What is financial planning and analysis (fp&a)? And its roles?

What is FP&A?

The financial planning and analysis (FP&A) process support the major business decisions and the overall financial health of a company through planning, forecasting, budgeting, and analytical activities.

A company's finance and accounting system combine financial data, operational data, and external data (like market trends).

In finance analytics, all of this can be analyzed - and they can uncover the in-depth insights they need to guide more profitable decisions and plan for the future.

Budgeting, forecasting, and analysis performed by the Financial Planning and Analysis (FP&A) team support major corporate decisions made by the CEO, CFO, and Board of Directors.

Financial planning and cash flow management are essential for companies to be consistently profitable and grow. It is typically the FP&A team and the CFO who manage a corporation's cash flow.

What role does FP&A play in business?

Finance professionals can benefit from FP&A tools in the following ways:

• Advising business leaders on financial matters in a timely and accurate manner.
• Estimate the impact of potential decisions on cash flow and profitability.
• Monitor and assess the company's financial health and investments.
• Maintain detailed financial models and forecasts.
• Plan for multiple scenarios with agile, integrated financial plans.
• Prepare and consolidate budgets in collaboration with departments.
• Track performance and align corporate strategy with execution.
• Analyze and identify new revenue opportunities and risks.

Which methods are most commonly used in FP&A?

Among the most common methods of financial planning are:

In predictive planning, FP&A professionals create a model based on historical data. It is then used to forecast performance in the future using the time-series forecasting model.

When integrated with AI and machine learning, predictive analytics supercharges planning tools.

Driver-based planning: A company's key business drivers (the things that are most crucial to its success) are identified through driver-based planning.

After that, the company's key business drivers are mathematically represented in a series of plans that demonstrate how different variables would affect them.

Multi-scenario planning approach is increasingly used by businesses today to plan. Multi-scenario planning involves making assumptions about what might happen in the future.

Based on each plausible scenario, they create a plan for dealing with the consequences.

To achieve the business's overarching strategic goals, these models and financial forecasts are used to create financial and operational plans.

A strategic plan developed by senior management with input from FP&A includes short- and long-term targets like revenue and net income.

All types of planning require collaboration across departments. It helps increase both accuracy and engagement by incorporating data, variables, and expertise.

Plan validity increases with collaboration - and the consensus is built around them. FP&A plays a crucial role here, linking and synchronizing plans across departments in order to eliminate silos and move as a well-oiled machine.

READ MORE: Leveraging Financial Analytics To Improve Business Health