How FP&A is Changing the Way Firms Think About Forecasting

Some things are easier to forecast than others. Gyms will be packed with New Year's resolution makers for at least the first half of January. Credit card bills will shock even the most frugal of shoppers. And Valentine's Day sales will begin before the Christmas trees get hauled away.

Too bad forecasting isn't so obvious in corporate boardrooms and finance departments.

Fortunately, a more relevant form of planning and forecasting is not only on the rise in many mid-large sized organizations, but emerging as a distinct and valuable contribution from the CFO's team. The Wall Street Journal, took note of this last week in a piece on how well-established firms like Dunkin' Donuts and GoDaddy are reaping the benefits of a more forward-looking approach to planning and analytics.

"Increasingly, the real power behind the numbers isn't accounting, but a function known as financial planning and analysis, or FP&A," the WSJ said. "Employees in these groups work on everything from forecasting sales, earnings and buybacks to employee raises."

Like corporate performance management (CPM), FP&A is more than just an acronym. The WSJ further noted the approach may do more than help companies boost sales and reach other business objectives. FP&A could also become the place where the next generation of CFOs work their way up.

FP&A Growing Pains

While FP&A gained a lot of momentum after a certification program was introduced by the Association for Financial Professionals a few years ago, many organizations still need to balance the skill set with their workflow and process. Some of the early challenges were captured a few months ago by a survey of more than 2,000 companies by consulting firm CEB. Some of the worrying numbers:

• Over 50% of decision makers misinterpret or misuse financial analysis data

• 30% are concerned about the for quality of FP&A analysis (its timeliness, accuracy, comprehensiveness, volume of detail, and actionability)

• 25% of financial decisions with financial implications in those surveyed don't involve analytics

• 21% cite issues with access to data to do FP&A properly

An article on CFO.com offered a succinct but powerful way to differentiate an approach to FP&A that really works:

Good analysis . . .  is problem-focused. It anticipates decisions that will need to be made, illustrates trade-offs, and disrupts conventional wisdom.

Of course, disciplines like FP&A won't necessarily transform a company overnight. As finance teams gain more experience, review their reporting requirements and adopt tools that assist them in gathering and analyzing the information they need, their ability to turn numbers into trusted, actionable insights will only increase.

That's probably the easiest forecast to make of all.