5 FP&A Process Improvements and Best Practices

Matthew Dziak

FP&A process improvement begin with quality data

FP&A roles are in high demand, and rightfully so. According to LinkedIn's Jobs on the Rise, Head of Financial Planning and Analysis (FP&A) ranks among the fastest growing jobs. It ranks 13th, ahead of backend software developers and ICU nurses, among other high-demand roles. The results are based on demand for roles over the last five years.

It should come as no surprise that companies are seeking quality FP&A talent to bolster their Finance Function and deliver greater value through detailed analysis and actionable insights. To be successful though, you must manage your data effectively. This is foundational to your FP&A process improvement desires.

Data is the essence that supplies every metric, report and forecast. For financial planning and analysis (FP&A) professionals, this makes data a gold mine. However, the most important aspect of your data is that it must be quality data. 

What exactly is quality data?

Quality data is accurate, free from error, reconciled and up-to-date. It provides management and your board reassurance that the metrics they are evaluating in your reports are reliable and trustworthy. The last thing you want is a perception that your Finance Function lacks credibility and doesn’t deploy the best processes to fulfill deliverables with accuracy.

If you create budgets, forecasts or scenarios using data from three or four months ago, then there’s an entire quarter’s worth of metrics missing. You wouldn’t create a balance sheet or income statement with months-old metrics for the most recent month, so why would you do that in your planning and forecasting? Only with quality data can you create trustworthy reports that reconcile, and forecasts that are accurate and insightful.

Now, let's take a look at five other FP&A best practices sourced directly from experienced Heads of FP&A.

1. Gather and structure data efficiently

We've established that you need quality data, but what is the best way to gather your data for reporting and analysis?

Since data is siloed in your sources of truth, such as your general ledger, customer relationship management (CRM) software and other systems, FP&A teams typically would gather a bunch of datasheets and manually organize the data. This requires merging data with V-lookups and indexes, offsets and the other necessary Excel formulas. 

It’s a tedious, repetitive process of munging data together to use. This is the unfortunate outcome of being too reliant on Excel for FP&A processes. You end up with these monstrous spreadsheets with every piece of data that ever exists, and you end up in a place where you're trying to download every transaction out of Salesforce, NetSuite, and then you build links and bridges between those data sets to make sense of it all.

Next, you attempt to understand how the activities in each of these systems affects revenue and does the revenue that’s recognized match up with the bookings that we expected. If this sounds all too familiar, fear not. Although this is an antiquated FP&A process, thankfully, direct integrations and automations offer solutions to circumvent manual data aggregation. 

2. Get more out of Excel and FP&A Tools

It's no secret that the right tools are necessary to deliver the best results. According to a recent Gartner Survey, 82% of CFOs and 85% Heads of FP&A expect to spend more time prioritizing advanced data analytics technologies and tools in Finance.

Translation — for most, Excel simply isn't enough.

Excel is a useful tool, but it has limited ability to handle large amounts of data. By relying on it, you are redoing the same manual tasks over and over again. It also leaves you susceptible to manual errors that can seem so minor but have a dramatic impact on final metrics. 

For example, say you’re managing commissions for multiple countries and are forced to gather data manually from your CRM and import it into Excel, and you paste the data into the wrong column, even by one column, then the currency formula in that column translates for the wrong country. Now every commission compensation looks completely different, but when looking at the spreadsheet, it seems like everything was referenced correctly and you generated the correct compensation. 

Utilizing a form of data model architecture, paired with a robust FP&A Platform or tool, eliminates the time-consuming data structuring tasks and mitigates manual errors because it integrates directly with your data sources and cites specific data automatically. 

See the benefits of an integrated budgeting and planning process. 

We would never suggest abandoning Excel from use in your Finance Function if you are not quite ready. Every company is at a different stage in its maturity, and while there are certainly definitive processes best suited for FP&A, they might not be in reach for all. However, since Excel is such a familiar tool and interwoven in everyday Finance and FP&A operations, you could also consider maximizing its usage until you are ready for a more robust option.

Even if you are a power use with advanced working knowledge of Excel, its limitations require additional technology to satisfy the needs of financial planning and analysis. Leveraging tools like Excel Add-ins that directly integrate with your general ledger and automatically structure the financial data for consumption cuts hours of manual tasks per week so you can focus on the output that truly matters — analysis.

Understanding data warehouses and FP&A tools is essential

3. Don't just measure performance, enhance it

It has long been the responsibility of the Finance Function to measure the performance of the company and report on it. Financial and management reporting will continue to be an integral part of Finance, but FP&A must find opportunities to take those metrics, analyze them and offer insights to hit company targets.

FP&A is meant to be forward-looking, therefore it must go beyond reporting and measuring company performance. It must seek to understand the trends of the business, the metrics and the things that drive the decision-making at the company to figure out how to incorporate all of those most effectively. 

Always consider your KPIs and targets as your north star during analysis. Start with the business problem you're looking to solve or process you wish to improve. From there you can extrapolate metrics and make assumptions that speak to solutions to improve. For example, if you notice gross margin decreasing month-over-month, measuring the decrease value is not even.

FP&A needs to go deeper. You should be able to examine things like a decrease in bookings during the summer months or an increase in advertising spend that didn't deliver immediate results in the same month as the reasons behind the metrics. Remember, FP&A must be storytellers, crafting logical and comprehensive analysis that fuels management's strategic conversations in a manner that is easily understood.

The best FP&A professionals, those that aspire to truly impact the company, to potentially evolve their capabilities to one day possibly become a CFO, blend FP&A processes and modern technical skills to best understand and extract value from their data.

They understand the need to control the data and slice-and-dice it in robust ways to offer the greatest value to guide the business. When deep analysis reveals a positive trend or successful initiatives, it can present an opportunity to double-down on what's working to optimize performance.

Strategic FP&A Processes begin with proven methodologies and tools

4. Understand databases, data warehouses and data lakes

Advanced technical acumen is becoming increasingly necessary for FP&A professionals. This is where operational finance comes into play. Finance can’t always be reliant on its IT department or developers to build pipelines and connect data sets for use.

In the modern Finance Function, this skill set has been transferred to those in FP&A, who know exactly what data they need, and how they wish to utilize it. Technical skills aren’t necessarily taught at business school, but they’re essential for today’s FP&A team to be most effective in the era of digital and finance transformation.

As we mentioned before, Excel is not intended to be used to store large data sets. You need that intermediary layer of a database, to turn that operational data into something that can be consumed in an analysis. FP&A must gather all of the operational data and the financial data and merge it in a way that aids strategic decisions.

If you don't understand the technology and the handling of large volumes of data in a way that you can facilitate that, you're going to spend all of your time, just wrangling data and not driving insights back into the business. So it's a matter of necessity for FP&A to learn how to use large data sets effectively.

You don’t need to necessarily bifurcate between a data warehouse and a data lake, but a general understanding of how they apply to FP&A can be helpful. 

Data Warehouse - a data warehouse can integrate data from multiple sources and centralize it for use via queries and a front-end Platform or dashboard. Data warehouses have defined structures for use of the data, which makes it advantageous for individual functions or business units such as Finance. 

Data Lake - a data lake is a set of all data in its raw form. It’s stored and used as only as needed. Data lakes can store other types of data such as images, that are otherwise not available or necessary for data warehousing use. The vast uses of data lakes make it more suited for data scientists and IT professionals. 

Although there are technical definitions of those, in practice, what people are talking about is places where data comes together so that you can access it all.

From a finance point of view, you can see that most FP&A processes would be best suited using a data warehouse, and the beauty of modern software is that you don’t need to know how to create or deploy a data warehouse — it can be done for you.

If you’re trying to manage every piece of data on your own, without software vendor resources, datasets can get so large that it takes a data scientist or somebody skilled in a BI tool to manage it. But as an FP&A professional, you need to be able to get as far down the path by yourself as you can or rely on FP&A software to fill that void. 

What's important is that you have a place where all of your data comes together for Finance to be able to leverage it and process it efficiently. If every time you want to analyze the performance of the business, you're having to go and extract reports manually, and then munge them together in Excel, you're not operating at the optimal level of efficiency or capabilities. The best FP&A processes eliminate doing the same tasks over and over again that could otherwise be automated.  

5. Maintain necessary data control at scale

The flexibility of Excel to allow people to edit Spreadsheets as they please ultimately becomes a liability for your FP&A Function. Sending budget templates to each budget owner within your company and asking them to input their data and manually aggregating all of that in a timely and accurate manner is a losing battle. It’s one of the many reasons why Finance professionals typically loathe the budgeting process. 

Inevitability, somebody is going to alter the template somehow and it will create massive errors in your models. No matter how carefully you give instructions, to not change the template, someone will. 

But it doesn’t have to be that way. 

As the more sophisticated your business gets, the more sophisticated your model needs to get. Which in Excel, makes your processes more prone to mistakes within the organization. With a growing company, you won’t be the only one that's going to be managing and inputting data.

Fostering collaboration is critical as your company scales and with Finance being the most cross-functional department within an organization, you'll need the right solutions. Other budget owners and decision-makers need to input data into models, which get messy and become very brittle as you grow. Relying on models without control over the data is a recipe for disaster for any FP&A professional and will not elicit the same insight and accuracy as forecasts generated with full data locking control.

The optimal process to gather budget data is with an FP&A tool, like the FutureView Platform, which offers version control and administrative privileges to grant access to only certain fields for each budget owner. This way, Finance maintains control over its budgeting details, which are tied to other reports and forecasting scenarios, while enabling collaboration among the organization.

Once you establish annual targets in your budget, you can easily develop detailed monthly forecasts to deliver informative analysis and strategic insight that fuel company success. 

These are just a highlight of some of the best FP&A processes and practices. Establishing repeatable processes within your Finance Function is necessary to be an impactful and mature FP&A operation. If you're interested in learning more about the FP&A tools and expertise FutureView offers, be sure to contact us or request a demo of our Platform.

FP&A processes and best practices to have the most efficient and impactful FP&A and Finance Function.