- 1 What is Financial planning and Analysis?
- 1.1 Financial Planning and Analysis job description
- 1.2 Financial Planning & Analysis (FP&A) Career
- 1.3 Salaries for Financial Planning & Analysis (FP&A)
- 1.4 KPMG view on FP&A
What is Financial planning and Analysis?
Financial Planning and Analysis is the corporate finance sector along with the treasury and controller. He manages all the operational and strategic business planning, management and control tasks for the organization. This helps the CFO a lot, especially in financial management.
Role of Financial planning and analysis are crucial for analyzing business performance. Today Financial planning and analysis gaining greater importance. The role of financial planning and analysis are not bounded with management reporting; it requires lots of business insights, there fore top management able to create an effective strategy.
Financial Planning and Analysis job description
Let`s consider some core responsibilities of financial planning and Analysis:
Budgeting and forecasting
On of the main duty of FP&A is to link senior`s management`s long-term strategic plan with reality. This long-term plan include the company`s aims in period of 2-10 years in the future, with such business elements; net income, strategic approach etc. And there FP&A is working on the operational and financial plan that is needed to achieve business goals.
Talented FP&A teams can do more than forecasting: they can provide valuable advice on improving productivity, minimizing risk, and seizing opportunities both internally and externally.
Thus, FP&A is assigned to create a monthly document that is communicated directly to the CFO and senior management. It covers historical financial analysis; explanations for deviations; forecast with updated risks and opportunities; KPIs.
Financial Planning & Analysis (FP&A) Career
Career path of FP&A begins with the analyst level then evolves to the director. We can show overall career path below:
- FP&A Analyst
- Senior FP&A Analyst
- FP&A Manager
- Director/VP, FP&A
To prepare yourself for FP&A career you need to follow process described below:
- Sell yourself by preparing resume
- Networking is especially important. Build network with your university, colleagues from banking clubs etc. earlier you start the better it will be.
- The internship is good way to underline your involvement to the industry.
- The toughest part is considered interview. By participating in recruitment process. You and your company have chance to understand each other and decide whether you match or not.
Salaries for Financial Planning & Analysis (FP&A)
In the field of financial planning compensation is varying substantially depending on industries and companies. According to the data from the US Bureau of Labor Statistics, in financial investment sectors professional analyst receiving salary on average $100,860.
Bonuses varying according to company`s size. Crucial factor for adjusting at base salaries is cos-of-living factor.
Analyst’s ability to reach its business goals affect his compensation.
KPMG view on FP&A
According to representatives of one of the “Big Four” audit firms, financial emphasis leads to disastrous short-sightedness of action. The best alternative is long-term integrated planning
Times change. Not so long ago, any company actively investing in financial planning and analysis
Today consultants from KPMG recommend moving away from such stereotyped thinking. How is it, no more planning and no analysis – and THIS should guarantee success?! Of course not, just FP&A is more than financial planning in today’s market conditions. Actually, the “financial” component creates the greatest problems today.
At the link above, you can read the recent September report by international experts with the self-explanatory title “The FP&A paradox: It’s more than just finance”. The international audit network offers a new formula: BP&A instead of FP&A, where “BP&A” stands for “business planning and analysis”.
What changes the word “business”? In fact, the changes are designed to shift the current focus of the finance function on achieving short-term results towards strategies for positioning the company in the long term. “Financial planning focuses on budgeting and forecasting throughout the fiscal year, with a focus on meeting quarterly or annual targets,” write the authors of the response. “Functional teams are looking to cut costs instead of anticipating upcoming business events. Analysis predominantly revolves around historical information and standard reports coupled with imperfect communication models. Reports, tools and information are often outdated and do not relate to key business drivers. ”
And by comparison: “A business planning approach is about activities that are critical to moving the business forward — such as sales, marketing, and operational planning — all of which are aligned with the company’s strategic vision.” Therefore, instead of focusing only on financial evaluation, the company, in the second approach, integrates key functional areas that directly affect performance.
KPMG experts admit that CFOs in the process of finding new ways of further growth can manage costs through business strategies and business planning. “However, when they study a financial plan, almost everyone often finds that it reflects the numbers that managers want to achieve without considering the changing reality of the business environment. Executives and employees become attached to a plan they think they need to implement, they just don’t know how, ”write the report’s authors Sanjay Sehgal and Brett Benner, respectively, partner and director of financial management at KPMG Advisory.
This way of thinking leads to big problems
For example, managers may make short-term decisions to keep the numbers working in this short-term period, but in the long-term this leads to even more problems. Let’s say they can spend some of their reserves on immediate goals, instead of developing market strategies and closing gaps. Or they may offer very generous discounts to meet revenue targets – but at the expense of depleting inventory. Or, a business leader may take action to flatten the budget for his area, while creating problems for other areas of the business – for example, by imposing travel restrictions for employees in order to save money, which will prevent sales teams from moving freely and maintaining contact with customers. Someone might cut R&D spending, but that would mean disruption to new product development.
And so on, there are hundreds of examples. In some cases, it comes to the point that managers enter into a “fight” with the data itself, so that they serve as confirmation of their own reports and plans in their area of responsibility, but needless to say, what kind of confusion and misunderstanding in other departments this can create? In fact, the desire to avoid such unfavorable examples has prompted the most progressive companies to move to a broader, integrated approach to business planning. And finance, by the way, is in a unique position to lead this evolutionary development, since it is they who play an integral role in decision-making and analysis from the standpoint of operational and financial efficiency, the report says.
However, “evolution” may face a number of obstacles, and KPMG warns of the most common:
- Sectoral leaders are concerned primarily with their results, not with the results of the entire organization – therefore, fruitful collaboration can be difficult
- Too large a variety of traditional data sources and systems used until now makes it difficult to develop a common vision
- There may simply not be enough resources to support decision-making based on “truthful” data.
- Employees themselves can oppose closer collaboration, integrated processes and new technologies.
Overcoming these challenges is worth it, as business planning (BP&A) is certainly much more efficient than cost management. At the same time, the financial function, on the recommendation of the international audit and consulting network, should focus on four key priorities:
First of all, it is the development of an integrated vision and integrated planning, budgeting and forecasting at the level of the entire organization to ensure complete consistency. For everything to go smoothly here, and so that strategic plans, financial, operational and sales forecasts are fully aligned with each other in the long term, companies must place their planning processes under centralized control, covering all areas of activity.
The second priority is transforming forecasting. The elimination of budgeting on an annual basis will be considered by many to be too radical a reform, but the main task should be kept in mind of the main task – switching to a more strategic and more analytical focus, that is, instead of standard budgets, you will now have continuously updated forecasts linked to business cycles, which will ensure constant focus on business needs. Drivers and models will be constantly updated based on the conditions – this will provide the necessary flexibility to quickly adapt and respond
Third, when making forecasts, companies should focus on business drivers that create real, significant changes in key metrics (revenue, costs, and profits). The process should pay more attention to the analysis of operational processes and market indicators, rather than the desired financial results.
Finally, companies must continually strive to reduce the complexity and granularity of planning and forecasting. It is precisely the reduction in detail. Historical evidence suggests that organizations spend a lot of time on detailed planning, looking at the behavior of individual products or product lines, and overlooking larger and more important trends. Instead of products, you should monitor business drivers and historical trends, but reporting should have the ability to “scale up” as needed, allowing for a more granular view if the need arises.
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