Imagine if every corporation moved with the precision of a grandfather clock. The face of the grandfather clock is the executive team providing the markets with timely updates on performance. The organization’s operations are the gears of the clock moving in precise motion behind the executive face of the clock. Accounting is the finely crafted cabinet surrounding the mechanisms and holding up the executive team’s face. The pendulum swings back and forth to maintain the momentum of accounting data flowing to operations and executives for decision making. The pendulum is the Financial Planning and Analysis (FP&A) team.
FP&A is well positioned to play a strategic role in a corporation, balancing the organization’s efficiency and effectiveness programs. Most FP&A teams perform basic budget data gathering and management reporting activities to support decision making. Many leading organizations have asked FP&A functions to take a broader role in becoming the pendulum moving between Operations and Accounting. The balancing means FP&A has the opportunity to consistently move back and forth between Accounting and Operations. FP&A also has the ability to measure how well Accounting and Operations collaborate and support the company’s long-term goals.
An optimized FP&A group, with the direction of executive leadership, has close ties with Accounting and Operations and applies their expertise to facilitate a collaborative business environment.
The executive team works as the face of the clock to oversee and guide the organization. The executive team establishes a long-term strategy to cultivate growth. Although reporting needs change over time, executives are often handed the same information month after month. FP&A can have a substantial impact on long-term strategy by working closely with the executive team to gather and understand information needs, leading indicators, and reporting requirements.
A strong relationship between executives and FP&A can spread throughout the rest of the organization. Executives communicate corporate goals and FP&A serves as translators during the planning process. For example, an oil and gas services company discovered multiple reports were being duplicated for management. The operating divisions were providing management with utilization information and projected margins while corporate accounting was providing the same data with slightly different numbers. The result was inefficient reporting due to repetitive data from different departments, not to mention confusion. Inefficiencies in reporting can be eliminated if FP&A is empowered as a facilitator that provides metrics for management decision support.
A grandfather clock represents time and wisdom. When strategic decision makers receive the right information quickly, they gain the knowledge necessary to plan for success. Constant communication between Operations and FP&A results in accurate data delivered in a timely manner to decision makers. As mentioned earlier, FP&A should have close ties with executives and provide Operations with business knowledge, improvement strategies, and methods for increasing proficiency. Once FP&A delivers long-term goals and other executive expectations, Operations is able to make decisions that provide the greatest benefit to the business.
Individual branches within an organization may be interested in benchmarking their success against the rest of the company. For example, a company may have 50 branch offices across the country. A district manager in west Texas would benefit from understanding the competitive threats and cost challenges in the other branch offices. FP&A can be the link within Operations to share information and start conversations between branch offices.
Finally, FP&A can serve as the primary liaison between Operations and the rest of the company. FP&A will be able to forecast business results more precisely by acquiring knowledge from the field and staying up-to-date with operational business activities. For example, the FP&A team at a drilling contractor engages directly with the sales team to better understand rig backlog and future sales. The drilling contractor found that close communication between Sales and FP&A allowed the organization to more accurately project revenue. Meanwhile, the sales organization was able to spend less time developing reports for executives.
There is often confusion regarding the roles of Accounting and FP&A and their differing objectives. FP&A is historically seen as a strictly financial function. In reality, FP&A specializes in analyzing and planning for the future and identifying various improvement strategies. Accounting, on the other hand, is a science focused on meeting GAAP standards, instituting controls, and shortening the close process. Accounting and FP&A can work well together because they have similar competencies. Conversely, each has individual roles and objectives, and it’s important the organization understands the difference.
While FP&A is focused on forwarding financial performance, Accounting is focused on making sure the books reflect reality according to accounting principles. FP&A may need to cross into accounting territory to collect data and provide management the financial information it needs. Accounting may become concerned when FP&A wants accounting information before the books are closed, in fear that it won't be understood. Clear roles around accounting and FP&A will change the way the rest of the organization views their responsibilities and how the groups view each other. For example, Accounting may underestimate the impact that FP&A has on shortening the close process. FP&A has the relationships and information required to minimize issues through the process. If Accounting relies on FP&A to get important information about the field prior to month-end, surprises will be eliminated and issues can be tackled earlier in the process.
The corporate grandfather clock will serve its purpose as long as the face of the clock is moving in time and the pendulum is swinging. FP&A can quickly become an effective pendulum for the organization when held accountable for partnering with Accounting and Operations. FP&A can work closely with Accounting to shorten the close, and FP&A can maintain ongoing relationships with Operations to guarantee upcoming deals and future business activities are included in financial projections.
The FP&A team has the opportunity to be a dependable force of support for the organization and contribute to the executive agenda. FP&A’s skill set should always be utilized for effectiveness like that of the pendulum: relentlessly operating in sync with the executive strategy, continuously swinging between their counterparts to spread knowledge, and ensuring decision makers have the right information.
