CFOs Dissatisfied with Ineffective FP&A Strategies
The potential value of good forward-looking financial planning and analysis is clear, but many companies still struggle with ineffective FP&A strategies. A study of 99 companies conducted by CEB, a corporate research and advisory firm, shows that even though investments in analytics are up 10% this year over 2014, frustration with FP&A also continues to increase. This study found that FP&A “investments have produced better analysis and decision support. It’s just not good enough, or where they wanted it to be when they made the investments.”
Slow to Adopt Technology Internally
Technologies that make FP&A more effective are out there. The difficulty lies in implementing these technologies. A report by Grant Thornton and the American Productivity and Quality Center (APQC) found that only 24% of finance leaders use any predictive analytics techniques. Instead, most rely on data reporting that happened in the past.
Most companies hesitating to employ more effective FP&A technology are worried about possible money loss. Making the leap to a new FP&A technology will take time, manpower, and financial investment. That’s a key reason 39% of companies still use spreadsheets for FP&A and internal reporting. Of the remaining companies, only 5% exclusively use software to streamline their financial analysis.
One-third (31%) of companies who participated in the APQC study cited insufficient access to operational metrics as a key barrier to developing good FP&A strategies. If communication between departments that drive and impact financial measures is compromised, it can result in bad financial analytics that hurt decision-making.
Only half the companies polled by APQC use rolling forecasts, which cripples their FP&A. Of the companies who use rolling forecasts, 94% “say their organizations are effective or very effective at business analysis,” and 62% are “well-aligned with unfolding business strategy.” Only 50% of companies who don’t use rolling forecasts describe themselves as effective at business analysis, and only 25% “cite high levels of alignment.”
Quality of Analysis
Studies have found a marked difference in how companies approach FP&A. Companies that see little or no return on their investment typically focus on finding one answer to a specific question. These ineffective FP&A strategies prioritize strict technical processes and data precision to develop a single definitive recommendation.
In contrast, good FP&A analysis is problem focused. This sort of analysis anticipates future decisions, illustrates potential trade-offs and offers “out of the box” solutions. “Instead of answering a question someone asked,” the CEB study says, “problem-focused analysis is designed to clarify the question, bring a new lens to it, and get people thinking differently.” It’s a more dynamic solution that translates well to real-world finances.
Even with reliable technology, good communication, and quality data, FP&A departments won’t be able to focus on future financial planning when they are buried under other tasks. In addition to forward financial planning, these departments often handle financial basics such as data management, process administration and work with the accounting staff. Using NextProcess software to automate P2P paperwork can ease the basic workload and free up time to focus on FP&A.
For companies with a limited budget, NextProcess can help save money in other areas and free up finances for FP&A. With NextProcess’ Budget to Pay view that provides a start to finish details of their spend, businesses are able to track their costs at a granular level that would be hard to achieve using traditional methods. By identifying areas of inefficient or unnecessary spending, costs can be reduced or eliminated.
This extra money could be used to implement new FP&A technologies or train employees. 27% of businesses from the APQC study reported that insufficient knowledge of business strategy and dynamics among finance staff stood in the way of good financial planning. That problem is easy to correct if you have the time and money to develop your in-house talent.