Crunch Time: Extreme Uncertainty Raises the Stakes for FP&A

By March 3, 2022March 4th, 2022No Comments

To become strategic business partners, FP&A leaders must provide data-driven insight to support critical decisions.

Like the pandemic, the crisis in Ukraine is forcing companies to rethink their business and financial plans. While the worst financial repercussions of the sanctions are within Russia, the impact of the crisis goes far beyond. Spikes in oil prices and inflation are throwing into question companies’ annual budgets, changing forecasting assumptions and making it imperative that FP&A realizes its potential as a strategic advisor to the business.  

A seat at the table. Sitting at the intersection of financial planning and business performance analysis and reporting, FP&A plays a critical role in ensuring senior leaders understand the financial impact of their business decisions. So it behooves FP&A professionals to have a high degree of business acumen. At a recent meeting of NeuGroup for Mega-Cap Heads of FP&A, one member stressed the importance of a deep understanding of how the company drives revenue: “You have to understand that from a business lens, if FP&A is not driving the company forward, you could get shut out.”

Under pressure. FP&A’s role as a strategic partner is elevated in times of crisis because it must rerun P&L and cashflow forecasts with new inputs and provide data-driven decision-making support so leaders can still meet their performance objectives. The unfolding situation in Russia, for example, affects multinational companies’ strategic growth, long-term cash forecasting and ROA calculations for projects and other efforts. FP&A teams should work with the business to reassess the impact of risk on their planning and forecasting.

Building a collaborative culture. Getting the business to work with FP&A requires the recognition that FP&A can add tremendous value. That’s a message that does not necessarily resonate immediately with commercial and operational partners. The key to success, according to members at the session, is to start at the top. If leadership sees FP&A as a valuable asset and relies on data-driven insights to make strategic decisions, that will have a substantial impact on the company’s culture.

  • The FP&A leader of a large tech company said he actively sought to support the company’s vice presidents with analysis of strategic business drivers. Now, “the VPs often say, ‘I need to get my finance partner in here’ before they feel comfortable making any decisions.”
  • Another member, who has FP&A team members sitting on boards of all R&D groups at the company, said the successful collaboration stems from a desire the CFO had in the company’s early days to foster a culture that depends on insights stemming from strategic driver analysis.
  • “And now we’re part of strategic process discussions, we have a seat at the table that’s not just finance-related,” she said. “That’s a key part of the culture we built: Most senior staffers are not making big decisions without their finance person right there in the room.”

Creating the right engagement model. FP&A’s success as partner also depends on how the function interacts with business leaders. Ideally, the finance organization constructs a delivery model that aligns with how the business operates and provides such valuable services that business leaders come to depend on them. Here are some questions to consider:

  • Should finance dedicate full-time staff to focus on building a trusting relationship with different business leaders, so they are invaluable when planning and analyzing performance?
  • Should FP&A establish a center of excellence (COE) to enable a more institutionalized engagement model with its internal customers? If so, it has two options:
    • It can spin off tactical data collection, aggregation and reporting activities, so that the rest of the team can focus on high-value work, like business partnering and driver-based analysis and planning.
    • It can also rationalize and automate more activities such as report generation and establish a high-value FP&A and analytics COE, which can amplify the expertise of a smaller number of business experts and data scientists.

The talent obstacle. One potential drawback of both models is the impact on the career path of the COE’s staff. One of the members at the meeting explained that her team created a COE to handle all tactical activities. However, the COE was dismantled after eight years due to issues with employee retention.

  • “Staff didn’t see a career path because they were just running the reports and not really knowing the color of the data,” she said.  Another member noted that “employees can start to feel less relevant. It’s almost like they’re considered second class citizens within the organization.” An emerging solution to this problem is to place COEs inside global business services organizations that can offer attractive career paths.

Finance SWAT teams. An alternative to establishing a COE is to assemble, focused teams on an as-needed basis to handle specific projects.

  • “We’re taking people who are capable, who have some capacity, who like to do something like compensation analysis, and we ‘outsource’ them to go spend two weeks or so working on a project for another team,” one member said.
  • “We’re taking some teams that are seasonal, and instead of a month of downtime, we basically outsource them, and they’re loving it,” this member added. This works particularly well with younger staff. “They’re hungry, young professionals who want to soak it up. It’s more of a SWAT team than a COE.” Because the new hires don’t know as much about the business or the FP&A function, “they come at it from a completely different lens,” which has proved beneficial.

Maintaining relevance. No matter how successful FP&A is in building a strong brand in the organization, sometimes the mood changes when growth stalls and cost cutting becomes critical. One member said that at his company, FP&A used to be fully integrated into the business, cost-cutting had reduced it to a fraction of what it once was. Chronic underfunding has prevented FP&A from updating any of its tools for nearly a decade.

  • He said the organization “used to have agency and be an influential part of running the business, and is now making ‘doughnuts’ every day,” he said. As a result, “we’re finding that our resources aren’t there for strategic discussions, they aren’t helping to drive the business, they aren’t helping to influence decision-making. All of our resources are doing very mundane, transactional, outdated work.”

It’s time to make a move. FP&A is facing a unique opportunity to prove its value and the faster the better. As companies attempt to navigate the volatile business environment, management  is likely to welcome support from business-savvy and data-driven FP&A teams. In addition, internal development, like cloud-based ERP implementations, are opening up new possibilities to change how work is done.

  • One member has partnered with the company’s CFO to undergo “a comprehensive modernization,” by adopting cloud-based SAP’s S/4 Hana as part of a “go-fast program to change things.”

The coronavirus crisis instigated massive changes in how FP&A plans and forecasts. It also revealed how important it is to bring together business and financial leadership. With the global economy once again reeling, FP&A must step up.

Justin Jones

Author Justin Jones

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