The Building Blocks of Agile FP&A


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Wednesday, May 12, 2021

Finance means more than access to capital - in the 'new normal', finance leaders have a key role in making a business adaptable, resilient and future-ready.

Article 5 Minutes
The Building Blocks of Agile FP&A

The need to become agile has become more acute than ever over the last year or so. For companies operating in volatile economic and political climates, the onus is on finance functions to instil resiliency, guard against disruption and set the foundations for future growth.

Thanks to advances in technology, the tools are there for them to do so, and financial planning and analysis can take place with greater access to data and insights than previously possible. But with a dizzying array of new datasets to analyze, insights to generate and interpret and scenarios to plan for, it can be hard to know where to start.

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Each organization can choose a different method of financial planning and analysis and, of course, business decisions will be unique for everyone. Nevertheless, there are some essential building blocks that apply to any agile FP&A strategy.

The six building blocks of agile financial planning

Manuela Bruzzese, in a recent article for FPA Trends, explains the current context and what it means for traditional planning models:

Traditional planning methods such as budgeting and forecasting do not work in the current environment. We need to consider different scenarios that are quick and multi-dimensional. Therefore, organizations that implemented analytical methods such as integrated FP&A, artificial intelligence (AI), machine learning (ML) for FP&A are in better shape in this uncertain world.

Manuela goes on to lay out the six essential building blocks of agile financial planning:

  1. Transform from ‘traditional’
  2. Crisis = opportunity
  3. Create value
  4. Transform the process and culture
  5. Implement modern analytical solutions
  6. Continuous scenario planning

These steps might not make too much sense out of context, so let’s break them down a bit further.

1.   Transform from ‘traditional’

In light of the new technologies that Manuela mentions, amongst others, most business executives are aware of the need to reinvent traditional organizational planning and strategy, which is why the phrase ‘digital transformation’ has become so common in recent years. For financial planners, actually putting this into action means choosing the right tools to enhance data insights for the modernization of forecasting.

2.   Crisis = opportunity

There’s no doubt that the present moment represents a crisis. But as we all know, in crisis lies opportunity. Specifically, those organizations that can learn lessons from present crises may future-proof themselves against potential crises yet to occur.

3.   Create value

Moreover, with sufficient insight—driven by tools that allow adaptive planning—they can identify potential value streams to exploit, moving from reactive to proactive decision-making.

4.   Transform the process and culture

Sometimes, in order to take advantage of these value-adding opportunities on an ongoing basis, organizations must instigate cultural and process changes to create an environment in which the right ideas can flourish. Truecue lists some key steps on the road to a more data-driven, analytical culture: change management, internal community communication, use of case studies to promote the benefits of modern analytical approaches, and a carefully considered approach to project naming conventions.

5.   Implement modern analytics solutions

Using modern analytical solutions in the financial planning process, CFOs can conduct comprehensive, insight-driven impact assessments, financial stress-testing for various scenarios, data analytics and machine learning (ML)-driven scenario modelling. Crucially, in the current moment, many of these tools can allow teams to collaborate effectively—and securely—while working remotely.

6.   Continuous scenario planning

The final point is, perhaps, the key to unlocking a more agile finance function. Continuous scenario planning will enable finance leaders to move away from old-fashioned static planning. After all, business and market conditions don’t remain fixed for an entire budgetary year. Rarely, in fact, do they go unchanged through a single quarter.

First of all, planning, liquidity and risk management are essential to instilling financial agility. Uncertainty heightens the need for more dynamic business planning based on a range of scenarios rather than traditional quarterly or annual planning cycles.

Having the ability to conduct more dynamic business planning means organizations can respond to changes and course correct to better understand the impact on top-line revenue and bottom-line expenses. For example, are people paying on time? What are the implications of a percentage of invoices not being settled? Which vendor contracts need to be renegotiated based on spikes or declines in demand?

Conducting continuous scenario planning can allow financial leaders to take a proactive approach to these issues, rather than being caught off-guard and scrambling to recover. One potential approach to this is the establishment of a cross-functional planning and forecasting centre of excellence, which can accelerate advancements by sharing insights quicker, if it’s based on a solid foundation of democratized data.

The continuing role of finance in delivering adaptability

Money, as we know, makes the world go round. But in current circumstances, finance means more than access to capital. As McKinsey puts it:

At the frontiers of effectiveness, finance leaders deliver far more than core financial skills: their work guides the functioning of the entire organization every day. [T]he next-generation finance function can build the insights, performance, and planning capabilities leaders will need to support dynamic decision-making through the next decade.

Another way to look at it is that continuous planning enables continuous improvements, including but not limited to: better accuracy, enhanced automation, improved transparency, agile scenario planning and more frictionless processes. The numbers back up this approach: Workday highlights that companies that implement continuous planning are 1.5 times more likely to be able to reforecast within just one week, and four times more likely to respond quickly to market change.

But organizations able to adapt with agility to the changing tides of the market can rigorously explore a range of possible situations well ahead of time—even those that seem remote or impossible, like a global pandemic for example. Solutions that let businesses plan continuously, forecast constantly, and model virtually anything will become increasingly critical in a time of drawn-out or escalating uncertainty, because when change is constant, adaptability must become the new normal.

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