The Important Intersections of FP&A

The Important Intersections of FP&A 

If we’ve learned anything from the 2020 pandemic, it is that financial planning and analysis can’t happen in a void. Financial planning reliant on models that do not consult the rest of the enterprise not only have severe limitations in scope, but also often collapse entirely when faced with changing circumstances that rapidly alter the economic landscape, as we’ve seen with changing consumer habits due to Covid-19. The pandemic resulted in a much stronger focus on integrated FP&A that consults with the entire organization, and this emphasis on interdepartmental FP&A integration has come to be known as FP&A 2.0, or Extended FP&A (XP&A). 

But XP&A, and for that matter FP&A, overall, offers serious benefits to quality communication between departments well beyond the infrastructure of XP&A modeling. The benefits to an FP&A department that actively collaborates with the rest of the company are pretty significant and can be seen in nearly every organizational department. As a result, a supportive FP&A team can make the whole enterprise run much more efficiently and allows departmental heads to act with a much fuller slice of the picture. 

I have outlined some of the most important fields for integration with FP&A departments, best practices to ensure steady collaboration between them, and the benefits of clear and open lines of communication for both the departments themselves and the FP&A teams supporting them. 

Data Governance 

FP&A and data governance are already highly correlated, so this should come as no surprise. Data analytics teams can offer important financial insights into market trends, budget forecasts, and overall financial forecasting, but only if they do so with the analytics in these fields already provided by FP&A! A healthy cooperation between these two segments ensures that financial planning is consistently accurate for the FP&A team, and that the data managers are not only working with accurate models, but also, using tools, especially data-driven ones like artificial intelligence, in the most efficient manners.  

Executive Strategy 

At the end of the day, no matter how good your FP&A team is, they’ll never get anything done if they can’t effectively apply their insights towards overall business strategy. Therefore, communication with the C-suite and other company decision makers is absolutely crucial to ensure that the role of FP&A as advisors for organizational direction is well heeded and that the analytics they provide are getting to where they need to go.  

Ensuring good cooperation with executives has important benefits for the FP&A team itself as well, most notably in facilitating communication between the FP&A team and other departments. Ideally, a key part of the role of a good executive is to keep an open flow of information between departments, so keeping company decision makers in the loop should do a lot for communicating FP&A insights not only to these executives but also to wider departments within the company, significantly lightening the burden of FP&A leaders to be constantly communicating their models out to every separate department.  

Marketing & Sales 

Accurate financial analytics has perhaps the largest and most direct effect on these two closely-linked departments. Solid FP&A is absolutely crucial for effective marketing; decision makers need to know whether a given ad campaign will be profitable, whether the finances can support their goals, and the relational benefit of money invested versus leads generated. For sales, rapid responses to changes in the market are essential to staying competitive, and quality financial insights can allow sales departments to fine-tune their operations towards a consistently optimal rate of return. FP&A can act as both a first line of defense against financially flawed marketing and sales initiatives, and a powerful advocate for driving good ideas from these departments, leveraging data-driven insights to promote smart marketing with detailed financial forecasting. 

Inventory & Production 

Beyond the more obvious and traditional applications of FP&A to these departments, such as calculating the ideal amount of inventory to keep on hand, FP&A teams can offer precise insights on revenue generation through active communication with production data. Furthermore, a close understanding of current production information can tip off FP&A teams towards wider financial trends within the organization and forecast them before they occur, preventing possibly serious fluctuation in profits by pre-empting issues on the ground and coming up with solutions before they’re too big to ignore. 

Conclusions 

It’s no big secret that quality interdepartmental communication is part of the key to a successful business, and by the same token most people know that that quality interdepartmental communication is easier said than done. But the first motivating step in encouraging open lines between departments is to remember the very real and tangible benefits that an integrated company has – and nowhere is that integration more critical than with FP&A. 

A seasoned financial planning and analysis team is a huge asset for any company, but their impact is limited to the scale at which they’re able to access company insights and then communicate their financial understanding to the places it needs to get. So, it’s really a two-way street, where both the FP&A team itself and the company as a whole benefit from clear, integrated communication; the only real hurdle is how willing department heads are to cooperate with one another! 

FP&A is sometimes thought of as just an offshoot of accounting, but this couldn’t be more wrong. In an economy where data has become the new oil, it’s not just consumer data which offers precious insights, but interactions within the company itself as well. An FP&A team which is integrated, open, and communicative with the rest of the company provides huge benefits by allowing the entire enterprise to move in a far better informed direction and is capable of providing far-reaching understandings that can optimize virtually every lever of the company – but only if they know what other departments are doing, and only if they get those understandings to where they need to be! So, if you’re looking at your own FP&A department and wondering why things might not be getting done, the first culprit might have nothing to do at all with the quality of the team itself, and everything to do with communication.