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Finance professionals must focus on judgment-based analysis and clear communication, says Cesar Bacani, but teams need help to become trusted sources of business insight rather than just information

This article was first published in the July 2012 China edition of Accounting and Business magazine.

I’ve had financial planning and analysis (FP&A) on my mind lately. In various interactions with CFOs, the conversation sooner or later touches on FP&A teams and how they are – or more often not – meeting new demands for insights from finance and the rest of the business.

The board and management want to know how the problems in Europe will affect the company’s bottom line, whether the firm is strong enough to withstand disruptive industry and technology trends, and what can be done to strengthen the financial supply chain in anticipation of more economic turmoil.

It’s a novel experience for FP&A teams used to primarily data-related requests, such as historical pricing data and analysis of variances in sales and profitability.

‘Finance professionals are being increasingly asked to deliver insights, not just data, but most FP&A teams tell us they don’t feel fully prepared,’ Michael Griffin told me. He is head of global research for the finance and strategy division of US advisory firm Corporate Executive Board (CEB).

The CEB recently completed a study on FP&A across the globe, including Asia. Among the key findings were:

  • Only 5% of FP&A teams surveyed think they are effective in conducting analysis to support decisions that need substantial application of judgment.
  • Only 5% believe they are effective in creating analysis that provides comfort about the relevance of long-term strategy in light of market changes, and that inform decision-makers about emerging opportunities.
  • FP&A performs well enough in most data-driven tasks, but it is under-delivering in judgment-based analysis, such as business unit scenario planning and risk-based forecasting.

According to the report, ‘Most FP&A teams are unprepared to shift from core forecasting and budgeting roles to solving complex problems and influencing their companies’ revenue and profitability trajectories.’ Few have successfully transitioned from being a ‘source of trusted information’ to a ‘source of business insight’.

What can companies do? ‘The thing you really want to think about as CFO is how to create priority around the roles and expectations of your team,’ says Griffin. ‘Often what we find is that there isn’t a great deal of clarity around what skills we need to be successful for FP&A, specifically.’

It is more productive for CFOs to improve training and recruitment in subject areas such as macro and micro-indicator selection, business unit scenario planning, risk-based forecasting and long-range planning. FP&A teams must also be given the tools to make judgment-based analysis.

The CEB research also found that effective FP&A teams ask questions that lead to deeper insight into business problems, determine what data is necessary before beginning a project, develop hypothesis about business problems to test through analysis, and prioritise timely analysis over ‘perfect’ analysis.

The effective team also identifies important insights in the data, summarises findings, makes practical recommendations and communicates the ‘narrative behind the numbers’.

‘It is time to put back the A – analysis – to FP&A,’ says Griffin. CFOS everywhere could not agree more.

Cesar Bacani is editor-in-chief of CFO Innovation Asia

 

Last updated: 20 Mar 2014