What is FP&A (financial planning and analysis)?

Financial planning and analysis (FP&A) refers to the processes designed to help organizations accurately plan, forecast, and budget to support the company’s major business decisions and future financial health. These processes include planning, budgeting, forecasting, scenario modeling, and performance reporting. FP&A is not merely accounting, but accounting is foundational to the process. CFOs purchase specialized FP&A software to help them perform these critical tasks.

In many large enterprises, the Director of Financial Planning and Analysis reports directly to the CFO. Perhaps the most important duty of FP&A teams is to use both current and historical financial data to produce financial forecasts that accurately predict future revenues, expenses, profits, and cash flows. CFOs then use these assumptions to make long-term decisions regarding the future of their business.

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Understanding the FP&A cycle

When FP&A is performed properly, it helps CFOs answer many important questions about a business. Should we raise debt or equity financing? What impact will an acquisition or divestiture have on the bottom line? How much should we invest in property, plant, and equipment (PP&E), and when? What is our break-even point? If revenue declines by 10%, will the company still be profitable? If revenue increases by 15%, will net income increase by the same percentage?

While often tied to accounting systems, FP&A software complements accounting software by providing management insights in addition to financial and operational data. In other words, accounting systems operate the business—the day-to-day transactional activity—and FP&A systems manage the business—analyzing, understanding, and reporting on the business performance.

Today, FP&A software has evolved to manage all types of enterprises by linking financial and operational metrics to insights—ultimately driving strategies, plans, and execution across the organization. With FP&A software, finance and operational managers can drive improved performance by monitoring financial results against forecasts and goals and using analytics to recognize key trends and predict outcomes.

FP&A software helps businesses:

  • Gauge overall financial health by using key financial ratios, such as cash coverage ratio, current ratio, quick ratio, and debt-to-equity ratio
  • Predict the impact of decisions on cash flow and company bottom line
  • Build and maintain financial models and forecasts
  • Create dynamic financial and operational plans that allow for multiple scenarios
  • Collaborate with all departments to prepare budgets
  • Determine which product lines and products are the most profitable
  • Alleviate risk and uncertainty by examining “what-if” scenarios and testing them
  • Compare historical results against budgets and forecasts and perform variance analysis

Business value of FP&A software—agility is the key

In an environment of constant change, new competitors, and economic uncertainty, FP&A offers a framework for organizations to manage their businesses in an agile way. With the CFO at the helm, FP&A software (financial modeling, budgeting and planning, reporting, and analysis) can help enterprises understand their data and use it to make better business decisions.

Planning and budgeting

Make better decisions by creating goal-oriented, driver-based plans. Get immediate insight to your performance with interactive dashboards and reports and leverage predictive planning to recommend the best path forward.

Scenario modeling

Model multiple complex financial and operational what-if scenarios with large-scale, free-form ad-hoc modeling. Use predictive planning features to validate assumptions and reduce the risk in your decisions.

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Cash-flow forecasting

Model cash flow across operating, investing, and financing activities with fully integrated cash-flow planning for short, medium, and long-term time horizons.

Profitability and cost management

Discover which customers, products, and other segments of your business are profitable and which are not, allowing you to invest resources accordingly.

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Connected planning

The digital economy demands more than spreadsheets and department-oriented planning processes. Connect every part of your business on a planning platform that is fully integrated across finance, operations, and lines of business. With connected planning, you can immediately analyze the impact of changes across your business and see the financial impact of any changes to operational plans.

Tax reporting

Changing tax laws are causing global organizations to plan and manage their tax affairs very differently than they have to date. Modern FP&A software connects the processes, data, and metadata that tax and finance share, such as financial planning, financial close, and regulatory reporting, streamlining tax reporting and providing better visibility and compliance.

Pro forma financial statements

Accurately predict future revenues, profits, cash flow, and gross margin by adding dimensions for specific drivers related to your business. See the full picture by integrating balance sheets fully with income statements and cash flow.

Reporting and analytics

No matter how many internal and external reporting standards you have to comply with, you want to be sure that the data you provide in your reports is accurate, complete, and the most current information available. FP&A software reduces the need for multiple reporting systems.

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The future of FP&A software

Enter the next generation of FP&A, which has new capabilities that incorporate emerging technologies, such as artificial intelligence (AI) and machine learning (ML). The future of FP&A leverages more data to make more informed decisions, while removing the mundane tasks that prevent you from focusing on more value-added efforts. These technologies are powerful decision-making tools that bridge the gap between analysis and action. They help improve the quality of decisions made by CFOs by detecting hidden patterns and insights in historic data. Finance can now also leverage investments made in data science projects by embedding the ML models in the planning process, allowing FP&A to consume the ML models in the context of their everyday duties. This reduces the time FP&A department spends analyzing data and allows them to spend more time acting on the anomalies, bias, or hot-spots in the data and truly partner with the business to carry out the strategy.

Embracing FP&A in the cloud—the suite always wins over point solutions

A modern FP&A platform is part of an enterprise performance management (EPM) system that connects all EPM processes across financial close, account reconciliation, tax reporting, planning and budgeting, providing large-scale free-form modeling and enterprise data management in a single, fully connected suite.

When compared to deploying a single-point software application, a cloud suite offers the best advantage for businesses as it covers the entire breadth of EPM requirements, but also has depth in capabilities to satisfy all FP&A requirements. The cloud-based FP&A software suite offers FP&A long-range, strategic planning and modeling as well as prebuilt capabilities for financial and operational planning with fully supported modules (CapEx, workforce, etc.) for custom planning applications and full large-scale, free-form, what-if analysis, depending on their specific requirements.

When it’s all said and done, the most effective FP&A solutions are modern, integrated suites that help customers leverage their investments through seamless data and process integration with their core ERP systems. A complete solution unites management processes across the organization, allowing employees to gain improved visibility and insight into all aspects of the business with embedded emerging technology to automate analysis to act quickly and make bold decisions. Today’s finance leaders need build future-ready finance organizations and only a cloud-based, next-generation FP&A solution will help them do that.