teams had a hand in the rescue.
So it would be surprising, then, given that recent history, to see evidence that strategically aligned FP&A functions remain very much the exception to the rule now, right?
Yet recent analysis from Gartner suggests exactly that: Only a small minority of companies, in fact — three percent — actually have fully aligned strategic, operational and financial planning processes. To better understand that misalignment and underline a few areas for improvement, let’s first look at the rapid evolution of the FP&A function, then turn to address the topic of where it needs to go next.
1. on the evolutionary fast-track of the FP&A function
Until relatively recently, financial plans, budgets, forecasts — all the key ingredients of business decision-making put together by FP&A professionals, for that matter — shared one thing in common: They were based on assumptions from historical data, on the implicit assumption that the future would resemble the past.
With that in mind, the pace and scope of pandemic-driven technology transformation to hit the FP&A function over the past year is worth pausing to reflect on. Consider, for example, the state of affairs immediately prior to the onset of the global pandemic, when a full 79 percent of FP&A leaders indicated their current technology capabilities were not lined up to support the future success of the business.
If they only had known what was right around the corner.
What’s amazing, then, is how little it ultimately seemed to matter. In fact, just 13 months later, it’s an entirely different story — a case of evolutionary leapfrogging, you might say. At leading companies across the board right now, it’s not uncommon to see multi-layer tech stacks alongside widespread process automation and advanced analytics capabilities which were unheard of even a few years before.
All of that was catalyzed by the pandemic — which is why the height of the crisis should be viewed as a case study in how FP&A teams can nimbly step up, adapt and roll out new capabilities when needed in order to best support their businesses.
So there’s a lot to be proud of. But that doesn’t mean there aren’t also areas to improve. Let’s look at a few of them.
2. coping with emerging challenges: models, levers, planning and impact
Many FP&A professionals are again convening with colleagues in physical offices right now — and it’s inspiring to see, because it’s high time for important conversations around risks and budgets to take place, for cross-functional leaders to map out current-state capabilities and for organizations to prepare for what’s next.
At the same time, there’s no denying that a certain quality — call it cautiousness or tentativeness — continues to prevail. To a certain extent, it’s the defining characteristic of how most businesses are operating right now. It’s also part of the reason 72 percent of C-suite finance executives believe more of the finance function will operate remotely in the future. After all, as the recent spate of new COVID-19 cases in Michigan painfully reminded, things can still change rapidly and dramatically. We might be moving away from the worst of the pandemic, but we could backtrack as well. And the future state will look markedly different depending on which.
From monitoring suppliers to managing reporting and compliance risks, all of this uncertainty and volatility is creating a host of new challenges for FP&A leaders. That might not be a good thing for our collective blood pressure, but it should help clarify priorities. The following, for example, are a few obvious focus areas — and FP&A teams would be wise to double down and commit:
- Experiment with new models for creating time-sensitive financial forecasts and plans, paying particularly close attention to any economic, governmental and organizational drivers or variables that underpin them.
- Plan for and build forecasts for multiple scenarios, carefully analyzing the step-by-step ramifications of each possibility from an end-to-end business standpoint.
- Search for new levers or drivers of business performance and incorporate them into financial planning analysis and models (doing so may connect that analysis and modeling to core volatility more effectively than, say, trend-based approaches).
These three would certainly be a good place to start. After all, given that “managing/contingency planning through disruption” was the top pain point cited by FP&A professionals during the pandemic, there should be some urgency around moving the needle on the above. Doing so is simply the best bet for FP&A leaders looking to future-proof their organizations against whatever challenges come next.
looking ahead: FP&A in focus
In closing, it’s probably worth thinking about the emerging challenges we’ve discussed — together with the focus areas we’ve defined — from an HR and capabilities standpoint as well. In a recent Gartner survey of HR professionals, for example, concerns about current and future FP&A leadership ranked among the most pressing organizational challenges going forward.
The reality is, many organizations right now will feel ill-equipped to break ground on the strategies and challenges outlined above. Whether that’s because they lack the in-house expertise, existing resources are already stretched thin or C-suite priorities are somewhere else, it hardly matters. The result will be the same — and in an already tight talent market, it’s not hard to imagine demand for seasoned controllers, financial consultants and other FP&A professionals shooting through the roof.
But partners like Tatum can help. We offer a wealth of experience, flexible hiring models and an extensive network of experienced leaders ready to deliver business value from day one. To find out why our track record of success is trusted by organizations across industries, get in touch with the experts at Tatum today.