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How can FP&A tell management "something they don't already know" and add value to reporting?

Dale Walsh's Profile

FP&A is tasked with monthly, quarterly, annual reporting to the directors and senior leadership. These reports can be tedious for recipients who are so close to all the activity that P&L analysis is really not all that helpful. Deeper drills into continuing hot buttons can be an obvious place to start. What additional strategies, thought patterns, paradigms, analysis have you found helpful as a creator or recipient of such reporting - i.e.communicated "not already known" information and added value to periodic FP&A reporting?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Add the "A" back into FP&A.

Example: statistical tools.
-What is "normal" for a given area (eg. rent, or travel). This lets you communicate "normal" and abnormal volatility.
-Given normals, you can do an analysis (using monte carlo or similar tools) of the breadth of possible outcomes even given no out-of-plan variation. This can help execs be more aware of the inherent volatility in multi-variate systems.
-What things are correlated? Can we get some causative implications out of that?
-Are there leading / trailing indicators?
-Do some things (from sales to employee turnover to the cost of tea) show seasonality?
-Do some things simply not fit to a function. Think market volatility. If it is, to the extent we can understand it, truly random, this is an important thing to know.

Statistics is a great way of determining and communicating in a more objective manner the meaning behind the numbers.

KP

Topic Expert
Charley Kyd
Title: Founder
Company: ExcelUser
(Founder, ExcelUser) |

Additional ideas...

--Top ten, bottom ten, and short 80-20 lists.
--Cross correlation (time-lagged correlation) can help to identify leading indicators.
--A good source for free economic data (that might correlate with internal measures) is http://research.stlouisfed.org/fred2/.
--What measures that everyone assumes are correlated turn out NOT to be correlated?
--Are the trends in any key measures changing in unexpected ways?
--In general, what's changing that might surprise or alarm your leaders?
--The DuPont formula could give your senior leaders some convenient rules of thumb about your financial engine.
--Managers understand trends. So whenever possible, give them line charts to illustrate trends in your key measures.
--What categories of your web site tend to generate the most traffic? Are visitors interested in unexpected areas of your site? Are the demographics of your visitors significantly different from the "public" that your leaders have in their minds?

And from another perspective, what information do your sharp, young analysts REALLY wish that your leaders would pay more attention to?

Topic Expert
Moshe Kravitz
Title: Director of Finance
Company: IDT Telecom
LinkedIn Profile
(Director of Finance, IDT Telecom) |

Great question! I look forward to seeing the answers. Here are a few ideas…
0. DON’T ASSUME…
Just because you (FP&A) know something don’t assume that they (Mgmt) know it.
1. PROVIDE CONTEXT
Show the big picture clearly and simply then present the specific items of interest in this context.
2. INDICATE SIGNIFICANCE
When reporting variances e.g. Actual to Budget help Mgmt “not to sweat it” by indicating if the variance is statistically significant or random.
3. IDENTIFY LEADING INDICATORS
Focus reporting on the most important revenue and cost drivers. Try to identify and track leading indicators. Too often we report on what we know how to measure but not on the significant metrics that we don’t know how to measure. See “How to Measure Anything” by Douglas Hubbard for simple, practical approaches.
4. PROFITABILITY
Do you know which customers are your most profitable? How to retain them? How to get more like them? Which customers you are losing money on? How to make them profitable? See “Islands of Profit in a Sea of Red Ink” by Jonathan Byrnes.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Moshe makes a great point here: in Finance we often assume that everyone else gets it. "It" being fundamental relationships, etc., background data, etc. Getting to core messages, without flooding the conversation with minutiae, while still giving context...truly an art.

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

FP&A's task is to convey data to management in a way and format they can clearly see and understand. Traditional reports consisting of hundreds or thousands of pages are never read, let alone understood. The monthly report packets that get distributed to managers on various levels in many companies have little or no value if the data cannot be easily interpreted and used to make timely and sound decisions.

To make a difference you need to:

1) Have access to the actual accounting and operational data in real time
2) Have access to planning and budgeting data
3) Display data from both 1) and 2) above visually and use attributes meaningful to your company (e.g., leading indicators, future period forecasted key financial ratios, etc.).

If you have access to contemporary planning, budgeting and analysis software, you will be able to achieve all that and give management what they really need without inundating them with endless data.

You will find that much of the presentation content will be "something they don't already know", for example: Outlook on future ability to meet loan covenants and by what margin; forecasted key financial ratios and much more. The goal here is always to help management assess the future financial health of their companies and align operations and other business activities with the strategic and financial plan.

Lawrence Serven
Title: Director
Company: KPMG
(Director, KPMG) |

While the tools and techniques listed in prior posts are excellent, there is one other way you can make your analysis more insightful and valuable; and that’s to understand the underlying business. Become a student of the business, build relationships with line managers, and be in a position to present “the story behind the numbers”. While it’s important to flag statistically significant variances, that provides 10% of the value. The other 90% is explaining the business reason why that variance occurred.

Don Clark
Title: Sr. Financial Analyst
Company: Menlo Logistics
LinkedIn Profile
(Sr. Financial Analyst, Menlo Logistics) |

Exactly right on. Finance is easily isolated from operations, especially in large global companies where the functional admin groups are centrally located. You have to go see first hand the business and spend time with the front line and mid level managers.

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

If the audience already has a good handle on the day to day operations, what are the key issues in the business? Based on these, present historical context and future action plans highlighting internal and external factors that may cause disruption in plan execution. Create scorecards and identify short term metrics that can be used to make sure plans are on the right path.

Ben Murray
Title: Vice President and CFO
Company: Cartegraph
(Vice President and CFO, Cartegraph) |

I echo Lawrence's comments. You can't explain the numbers until you understand the business. You need to get cozy with the operational line managers so they open up to you about their business.

A variance means very little until you can understand why it happened. Ask the "5 whys." It takes several rounds of "why" questions to get to the real answer.

FP&A can craft a message and lead the direction of budget/ops review meeting with the variance explanations. Your variance comments are discussion starters. What should you be pointing out that is significant and needs further discussion? You can't explain it all with your comments. Keep them brief and to the point.

In FP&A, you are closest to the numbers and should be able to develop the intuition to know what the numbers are trying to tell you. It's not just the current month but also past and future numbers that you need to relate to each other.

Coach your line mangers. They need your help understanding the numbers and linking operations to the financials.

Robert Ewalt
Title: Exam Development Manager
Company: Institute of Certified Management Accoun..
(Exam Development Manager, Institute of Certified Management Accountants) |

As a practioner and instructor in FP&A, it seems to me the role of the analyst is to identify facts and trends that the decision-makers may not be away of, and present this in a manner that allows the decision-makers to readily grasp the points the analyst sees as important. As others of posted here, the analyst may have the time, that top management doesn't, to really understand the causes of the reported results. Increasingly, big-data type reporting can show us metrics we formerly couldn't get, such as cost of obtaining new customers, correlation among products purchased, time on web pages. Even though these metrics are different from the $ revenue & costs we have traditonally dealt with, the FP&A training could make us the best interpreters of these new metrics as well.

Don Clark
Title: Sr. Financial Analyst
Company: Menlo Logistics
LinkedIn Profile
(Sr. Financial Analyst, Menlo Logistics) |

The key, I'm finding, is to understand the perspective and context that the audience exists in. For executives, they not only see the company as a whole including operations, finance, marketing, business development, etc. but they view the business in the greater context of industry and market. You have to find out what's important to them at that level and what FP&A information is meaningful and appropriate to those key issues. When you can provide financial insight on the things that keep them up at night, then you're adding value.

Richard Barrett
Title: Consultant
Company: Independent
(Consultant, Independent) |

Accurate and more frequent customer and product reporting would certainly add value - as would tracking business drivers and modelling their financial impact to help business leaders make more informed decisions about the future.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Spend less time on doing what I call excessive "post mortems" of the past. Look at the future:
1. look at sales bookings/pipeline (i.e. future sales). Is the sales bookings $ by month showing an upward trend or not? Why? Then, later on ask:How accurate were sales budgets/sales pipelines compared to what was actually achieved?
2. do the same for production capacity (assuming you make product); what does the future capacity look like for each plant?
3. Help leaders answer the question "how well are we going to do this (period) in terms of budget targets and strategic goals?"

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