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CFOs Frustrated with Return on FP&A Investments

A recent article in CFO Magazine outlines the frustration. Extremely well written and thought provoking. "It’s not exactly news that CFOs as a group aren’t satisfied with the quality of their financial planning and analysis functions. That’s been the case for some time. But with investments in FP&A rising as more data becomes available and companies seek to unlock its potential value with top-notch analysis, continuing quality issues are translating to doubt as to whether the investments are wise." Read David McCann's article here: http://ww2.cfo.com/financial-planning-analysis/2015/07/cfos-frustrated-with-return-on-fpa-investments What do you think? Is FP&A providing much about nothing or providing you the CFO with quality information, where you are getting the bang for the buck?

Answers

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

Interesting article. I talk to my team all the time about the art of analysis versus the science. It takes a different mindset. It is one of the dangers of accounting personnel being the feeder to analysis. There are trained accountants very good at it, but one my better analysts came from Ops.

Bruce Bellrose
Title: Chief Executive Officer
Company: Operational Financial Managment, LLC
(Chief Executive Officer, Operational Financial Managment, LLC) |

There are only two reasons FP&A is not always the third most important function in an organization's financial success (operational performance and sales being first and second respectively). The first is inadequate staffing. The second, using improper processes. Inadequate staffing is a case-by-case problem. Process problems, however, are universal.

To maximize the FP&A process' value requires a tight linking of tactical and strategic planning and management. Strategic planning without 12 to 18 months of monitored specific tactical steps per strategy is currently and has always been FP&A's most common single point of weakness. Each strategy needs to be monitored as a project. Even when executive management doesn't have an exclusively short-term focus, their Board and investors require it. Without managing a strategy as a project, strategies are so much hot air. Remember, FP&A needs to project continuous success in order to keep executive management confidence.

The FP&A process also requires many other procedures including detailed and up-to-date data, rapid fact-based decision making, consensus input decision making. With modern technology, this is easy and inexpensive to implement -- though time consuming.

I know this because I have successfully done it during my CFO career. Belonging to all the major CFO organizations, I also know almost no one else does it.

Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

What I am seeing in my practice is an incomplete FP&A process with very little value for many companies. This is mainly due to the fact that planning and budgeting data is not used properly to forecast the future financial health of the organization, using historical, current actual and forecasted data. What is typically lacking is the inability (and / or willingness) to forecast the company's balance sheet, using beginning (known) balances and forecasted data (revenues, expenses, etc.) to implement what I describe as an extension of the actual accounting system into future accounting periods.

When you have a complete and accurate forecasted balance sheet (accurate to the extent of the accuracy of the revenue and expense projections, as well as other assumptions, like asset acquisitions and disposals, investments, etc.) your FP&A effort will elevate the data output to the next level where company forecasted financial ratios and other derived financial data (e.g., likelihood of meeting loan covenants in certain future periods, and by what margin, amounts of credit lines that can be used, additional borrowings needed or ability to retire debt, etc.).

With this type of data management can intelligently make decisions that are based on data and facts, albeit forecasted, rather than on speculation and intuition only.

The technology to achieve that is available today and even smaller companies can implement it. Until they do, FP&A in most organizations will continue to be incomplete and with little or no benefit to management.

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