Corporate financial planning and analysis (FP&A) is a somewhat under-celebrated but critical factor behind every great company’s success. The typical FP&A team draws on expertise gained from various fields such as corporate accounting, managerial accounting, financial analysis, and data modeling.
Inefficiencies that currently plague corporate FP&A make the analyst’s job much tougher than it ought to be. This is a shame, because FP&A can potentially yield many multiples of profit to a company’s bottom line. A recent study by DataRails highlighted that companies stand to gain as much as 10x the cost of their FP&A departments.
To realise these gains, companies must eliminate the inefficiencies that plague corporate FP&A.
In its recently published report examining the economic impact of FP&A business functions, DataRails found that the average FP&A employee spends three-quarters of their hours manually compiling and crunching data, leaving only one-quarter for providing value-added analysis to the business.
Perhaps most alarmingly, this ratio has changed very little over the past decade, during which time the industry has witnessed a revolution in data analysis tech development and its democratisation.
Indeed, manual processes are the bane of every FP&A professional and finance department. The typical organisation hires highly skilled financial analysts only to consign them to tasks such as data collection and cleaning. These tasks are value-killers and result in wasted resources. DataRails highlights that U.S. companies alone stand to gain a staggering $6.1 billion in value by automating clerical FP&A tasks.
Solutions that can gather data from various sources, vet it for formatting, eliminate duplicates, and present these datasets within Excel will free up analysts’ time. Not only does this create more time for value-added tasks, but CFOs can realise greater ROI from their finance departments.
Another factor that comes into play when companies ignore automation is the opportunity costs they incur. DataRails estimates this figure to be $1.7 billion, with large companies foregoing a total amount of $242 million annually. Due to the time it takes analysts to run a single report when manually collecting data, there’s little time left for insight.
The result is a rigid financial posture that cannot handle shocks or leverage high-risk, high-reward scenarios. A company has to always follow the worst-case scenario, since its FP&A department cannot invest the time in modeling sophisticated projections as opportunities arise. Automation opens up these avenues and helps companies create more flexible, stress-tested financial postures.
Lack of intuitive reporting
In his book Financial Planning & Analysis and Performance Management, author Jack Alexander describes the challenge facing the average FP&A professional. “Today, the FP&A organisation is called upon to lead the development of plans and projections, evaluate trends and variances, evaluate complex investment decisions, value acquisition candidates, among many others,” he writes.
Reports help analysts present their conclusions and drive insight. The problem is, the average FP&A report is a rigid beast, incapable of answering follow-up questions. Corporations host financial data in large databases that require technical expertise to query. Even if data is present in Excel files, the sheer quantity of datasets makes it impossible for an analyst to spend more time analysing data than vetting it for integrity.
Given this infrastructure, an analyst can’t run ad-hoc queries in meetings with the CFO, and CFOs can’t answer questions on the fly when presenting reports to boards. A constant back and forth ensues, wasting time and delaying a company’s response. Worse, critical reports such as monthly closes and budget projections are delayed since data collection takes so much time to complete.
This vicious cycle plays itself out repeatedly in most FP&A departments, leading to wasted resources. Dynamic reports that incorporate real-time data, backed by automated data collection are the need of the hour. These reports allow analysts to dissect and manipulate data ad-hoc, answer important questions on the fly, and model complex scenarios quickly.
While intuitive report dashboards are great, they’re only as good as the data that goes into them. This leads us to another roadblock to efficient FP&A analysis. Gartner recently surveyed CFOs at large companies and highlighted that 73% of professionals in finance functions prefer to work with “a centralised, tightly governed source of data.”
Preferences are one thing, but the execution is another. The average organisation unfortunately deals with multiple data silos. This scenario is even worse in organisations with an international footprint that have to deal with multiple currencies and lines of business.
Legacy infrastructure makes it close to impossible to integrate disparate systems. The best solution is to funnel different data sources into a central platform that provides reporting, integration with Excel, and ad-hoc querying irrespective of technical skill.
Platforms such as these will give organisations greater confidence in their data and accurately model financial forecasts. Best of all, integration is automatic and doesn’t need complex technical know-how to execute. Integration of this sort also empowers employees across the organisation to model scenarios and drive insight.
For instance, a financial manager outside the central FP&A team might highlight mistaken assumptions in stress tests. Input of this kind is impossible when data exists in silos, behind tightly governed walls.
An important function
FP&A is universally recognised as an important function, but organisations have yet to align and integrate their processes. Removing the obstacles to efficiency highlighted in this article will help companies realise greater profits. As DataRails reveals, there are other ancillary benefits such as higher employee morale and reduced potential impact to stock prices emanating from incorrect disclosures. Automation and integration is clearly the way forward in modern FP&A.