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CFOs are taking a better look at their financial planning and analysis teams

CFOs are eager to upgrade financial planning and analysis into a value-generating activity, suitable for today’s fast-moving economy

2015-10-23 12:19:36

As companies strive to preempt competitors, reduce risks, and make better-informed decisions, CFOs are now taking a hard look at their financial planning and analysis(FP&A) teams, writes the CFO magazine.

Similar to the kinds of changes being made in other areas of finance, the FP&A organization needs to embark on an ambitious transformation, trading in an emphasis on historical data to focus on predictive analytics while also exchanging data manipulation for higher-value analytical activities. A company’s decision makers rely on the group to deliver top-quality information and cutting-edge analysis at an ever-accelerating speed. But in a recent global survey, most finance leaders say that their FP&A teams have further to go to develop the capabilities required to bolster top-line growth by supplying better and faster management information.

The survey, conducted by CFO Research and sponsored by SAP, the maker of enterprise software, drew on responses of 335 senior finance executives around the world, at companies with more than $500 million in annual revenue. Without the tools, methodologies, and other resources they need to deliver high-value planning and analysis to upper management, FP&A practices can’t be optimally prepared to meet the intensifying pressure the finance function now faces, respondents say. (The full report,The Future of Financial Planning and Analysis, is available for download.)

In the survey, about two-thirds (68%) of respondents confirmed that the task of maintaining and extending a competitive edge has become more difficult in the past five years. As for the future, three-fifths of respondents (59%) expect that challenge to become tougher over the next two years.

Agile By Design

A company’s ability to swiftly change its game plan — whether adapting to customer feedback or to moves in the marketplace — without abandoning its strategic goals can be a core competitive differentiator. The ability to skillfully yet efficiently seize opportunities, however, depends on the availability of ad-hoc decision support and analysis in areas ranging from pricing evaluation to financial modeling. Real-time analytics are critical for responding to challenges in a timely fashion while also controlling risk.

In the survey, 85% of respondents agree that over the last five years, the demand for ad-hoc decision support and analysis from finance has increased. And a nearly identical number (84%) agree that such demand will increase even more over the next two years. (See Figure 1.) An even greater number of respondents (90%) agree that over the next two years, the demand on the finance function to supply highly responsive, interactive, and flexible business analysis to decision makers is likely to increase.

As one survey-taker put it: “Up-to-date analysis for decision making is important for the company to understand risks and opportunities … and take immediate actions to gain a competitive edge” against rivals.

Greater Tools Theory

Achieving organizational agility, however, requires IT-enabled infrastructure flexibility. The more adaptable the IT structure, the better equipped the finance function is to provide accurate and timely data. Such information can fuel a company’s ability to adapt quickly and economically to changing business requirements.

But are IT systems, as currently configured, up to the task? Embodying one extreme viewpoint, an IT director offered this blunt assessment: “Our systems are akin to icebergs, slow-moving and resistant to changing course.”

Most responses aren’t nearly so dire-sounding, but they do acknowledge deficits. Almost 4 in 10 respondents (36%) say that their company’s financial systems are well-integrated with each other and only require minimal manual intervention. Even so, only 15% indicate that their financial planning systems are very tightly integrated with their core enterprise resource planning (ERP) systems.

Survey results also reveal that respondents recognize the benefits of attaining integration across a global company’s dispersed finance systems. A majority (61%) who report that their financial planning systems are “well-integrated across the enterprise” confirm that their systems “substantially contribute to finance’s ability to support decision making.” Even more striking, 82% of respondents whose finance systems are very tightly integrated with their companies’ core ERP systems say that they can make a substantial contribution to decision making.

The overwhelming majority of finance chiefs know what they need to do: Most (83%) agree that reducing the amount of attention and resources devoted to data migration and manual reconciliation associated with financial planning and business analysis would yield a significant — and measurable — financial benefit to their company. An even higher number (93%) concur that improving the speed and responsiveness of the analysis that the finance function supplies to senior management would yield financial benefits. (See “No Doubt of the Benefit,” above.)

But only 14% of respondents reported that the finance function at their company was able to instantly respond to ad-hoc requests for business analysis. A majority (61%) said that they could respond within a day of receiving the request. What difference does a day make? With uncertainty increasing—about not just economic growth, but also regulation, commodity prices, and customer demand, to name but a few factors—and the speed of markets accelerating, finance chiefs aren’t eager to find out.

Gaining Recognition

Finance leaders are well aware that the need to improve their groups’ contributions to high-value FP&A activities will only grow more urgent in the coming years. Providing more sophisticated, forward-looking, and interactive information to decision makers is clearly a priority.

It’s at least as imperative that finance executives provide analysis that decision makers can fully understand. One CEO says his company’s finance function’s goal is to “streamline reports so they can be understood by all, from the president to the manufacturing floor.”

In fact, 88% of respondents agree that the growing speed and availability of financial analysis and reporting will increase the pressure on finance to make sure that decision makers understand the underlying assumptions and analytical framework of the data they receive. It’s up to finance teams to ensure that decision makers are in a position to make effective use of that business information. As one VP of finance put it: “I hope to improve [finance’s] ability to support business analysis…and when that business partnership arrives, people will be hooked on it and have an insatiable appetite for more business analysis and engagement.”

Once that happens, the FP&A team can rise to become strategic business partners, providing indispensable financial insight into decisions about new markets, new products, and other growth-inducing activities.


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