How Do We Create The Agile FP&A Department?
FP&A needs to become more agile. A very blunt statement, yes, but does anyone disagree? We have gone through a hectic and at times tumultuous year that has tested FP&A in its foundation. Few companies can claim that they exit 2020 without any cracks in the foundation. It is likely that the foundation is even broken in some places. Hence, it is time to rebuild and transform FP&A in 2021. Agile or agility should be a central principle to follow.
In this article, we look at how to make FP&A more agile by reviewing the four pillars of organization, people, processes, and technology. Our aim is to give you a simple recipe for how to build a stronger foundation for FP&A to prevail in 2021 regardless of what the world throws at us!
FP&A must become more agile to respond with speed to the rapid change we experience in the world. Senior leaders need us to increase the speed to insight for them to make better decisions. Let us review how we could change our organization, people, processes, and technology for FP&A to become more agile.
- Organization: There are three key organizational units of FP&A being corporate FP&A, a center of excellence, and frontline FP&A. Corporate FP&A needs to increase the speed at which it can gather and consolidate information from around the company. The center of excellence must increase its capability to analyze internal and external company factors as they change around us. Frontline support should ensure a fast translation of new directions from corporate into concrete actions and feedback on the result of the actions to corporate. This makes for clear roles and responsibilities between the key parts of FP&A.
- People: In many ways, people in FP&A must change their mindset and accept that we can rarely be right about the future. Rather we will always be wrong and therefore we should not strive for accuracy in forecasted numbers. Instead, it is key that we understand the pain points of our stakeholders, understand the environment they operate in, and how to best communicate to them to ensure we have the right dialogues about actions to improve performance. This requires a vastly different skill set than what made FP&A professionals successful in the past. That means we must change our capability model and upgrade the competence level for FP&A to become more agile.
- Processes: To increase agility we must descope many processes to deliver a minimum viable product. For instance, why run a three-five-month budget process when the result is certain to be wrong? Or why run a quarterly rolling forecasting process on a detailed account level when the situation changes by the day and we just need to track a few key assumptions? No, all FP&A processes must be made fit for purpose in a fast-changing world rather than assume a stable environment that has not existed for decades even.
- Technology: FP&A cannot become more agile without technology enablement. We need tools and systems that are flexible to adjust as the situation evolves around us. If all we have is a set budgeting and forecasting model it will rarely help us facilitate frequent small-scale updates of key scenarios that could happen depending on what happens in the external environment. The same goes if you have a large financial model in Excel. We need scenario analysis and what-if capabilities and flexible tools and systems in which we can easily build new models to gather and consolidate insights about how our company is performing and what actions we should take to improve.
The Agile FP&A Department will not be built in a day, but it is very important that we use 2020 to reflect on the changes we need to make to be ready for future events. We can be certain they will come just not about when what, and how they will hit us.
The key steps to take in 2021
Once you are done reflecting on 2020, we strongly advise you to start making some changes. To help you prioritize what to do first we recommend below four steps each addressing one of the four pillars of organization, people, processes, and technology.
- Strengthen your center of excellence for FP&A and increase its analytical capability. This will free up critical capacity for both Corporate FP&A and frontline support to be better business partners
- Conduct a capability assessment of your frontline teams to assess if they have the needed capabilities to be business partners rather than simple number crunchers.
- Re-visit your forecasting processes to understand what can be descoped to make the process faster and ready if need to become more frequent.
- Upgrade your tools to become more flexible. Even if a big new planning system is not within your means there are many smaller, nimbler, and easy to implement tools that can upgrade your capabilities almost instantaneously.
What are your plans for making FP&A more agile in 2021? What would you add to this plan and are there other more critical actions you would put on the list? It will take a joint effort from all of us to make FP&A more agile. However, it is a critical must-win battle for FP&A in 2021. Otherwise, management will find someone else to do it!
This blog is presented by ValQ in collaboration with Anders Liu-Lindberg, Business Partnering Institute.
Get Started with ValQ today!
Try ValQ to instantly visualize the power of business optimization.