Can your Financial Planning & Analytics team (FP&A) alter financial plans, reforecast and modify budgets in real-time? Or, have traditional processes kept your entire corporate finance team tied to spreadsheets and outdated expectations?
We know that extended planning and analysis (xP&A) is the gold standard for how companies will approach planning. xP&A is the focus of the digital transformation, and FP&A is one of the defining use cases.
Accurate forecasting drives reliable, data-driven decisions, but too often the work is created in an ad hoc manner and siloed across business units. As finance enters a new era of digital transformation, CFOs and senior management need financial models that inform business strategy at the speed and insight of true innovation. The right FP&A solution is key to success — and the financial health of your company five months from now, and five years from now, depends on it.
A digital-first approach to FP&A means adopting strategies that are focused on process automation, agility, transparency and metric-based insights. Here are three ways to modernize your FP&A practice right now:
Leave the problems of Microsoft Excel spreadsheets behind
The broader the use of spreadsheets within an organization, the greater the chance for human error and risk. Too often, spreadsheets create flawed models and inaccurate calculations due to a lack of standardization, poor data integrity and ineffective collaboration methods. The COVID pandemic has taught many CFOs and FP&A professionals, if nothing else, the value of an agile planning process. To survive the pandemic, organizations needed the ability to shift gears or pivot plans quickly, incorporate external factors to mitigate risk, adapt strategic plans to new business models, focus on cash flow and working capital as part of a continuity plan and integrate planning across the organization to achieve a holistic view of performance. There are certain events that can’t be modeled in Excel, this was and still is, one of them. Spreadsheets impede collaboration, creating data and planning siloes and cause a delay of critical information that can cause a ripple effect, driving poor decision making and poor results. And yet, people like working in spreadsheets. They’re familiar with them. So, is there a way forward? Fortunately, yes.
Modern FP&A planning solutions are fast, flexible, and provide a holistic view of the company’s data. They provide stakeholders with transparency into FP&A processes, allowing users to streamline planning and financial reporting, plus analyze thousands of data points in real time. You can create rolling forecasts, timely financial statements like income statements and balance sheets, and compelling data visualizations that help put insights into action. With these FP&A solutions, data from multiple sources is stored in a central database, so all participants work with the same information. Having a central repository eliminates errors and conflicting data, and helps teams achieve one source of truth as well as financial information that is reliable and accurate.
Your organization can begin transforming digitally by automating key processes, such as data collection and validation, to maximize team effectiveness. With modern planning solutions, employees spend less time on manual tasks and more time on analysis, gaining visibility into their data and uncovering deep insights. FP&A analysts can also perform in-depth, what-if scenario analysis to test alternative assumptions for future performance and see the impact of decisions before making them to improve actual results. However, you don’t have to give up Excel, many modern FP&A solutions offer an Excel interface so you can eliminate the challenges of spreadsheet-based processes but work in an interface you are familiar with. And when it comes to moving from Excel to modern planning solutions, IBM clients are already experiencing the benefits.
“Each Monday, we produce a cash forecast within a couple of hours. By Monday lunchtime we have a report on the actual, on the previous week, and the revised forecast for the next 13 weeks. That’s a pretty short reporting cycle for weekly cash.” — Phil Talbot, Finance Director, Robertson Group
2. Harness the power of integrated planning or extended planning and analysis (xP&A)
Working in silos is a thing of the past. The business leaders of the future are those who leverage integrated planning alongside artificial intelligence and automation to augment human intelligence and drive better outcomes. The rapidly evolving business conditions of the COVID-19 pandemic have only underscored this imperative. Companies that relied on siloed, manual processes were caught in a reactive position while more digitally or AI-focused enterprises were able to take a proactive stance thanks to the agility to pivot plans and forecasts quickly. These enterprises harnessed the power of integrated planning or “extended planning & analysis” (xP&A) as it is often referred to, as well as scenario modeling, and predictive forecasting.
Integrated planning or “xP&A” mirrors the modern way we do business — it elevates the critical value of collaboration and cuts through data silos, driving more access to information and faster insights. It allows all users to access the information they need when they need it, and it unifies data from diverse data sources such as ERPs, CRMs, and HRMs and ensures that plans, budgets, and forecasts are created with a holistic approach.
Consider supply chain planning and management. To effectively match supply and demand requires coordination and collaboration across the organization — cash flow and working capital need to be accounted for alongside production capacity and inventory. Organizations must orchestrate a convergence of the elements that make up the entire analytics journey across multiple departments of the enterprise. And the process needs to be steadfast and transparent. One centralized planning solution can help connect operational planning tactics with financial planning and analysis to allocate resources more effectively in response to changing demand, market opportunities or competitive threats.
Operations, sales, finance, human resources and other departments and disciplines all have a need for fast, flexible planning and analysis. And all of them can use the same tools to provide insight and manage performance. When people in one part of the organization see how their decisions affect other parts of the organization, all of the activities will be better coordinated — and drive higher results. And one integrated solution that streamlines planning, budgeting, and forecasting across the enterprise can drive major cost savings.
According to an IBM-commissioned Forrester Total Economic Impact™ study, IBM Planning Analytics with Watson has saved clients $1.2M over 3 years in streamlined budgeting alone.
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3. Reimagine the back-office role
The career path for back-office personnel is about to evolve. As FP&A is automated, CFOs and FP&A managers will play a leading role in reinventing the workforce: creating a knowledgeable, agile, collaborative and empowered team to lead the organization into the future. We believe this means evolving the back-office role from an administrative one to a strategic one.
Business leaders can automate tedious and labor-intensive tasks like data collection, aggregation and cleansing through the use of AI. This empowers them to spend more time on value-added work and enables them to make better informed business decisions. And With financial planning, scenario modeling and performance management KPIs and metrics streamlined, data can be leveraged toward creating a feedback loop that informs present and future operations. Business leaders can also incorporate predictive capabilities into their FP&A practice, to create more accurate and reliable forecasts.
Predictive forecasting uses statistical and predictive analytics to identify and assess trends and seasonality patterns in historic values, greatly improving forecast accuracy. It also reduces the time required to produce accurate profitability and balance sheet forecasts, allowing users to focus on process optimization, managing exceptions and making adjustments.
Freed from rote tasks, FP&A teams will have the opportunity to think innovatively and contribute their deep expertise and skill sets to strategic decision making and more meaningful work. Meaningful work ensures that employees’ skills and talents are being fully utilized and there is greater alignment to shared, core values. IBM Employee Experience Index shows that 80% of employees report a more positive employee experience when their work is consistent with the organization’s core values. And the happier employees are, the more satisfied customers and end-users tend to be.
Many of our clients are already reaping the rewards of IBM Planning Analytics with Watson and leveraging AI in their FP&A practice. Consider Nukissiorfiit, a government-owned Greenland energy company dedicated to supplying water and energy to residents without using fossil fuels.
Greenland utility Nukissiorfiit is challenged with providing accurate financial data and forecasts. Previously, 70 people worked to generate just one forecast a year. Nukissiorfiit needed to become more agile.
Working with CogniTech, Nukissiorfiit used machine learning and IBM analytics solutions to automate, accelerate and share intelligent forecasts and results. Now it can make faster, more informed decisions on capital projects.
Streamlined planning and forecasting processes — from 70 people contributing to an annual plan to nine planning monthly
Improved business visibility, forecast reliability and agility — providing the latest, most accurate information to all stakeholders
Decreased time spent on forecasting — from 1,000 hours annually across many roles to well below 200
Overall, its new Planning Analytics with Watson and Cognos Analytics solution combined with intelligent machine learning forecasts has allowed Nukissiorfiit to adopt a more efficient way of operating. The company can now use the insights to set thresholds and be alerted if the forecasts are outside of the ranges; it can also override the alerts based on experience or additional information. The result: Nukissiorfiit is much more agile and its financial planning is more accurate.