What is Financial Planning & Analysis (FP&A)? A Guide for 2021

Brian Martell 0

What is Financial Planning and Analysis, or FP&A?

Financial Planning and Analysis, or FP&A, is the budgeting, forecasting, and financial analysis that supports the financial health and strategy of every company. This team, as a part of Finance, is responsible for everything from required and periodic activities, such as financial close and consolidations, cash flow reporting, and financial reporting, to providing strategic financial insights, such as business planning, budgeting, scenario planning, financial forecasting, and financial modeling, to executives and the broader business.

FP&A typically reports to the Chief Financial Officer (CFO), who is ultimately responsible for managing the finances and financial health of an organization. Finance has responsibilities for financial record keeping and accounting, payables and receivables, payroll, compliance and control, risk management, investor relations, and much more. However, FP&A is focused on determining, reporting, and influencing the financial health of a company.

Top 15 Responsibilities of Financial Planning and Analysis (FP&A)

FP&A holds many responsibilities within an organization. Depending on an organization’s size and the size of the finance and FP&A teams, these responsibilities may differ across organizations or industries. But most FP&A teams have the following specific responsibilities, especially at small businesses and midsize businesses.

  1. Budgeting
  2. Periodic Forecasting
  3. Financial modeling
  4. Scenario and what-if planning
  5. Periodic close and consolidation
  6. Periodic financial reporting (external)
  7. Board and business unit reporting (internal)
  8. Annual business planning
  9. Ad hoc financial analysis
  10. ROI analysis
  11. Strategic annual business planning
  12. Resource allocation
  13. Financial coordination and communication
  14. Decision support and contextualizing financial data (for non-financial teams) 
  15. Financial reviews for the Board and executive team
  16. Strategic financial guidance and business recommendations

Key Collaborators and Critical Data Sources for FP&A

FP&A provides financial insights and support to two key groups within every company: the executive team and business leaders. Each group required different yet overlapping insights from FP&A. 

FP&A needs access to a wide range of company systems and data to effectively execute their responsibilities. For example, FP&A must forecast expected company revenue into the future. That requires revenue pipeline data from Sales, which is typically housed in a customer relationship management (CRM) system, such as Salesforce or NetSuite. Similarly, FP&A also needs budget, expense, inventory, payroll, accounting, and other data from across the company.

Sources of data for FP&A include the following teams and systems: 

  • Operations: Operational data is typically housed in an Enterprise Resource Planning (ERP) system, such as Oracle, SAP, and others. 
  • Sales: Sales, customer, and account data is managed through a CRM system, such as Salesforce, Netsuite, Microsoft Dynamics, and others.
  • Human Resources (HR): HR teams use Human Resources Information Management systems, such as Atlassian, Zenefits, and others.
  • Accounting: Accounting and Finance teams manage financial activities with tools such as Sage Intaact, Xero, QuickBooks, and others.
  • Payroll: HR and/or Accounting manage workforce payroll through systems such as ADP Payroll, Paychex, Quickbooks, and others.
  • IT: For broader or more detailed analysis, modeling, and scenario planning, FP&A may need to work with IT to gather data from business intelligence (BI), data warehouse, analytics, or other back-office systems. 

FP&A teams, regardless of company size or success, frequently rely on slow, manual data gathering processes. This forces FP&A to work with each business unit or internal team to request data, wait for a data transfer via email or other electronic means, then spend valuable time transforming the raw data into a format that’s easy to understand and consume by FP&A people, processes, and technologies. 

Key FP&A Challenges

Close, Consolidation, and Reporting

Periodic financial close and consolidation is a requirement for every business and the responsibility of FP&A. At the end of each period, typically monthly, FP&A has to gather, record, and reconcile financial information. This is not only required by financial, oversight, and regulatory bodies, it provides valuable insight into an organization’s financial health and performance. It also ensures all financial activities are accounted for, and that their contribution to the organization’s strategic goals are captured and understood. 

In order to begin the close and consolidation process, FP&A has to gather much information every period, including, but not limited to:

  • Revenue and incoming cash from loans and payments
  • Cash balances
  • Inventory levels and value
  • Past financial statement and balance sheet data
  • Fixed and capital asset information
  • Income and expense data
  • General ledger data

This data gathering is just one of the challenges FP&A faces each month, especially if the data is spread across disconnected systems. It takes time not just to collect the data, but to transform it into the proper format, aggregate it in spreadsheets or an FP&A solution, and then incorporate it into the overall company close and consolidation efforts. 

It’s also challenging to ensure no errors are made during this entire process, so data is not counted in multiple periods, formulas accurately include all the proper data, and data is accurately totaled across sources, systems, spreadsheets, versions, and people. This can become a particular challenge when trying to manage the process using email, shared files, and manual data collection. Accuracy is also critical as the periodic closes eventually roll up to create financial statements, annual reports, tax filings, audit trails and compliance support, and more. A single error can snowball to become an eventual nightmare for FP&A.

Once the financial data is appropriately consolidated each period, reports then need to be created and distributed. If that’s also a manual process, FP&A faces more challenges with the potential for human error and missed information, as well as the manual burden of report formatting, organization, and dissemination. 

Close and consolidation consume inordinate amounts of time for FP&A during the year. A benchmark from CFO.com pegs the median time at over 6 days, with many taking up to 10 days. For a monthly close cycle, that’s consuming 29% of FP&A resources every month, all year long. 

Financial Budgeting and Forecasting

When not performing close and consolidation duties, FP&A is focused on helping executive leaders and the business make better financial decisions. This begins with budgeting and forecasting to help the business stay on track towards company goals, continues through to potential scenario analysis, what-if analysis to explore strategic options or potential roadblocks, and adds tracking of metrics and key performance indicators (KPIs) and continuous refining of financial models to account for changing markets, strategies, and other internal and external variables. 

Budgeting helps the business make decisions to wisely allocate available financial resources. It can be reduced to simply the amount of money each team or department has to spend, and the granular details behind how they intend to spend it. FP&A works with each area of the business to understand their needs and goals, and then balance that with the needs and goals of the overall organization and the total resources available and forecasted. 

Forecasting is an estimate of the tangible results realized by deploying the available budget. For example, if Sales has a budget for 10 salespeople and they expect each to win $5,000 in new business next month, then the forecast for new revenue generated by Sales would be $50,000. Forecasting goes well beyond sales and revenue, however, to capture production output, changes to the cost of supplies, customer churn, internal employee expenses, and much, much more. At the center of it all is FP&A, working with each team to determine how to best spend their allocated budget in a way that will optimize the results of the overall organization.

Collaborative Financial Planning and Analysis

Finance budgets and forecasts eventually flow into the organization’s overall financial and operating plans, which are designed to help the organization reach specific goals and metrics. Each team or department creates their own plan, which then rolls up into a comprehensive company plan. This requires much coordination and collaboration across the entire organization.

Again, FP&A is instrumental in providing the analysis, modeling, and financial insights necessary to create realistic and accurate plans at all levels. But, when using manual processes and data spread across disconnected and manually-managed spreadsheets, versions, and emails, planning can become a nightmare. And, as spreadsheets grow in complexity and size, even the smallest oversights can turn into massive errors down the line.

Those challenges continue into more strategic planning and analysis, too. FP&A is further responsible for providing financial forecasts, models, plans, and decision support for larger opportunities, such as mergers, acquisitions, capital expenditures, entering new markets, raising capital, and much more. Again, the resulting decisions rely on the data and insights provided by FP&A.

FP&A Software Solutions for Small and Mid-Sized Businesses

The finance teams at small and mid-sized businesses typically run on spreadsheets and dedicated accounting software solutions, such as QuickBooks. However, these tools lack the broader and more strategic capabilities FP&A teams need. That then forces most FP&A teams to rely on spreadsheets, which, as mentioned above, add much potential for errors, omissions, and disconnects. However, spreadsheets do offer a ubiquitous, easy to use, and very flexible solution to many FP&A challenges. 

Modern and progressive FP&A teams are fast realizing that a dedicated FP&A software solution will help them overcome their key challenges while also giving them more insights, more time to collaborate with executives and the business, and more agility to react to a changing world and support business growth. These solutions especially shine when they enhance the spreadsheets already in use by FP&A. 

Those seeking an FP&A software solution should keep three key things in mind as they evaluate potential providers:

  1. Fast and easy deployment. No organization wants to spend months or quarters trying to roll out a complex, cumbersome, disruptive software solution. FP&A at small and mid-sized businesses must specifically seek software that can be deployed without IT teams, expensive consultants, or long projects and will start returning value within days.
  2. Ease of use. FP&A solutions must be cloud-based, accessible from any web browser, and leverage the tools already in use, specifically Microsoft Excel and Google Sheets. FP&A needs the flexibility — especially in 2021 — to work when, how, and where they want. And, a selected solution must also integrate with the source data systems already used by FP&A and elsewhere in the company. 
  3. Scale and flexibility. FP&A collaborates with every area of the business, so any solution must provide the flexibility and ease-of-use to ensure it supports fast-changing needs and a wide range of use cases. Even as the business grows, it must be easy to add new capabilities, data, and processes. 

Recommended FP&A software solutions include: 

  1. Cube provides a simple and intuitive experience that makes it a great choice for small and mid-market companies that want to get started fast with scalable, enterprise-grade technology at a reasonable price.
  2. Workday Adaptive Planning offers strong capabilities outside of Finance and FP&A, which makes Adaptive Planning a good choice for large enterprises seeking a transformational, company-wide FP&A solution. Read our complete review of Adaptive Planning.
  3. Anaplan is great for large enterprise customers that have a strong IT team ready to lead an enterprise-scale transformation initiative.
  4. Planful is ideal for larger companies with big FP&A teams that want to expand their scope of influence beyond Finance.
  5. Vena is ideal for companies that need the fixed process and planning guidance of pre-built FP&A solutions, or that have the resources to uniquely customize those pre-built solutions for their own needs.

Helpful FP&A Resources

FP&A is a critical, strategic, and valuable role at every organization, no matter the size, industry, or maturity. This team helps keep organizations on the right track to reach goals while maintaining sound financial health, all by providing accurate financial insights to improve the speed and quality of every decision. 

To learn more about financial planning and analysis, FP&A software, and how FP&A can gain faster, smarter insights and the agility to quickly scale with flexibility and power, visit cubesoftware.com.

Brian Martell

Brian is passionate about using technology to help finance professionals find better ways to do what they love doing. He has experience as an FP&A professional, an FP&A software implementation architect, and a product marketer.